tuesday. "squawk box" begins right now. ♪ live from new york where business never sleeps, this is "squawk box." good morning welcome to "squawk box" on cnbc. we're live from the nasdaq market site in times square. i'm becky quick along with joe kernen andrew is off today. our guest host is michelle caruso-cabrera she is with us for all three hours. great to see you >> great to see you, too >> u.s. equity futures this morning, we're in a position of watching steep losses. dow futures indicated down by 300 points i've seen down 334points s&p futures down by 35 nasdaq down by 100 points now. this is coming as we saw losses for both the dow and the s&p yesterday. s&p is now down for four days in a row. the dow and nasdaq are on pace for the worst month since january of 2016. we're not near correction

territory, just talking about down 6% before you see these losses added this morning for the dow and s&p 500. dow futures again indicated down by 300 points. this is coming because of what we saw happen overnight in asia. stocks in china were under pressure as well as japan and the nikkei was down 2.67%. hang seng was down 3.08% we talked about the big rally in chinese stocks as the chinese government was stepping up and putting pressure to stabilize things that did not last long. things quickly under wound overnight and put pressure on indices throughout asia. in europe, at least right now, you're talking about some pretty steep declines there

the dax is down by 1.9%. if you check out the treasury yield, you can see the ten-year yield is 3.147%. yields coming back under pressure as you see equities sell off it's a busy day for corporate earnings we'll hear from five dow components 3m, caterpillar, united technology, mcdonald's and rer verizon. >> this is the busiest week for earnings i think you get 65 or 85 of s&p 500 components reporting this wee week >> when you see down 300, you wonder could be it be down 400, 500? we don't know. let's keep everything in

perspective. that's 1.5%? >> you're talking about indices only 6% off highs. >> but a test. >> talking about not returning to levels of calm and lack of volatility this shows us the volatility game is still on >> i looked to see the lows from the last break it's down under 25,000 we're retesting. we're not quite there yet. did see cramer talking about he's looking for a higher vix to signal the sort of cathodic sort of flush out that maybe we'll get on a retest. he said 25 maybe on the vix. >> you wonder if volatility is here to stay for a while that's the thesis people have had. we've been so used to such calm in the markets, you're much more likely to see a return to volatility >> we'll have some guests on i saw one say that until we hear powell come off autopilot from

the dot plot, until he says we're more data dependent -- they seem hell bent on getting to what they think is neutral. you look at some sectors and pockets, even the way the market is acting. i don't know if their neutral is really -- i'm starting to switch >> i thought what rick reader said yesterday was interesting he worries about this jenga game that they set up the collapse if you take out too many too fast. >> michelle caruso-cabrera is here, you're back. can you talk about this? erdogan? do you know what happened at the consulate? >> me specifically no, i do not i don't have any particular insight into what happened in the saudi consulate. >> i'm still interested in that. there's either a bone saw or there wasn't >> i would bet there was a bone

saw. >> why did they have to roll up the body in a carpet there's so many different narratives >> i also heard the body was washed away with acid. >> i know. after the bone saw all right. we were going to focus on earnings >> right after we talk more about this >> i think we did see the ten-year it's like 3.15 again this morning. that's what happens when you get a little rush to quality >> we will talk more about international events happening just moments ago turkey's president erdogan speaking to his parliament about the killing of jamal khashoggi hadley gamble joins us now from riyadh what's the reaction to what he had to say >> good morning. so president erdogan finally coming out he said he would basically tell us all the naked truth about what happened to jamal khashoggi, but it seems as if what he's actually done is keep the pressure up on saudi arabia to come up with some answers while at the same time leaving

himself some wiggle room let's listen in. >> translator: the information and the evidence that we have so far collected indicate that jamal khashoggi was slain in a vicious, violent murder. whitewashing such barbarity will injury and wound the conscious of all humanity. >> president erdogan there confirming that this was clearly premed premeditated he also released evidence that the saudis had come into the country a day before mr. khashoggi's murder scouted an area outside istanbul, a forest area in terms of what he did say that was interesting, he is calling on these 15 to 18 nationals detained to be tried in turkey and made no mention of crown

prince mohammad bin salman he talked about his deep relationship with bin salman and asked that the saudis be more forthcoming. one thing he did not mention once were the many times reported audio recordings of what happened inside the istanbul consulate right now this is the first day of the future investment initiative, this davos in the desert summit. we've seen so many international ceos backing away. many of them urged the crown prince to pull back on this summit to delay it and cancel it but it's been going ahead. a lot of support regionally here we will hear from king abdullah of jordan later today. the prime minister of the uae and ruler of dubai is present. we know a lot of asian investors and also the head of the russian direct investment fund are here. we heard from the kremlin in the last few moments

they say they're satisfied that no member of the saudi royal family was involved and they're content to let the investigations go ahead. some interesting comments coming out from that investment initiative the oil minister, someone the saudis looked to to be the moderating voice not just in energy markets but also here at home, he said this is something that all saudis are worried about. their leadership is not happy with all of this going down. he is calling for more investigation. that's comments echoing the foreign minister who spoke to the press on the sidelines calling for more investigations and more answers >> hadley, brian had a guest on in the last hour who suggested that because of this international concern and the u.s. concern with what's happened here that it makes an ipo of saudi aramco less likely to happen in the near future would you say that's true? >> those are the comments i've heard echoed over the last

couple of days at the end of the day this is a conversation that could really implicate the saudis it could change the game regionally this is not the time, i think, for them to be thinking about this ipo that's what i'm hearing on the sidelines of what's happened in the conference in the last few hours and in terms of the folks we're speaking to on the ground. nobody wants to focus on amco when we see the potential upending of this u.s./saudi relationship >> michelle, what do you think of this situation, the timing on why erdogan is speaking. >> why would erdogan speak today? has to be, i think, related to the public investment fund this was going to be the saudis attempt to change the conversation absolutely he's not going to allow them to change the conversation on to investment. the saudi aramco ipo, that's in the school of thought, but it was never going to happen.

>> because they wouldn't get the money they wanted or there wouldn't be clarity or because of the structure >> the structure the best explanation i've gotten, you need to look physically what i'm doing. the balance sheet of the country and the balance sheet of the company are like this. to pull them apart, there's so many vested interests. look at how they run this country. what have we learned how do you think it's going to be to try to undo all the vested interests? >> i'm trying to focus on what you're saying that ring -- that thing is like -- any way this is what i was going to ask. erdogan -- >> yeah. >> shocked that there's repression and murder. when there was the coup, do we know the fate of any of the people involved with the coup? are they all fine? >> i'm not convinced the coup was ever really real all this news first broke, saudi

arabia or turkey who do you believe? impossible >> is he -- is he -- you know, i get it it would just be conjecture, but there are things happening >> a brutal part of the world. >> do you think he's been part of things similar to this? >> absolutely. >> he has. >> yeah. >> he is shocked that anyone can do this to another person. >> no. he has something on them -- >> do we need to take that into account? >> it terms of what u.s. response should be >> you need to look at this from foreign investment the guests on brian's show saud foreign investment in saudi arabia is a 14-year low. the reason they're having this conference today is because they want to lure more foreign investment this doesn't help the case it is not 1973 the idea ofizing i'll will not go over the same way. >> investme menment in saudi ari

at a 14-year low for a lot of reasons. when you listen to the prince's plans for how they would transform the economy it was this top-down spending from the government the government would create these cities in the desert do this, that, the other thing when you talk to people who tried to do business there, it's incredibly inefficient it's not going to be profitable. all these deals that were supposedly going to happen, this hyperloop deal that branson canceled it was a feasibility study that they canceled that they were talking about for how long don't be fooled by all this money pouring in there i don't believe it they don't run the economy women. they haven't in decades, nothing under this prince indicates that would change in fact it would get worse the one positive here is softbank, somebody asked for 100

million, softbank was going to give 500 million where is that money coming from? from the prince who is allocating this money. that could dry up and you would see less distortion in the private market stop >> no wonder you're only here once in a while as a hobby this is a serious issue coming up here. this is an explosive device that was discovered yesterday near the home of george soros in a new york suburb, bedford, new york police said a suspicious package found in a mailbox, it did not explode. it was proactiviely detonated by bomb squad technicians it's not even clear if soros was home at the time. a judge in california upheld a jury verdict that found that a weed killer, roundup, made my monsantos caused a grounds keeper to get cans but the judge did reduce the damages from 287

million to 78 million. in july it was a jury trial, the jurors found monsantos, which was bought by bayer this year, they purposely ignored warnings and evidence that its product could cause cancer shares of bayer down sharply in germany. down 9%. >> my one thought on this back to genetically modified seeds, along those lines, normally i don't care we've been doing this forever trying to develop better seeds for better products that can grow in the desert one thing they do is build seeds that can handle more weed killer, more pesticides to be dumped on them that is my concern with genetically modified seeds we're not genetically modifying ourselves for that just dumping more pesticides on them. >> roundup has been around for a long time. >> it has. >> there's a lot of things that

are cars scinogenic. the cause and effect thing is hard to say. most cancers are a series of -- there's colon cancer, it might be 20 events that eventually result in polyps, precancer. >> sure. but it's why i pay up for organic foods. >> then you have the legal profession i see legal guys, they only do mesothelioma that's all they do, their entire firm >> the ads on the radio. >> right all right. uber's top dealmaker resigned weeks after allegations of sexual misconduct against him. he oversaw several transactions including the sale of uber's business in southeast asia he was disciplined last year also after a pattern of making suggestive comments about co-workers president trump hitting the campaign trail ahead of the

midterm elections. he said he's eyeing a 10% middl class tax cut plan >> we're putting ahead a resolution we're giving a middle income tax reduck slction of about 10% we're doing it now for middle income people. this is not for business this is for middle >> are you signing an executive order for that >> no, no. i'm going through congress we won't have time to do the vote we'll do the vote after the election >> exact details of the plan are still unclear, but the president says the tax cuts won't happen until after the midterm elections because congress won't be in session until after those elections. back to the global market selloff. joining us is hans olson and here on set is paul hickey

were you watching earlier? i was channeling you a little. not exactly channeling you, but i referenced some things you pointed out. i'm not sure i agree with you it's ban horribeen a horrible e season your reason is the beats on the bottom line have been good but the beats on the revenue line have been 58% which is still above more than half if the beats are there, it's that analysts have not lowered expectations enough. you point out the reaction of the stocks because they're down over 1% the day after. so you don't like that action in the market >> ever since mid-september we've been seeing a trend. companies reporting earnings have been declining in reaction to news. not necessarily gapping lower but once the market opens, the stock market opens for trading, it's a drift lower throw quarters of stocks have traded down.

