"squawk box" begins right now. ♪ live from new york where business never sleeps, this is "squawk box. good morning welcome to "squawk box" here on cnbc we're live from the nasdaq market site in times square. i'm becky quick along with joe kernen and andrew ross sorkin. let's look at the u.s. equity futures. the dow futures are indicated down by 250 points s&p futures down by 28 nasdaq off by 88 this comes after a mixed day for the markets yesterday. the dow was up by 70 points yesterday. the s&p 500 and nasdaq were both down s&p down by half a point nasdaq composite down by 28 points let's look at what happened overnight in asia. stocks selling off after a weak industrial output and retail sales numbers were reported. a live report from beijing in a

moment nikkei down by 2%. hang seng off by 1.6%. shanghai composite off by 1.5% let's look at europe some of the early trading. right now red arrows across the board. dax off by 1%. cac down by 0.8% so is the ftse in london stocks are weaker in italy and spain. down by 1% let's look at what happened in the u.s. treasury market you will see now the ten-year is yielding 2.879%. you are still looking at the two and five-year yields inverted. the five-year at 2.715 >> breaking trade news overnight. china's finance ministry posting on its website that it decided to end the 25% tariff on 211 cars and car parts from the u.s. for three months this begins january 1st. this is the first step in what may be part of this trade truce. they started buying soybeans as

well let's get over to eunice yoon in beijing. >> thank you very much as you were saying within the past half hour the finance ministry posted that china has decided to lift tariffs on cars and car parts coming from the united states. most of the items will be seeing a tariff lift of 25 pfr%. there's a couple items that will get a 5% lift when it comes to the tariffs. that decision is going to take effect as of january 1st it will be in place for three months so this all comes at a time when china's economy is slowing down, facing a lot of headwinds because of the trade war the november data was extremely disappointing to many investors here in fact, a lot of them missed. retail sales missed. industrial output missed in terms of retail sales, this

was the slowest growth since 20 2003 industrial output expand the least in nearly three years. fixed asset investment got a tick but that was only because the numbers earlier in the year were so weak a lot of concerns about this part of the slowdown is because the government has been engineering it this way but also the bad news, the trade war, other economic conditions domestically have been weighing on consumers minds the china statistics bureau said so far the impact of the trade war has been minimal but also said they expect greater external uncertainties in 2019 that's been raising a lot of questions as to what policymakers are going to do next the pboc, the governor said yesterday they expect to have their monetary policy quite loose for the time being also next week all eyes will be on a big policy setting meeting

that takes place every year in china. all the big wigs will be there to draft a plan for next year. there is also a concern that the economy is going to cause a lot of these policymakers to prop up growth with much more stimulus than needed. but as of right now the policy has been to stimulate with certain measures but also have those measures be targeted, because the policymakers here are aware of the dangers of rising debt. >> before you go, in terms of just the economic impact of the tariffs, in terms of on automobiles produced in china, what kind of push back do you hear from the people in the automobile industry in china about these tariffs on -- or the relaxation of the tariffs on u.s. imports >> well, a lot of people here hn they talk about the tariffs say

they don't have a significant impact on, say, gms business or ford's business here because a lot of the production and the sales are all done locally when people talk about these tariffs, you know, usually they'll say the tariffs, if they're lifted, they could be good for the german carmakers. bmw has a plant in south korea they ship cars over here it's more the german carmakers that would benefit from this decision by the chinese to lift the auto tariffs still it could be seen as many people think is positive in that there's a lot of concern among consumers that the trade war is just going to be, you know, to deteriorate. the fact that the chinese made this decision to lift auto tariffs could be a positive sign that maybe the situation will ease up. >> i think there's a very good

teaching moment here with all of this when i first heard china is really taking it on the chin here, it's like it's working we do have the upper hand in a lot of these things. you come back to the whole thing, no one wins a trade war it's working look their economy is slowing we need their economy for our economy to do well i took a sbit of satisfaction that maybe this will help them come to the table and change things, and then futures down 270. >> this news just broke and the markets have not moved at all. we want to hear this is working and things are going away. yet the market is getting much more stubborn.