>> that's not a bad earnings season that's a market that might have been overbought. >> right yes. so the results have been very good >> okay. >> what my point is is that the market to your point, the market reaction has been weak we've been seeing selling on the results and until we see a reversal of that trend, investors bidding up stocks after they report, it just tells you that sentiment still has to get reset. what's interesting about today is throughout the selloff, since the september highs, the biggest gap down in the s&p 500 is 40 bips all the selling that we've been seeing has been intraday when the market has been open today we're seeing a flush we had that big drop of a week and a half ago normally you need to see a retest so it's not fun to see the futures down 300, but normally it's good to see a retest. we'll look for an expansion in new lows or will we see a contraction versus what we saw two weeks ago.

>> which tells you what? >> if we see -- if we don't hold 2700, that's not a successful te test if we see new lows, that's a broader contraction. throughout the selloff, we break up the s&p 500 into deciles, bra based on different characteristics. whatever metric you want to look at, whether it's the cheapest valuation or highest valuation, everything has been trading lower. it goes to show that it's not just -- certain areas have been hit harder like cyclicals, but everything has been going down that tells you more it's a positioning trade rather than maybe something economically dire >> hans, you say that there's some angst here about the fed, about other things

there's a reason for the trepidation, but you don't think the bull is over i don't think as you ever being bullish in the last year were you ever really bullish in the last year and a half >> actually we were pretty bullish on small caps. and we didn't underweight our u.s. equities. we participated on the upside. to your point, though, we're going through a reset now. we had a heck of a run in september. there's a reset that's going on as a result of higher interest rates. i think tina is truly dead now there is an alternative for equity investors and there's a reality that at best equities will be cut in half, they'll be down more, the growth rate so we'll go from 20% earnings growth to 10% next year i'm thinking more like 8% with a strong dollar. and the reality is that investors have to reset

expectation. the bottom line in this is we're moving along the ridge line of this market peak and the economic peak. >> so, what about 2019 when would you say that the bull is long in the tooth >> i think when you're at a peak, you sort of see everything that you hope to see from my view i expect the yield curve to act problematically the latter part of next year, which means the economic environment would turn sometime in the latter fort of part of 2020 >> starts tonight, doesn't it, hans you going to be warning? you care >> what's that again >> the game. i could be talking to andrew

thanks, paul hickey and -- >> world series. >> i was watching a lacrosse game on sunday >> you were worried about it because you would be at fenway park >> i was worried about people freezing >> are you going to fenway >> no. i'm not going to fenway. i like -- >> you're worried about other people >> no. >> didn't you read that article? >> the world series is the yankees versus the red sox, after that there are other teams? that's adorable. >> it's the dodgers. this is historic >> we have some people working on the show who thought the yankees were supposed to be in the world series every year. that's the way it was supposed to be. that didn't quite come to pass this will be a great series, but it could be very cold. maybe not. maybe we'll have a couple days of native american summer.

>> that's very sensitive of you. >> have we changed it? i have when we come back, apple's iphone xr is available for preorder it hits the stores on friday todd hazelton has been putting it through a testing process he'll tell us if it's worth the 7$750 price tag next. before that, let's look at the premarket winners and losers in the dow. 3m and caterpillar are the two leaders. both are out with earnings later this morning "squawk box" will be right back.

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>> this is it. the iphone xr, starting at $750. >> what do you get for $250 less >> you get pretty much the same product. i noticed that -- i'm coming from a x max, the camera is not as great when it comes to tell will fo telephoto. the screen is lcd as opposed to oled i don't think most people will see that i think you get the most bang for your buck with this one. some cool colors also. this is 6.1 inch and then 5.8 inch for the iphone xs you have the new design here no home button everything is face i.d

>> $750 is still not cheap >> it's not cheap. but if people are coming from the iphone 6 or 6s, and they say which one do i buy now, you can go with this one if you want the best go for the iphone xs or x max. >> what's your thought on the upgrade? how necessary is this? >> it's a big upgrade for people coming from an iphone 6 or 6s, but if you're coming from an iphone x last year, it's not the phone for you. >> i went from the x to this xs, i would have stayed with the x if i had the choice. >> that's why i think apple stopped selling the x, there was no need for it now it is still selling the iphone 8 and 8 plus, just splurge and get more with this >> what's the upgrade over the8? >> you get the new face i.d.

system you get a better camera. better water resistance. bigger battery >> the water resistance. i forgot about this. >> this is not as water resistant as the xs or x max, but you can still drop it in the toilet accidentally. it will survive. >> if my -- andrew ross sorkin said my battery only gets to 90 now. that's bad >> that is bad do you have a 6 or 6s? >> he doesn't know >> apple is replacing them >> i have a case >> that's too big. >> can i tell you, it is too big. you see this thing on the book it's because it's too big. >> try this one. >> no. no i like this one better. >> it goes down really fast now. >> the battery >> the charge. >> that happens over time with older batteries. they lose their charge

that's one reason to upgrade >> you know what has got me is how much i'm on this stupid thing. i'm mortified that my life has eight hours of looking at this thing every day. i'm only awake for nine hours. >> that's one of the new features it will shut you down automatically. if i have google maps, they charge me for that i look at twitter, they charge me for that. >> you're not on unlimited >> i'm on unlimited, but they charge me with the time. they say i'm using it. if you're looking at twitter for eight hours a day, that's a problem. >> think about your phone, it's your newspaper, your maps, it's your telephone book. it's so many things. that's why all these things that you used to look at -- >> you should still feel like a user for watching twitter. >> i do. i feel better because a lot of it is e-mail >> that's the point here $750, you're saying it's expensive but how much we use

these devices, i don't know. it's worth it. >> going down 10% this week if i can, or 15 i find myself no, i won't do it. i feel the need to look at it. there may be new spam i have not seen >> new insults on twitter. >> from andy riblgtechter. >> how do you get up after being on conan you just stay up people will believe this >> they probably well. >> it's just a few blocks from here walk >> you walk over >> thanks for coming >> thanks for having me. >> todd hazelton with cnbc digital. coming up, the china factor. stocks tumbling overnight after a couple days of rebounding. we'll talk about the economic slowdown, the impact of the trade war next. as we head to break a look at yesterday's s&p 500 winners and losers

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ambitions live everywhere. synchrony helps make them happen with customized rewards and financing available at over 350,000 locations. synchrony. what are you working forward to? ♪ welcome back you're watching "squawk box" live from the nasdaq market site in times square. ♪ >> good morning. breaking news in the last hour turkish president erdogan speaking about the killing of journalist jamal khashoggi that happened in the last hour. his speech addressing his

country's parliament >> the information and the evidence that we have so far collected indicate that jamal khashoggi was slain in a vicious, violent murder and there are strong signs that the incident was not a momentary issue or a momentary result of something that erupted on site, but rather the result of a planned operation. >> the saudi stock market has been trading lower, but actually turned positive during erdogan's speech >> probably because they were expecting more hard evidence there was not a lot new that he said he said he was going to lay everything out maybe they thought he would release a video or a tape that we heard about that didn't happen >> it's redundant to call it violent and horrible and everything else. the guy is dead.

so we understand >> the question is was it premed dated political murder if so, can you tie it back to the top? he never mentioned mbs >> there was one moment where he said they need to investigate and figure out who was involved regardless of rank that's about as close as he got to mentioning. >> i'm still seeing the saudis i was watching another network last night and reviewing a minister from saudi arabia you know, i watched it they're still basically saying that these guys have a lot of authority. a lot of independent authority they went for one reason and they exceeded the limits of their authority unbeknownst to mbs. that's what they're saying >> it stretches. >> i know, but he had it and said it again and again and never wavered on that contention we'll see whether -- >> i'm sure that story will change again >> you hear jared kushner had a

private conversation with mbs in the last couple of days seeing you need -- whatever it is, you need to be complete -- before this goes away, you need to be completely transparent >> they put the united states in a very, very tough position. one of our closest allies, we reestablish after the obama presidency, and to do this really puts the trump white house in a difficult position. congress, as we have seen with russia, can run away with their own sanctions and legislation if they're not satisfied with what's being done by the white house. >> okay. elon musk says twitter locked his account because they thought it had been hacked that's according -- how could you tell that according to a tweet from musk earlier this morning. no additional information about the duration that the account was locked but they probably thought, no, after everything else, this can't be him probably was it's a busy day for earnings

we'll hear from five dow components, 33m, caterpillar, united technology, mcdonald's and verizon before the bell. dow jones is down 290 down emply implied open the nasdaq down 110. s&p down 35. a top why these official telling a group of american business leaders that the country does not fear a trade war with the u.s for the latest on the trade tensions and the state of the chinese economy and the telloff we' selloff we've seen overnight, let's welcome dan rosen. let's talk about this selloff. you may say you're not concerned about the trade war. chinese stocks down sharply today. that's pulling stocks down around the globe what's happening here? how big of a concern is this >> we have long-term

geopolitical things going on this will not just be about short-term moves in the market there are powerful forces sweeping through there's not enough liquidity now sustain china's market where it has been, even in this year beaten down as it has been on top of that you have additional risks so we'll have volatility for some time now. it will take a while to reestablish -- >> let's talk about the lick yes, i did.i liquidity first. >> it's a war of choice. beijing has been deleveraging trying to drain their swamps of shadow banking activity that was underregulated, risky. so they have done a great job of taking whet management products out of the market that should not have been there in the first place. the problem with that is they