it's not moving on tweets anymore this is something coming from the chinese ministry. it doesn't help to defeat someone in a trade war that's a big trading partner with you, but it could i understand the rational. but there is a teaching moment siz probl it's probably best for us if china continues to do well >> when you're so tied to the rest of the globe, you want the global economy to do well. >> then again it would be nice if our domestic economy continued and if they took -- they have. their stock market has taken it much more. check this out we have felt -- i feel like i felt every dollar of this. a repocord amount of cash stread out of u.s.-based stock funds in the last week. that's probably not a huge surprise the money goes somewhere 46 billion this is according to new data

from lipper. 46 billion of withdrawals hit mutual funds, and then you add in etfs. near record $13 billion poured out of bonds where did it all go? $81 billion flowed into money market funds we heard cash is suddenly a viable asset especially when everything else is going down. for more on the markets, let's bring in kevin divney from russell investment management and karen cavanaugh, senior market strategist at voya. kevin, watching the reaction in the futures, which was basically nonexistent to this news from china what did you think of this i thought some sort of trade advancement or advancement in the talks was the last thing the market was hoping for. >> it was. joe made the right point about the dichotomiedichotomies.

on the policy front this is good news, but the economic reality is that the big worry out there is how much can the chinese economy decelerate i think also investors get fearful because there's still has underlying tone of what is transparency into the underlying economy. what is the data and how is that reporting? it's maturing. that's part of the struggle here the actual impact of tariffs, it can be material it can be disruptive as a proportion of the economy, it's much smaller than thing a ga than the aggregate i think we've learned the hard way, policy make takes take a long time to man ifest themselvs in the economy there's a camp of market participants who look at china and see that as a fear

that's why it can push down the market >> karen willem marx do you think? >> i think china deceleration is on investor minds, but also when china decelerates they'll stimulate more it takes a while for that stimulus to work through the economy it will work through the economy. we've seen this play out before in 2015 and 2016 we say things are better in china and here we are in the united states, we've been pricing stocks low based on the risk then we see the market take off. the bad news in china is good news in that there will be more stimulus on their part and we will see an uptick in the china economy in 2019. >> kevin, you think stocks look more reasonable and look like a fairly decent bargain at these prices >> i find it difficult to see how the u.s. economy enters into

recession in 2019. there's been a deceleration inning a great corporain inning a inning aing a gatd c it corporate earnings so valuations have been de-rated fundamentals are good. one of the biggest takeaways from q3 earnings, profit margins have gone up a bit if they come down, the multiple derating and profitability still being at record highs makes stocks appealing in some segments the other thing we're looking at, deceleration in corporate earnings, but the u.s. consumer is confident, under lever to some extent an spending. even if you get a deceleration in corporate earnings, the u.s. consumer can still keep theng a.

>> and that's your point, too, karen. the u.s. consumer is the wildcard we expect things to be up to the consumer when you deal with market sentiment and consumer confidence that may be waning, how do you play that >> i think when consumers in the first quarter, when they get their tax refunds, they will say i have more money in my pocket than i thought consumers are strong it's primarily because the jobs market is so strong. consumers who have jobs are happy consumers. even though market sentiment is bringing down consumers, we're still growing. earnings are advancing i think it's just too much of the negativity we are definitely in an adjustment period. the fed is ripping off the band-aid nobody likes that. i think we're prissi inpricing the bad and not a lot of the good we're calling it the storm before the calm. i think things will be better in