have taken the legs out of demand that allows banks now to start offering their own wealth management products. but that doesn't happen overnight. banks don't want to take risks for the same reason that shadow banks shouldn't have been taking them in the first place. it's not a quick swapout >> wealth management products, wmps, they've been problematic for so long. the market in china rallied dramatically yesterday based on this jawboning that happened over the weekend and late last week did the chinese authorities say anything meaningful that could support the market or is that why the selloff is happening today? what can they do if they wanted to turn things around? >> you build up credibility over years and years and years. that credibility means when city hall says we'll stabilize the market, the market stabilizes. that's great until it doesn't work longer. the markets grow to a certain point where it's no longer

possible for political officials to say it shall be stable, it will be stable china is no longer, you know, a $20,000 per capita economy it's a global juggernaut of extraordinary size with the largest banking system on the planet, you just can't run it that way anymore they like it to be stable, but there's all these things in the mix now that weren't there a year ago deleveraging, trade war with the united states, fundamental slowdown in the chinese economy that will require repricing. who has more to risk from this trade war? china, the united states or both >> i think it's probably china china still has the furthest distance to go if the u.s. stagnates and goes sideways, we're stuck at $40,000 per capita income. china is several generations behind where we are as a society and people are not willing to sit still. they need that growth in order to hold the consensus and support around a one party government together. so china has a bicycle if it doesn't keep moving forward it

will fall over >> dan, thank you very much. dan rosen with rhodium group. coming up, the intelligence community weighing in on the strained relations with saudi arabia and election security ahead in the midterms. we'll bring you eamon javers geterview with admiral mike that's next. i'm ken jacobus, i'm the owner of good start packaging. we distribute environmentally-friendly packaging for restaurants. and we've grown substantially. so i switched to the spark cash card from capital one. i earn unlimited 2% cash back on everything i buy. and last year, i earned $36,000 in cash back. that's right, $36,000. which i used to offer health insurance to my employees. my unlimited 2% cash back is more than just a perk, it's our healthcare. can i say it? what's in your wallet? ♪ ♪

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companies that do business in saudi arabia are proceeding with caution after the killing of jamal khashoggi that has strained relations with the united states. eamon javers joins us now with some perspective from the intelligence community good morning good to see you. >> good morning. thank you. i had the opportunity in new york yesterday to sit down with one of the top u.s. former intelligence officers, admiral mike rogers. he ran the nsa under president trump until earlier this year. one of the nation's top spies at the time i asked him what he thought happened to jamal khashoggi in turkey here's what he said. >> i do believe that the saudis, you know, elements of the saudi government murdered this individual now i think the question gets to

be so what are we going to do about it what's the saudi role in this? let's talk about how we make sure that there is a level of responsibility and acknowledgment and also perhaps most importantly this doesn't happen again these are not the actions that we believe a friend and ally should engage in they're not. we need to convey that strongly. >> strong word there's from mike rogers saying these are not actions a friend and ally should engage in. he says describing the role of the saudis here in this murder of jamal khashoggi i also asked him give than we're 14 days away from the midterm elections, we saw the department of justice on friday unsealing a criminal complaint against a russian international for russian interference in these midterm elections. i asked whether he thought these midterm elections would be free from interference. >> i'm out of government now,

have been for about five months. i don't think there should ab doubt in the mind of any citizen this clearly is a priority this is something the government across the government spectrum of capabilities and organizations is focused on. >> are you confident the russian also have no impact on this election >> i'm not inside. i'm confident this is an taking seriously and it's something we're very, very focused on. >> admiral roger there's not willing to make a sherman-esque declaration saying this election will be free from interference >> thank you for that. coming up, eco lab, a $42 billion american country that provides water and technology services to corporate clients like coca-cola, ab inbev, ford, marriott, mcdonald's, the stock has been atr song performer this

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ecolab claim they have a tariff-proof manufacturing strategy joining us is doug baker, ecolab ceo. you manufacture things you're tariff resistant at this point, completely free for ecolab >> our manufacturing strategy has been to manufacture where we sell it's really born out of fx mitigation that's the genesis of it it happens to also give us resilience in a tariff environment simply because we aren't moving goods as other companies are. but there are secondary effects. we're quite worried about what the impacts are on u.s. and global economy as we go through this that affects our customers which will affect us >> we -- the way that the ecosystem works in terms of water and fresh water and salt water, it's not well understood, i don't think, by a lot of people and we also see manufacturing

processes across the board and they tell us what's necessary to make aluminum, for example they tell us how many gallons of water are necessary. i'm flabbergasted about the amount we need to use and we waste. that's a sweet spot, i think, when you are thinking about this or whatever it is. but we waste water in amazing amounts. and that's not always going to be possible for the human race to do that the way we do >> yeah. you know, i agree with you water is not well understood if you look at the facts, only about 1% of water on earth is usable fresh water the majority of that is -- >> see, nobody knows that. >> the majority of that is underground. not surface water. surface water is 0.03% of the water in the world i.e., the hudson, the great lakes, et cetera so it's a small component of water inventory. so the inventory is below the ground you don't see it it's out of sight, out of mind as we use up water, there's no tell for us.

and the other problem with water is it's really cheap so if you have a barrel of oil right now selling for 70 bucks or 80 bucks depending where in the world you're buying it, equivalent of water would be 4 cents or 40 cents. cheapest would be saudi arabia and the most expensive is amsterd amsterdam. but it's very inexpensive. >> all these companies you deal, with coca-cola, all of them, you can cut down on water consumption with your techniques >> we made strides up to 30% to 50%. but if you look at best in class "a" bottler and worst in class bottler, there'll be a 10x spread in the water used we're able to go across a system like coca-cola, it's a huge priority for coke. it's also a big priority for pepsi in terms of reducing water. >> they save money as a result, too, right >> they do because what happens when you reduce water usage, you reduce

energy at the same time. because typically they're heating water, they have to move it, it's heavy and then you have to treat it. if you have to do that with less, you save money >> we need to have you back. i'd love to talk about -- this is only a small part of what ecolab does. i mean, there's things to talk about that with couldn't get through just talking about water. can you come back? s >> absolute. >> how often are you here? >> i'm here. >> thank you, doug baker when we come back, earnings alert. we're awaiting results from caterpillar, 3m, verizon in the next half hour we'll bring the numbers and reaction on wall street. "squawk" will be right back.

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a global market selloff. china, japan, and europe all tumbling the futures in the u.s. down triple digits. what's driving the selloff and what you need to know ahead of the open on wall street is coming up. earnings front and center. caterpillar, 3m, verizon and others rolling out results we'll bring you those and the reaction straight ahead. and a uber really worth more than ford and fiat combined? if and when it does go public, what's expected. 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, everybody

welcome back to "squawk box" here on cnbc we are live from the nasdaq market site in times square. i'm becky quick along with joe kernen andrew is out today. but our guest host today is michelle caruso-cabrera. we've been watching the u.s. equity futures at this hour. let's talk about what's making headlines. earnings out from united technologies you'll see the dow futures are down by 258 points believe it or not, that's off the lows of the session. we're going to watch this closely because the volatility is still here. but utx gets us into earnings season utx is the first of five dow components reporting profit of $1.93 a share. that comes in above estimates of $1.81. it's good for about a 50 cent pop right now with shares of utx.

$126.90 is the last trade. you still have 3m, mcdonald's, k caterpillar to go. arconic -- that would be worth between $23 and $24 a share. compared to yesterday's closing price of $21.25. still below that bid at $22 a share. and we've got some earnings just out from harley-davidson harley beating estimates with profits of 68 cents a share. revenue also beating estimates as well. obviously harley has been in the middle of all of these trade war talks about where it's going to be manufacturing its motorcycles and other vehicles but again, on this earnings report, better than expected news and a gain of 4.5%. treasury secretary steven mnuchin met with the saudi crown prince yesterday mnuchin withdrew from the summit

taking place right now in the kingdom. but he visited the crown prince to hold talks on joint efforts to counter terrorist financing also about curbing political influence. the two men discussed the khashoggi investigation, it was said reuters reporting that saudi arabia will sign deals with more than $50 billion at that conference we'll have more from riyadh in just a little bit. again, today is the day we just heard from turkish president erdogan citing his concerns and the evidence they have to this point. >> yeah, he made a big speech in parliament today in ankara. i'm sure it purposely is in line with the conference to make sure the conversation didn't change mnuchin being there i think highlights what a difficult position with the united states and how important is saudi arabia that stoouceven mnuchin . the headline on the top, mike pompeo, secretary of state how to confront iran

that is why steven mnuchin is there. right? because the relationship with saudi arabia is important in countering iran's efforts in the middle east. and to have the situation in the turkish consulate happen in the last month has made this an incredibly difficult situation for the white house for sure >> we've heard a lot of talk about arms deals that have been signed that's been brought up. but this is probably a much more important underlying situation >> i think it is the overarching story right now. what do you do about iran and saudi arabia was supposed to be a key component of that. and now you have this problematic issue. >> all right back here, president trump hitting the campaign trail ahead of the midterm elections he said he a eyeing a 10% middle class tax cut plan >> we're putting in a resolution some time in the next week or week and a half, two weeks we're going to put in -- we're giving a middle income tax reduction of about 10% we're doing it now for middle

income people. this is not for business that's for middle. that's on top of the tax decrease that we've already given. >> are you signing an executive order for that >> no, no. i'm going through congress we won't have time to do the vote we'll do the vote after the election >> the exact details of the president's plan are still unclear whether there's any chance we've got to wait to see what happens, obviously >> there is speculation that he's doing this to kind of set back the plans we've heard from kamala harris and others where they're talking about giving back taxes >> you're going to add to that tax cuts you already put in, you're probably not going to repeal, you know -- you're not even talking about repealing the last one when you're talking about adding but you'd need 60 senators, right? it's possible. hope springs eternal we have a global market selloff this morning the european markets at this hour are down following suit

with china and the futures right now have improved a little. the preeminent market history mike santoli is here joining us. i just want to tell you before you get into it. arconic is a cool name it sounds like a superhero >> it sounds like iconic >> just in case you're wondering, that's what these people come up with. the "a" echoes out at alcoa heritage the arc is for the pursue of -- speaks to the history. >> so i could do this too? >> someone paid a lot of money but i think that, you know, that marvel is not happy that they can't use arconic for a superhero. >> they could use it for a villain. >> it's how used to these things we get, right? think about how verizon was mocked when they first came out. it's now just a word somewhere