2019 >> karen, you've been positive for a long time. have you been putting extra money to work while the markets are in this volatile state and coming down the last couple of months >> i think investors should be fully allocated because fundamentals are so strong it's hard for investors to buy low. it sounds easy, but when the market is going down, it's not always easy to buy those stocks. but so many good things are out there, so many companies their earnings are strong and they're not being rewarded we have been fully allocated and we think this bad is already priced in. >> you say it's hard for investors to buy low you think these are the lows >> i think we're getting near the lows we're not out of the woods yet we see the fed looking at inflation. there's a chance there will only be two rate hikes in 2019. and underlying economy is still

strong and those corporate earning fundamentals are strong. i think investors will say we've already been priced in the turmoil with china we could be getting something good out of that the fed could pause a bit. geopolitical risks could subside. we do have a lot of turmoil in europe with brexit, with italy we could get a positive resolution, somewhat more positive there's always those global risks out there. if you wait for them to be settled, you will never be invested so investors are pricing that in now. that's why i'm calling it the storm before the calm. >> kevin, do you think we hit the lows >> we need to see volatility decline. investors have gotten used to a lower-risk environment we just hit the 30-year average for volatility on the s&p. so i agree with karen, we're getting near the bottom. the market has to rebase itself.

you'll see more elevated risk in 2019 than the past five years, but we should be seeing risk levels decelerating. >> you do think investors are getting used to this new normal? >> right part of that new normal is throughout a lot of the volatility there was no rotation in leadership. we're seeing that in healthcare stocks, investors putting a premium on returns and profit margins. >> we thought the next leadership would be the financials if the fed was in a raising rates situation. that's not been the case >> that's been the opposite. when you listen to financial company ceos they're confident in the long-term the fundamentals look good loan growth looks good so there's no real systemic r k risk >> all right thank you both

coming up, starbucks shares are under pressure we'll tell you why after the break. and rebuilding america infrastructure is one area where divided congress could actually find some common ground in 2019. we'll talk about some of the prospects for a bill as we head to break, a look at the biggest premarket winners and losers in the dow.

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to one-touch conference calls. beyond traditional tv. to tv on any device. beyond low-res surveillance video. to crystal clear hd video monitoring from anywhere. gig-fueled apps that exceed expectations. comcast business. beyond fast. sbk starbucks shares are under pressure after the company lowered guidance starbucks expects annual earnings growth of 10%, down from forecasts of 12%. it's also projecting annual revenue growth of 7% to 9%, that's in line with previous targets. starbucks is affirming guidance for 2019 but says same-store

sales may come in at the lower end of estimates and a big headline out of investor day yesterday starbucks is expanding coffee delivery through a partnership with uber eats this was tested in miami in september and plans to offer the service to a quarter of company-owned stores in the u.s. next year. it admits delivering coffee can be tricky. the company says it has special spill-proof cups and will make the coffee hotter. starbucks ceo kevin johnson and uber's ceo, dara khosrowshahi will be on today at 9:00 a.m. and tonight again at 6:00 p.m. starbucks opening its new roastery in shanghai there's now one -- i was going to go down there last night, an opening on 15th street and 9th avenue for their big new york roastery, which actually sells alcohol. there's a bar there, right

across the street from the google headquarters in new york city the margin there -- they also have one -- i believe they sell alcohol at the one in milan as well let's tell you about some m&a news lvmh buying bell mondmond in $26 billion deal the luxury retailer agreeing to pay $25 a share for belmond, a 40% premium over yesterday's closing price. the deal expecting to be closed the first half of 2019 lvmh shares down 1.5%. belmond up 40% what do you know about belmond luxury hotel you know any of the individual players? would i recognize anything >> i have to be honest with you -- >> if you look, there's rosewood >> i love the rosewood >> you can figure out -- there's a chain that you may not know the chain until you check. you know the hotel you don't know any belmonds? i come to you for this

>> i know you do rosewood is the only one i'm going through it >> check out belmond let's move on. democrats might have won control of the house in the midterm election but not every policy priority faces gridlock. really we're in a show-me position. infrastructure is one issue that could win bipartisan support joining me is norman anderson. put your finger in the air to see what 2019 will be like, but think about this first in the first two months of the fiscal year we raised a record amount of revenue, but we had a record deficit for the first two months so we raised 764 billion -- yeah -- no, we raised 458, we spent 764.