>> like the bridge it used to drive them crazy. the smart thing is when you take a really well known brand and you call it vaenater >> where are we? so -- >> try to get back there. >> where this pre-market selloff brings us, it's right down to the lows of october, right look at the s&p 500 year to date if you look at a line across 2710, that was the intraday low from a week ago. and then 2728 is where you closed in other words, everyone who says, oh, you have these sharp selloffs you need a retest of that. well, maybe that's what this is. by the way, it was a weak bounce the rally of those oversell conditions was not impressive at all. you didn't get much distance between the lows and where you

ultimately bounced last tuesday. so it seems like it's still kind of a suspect market right now in terms of how it's behaving we didn't get a lift from a 4% pop in shanghai yesterday. now it seems like you're dragged down what's going on with the banks is a huge question right now down 2% yesterday in the s&p financials the idea we can't point to one particular thing, i don't know if it's more or less concerning. but that's something that probably has to stop nothing that's going on -- >> one thing bringing down the bank stocks? >> what's that >> what specifically is. obviously european banks are very weak because of all the things going on there. >> but interest rates are rising >> it's not getting any worse. the bank earnings were fine. i think that's the thing that people step back and say, well, maybe that means earnings can't save us. >> those deposits they paid zero on, now they have to pay more or putting their money in higher yielding you can finally get yield somewhere else

they've lost some of that spread even though we're so focused on the long-term. the short-term is up >> they have to compete for customer money right now in a way that's tougher than before also i would point to the old bank of the ozarks stock was down huge. that seemed to kind of be a little bit of a shot across the bow of the regional banks as well. >> is that the canary in the coal mine? >> it could be they got into a lot of kind of hot markets on the later side. so i just think all that stuff is in the mix. now, you step back and say the credit markets are not really making a fuss. so if you think it's some kind of a financial stress event globally or it's some kind of an economic downturn thing, it's not showing up there >> stay right here, mike >> wonder if marty bird -- thanks, there. have you watched any of that cramer is actually talking about 25 on the vix. >> yes >> and we're there almost. >> just about.

>> we're at 23 he says we've got to see that before -- >> well, exactly you want to see a little bit more of a panicky flush if this is just a retest also what you want to see is a less broad selloff >> that's a spdr that's not -- >> the vix hit 28 and change last time. >> and we closed at 23 >> the makings are there for this to undercut a little bit. it looks like everything you did in august and september is kind of an island out there on the upside it's kind of tough to see getting there in a straight line >> let's add a couple of voices to this conversation joining us is stephanie lang she's from homerich burg stephanie, you say it's interest rates causing the concern right now. that we're not sure what the fed's going to do. explain that >> yeah. if you look at the selloff that

occurred in october and back in february, you actually saw a pretty swift and rapid increase in interest rates. you know, ultimately those were proceeded by the fed so we're watching the fed at this point you know, what the fed's doing is a double edged sword. you want interest rates to go up so the next time a recession rolls around, they have some room to cut rates and stimulate the economy again. but on the other hand, you don't want the fed to raise rates too quickly and cause the next recession. we think the fed's doing a good job. if they go ahead with the december rate hike, the fed will have raised rates about 1% this year that compares to previous cycles where they've raised on average 2.5% this year >> you think they raise in december and then step back? because that's what jim cramer is speculating now we heard it yesterday also from rick rieder. >> yeah. i think that, you know,

december's priced in and when you look to 2019, what the market's nervous about is if the 10-year stays where it is and the fed actually goes through with the rate hikes that they're forecasting, you can see the yield curve invert and seven of the last recessions were preceded by an inverted yield curve. we've had a decent spread between the 2-year and the 10-year of 20 to 30 basis points but if that were to invert, the market could get really nervous. even if that happens, typically there's one to two years before a recession. so we're still pretty bullish at this point >> hank, i saw you shaking your head you think this is the same issue concern about what the fed will do but they're likely to take their foot off the gas >> yeah. we're absolutely in that camp that rick rieder talked about yesterday and your guest right now that three to four hikes in 2019 is in our view not realistic.

one or two hikes the fact we haven't had any volatility over the last two years makes what we're experiencing a little bit abnormal, but really it's quite normal and in our view, a buying opportunity here >> let's talk about the financials in particular you point out that the banks have had very strong earnings that a rising interest rate would be a good environment. but what about what michelle brought up that they'll no longer have free deposits because there are other alternatives >> well, that's true, but i'd also point out in the tenth year of an economic expansion, our banking system is in excellent health rock solid balance sheets usually at this point in a cycle you would start to see problems.

and you really aren't. i know michael mentioned the bank of the ozarks but that's an outlier. the banking system is in excellent shape. there aren't broad based problems as there were in the late '90s and in the late '00s >> so it's not a canary in the coal mine is what you're saying? >> not at all. >> okay. hank, i want to thank you for being here hank smith of haverford trust and stephanie of homerich burg thank you. uber ready to become the first public traded ride share company. huge market caps who doesn't use uber a look at where they stand and later the earnings parade kicks into high gear that's with 3m, lockheed martin, jetblue, mcdonald's all ready. >> mike santoli, you should stay we have a lot to talk about. >> you should stay

we'll be right back. we're watching those numbers [ upbeat music ]

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shanghai composite down over 2%. that carried out throughout asia japan was off by even more now you see it here in the united states right now. and in europe where the markets are actively trading too but right now the dow futures are indicated down by about 279 points these are off the levels of over 3 hurk 300-point declines we saw earlier this morning s&p down by 35 and the nasdaq down by 108 points at least it's indicated there based on what we're seeing right now. uber's top deal maker has resigned weeks after an investigation into sexual misconduct into the workplace appeared uber confirmed his resignation took place before the new ceo took control back in august of 2017 uber and lyft likely to file for ipos next year in 2019 but who will get there first and what will they tell investors? and is uber really worth $120 billion? that's more than gm, ford, and

fiat chrysler combined deirdre bosa joins us now with more i don't know i mean, you look at a lot of the unicorns, they're worth a lot. but 120 -- i just wish we could have gotten in on it were you able to when it was worth about 10 >> well 120 is a leap from the latest financing round which put its value at $76 billion we'll see what happens but it is going to be important who's going to be first out of the gate, uber of lyft because the first company is really going to set the tone it's going to attract more of the ride sharing capital and that could result in a higher share price so it's no surprise that uber and lyft may be jostling for that position. that is a position that means higher fees and more glory

narratives there starting to emerge as companies get ready to present to investors uber's $76 billion is more than five times that of lyft's $15 billion. lyft had 375 million both are still losing money but those losses are narrowing and revenue is increasing for both one of the most important differences between the two is lyft is more of a pure play in ride sharing now, the smaller rival has really emphasized its gains in market share putting its market share at 35% up from 20% in early 2017 capitalizing problems over the last year. uber meanwhile has been investing in a whole host of businesses from food delivery to flying cars. there's uber health. a bunch of others. now via e-mail i reached out to uber's ceo and asked him how does this fit together he told me he sees uber's

platform becoming the amazon on transportation and ovement and he hopes that all of these businesses will eventually be profitable we'll certainly see once we get closer to those ipos and the companies start pitching investors. >> you touched on this, but the idea of $120 billion, i mean, that is wall street pitching these companies. how realistic is that? >> well, there's a lot of folks that have been waiting for a ride share company to come to market a few of the analysts i spoke to said uber has been private for so long. you've got fidelity and these big players that have already been invested that it makes you wonder how much more can they put in or how many more investors out there -- perhaps already allocated money to ride sharing. >> you working all day, deidra

>> it's early here it's about 4:00 in the morning. >> how far are you from stanley park from where you are right now? >> pretty close. i'm impressed you know that. you've been to vancouver >> took a bicycle ride all the way around i would go there today i mean, if i were you -- if i actually were you and i got off, that's what i would do, i think. >> maybe i'll take you up on that. >> have you done it? it's amazing >> i go there all the time >> oh, you do. sorry. just wondering anyway, thank you. i'm envious. you ever been there? >> yeah. covered the olympics there it was beautiful coming up, turkey's president speaking this morning about the death of jamal khashoggi and what the saudis knew we'll get an update. and caterpillar, lockheed, many more ready to report numbers, market reaction, and more when we return.

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details. hello again, hadley. >> reporter: good morning, joe so saudi officials feeling the heat after remarks from president erdogan who's looking to dial up a notch and yet keep wiggle room for himself. let's listen into what he had to say. >> translator: the information and the evidence that we have so far collected indicate that jamal khashoggi was slain in a vicious, violent murder. whitewashing such action injures the conscience of all humanity >> reporter: just to break this down for you guys, president erdogan essentially saying he wants the saudi nationals being held at the moment in connection to the case removed from saudi arabia, brought back to turkey to stand trial but all of that comment without any more information about these much-reported audio recordings we've heard about over the last couple of weeks.

he didn't mention them and what he said again and again was he had a good conversation with king salman and he wasn't touching the idea that the crown prince of saudi arabia had anything to do with this whatsoever. >> thank you very much hadley gamble. when we come back this morning, some quarterly results that will move the markets 3m, caterpillar, verizon, jetblue, mcdonald's all ready to report those numbers are straight ahead. oh good, you're awake! finally. you're still here? come on, denise. we're voya! we stay with you to and through retirement... with solutions to help provide income throughout. i get that voya is with me through retirement, i'm just surprised it means in my kitchen. oh. so, that means no breakfast? i said there might be breakfast. i was really looking forward to breakfast. i know... voya. helping you to and through retirement.

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♪ good morning, everybody. welcome back to "squawk box" here on cnbc we are live at the nasdaq market site in times square among the stories front and center, focusing on the federal reserve. five federal reserve officials are scheduled for public appearances today. the presidents of the federal reserve banks of dallas, chicago, atlanta, kansas city are all going to be speaking of those only atlanta's is voting member of the fomc this year but you can bet people will be listening to all of the speeches amazon and qualcomm is

teaming up to put alexa in your headphones that will embed amazon's digital assistant into those bluetooth headphones you can then give commands through a smartphone harley-davidson shares rising this morning after beating on top and bottom lines. that stock was up by more than 4.5% earlier now up by 1.2% company got a boost from improved european sales and separately harley is announcing a recall of about 238,000 motorcycles to fix a possible issue with a hydraulic clutch assemb assembly >> we really should get a look at 3m. bring up a chart of 3m, because that didn't help the dow i don't know if this is clean at this pinoint, this number of 258 if it is it's versus

expectations of 270. also cutting adjusted view from $9.90 to $10 and the street ask at $10.28 so what is that? >> a 12 cent miss. >> then they're down at least 28 cents from 28 to 38 cents total. had seen adjusted net of $10.20 to $101$10.35 and down 30 cents on the low and the revenue number also looks like it's below. i don't see -- i -- >> i'm just reading. they're light on details -- >> china >> the ceo notes talking about in the third quarter they're delivering 3% organic growth which they call a solid for 2018

they're talking about innovating for customers and driving growth just trying to look through. organic local currency i wonder if currency is a head wind here. >> got to say they're cutting forecasts. >> they do looking through one expectation. >> pretty new ceo. as you often have a transition d -- >> here's what they say. a full head wind of 5 cents a share from foreign currency versus the prior expectation of 10 cents a share i don't know how that sneaks up on you that quick. >> i would think >> for a lot of those things excluding the full-year impacts. verizon was strong if you look at verizon numbers, it was $1.22 versus $1.19 the street was expecting a little above the 3$32.5 billio

they had talked about. talking about the 5g era, other numbers the street watch retall postpaid net additions. and then on verizon fios, their internet connection, revenue was up just for fios revenue and they're upgrading their capital spending guidance for 2018 they now say it's expected t eee in the range of 16.6 >> dom chu joins us now. what happened to 3m, dom >> 3m, they were talking about a little weakness in some of their categories just looking specifically at the consumer side. that's where i graf stavitated . in terms of scotch tape and everything else. they talked about this idea that sales actually grew in their consumer unit within home improvement. it's not something we talk about often here we've been seeing decline there. meanwhile, though, it's

stationary, office supplies and consumer health all posted sales declines in that particular area also on the energy and electronics related sectors, they did see it grow by 6% electronic sales grew by about 1% there as well in that particular unit. overall for the industrial side only because we focus on that operation pretty well. organic local currency sales grew by 2.2% also automotive and aerospace industrial adhesives and tapes and automotive aftermarket saw some declines. the 3m side of things, i would also point out, it's a 5% drop pre-market i would point out the caveat there is on the verizon, we can see a flat piece of action there as well. but only about 19,000 traded

verizon could get a boost here on the overall market that we're seeing right now based upon the perceived safety of a higher dividend telecom and that's maybe why verizon was there. i would also point out, becky mentioned the number of the subscription ads on the postpaid basis. as we take a look at some of those numbers, they did post the retail postpaid ad of 515,000 did come in better than estimates of around 499,000. there's a reason why maybe you're getting a boost in verizon as well. top and bottom might be for verizon. i would also point out on the 3m side of things, yes, it was a top and bottom side. are you guys watching that >> tell us about it. $2.86? >> right narrowly beats the estimate of $2.85. revenue coming in slightly better as well >> what's the problem there? >> they reiterated their 2018 full year earnings per share guidance of $11 to $12

that kind of comes in the mid-range if you look at it. it's slightly below the estimate of $11.65. so perhaps you're seeing a bit of a decline for caterpillar as well here. i'm trying to see the commentary. >> dom, what are you using as a i did vi divisor now? >> i would say generally speaking i thumbnail it at around seven points per dollar in dow stock right now >> so that's over a hundred points just from caterpillar >> right as we're kind of rule and thumbing it. >> now we're down 400. >> because of those particular moves. >> it's really been -- >> let's go back to caterpillar.

i don't understand what's happening with that. the $11 to $12 they're talking about is the adjusted per share $11.65 is where the street was on that. >> yeah. $10.65 to $11.65. >> that's the per share. look at the adjusted it's $11 to $12. >> it is >> yeah. >> and they're at $11.65 >> yeah. >> and that's comparable the mid-range of falling below where the estimates were i mean, just going through some of these things, as well -- >> caterpillar is saying most markets continue to improve. order rates and backlog remain healthy. price realization excellence and cost discipline are expected to more than offset higher materials and freight costs including tariffs. i'm still a little surprised by the caterpillar reaction to this 3m i get a little more they're talking about currency head winds but that doesn't explain what they're targeting on this. check out the dow on this. >> that's since we went to dom chu. we'll see you later, dom

go away. we were down, like 300 when we tossed to you. >> i think it was 280. >> nice job. thanks, dom. >> the company says it's maintaining the outlook range of $11 to $12 maybe at $11.65 the street got a little ahead of it, but there's nothing i see in this initial read on this report that would explain why you're seeing such a selloff. >> cramer's going to get his 25 on the vix, i would say. >> yes, he is. >> on the open let's talk currency and energy markets now too. joining us now dan mcteague at gas buddy.com. and shawn osborn at scotia bank. we may have seen a little bit f of, you know, a rush to safety with some of the yield curve but the dollar -- i saw a 1.14 print on the euro.

what's happening with currency today? >> i think on a day like today where you've got a lot of red on equity screens globally, the knee jerk for currency trade is to go to the typical safe havens not so much the dollar these days as the japanese yen the traditional sort of safe haven in market volatility outperform on the day and the commodity currencies to a lesser extent coming off quite sharply as well >> dan, when do we stop looking so much at what's happening in saudi arabia and start wondering about global growth and global demand for oil where are we there >> good question because i think the market's very much neutral to the downside to some extent. we've seen gas prices across america drop about 3 cents a gallon the past week but i sense there is probably further movement you know, we saw april to september very little that sort of 65 to $70 a barrel range.

it didn't move except toward september where we then saw the major breakthrough with wti pushing up to $76 and of course brent moving to $86 almost threatening $88. but we have not seen that since. i think the marks are taking a -- markets are taking a breather something we didn't think about 10 or 12 years ago, the two certainly weren't combined as they are now and of course the u.s. currency which remains relatively speaking with only a few more -- i guess a few more announcements on future interest rate hikes could have some impact in terms of pushing down oil and gasoline what i'm looking at, however, is next week being relatively quiet after november 4th with the sanctions on iran. a wait and see approach as to whether or not there will be the need to further look for additional oil supplies. look for oil to rise but not necessarily gasoline we're seeing a bit of a

disconnect between oil and gasoline of late >> all right we've got to get back to the equity market -- >> i have a quick question about currency looking at the currency and trying to figure out what's explained here, 3m is saying they've gone from thinking what you were going to see with currency was going to be a head wind of 5 cents now versus a benefit of 10 cents before so a 15-cent swing is a pretty major one and one that the street was not expecting does that sound believable in what you see on the markets? >> it kpendepends on what the exposure is. it's hard to say at this point markets generally have been fairly subdued volatilitywise over the past few months we're stuck in a bit of a range. it's difficult to know what they're thinking about >> dan mcteague of gas buddy.com, shaun osborne of

scotia bank. year to date it hasn't moved much but if you compare it to emerging markets, it's been a huge -- >> but ceos are like -- >> the analyst who is cover 3m wouldn't have recognized the 15% swing in currency. >> hey, i'm doing everything >> again, you want to take a quick look at some of these stocks caterpillar at this point is down sharply take a look. got a bid and ask versus a close. it's down 6% 3m down by 7% right now. we were already looking at futures that were down by close to 300 points before we saw this additional read. obviously that's putting severe pressure on the dow futures right now indicated down by about 440 points below fair value. s&p futures have turned weaker too.

they're down by almost 44. and the nasdaq is now down by 130 points below fair value. when we come back, we're going to dig deeper into caterpillar quarterly results. reporting moments ago. it was actually a beat on the bottom and top line. concern about what we see for the full year outlook that has the street kind of paying attention. we'll talk more about that straight ahead and then calling on verizon. jennifer fritzsche will be with us to talk about that dow component as well. we'll be right back. your company is constantly evolving. and the decisions you make have far reaching implications. the right relationship with a corporate bank who understands your industry and your world can help you make well informed choices and stay ahead of opportunities. pnc brings you the resources of one of the nation's largest banks, and a local approach with a focus on customized insights. so you and your company are ready for today.

welcome back to "squawk box," everybody. again, we've been watching the futures this morning and we are under quite a bit of pressure. it's picked up since we heard from dow components that the street is taking exception to what they're reporting about their guidance the dow futures right now indicated down by almost 420 points s&p futures down by 42 the nasdaq down by 125 and as we mentioned, this is all coming from dow components that have been reporting earnings not all of them are getting tarred here. it's caterpillar and 3m dragging the dow down caterpillar shares down by about 6%

we also heard from verizon this morning. but 3m missed the street by 12 cents with a quarterly profit of $2.58 a share. it cut forecast by more than that it's talking about numbers it's expecting to see that are well below what the street had anticipated. climbed about 28 cents a lot of that is because of currency issues. they're now saying that currency is going to be a head wind of 5 cents rather than a benefit of 10 cents that doesn't explain the shortfall entirely we've got more we need to hear on that. again, caterpillar shares down by about 4.6% right now. also, take a look at what we're seeing with shares of caterpillar. joe's going to talk more about that >> caterpillar was above on the bottom and top line. so let's figure out what is responsible here joining us now on the "squawk"

newsline, brian langenberg so they looked like they were at least saying they're still comfortable with their guidance. what's the problem, brian? >> well, the results are fine. when i go through the ref knvens not just by segment but the geographical region, it's fine got out in front of fundamentals on a lot of these stocks including 3m which we've had a hold on for a long time. and with caterpillar, you know, again, the results were good but the stock's overpriced and one of the things that investors still focused on is about 25% of their cash flow is explained by capital spending running well below depreciation. there's a point where, you know, markets wake up and realize they have a bit of a nosebleed.