record revenues but record spending record deficit how the heck are we going to do anything infrastructure-wise trump can't even get $5 billion for a border wall. it's tough >> it's really tough one of the messages is that this bipartisan congress ought to try to do something small for infrastructure they won't do anything large they're talking about 500 billion. that's hard, but if you think about it the issue there is that it still will take a year or more to get that money into the economy. you have to really focus on private investment and infrastructure you have to focus on -- we talk about that when i come in here projects, specific projects ready to go. we have one project, the high speed rail project between texas and houston. they're on their fifth toad study. they didn't find toads in the

first four you have to innovate, get stuff done bring capital into the market. that doesn't sound like an awful idea i know the rugged individuals in tex like to drive the pickups, but it would be nice to get on a high-speed train like they do in europe will it make economic sense? >> even some of the trains in europe, the question has been has there been an economic -- there's been economic benefit, but do they pay for themselves >> you get that kind of a pair, between the fourth and fifth largest city in the u.s., downtown to downtown, that will pay for itself it pays foritself through land value capture. that's another way to fund infrastructure projects. downtown, you get a giant facility same in houston. same in dallas >> okay. >> all of a sudden you get up and running. >> you talk about how hard it is

to do the big beluild >> if we want to get the country going, your point when you opened up is a fantastic one we have trillion dollar deficits going on interest rates go up all of a sudden we're paying 600, 7$700 billion a year to service the interest the answer to your question is sure we've identified 25 projects that are good to go. private investment projects. not public investment projects so you sit down with a bipartisan congress and you show them what the benefits will look like going forward you show them if you move forward you will geturban areas. >> this is not filling up -- digging a hole and filling it

back up. we don't want bridges to collapse, right? there's a reason we need to do infrastructure, other than boosting the economy >> unless you want to leave your kids with a $30 trillion deficit and average 65-year-old infrastructure so this is really is a national emergency. >> those are all excellent points what do you think the odds are louis looking a just looking and playing politics it wouldn't be the first time a commonsense project got turned down by congress it's so hard to agree to anything even the wall they're arguing about, they're arguing high-tech versus low tech. what are the odds they can get this passed and they'll say, yes, we agree with this. >> you have to figure out how to get a transition bill passed, but much smaller not a trillion dollar bill >> it's going to be piece meal >> it's got to be.

you got to bring in the private sector look at the idea of an infrastructure bank. you could bring in 70 billion, 1$100 billion a year from our pension funds. they would love that kind of return you have to modernize our infrastructure you have to create space for the private sector to invest an infrastructure bill should be seen as a catalyst to bring in private investment that's the way to think about it >> there's a whole contingent on the left, they hear private investment and they say yeah, yeah it's never going to be more than 10%, 20% of the total. then they blame the right for not going full bore with the public side of things. they end up talking at each other. the right says it has to be private. left says it has to be 90% public we don't get anywhere. >> that's what we're trying to avoid focusing on 25 projects, 50 projects. you have to focus on the benefits if you focus on how much we'll spend, we don't have any money

to spend we need to admit that. that's how you started we have to focus on projects, crowding in private sector investment i was with hank greenberg yesterday, he's an insurance company leader, someone who really cares about the country he's focused on bringing in private investment, insurance money, low return, high-year investment and infrastructure projects >> norm, thanks. >> thank you. when we come back, china posting its worst november retail numbers in 15 years amid the trade skirmish with the united states. we'll talk about the breaking news that china is suspending auto tariffs right after this. right now as we head to break, a look at yesterday's s&p 500 winners and losers

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you have a partner in that pursuit. pgim: the global investment management businesses of prudential. welcome back. you're watching "squawk box" live from the nasdaq market site in times square. welcome back china's finance ministry posting on its web side it has decided to end the 25% tariff on 211 car models and car parts from the united states for three months

beginning on january 1st trump tweeted this earlier in the week there was question back and forth about it this is the 0official word from china itself and we are getting word that tesla slashes car prices after this suspension was announced. we're keeping an eye on the automakers they moved earlier this week on some of this news. the implied open for the dow, down 250 points. stocks in asia fell sharply overnight on weak data from china. industrial production an retail sales disappointing. retail sales grew at weak eftd pa weakest pace in 15 years if you look at the u.s. equity futures here, dow futures indicated down by 250 points after a positive day yesterday for the dow. s&p down by 28 points. the nasdaq down by 90 points

the s&p and nasdaq closed in negative territory yesterday. for more on china, let's bring in china's beige book's chief economist. we just saw the news on the c chinese ministry's website about the relaxation of tariffs. how meaningful is that >> it's symbolic it's not going to matter to the u.s. market, we won't export cars to china because there's too much domestic competition, no space for exports however as a sign of progress, it's a welcomed sign of progress it's just not a material sign. it's a symbol. >> that's the question welcome sign of progress you also see them buying soybeans welcome sign of progress or a head fake?

>> so far it's a head fake we already have a problem with 90 days. 90 days is a short period of time we should not switch from 90 days to 20days a days and say w haven't they done what we want we wanted them to be a better partner in 2016, not the same partner they were. we have to give them time. >> it still looks like blinking, if they're the first ones to back down in this game of chicken we've undertaken if you hope for some resolution in the end, this could be a positive sign, no? >> it is, it's blinking on stuff that doesn't matter that much. what really matters is are they going to steal i.p. or are they going to continue to have their industrial policy. yeah, they blinked, but they blinked on minor stuff >> let's go i.p. first what is it that you actually have to see to believe that

whatever they're going to say or do wouldn't be the equivalent of blinking we've been on this i.p. story, this is like a 20-year running story. there's been a number of times the chinese have said we'll do something about it then turn around and nothing else is done >> yeah. it's impossible in 90 da 0 days we don't all believe now china changed its i.p. behavior in 90 days we would like regular competition. we don't want bad centrally controlled state-owned enterprises to be in fields where they have to steal i.p until they get reform, the chinese have to steal. >> it's the idea of additional competition in china is the answer to the i.p. question, it's not what they'll pledge to do strictly around i.p. because that's too hard to enforce >> that's right. they can make promises and change their laws, it won't matter until they embrace more

competition at home. >> you do the beige book how bad do things look right now? that's why the market is down today. and can they fix this without coming back to the table with us can they just juice their in -- internally try to address this economic slowdown? are we orchestrating it or was it bound to happen any way are our tactics taking a bite out of the chinese economy right now? can they fix that? >> i think our tactics are hurting chinese sentiment, renminbi asset holders in general. they're nervous about do i want to hold assets denominated in renminbi whether it's stocks, property or whatever it is or do i want to get out of the renminbi the main problem in china is their own attempt to fix their financial system they tried to shift lending out of non-bank financials which are

higher risk into the banking system it has not worked well yet it's the right thing to do, but it's not working well. you see a slowdown for that reason we're piling on top of that. >> so just play this out handicap what you think may or may not happen over the next 90 days, taking into account whatever weakness you think actually exists in their own economy. >> well, i think one thing that the market should be ready for is the chinese are going to announce a major stimulus program. i don't know how well it will work i'm not fond of stimulus programs in any country. i think that's coming. that's related to u.s./china trade but not on the 90-day deadline i think the president has flipped dramatically from september to now where he wants a deal i think we'll get a deal with a lot of superficial chinese actions and promises to get more by the end of year as usual those promises are the key, not what we get by march 1st. >> there's people who think

navarro and the pence speech, that it's going to be tough to deal with president xi and there are people who think the -- we need some type of a -- i don't know if you call it regime change, but it's never going to work with the current regime we have will president xi be there in five years, ten years? will we still be talking about these same issues? >> i've been talking about them for a long time, so it feels like we will he has no successor. this is the difference from previous chinese leaders who had successors lined up at the ten-year mark. he doesn't have one. it looks like a cult personality. if you want to make a china story based on u.s. self-interest saying this is the best thing for us, you can talk about making a deal. if you want to make a deal based on xi jinping is an okay guy, that's not going to work he's not an okay guy this is a difficult government to work