>> all right wait a minute. so both of these stocks, you're not telling us anything. both of these stocks were overpriced yesterday in a report today, why are they down today what about the results caused the over-valuation to be noticed today. you mentioned 3m what's really going on with 3m it's not currency, is it >> with 3m, if they say it is currency, it is currency for them specifically, it is because they have a good amount of exposure to not just emerging markets in general, but in particular because they're global, they are in pretty much every country. some of these currencies have gone down 25%, 35%, 45%. they have real operations there. >> how come the street didn't figure that out? why is that such a surprise to investors this morning >> well, we've not been surprised, actually. everybody else has so that's fine

i can't explain why they didn't catch it we had a sell earlier this year. now we have a hold with caterpillar, again, i think there's been a lot of enthusiasm for the sector for cyclicals and growth that growth has been there and look the earnings were up 40% the revenues were up strong. but the rate of growth is going to slow because they're hitting tougher comparisons. >> okay. all right, brian langenberg, thanks i don't think anybody is -- nobody's using post-its anymore. don't you just put it on your phone anymore? >> i use them. >> you got the stationary. nobody uses that >> what i don't understand in any of these comments, i think it's coming as a huge surprise to these companies both 3m and caterpillar today, this reaction because if you read through the releases, everything they say sounds like, oh, things are going well we've got organic growth here.

we expect to see this. this is probably coming as a surprise to those companies and those ceos this morning as well who are probably watching this saying what did the street see that they hate here? >> all right flat sales in the industrial business declines in the health care business 2.8% decline for 3m. electronics and energy down 4.8% there's a lot of down, down, down on those. declines in health care. electronics and energy 5%. consumer business, 3.4%. none of those are going up >> the broader picture, too. remember as we talked about rising interest rates, you said that leads to pe compression in the markets and a lot of analysts said pe compression is fine the "e" keeps going up, it's okay the market can still rise. when you see "e" weakness then you lose one of the pillars of the market >> so much for the earnings bailing us out for the china problems >> right if this was going to be the one thing that held everything up,

right. >> but you know what >> caterpillar, most continue to improve. order and backlog remain healthy. price realization and cost discipline are expected to more than offset high material and freight osts including tariffs, they say. >> nasdaq's down too it's not just the dow. market's down. we'll talk more about the selloffs >> we will when we come back, we'll discuss that also as we head to a break this morning, look at the premarket movers in the dow. there are some big ones right now. verizon reporting. it's the one that's gotten off unscathed. it's trading up but half a percent. but the third best performer in the dow is travelers which is llyo tes u there's a lot on the downside we'll talk more about that in a moment ♪ ♪

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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." futures right now indicated down 400 -- no. down 397 that three looks -- anyway, we were in the twos for awhile. then the results came out from 3m and caterpillar and we moved quickly back down 300 and all the way down to almost 450 at one point. dow component mcdonald's is going to be reporting in just a few minutes. if anyone can save us, maybe it's mcdonald's. all this follows earnings reports from verizon, caterpillar, and 3m which was the biggest miss among the

three. 12 cents short at $2.58 also cutting full year guidance caterpillar beat by a penny, revenue above. but that stock's down. verizon reporting $1.22. so mcdonald's, we'll be waiting for that that should be interesting and probably does make a difference today there's roldna we're counting on you, big guy we'll be right back. making my dreams a reality takes more than just investment advice.

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earnings alert mcdonald's numbers crossing the tape we have the instant market reaction ahead dow drivers, not one, not two, but five. five blue chips rolling out results this morning the names setting the tone for today's trading session. plus don't fear the market anxiety. why one investor says the nervousness right now is making him more bullish dan arvess is our guest as the final hour of "squawk box" begins right now ♪ live from the most powerful city in the world, new york, this is "squawk box.

good morning and welcome back to "squawk box" here on cnbc live from the nasdaq market site in times square ronald gave no indication on that shot we took of him >> there was no hint >> he didn't give it away. but i said we're counting on you. >> mcdonald's did it ronald delivered >> and you got the yellow on today. you could be golden arches >> check this out. in a down tape where the dow futures were down 400 points before we heard from mcdonald's, on a down day like that mcdonald's knocks it out of the park and it's now indicated by up $3.50 itself it has helped where they're down by only about 375 points below fair value versus the more than 400 we had been seeing let's run through some of these numbers. mcdonald's numbers coming in at $2.10 a share. that's 11 cents better than they had been anticipating.

this was strong kaels across the board. global comp up by 4.2% versus the 3.7% the street was expecting. mcdonald's talking about how if they were looking at systemwide sales in constant currency, it would have been up 5%. so way better than anybody was anticipating on these things currency head winds, ha-ha that's what ronald says to that. you're looking at shares up by more than 1% strong numbers throughout some of these things. they say the third quarter revenue from franchises restaurants was $2.5 billion just talking about some comments from steve easterbrook who's been a great ceo there in addition to 13 consecutive quarters of positive gloeblg comp sales, enhanced hospitality and elevating the experience for customers. you can't argue with these results. >> and we remember how many

times mcdonald's -- it stumbled a few times. years ago they had a couple of tragic situations with them. most recently they had a ceo and they do a lot of innovation a lot of times and they try yog t yogurt, i don't know then easterbrook comes in and he said fast, quality, clean. >> stepping up on the burgers. making better burgers. making better things along the line it's made a huge difference. >> do though basic thing as well as you can do it >> and simplifying >> again, come back on sunday. so we stop at mcdonald's i went in because we're on the road but i go, the bathroom's in the same place i don't have to think about it no matter what location where you stop, the food is exactly the same i know exactly what i'm getting. i know it's going to be hot and fresh. just that it's nice wherever you are in the world you could be in portugal and you're going to get the same thing.

it's just a great american institution. >> anecdotal evidence isn't perfect evidence, but to your point, i remember walking into a mcdonald's remember when they did the big coffee expansion and it took forever to get anything because it was too much work for the employees to do all of that stuff. >> this guy has delivered the goods, so to spook >> you're going to hear a lot of foreign currency translation mcdonald's had their own issue with it. the foreign currency translation had a negative impact of 5 cents on diluted per share again, compare that to what you heard from 3m where they've gone from a benefit of 10 cents where they had been anticipating for currency favorability to a head wind of 5 cents. it's a 15 cent swing which still doesn't explain the numbers that they're giving the street are even farther behind for the full year guidance. >> there's no guarantee mcdonald's is able to weather the storm. it's probably not the the numbers. >> the numbers have been very

strong despite a head wind to currency >> the other dow components we've been referencing, there were four other ones 3m shares we want to take a look at we'll do the multiplier on 3m earnings and revenue missing sharply. so seven times 14. that's almost a hundred point of dow pressure just in 3m. the company's cutting its full year from ft after missing by 22 cents this quarter they're cutting their full year forecast by 40 cents so they're even in the future what quarter was that? it was around a normal fiscal year. >> i believe it's a q3 >> so if they're going to miss, they're going to miss next quarter too. >> it zudoesn't make up for allf this and then caterpillar shares are also trading lower but in this case, earnings and

revenue were basically above maintained full year forecast. but the full year forecast it maintained was a little bit below current consensus. >> they're talking about $11 to $12 they're looking for. so it was at the high end of that >> and that's 170 points basically from those two united technology earnings revenue topped estimates company's raising full year forecast and that's at this point up 60 cents. and finally earnings and revenue beat the street. another key metric, the company saying net new phone subscribers who pay a monthly bill top ped for some of the new apple iphones. >> you do see some weakness in the dow. that is putting on and you're

talking about the dow now down 375 points this is near retesting levels. if you're looking at where we close, 27.10 has been the reset level. mike santoli joins us now with a look at key market levels. i wasn't joking. we shouldn't have let you go i realize you have another show to do, but we need your input here >> lucky to have the subways at our disposal that day the s&p closed at 2728. all these are in the mix now based on where futures are trading at this time i don't think there's anything magic about that level, but typically the routine is to look for a potential retest of those levels and then when we get around those levels, ideally if you were looking for an opportunity for getting bullish, you want to

see fewer lows maybe the vix being lower. see lower intensity selling at those same levels, that might give a clue. by the way, i don't think you want to see a rally that much before the open. all that stuff is out there. another level interesting for the s&p, it's the break even level. spent a lot of time here after the february selloff a lot of this stuff is not make or break time. it is interesting given the fact that at least cosmetically on the surface level the earnings are good came into the week saying s&p is up 3%. with earnings up 20%, clearly the market is not purely being driven by that number. we anticipate that earnings and you've had offsets as well from

currency and interest rates. >> hey, mike it's michelle here look at 3m and caterpillar a lot of people describe 3m as a short cycle company, right the stuff they sell. you're not doing a long-term contract to buy a large piece of equipment. in theory it gives a more immediate look at what's happening with the sales cycle in general and what might be coming and then at the same time you have caterpillar which is much longer cycle what do you read into seeing both of these names getting hit so hard? >> one thing you read into both of them is the rest of the world has slowed down significantly, right? so you came into this year with a rare instance of most regions of the world growing nicely. and you've seen some of that fall away. but it's also some distinguishing characteristics right? caterpillar, the cost side, steel costs going up that's something that's pretty specific to caterpillar. 3m has stumbled in the past. it's an may izing company how

broad it is. yet there's no one thing that sort of determines whether uyou have a great quarter or not. bigger picture, the fact that industrials have been far below their highs as well as housing and autos. the market is bracing for something. the market has been bracing for some kind of a slowdown. and it could be a head fake. it could be just one of these mini panics in advance of something that doesn't actually come to pass in terms of a slowdown but clearly, the market's uneasy with the idea that we're going to be losing certain stimulus factors going into next year while the fed still seems kind of resolute. so that's where we're cashing things out right here in the market >> 3m was having a tough year already even before this, right? >> yes >> they weren't a big participant. >> that's an interesting point just the idea as this divergence we've seen in the united states versus other markts s wimarketse point where we catch a cold from them >> i don't know if it's