with we have to make hard choices about if this is worth it to sw hundreds of millions of people keep coming out of the rural areas, becoming a consumer-based society. they are also seeing how the rest of the world lives in terms of personal freedom. we used to worry about them navigating into the 21st century. we don't worry about that anymore? it's a tough transition. don't people want what we have eventually >> it's a tough transition economically we're seeing it now. china is supposed to be becoming more of a consumer society and we're seeing more blips. the communist party politically survived much worse than that. the great leap forward, tiananmen, you name it i wouldn't bet against their staying power for better or worse. >> all right thank you for your time this morning. >> thank you coming up, it's the home

stretch for the retail industry. veteran gerry storch will talk about what's working and which companies are failing this holiday season then shares of g eshg shedding nearly 60% this year. larry bossidy will tell us what's next for the iconic company. stock had a big pop yesterday. stay tun, u'edyore watching "squawk box" on cnbc this is a tomato you can track from farm, to pot, to jar, to table. and serve with confidence that it's safe. this is a diamond you can follow from mine to finger, and trust it never fell into the wrong hands. ♪ ♪ this is a shipment transferred two hundred times, transparently tracked from port to port.

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welcome back let's look at the u.s. equity futures. we're looking at red arrows after a mixed picture for the markets yesterday. this morning dow futures down by 253 points s&p futures are down by 28 points the nasdaq off by 90 points. this is coming as we hear from china they will be removing those 25% tariffs on 211 car makes and auto parts coming from the united states. time for the executive edge.

jim chanos revealed some new long and short bets on casino operators. here are his exclusive comments to sara eisen on macau >> recently we added new and old names. and one area i'm scratching my head about is the macau casino guys >> so who are you shorting >> we're basically shorting the u.s. guys. >> wynn. >> wynn and sands. particularly the hong kong listed asian operations. and then in the hedge fund we are long the chinese operators. >> you can see more of that exclusive interview on our website, cnbc.com. some stocks to watch adobe's fourth quarter earnings beating forecasts. revenues roughly in line adobe upping its revenue outlook for the year strong demand here and abroad. jim cramer spoke with adobe's ceo last night about the company's bullish forecast >> i think we're absolutely in the sweet spot of two massive

shifts that are happening, creativity has never been important. when you think about creative cloud, to your point, we drove 1.45 billion of net new annualized revenue in the year, a record for us. when you think about what's happening with digital transformation i every enterprise, trying to engage can customers, that grew dramatically >> well see how adobe does today. the whole market is down raising revenue guidance, not really reflected we're also looking at shares of costco down almost 3% the company beating forecasts on a jump in same-store sales, what's wrong it was overshadowed by a drop in gross margins. costco paying higher wages, ramped up investment information online businesses. they cut prices to fend off competition in the grocery industry. when we come back, retail

stocks were rolling this year until the october selloff. since then the s&p retail sector falling more than 15%. we have industry veteran gerry storch joining us. he'll tell us what's working and what's wrong with retail after this as we head to a quick break, let's check what's happening in the european markets under pressure across the board. the cac is the biggest loser, down by 1% the dax is just behind that. quk down by 0.75% "sawbox" will be right back. at&t provides edge-to-edge intelligence, covering virtually every part of your finance business. and so if someone tries to breach your firewall in london & you start to panic... don't. because your cto says we've got allies on the outside... ...& security algorithms on the inside... ...& that way you can focus on expanding into eastern europe... ...& that makes the branch managers happy & yes, that's the branch managers happy.