necessarily that they are -- it's a contagion effect from other markets. what it is is -- all these markets are on some level reflecting a global reality. and the s&p 500 companies are a whole lot more global than the u.s. economy is. i think we always have to keep that in mind and so if we have a little bit of a wall street versus main street tension in this country where the fed's looking at great employment numbers and momentum on the domestic front and they're going to kind of keep raising rates where the rest of the world where these companies are exposed to are not seeing things go great, that's why the markets here can suffer the same way global markets are i think that i ddivergence was g responsible for a lot of that u.s. out-performance finally faltering. so they've come in a little bit. it looks like relatively normal corrections for a lot of the big nasdaq names but that remains to be seen. i don't think this market kind of finds its footing and makes an upside attempt without those

big growth stocks being a big part of it >> all right, mike thank you. mike santoli let's get back to mcdonald's and their quarterly results. shares are rising on better than expected earnings in global comps. joining us now r.j. hadave. you have probably seen this movie enough in recent quarters to not be totally surprised. but what were the best aspects of this in your view it's up over $4 now. >> i think the biggest takeaway here is some of the fears going into the quarter, those were overblown. that's encouraging that shows the experience of the future, the modernization and technology initiatives, they seem to be working some of the fears of the discounting and whether or not the everyday value monenu, it

seems like it's paying off as well the u.s. numbers held up pretty well i think the top line is the story here the other thing, too, is that some worries about potential slowdown across the broader restaurant phase i think that mcdonald's shows the initiatives have paid off. >> the -- is it a global story at this point? is it a u.s. story what's the stock keying off at this point >> i think it's still a u.s. story. it certainly is a global player. i think with 35% of the operating profits coming from the u.s., it's certainly very much a u.s. focus story. what's going on here, i think that the u.s. same store sales numbers, people expecting potentially more discounting to hit that number. i think that 2.4% they put up, that's a solid number. and i think that's going t continue as they roll out the experience of the future initiative in the u.s. over the next -- the remainder of this year and next year i think that's a story here. we've seen success from those kind of initiatives in the uk and france and australia

all those were pointed out as highlights this quarter. i think that will continue to play out in the back half of the year into next year. the other thing here, too, is this is still a solid dividend play we've seen rotation because of rising interest rates. i think this is worth for income investors to keep it on the radar screen if we go into a cyclical downturn, this name holds up pretty well. >> so i didn't order any apple slices with yogurt i was just there i had a fillet o-fish. i had only one i know our president likes a couple of big macs and -- >> really? >> yeah. >> oh, of the country. i thought you meant of comcast >> and i didn't order any mcfrappes. it was just stuff i ordered ten years ago. is that really the way they've done it? just fast, fresh, clean,

efficient? >> yeah. >> you can get bogged down trying to keep up with taco bell or wendy's they try to do innovation. i don't think you get anywhere >> i think you're right. it's a convenience story that sells above all right now we're seeing a divergence in the restaurant pace. you have to decide whether you're a convenience player or experience player. you can have overlap there but you have to focus on what the consumer needs by simplifying the menu and order accuracy, that's how mcdonald's wins. they're executing great on that. been more nimble across the board. that's really showing in the results. this company had been bogged down by some excess costst and complexity i think they've done a really good job simplifying that. that will help them continue to win over the next couple of quarters >> okay, rio de janei.j., thanku when we come back, global stock picks from david herro

then in the next half hour, noted investor dan arbess. we'll find out why an anxious market is making him more bullish. then jim cramer's take a lot to talk about with jim today. all these earnings, we'll get his take stay tuned you're watching "squawk box" on cn bc who says our bank isn't tech enough?

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♪ welcome back to "squawk box," everybody. rough day for the markets this morning if you're a bull check out the futures right now. dow futures indicated down by 384 points this started early this morning and overnight when china saw significant weakness pulling back down after stabilizing yesterday. saw this spread throughout asia. japan was even weaker. then things got exacerbated here when we started hearing from some dow components that missed.

namely 3m and then caterpillar giving guidance. those two dow components significantly pulling down the dow futures but also adding pressure nasdaq at this point is indicated down by 116 points and the s&p futures are down by 39 from trade tensions to european politics, we're taking a look at what's working and we're going to focus on international stocks joining us now, harris associate cio david herro. you heard the foofighters before we went to break and then we had a little enrique iglesias that was for you you knew that, right >> yes thank you very much. i appreciate it. >> okay. you're welcome >> no jukebox hero >> that's a good one >> you know what i didn't think of that i didn't think of that one we have time, i think, to get that before the end of this segment. he manages a $39 million four-star morning star rated oakmark international fund it's been tough for a year

there's been some red there. do you think it's poised, this fund in particular is poised to catch up a little bit. we look like we're that -- like that divergence is getting less every day. >> our fund has now been in business 26 years. >> there's this soft patch and what tends to happen after the soft patch is, we're basically preparing for the future we're increasing our holdings in our companies that have been hit hard by large and negative price movements. where in our view the values haven't gone down nearly as much and in most cases the intrinsic value keeps going up this is really opportunistic this is an opportunity for medium and long-term investors and really this is how we define what an investor is. so we go through these patches, but to me they provide opportunity for our clients and

for our shareholders and for people like myself >> i mean, do you think at this point that opportunities in the u.s. are increasing for buying stocks when they're cheaper? or do you think that you want to stick with international if so, give me your top picks internationally. >> yeah. when you look across the globe, you do see pockets of value everywhere and the u.s. in particular it's been a more bifurcated market where certain narrow sector of the market has done well outside the u.s., you've seen a broader selldown in europe in particular has been extremely weak year to date over the last year. and especially in european financials and what's really most puzzling and me more where we see the more opportunistic chances of doing well are in these financials where share prices have dropped quite aggressively and we've seen nothing but acceptable and growing earnings

streams. so to us, this provides opportunity. and it's kind of unique. the european financials are behaving differently than the u.s. financials if you look over the last year. and they're responding to some of this political noise. it's brexit and italian elections and the lack of italy to agree with europe on their current year budget deficit. >> a lot think it's because they didn't clean up their balance sheets like the way the united states did they didn't take a lot of the hard medicine and there's still problems out there you disagree with that >> yeah, i would disagree with that i think if you look at the key of financial institutions in europe, take a company like bnp, one of our top holdings, or even an italian bank. or companies like credit suisse. if you look at where their capital positions are today and their core equity tier one ratios are today,they're nearl double -- nearly double where they were during the financial crisis so they have, in fact, built a

lot of loss-absorbing capital. they're in a much different position today their balance sheets are than they were nine, ten years ago. so there are still some financial institutions that need to continue to repair, but the major financial institutions of europe for the most part have repaired their balance sheets and are in good shape and are earning good money and yet we see these valuations which to me are so low they are unsustainable. and they provide an opportunity for investors. >> okay. all right. thanks, david herro. thanks when we come back, earning's the name of the game today weighing on the futures pretty significantly. verizon shares up sharply. we'll tell you t rso wheeanshy when "squawk box" comes right back

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coming up, this morning's biggest stock movers and then our market news maker of the morning. investor dan arbess helps us put today's swings into perspective. stay tuned bcg quk x"n in"sawbo o cn

♪ good morning and welcome back to "squawk box" here on cnbc futures indicating a lower open on wall street.

earnings concerns weighing on investor sentiment checking the stocks of the five dow components that have reported this morning. we see shares drop in caterpillar and 3m 3m missed on the top and bottom lines with currency shifts weighing on its results and the weakness in terms of lower earnings mcdonald's is the one that's bucking the trend moving higher on better than expected earnings and global comps verizon is higher as well. joining us right now to talk about all of this is john knead, busy morning for you you cover caterpillar, 3m, and the defense stocks you have a lot of information to digest this morning. >> sure do busy time. >> the street does not like it's heard from 3m or caterpillar 3m maybe the more understandable declines in this because they issued sharply lower guidance.

>> so i don't think the street was expecting the industrial group to be lower in guidance. maybe maintaining guidance, but not lowering so 3m actually lowered and while they pointed to a shift in currency, there were bigger problems >> let's just say the shift in currency, they said it is now going to be a head wind of 5 cents where they were expecting a positive -- >> it's a 15-cent swing but it was like a 25% cut to their outlook. so there were other things >> what are the other problems that really popped up here >> i think you're seeing a very weak top line for 3m others the industry are growing 6%, 7%. 3m came in with 1% top line growth >> is this a 3m specific problem then what are they doing wrong? >> well, 3m ebbs and flows it's a consistent company over time and the selloff might be a good buying opportunity.

they're generating a lot of cash that's been the problem. generating more free cash than net income we'll see what the management says but this could be a buying opportunity. >> could their revenue result bs an early tell for other parts of the market it's often seen as a bellwether. should you be worried about something bigger happening here? >> i mean, caterpillar is down sharply, but their revenue was up 15% >> i think caterpillar may be a different story. >> right, right. caterpillar kept their earnings guidance, but it actually is lowered because they're benefitting from a tax gain that they put into the guidance >> so you're saying we should be going off of not the adjusted guidance that they gave up of $11 to $12 a share but off of the real earnings per share guidance >> i think it's a bit of a signal they're struggling to hit their expectations it's still good growth, but it's not as good growth as a couple

of quarters ago. that's going to slow down into 2019 >> does it warrant the decline in the stock price this morning for caterpillar? >> probably not. they did point to weakness in latin america. that's ban good growth market to them of course there have been economic problems in brazil and argenti argentina. >> quickly, in their outlook they say specifically most end markets continue to improve. order rates and backlog remain healthy. in the fourth quarter, operational excellence and cost discipline are expected to offset freight costs including the tariffs. you would think that's what the street wants to hear >> so they're managing again, what you've got is maybe revenues were growing 40% a couple quarters ago. now it's 16%, 17%. what's next year going to be >> john, what rating did you have on these stocks heading into this? >> we've had buys on 3m and on caterpillar. >> so this caught you by

surprise >> we'll probably be bringing our estimates down a little bit, but for the long-term and for the portfolios we're building, these are good core stocks >> they look like a better buy today. let's talk quickly about the defense names. because those names are some that are trading higher today. lockheed martin and utx. also better than expected. >> a good time for defense stocks, right? the 2019 budget is already finished and president trump is encouraging our allies to buy more u.s. defense goods. so these are good times for defense. >> john, i want to thank you for your time today. >> thank you very much all right. a couple of other stocks -- a lot of earnings today. not just dow components. harley-davidson one that's given up earlier gains company beat estimates on the top and bottom lines this was on the strength of improved sales in europe however, it also had a voluntary

recall of some mod els to deal with a hydraulic component pultegroup beats on stronger sales. not much going on there. like a lot of housing stocks, sharply lower from its yearly high and arconic reportedly mulling an $11 billion offer -- takeover offer from apollo global that's according to reuters which says the bid is valued at between $23 and $24 per share. verizon shares are trading higher this morning. jennifer fritzsche is from wells fargo securities and she covers the dow component. these were pretty strong numbers. what was the takeaway for you? >> yeah. veriz verizon's just continuing to bubble down on what it knows best really that's wireless and the network. they have not taken their eye off the ball they have not done a deal to distract them.

i think these results are evidence of that >> the numbers that you're talking about, i guess the 54,000 fios internet connection a adds and then the numbers that jump out at you. >> really the phone adds for the wireless side are over what the street was looking for their churn number which is a metric of how many people leave them was under 0.8%. that's very impressive in you remember >> how does verizon stack up against competitors at this point? the ones you've been watching closely. >> so we'll see from at&t tomorrow but what's interesting, at&t really is its main competitor and wireless of course but clearly the companies are taking very different strategies with at&t jumping full force into the media space with time warner so it'll be interesting. but i think on wireless what the results are going to show in the third quarter is verizon has more than held its own but they're the first to report.

>> so what do you think overall in this sector verizon obviously you like a lot. would you put buys on many of these stocks or just verizon until you hear from the others >> t-moblie and verizon. for t-moblie we do believe that the sprint transaction will get done you know, we're working through that approval process in a very kind of drama-free way that can always change as we know but i think that the less news the better and i think that will be exciting stock once this gets done. >> hans vestberg make comments how he's excited to see the beginning of the 5g era in this fourth quarter do you think this is really going to show up or how long does this take >> i mean, i think it's a multiple-year, possibly multiple-decade process, to be honest but verizon is putting their money where their mouth is in their fiber investment i think that cannot be underappreciated because fiber is the critical element in the 5g world.

their wire line capex was up sequentially i would watch what they're doing on the wired fiber side. i don't think it's insignificant. >> thank you jennifer fritzsche from wells fargo. >> thanks a lot. all right. coming up, u.s. equity futures are under pressure this morning. our next guest, though, is short-term bullish despite some current market worries well known investor dan arbess will be our guest when "squawk box" comes right back.

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welcome back to "squawk box. check out the futures which are up -- down 400 and change. down 300 and change. back and forth between 300 and 400 at this point after a slew of different data points have affect trading points. started with weakness in china increased worries -- increased trade ware worries but then we've had a lot of dow components report. some of them with fairly large misses or disappointments, at least. and the stocks are down significantly. most notably 3m which is down quite a bit and caterpillar. although mcdonald's had a pretty good number.

obviously all these big swings, something the markets have been following so closely been a couple of weeks of major swings like this joining us right now to talk about what he sees for both the short and long-term is dan arbess looking at the short-term right now because the market is trying to grapple with what they're hearing from the global companies talking about concerns some concerns that are playing out right now and in the guidance that they're issuing for the full year, for the fourth quarter and rest of the year they're talking about things like currency head winds they're talking about things like some weakness in some markets particularly in south america and other places how big of a concern is this and you say you're bullish right here, but how do you put it together >> i'm positive right now. i'm not at all worried about things that companies are worried about because this is the real world what we're all adjusting to and there are some investors out there with no experience with this is a market that is not under the continuous protection and manipulation of government

whether it's the fed put or the trump put with tax cuts. the effects of those things are wearing off now and we're g getting back to a normal market environment. where some companies beat, some companies miss and that's what it's supposed to be like. there are some big -- >> but there are questions about the levels we're at right now. are these valid levels >> yes i actually think that stocks are in general not cheap >> they are cheap. >> sorry they're not expensive. we're trading at about 15 times forward earnings big question is whether the 179 number for the s&p is going to stay intact for next year. i think it probably is in which case stocks are not overly expensive the historical average is 13.8 times. but over 100% of the gain this year come from tech stocks which are high margin, high growth, high multiple stocks

so i don't regard the market as being terribly expensive today i think there are very big long-term macro issues there but macro anxieties -- i actually think the markets -- what i call the macro anxiety algorithms are not quite correct. the things that people are worried about today, they're too worried about. >> to put a pinpoint on becky's question a buck 79 earnings for next year when you see 3m and caterpillar do what they did today, does that pull bricks out of that wall >> i was watching you guys earlier this morning this is what happens in a market some companies beat. some companies miss. there needs to be recalibration of things. you talked about foreign affairs in the nuclear issue today the withdrawal from the inf treaty is an issue that can create tensions. there's all kinds of macro stuff. but this is what happens >> let's talk about two of those

and how they might have a real equity on real earnings on real companies. the first is the global economy. if the global economy slows down and we've been talking about this i did jdivergence, if it s down can we continue to outperform or are global companies going to catch that same virus, very same cold, whatever you want to call it >> so the slowing down of the economy and our talk about them, the actual slowing down of the economy is a lagging indicator the imf has said the economy is going to slow down a little bit. yeah trade tensions all of these things are going to work -- ultimately going to work out. i'm not worried about the economy slowing down because what's driving the economy forward right now and driving the profit cycle is technology companies, what's now called communications companies those are high margin, high growing companies. and they're growing just as quickly if not more quickly than china and other countries.

and so when we talk about the economy slowing, we have to dig in and look at where is the growth coming from and how sustainable is that growth >> i've seen in the notes you really like tencent, for example, over in china you don't get nervous when that government can step in and decide we don't like the product you sell we're going to determine when you can sell it. what you're allowed to do. how much do you discount the multiple you give to it because of just how much power the chinese government has over them >> the chinese government has headline power, but they're not like saudi government, for example. the chinese government is on a decade-long reform trajectory and it's got its own objectives. the main objective that the chinese government has now apart from maintaining the social fabric, okay which they're always attentive toward is driving the economy toward independent consumption

right now china is suffering from the trade issue with the united states. to be expected, they've had to depreciate their currency by 10% this year to offset the effect of the tariffs, that's not good. that's not the direction they want to go in. long-term they want to see their currency appreciate. to buy american and to buy chinese technology, goods, and services i think it's all working out if you take a longer term perspective with one big caveat. which is polarized politics create bipolar policy outcomes and in the fiscal policy area, both in this country and elsewhere, we have big problems. to me the biggest issue closest on the horizon right now is italy. you have a coalition government which is going with less taxes and more spending. that's not sustainable italian yields are blowing out

italian banks are still very long the banking system is a risk in italy. and here in the united states we have very similar concerns the president announced today he's going to have an executive order to cut middle class taxes. >> no he specifically said he'd put it through congress. >> after the election, but for now they're doing it with an executive order. they're going to put it to a vote after the election. how are you going to tax less and spend more on a sustainable basis? we're adding a trillion dollars to the deficit this year. >> i thought you were bullish? i thought you were bullish >> i'm bullish we're talking about earnings right now. this is a pivotal week for earnings i'm positive on earnings and the earnings cycle because the companies that are driving -- that are driving the market forward are doing very well -- >> can i just ask something -- >> we had a good year in revenues tax revenues more than ever before. it's the spending that's the problem. >> yes >> okay. all right.

>> we agree. >> okay, good. i just don't remember -- were you complaining when we went from $10 trillion to $20 trillion. >> because we got nothing for it >> of course i was complaining. >> okay. all right. >> talking about fiscal unsustainability if you look at the last it is just good if you going to do something and blow out the deficit? >> time will tell. >> there is a lot of people have not been sure since day one. >> it is going to be a year. >> did you remember a good piece of work that was put out where she pointed out the unstainability of the situation and talked about the united states being in solvent on the unfunded >> hardly original >> she did a really good job of eight or nine years ago.

we don't have to worry about it today. today's earnings looked really good and that's what we need to focus on where do we go with earnings this quarter and next. >> we'll have you back to talk more long-term today we focus on the short term we appreciate your insight on that >> thank you very much >> when we return, cramer live from the new york stock exchange and don't miss kyle bass that's going to talk about china and sanctions in iran. the futures are down 43..2 we'll be right back.

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let's get down to the new york stock exchange. jim cramer is joining us now thinking we should go to you at 8:30 and blow out. no, we are having a great day. there was a lot that i want to talk to you about. number one, we'll get you 25 on vix, i would think >> yes, we are what happens to 3-m and cat?

>> you have to look at this company long-term and say it is not the 3-m that we know i don't know how they can change things and healthcare being down so much is not good. demand was fine and i think caterpillar is better than end ka indicated but the stock wants to go down. i know your previous guest w was -- when i see these numbers i think j. powell is watching. three more hikes next year i don't know, maybe we have to wait and see it is how i would like to comport myself these are not numbers for industrials of things we want to see. if there was tension with china and federal reserve not

following then we'll be fine what am i supposed to say? i am not worry that they'll come to census. >> hey jim, it is michelle, good to see you again should we worry to see >> this was not a good quarter, i certainly, yes the cash flows are okay and continuing to buy back shares. this was poor execution and i am quite surprise this is not the 3-m i know and caterpillar was above, what happens there. >> look, it got higher cost. they basically told you they're going to have higher cost. i think it is much of a reaction of the fact they did not do the

class classic. orders were great and china were good >> we got to go. am i hearing you correctly that cat perpillar is in a different class? wllll right >>e' be watching at 9:00, jim, thanks, we'll see you in a couple of minutes.

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one quick look at where we are as we go handed over to "squawk on the street" down 413 points now on the dow and 117 on the nasdaq make sure you join us tomorrow, "squawk on the street" is next thanks michelle. good tuesday morning, welcome to "squawk on the street," i am carl quintanilla with david faber and jim cramer. here at home, dow futures point to a 400 point drop at the open. caterpillar guides below consensus. 10-yr is bac