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♪ we are closing in on christmas, but retail stocks may not be feeling the holiday cheer right now. the retail etf hitting a low this week. some down include target, tjx, and tiffanys let's see what's working or not working when it comes to retail. joins now is former hudson bay ceo jerry storch you've been in retail a long time you've been at the top of a lot

of different companies when we first got into this holiday shopping season just back before thanksgiving, retailers were saying this was the best retail environment they'd seen in their entire careers. whap are you think right now >> i think the real question is whether this is going to be a good holiday or a great one. we still don't know. it's certain there was a lot of success going into the holidays. all the third quarter results are fantastic. costco just reported yesterday, you know, 8.3% comp or something, same store sales in the u.s. that's tremendous. but that's only through the end of october november by all marks was pretty good then we got into does and there's always a lull after black friday and cyber monday. people are getting worried there's still 11 days until christmas. two great saturdays. huge weekends coming up. still plenty of time to turn it into a great christmas instead of a good one. that's not why the stocks are off. it's not because of the current sales that you're seeing >> the consumer's still strong,

but i wanted to get into this. why the stocks are down. we'll talk about that in a moment but just in terms of that lull that came and retailers starting to get a little nervous. did they overestimate the consumer or did the consumer confidence really change because of what's happening in the market >> it happens every year this is the longest calendar ever -- >> because thanksgiving was early this year. >> you can't have a longer holiday season still 11 days until christmas. >> still enough time to get ready for the holidays >> i was just mentioning it's great to be an arms merchant right now in retail opposed to a combatan combatant. >> what do you mean? >> in my case consulting services, other people sell software it's great to sell to both sides in this war taking place because it's armageddon. right now people are scared and panicky. i think we're going to have some great periods. it's going to be a good or great holiday. >> we're trying to get a read on

the economy and find out if we're late in the cycle, where we're at what do you think? the consumer drives so much of the economy. >> i think consumer is still very, very, very strong. the consumer is outstanding right now. wages are up unemployment is down they are spending. i think there's a little overhang from volatility in the stock market, but we could exaggerate that. but consumers don't live and die by the stock market by and large. they don't pay as much attention to that as we do they say what's in my wallet >> it's the job situation. >> their wallets are full right now. it's not going to be the consumer leading into a recession. >> how much do you think that's going to be driving this for the past couple of seasons, always been discount, discount, discount with a stronger consumer is it a different story? >> i put all that in a holding pattern discount everyone makes things look like they're on sale. what's really going on and this is the overriding strategic theme of our time in retail right now is of course the

internet is crushing people's margins. you saw that in costco's results, target's results, walmart's results. and it's like when stocks went and started being traded on the screen and all the trading margins collapsed. that's what's going on in retail right now. it's the biggest deflationary factor in the economy. i think it's also one of the reason we're not seeing inflation everyone is looking for. you see it show up in lower retail margins why? you cannot make money selling products widely available at multiit'll stores. you see what they cost and it goes down. >> is that a bigger deal for the stocks pressure right now than china? >> i have no idea whether the china trade pressure is real or not real in regard to retail stocks i don't think it really is and there are alternatives over time to china if that becomes a big issue, some of that could be passed along but you can't solve the problem of what's happening with the

internet it crushes your margin due to price transparency and it raises your operating expenses because it's grossly more expensive to deliver something to becky's home than it is to -- >> you mean to get it myself >> that's in everyone's -- costco grew 28% online and their over was 8%. it was up, that was good but it was single digits >> thank you so much great to see you jerry storch, ceo of storch advisers coming up when we return, our guest larry bossidy is here to talk market volatility and what is next for, yes, we're going to talk about ge general electric that company has been under so much pressure. u.s. equities at this hour, futures ahead of the market. dow off 230 points we are back with a big two hours just ahead

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breaking news out of china the country announcing it will suspend tariffs on u.s. autos. a live report from beijing is straight ahead global markets and a sea of red. we will get you ready for the final trading day of the week and look at this morning's market movers. plus the ceo of pure to pure money circle joins us to talk the bitcoin market as this second hour of "squawk box" begins right now. ♪ live from the beating heart of business, new york, this is "squawk box.

good morning welcome back to "squawk box" right here on cnbc we're bumping this to the top of your inbox, that's what it is. the nasdaq market site here in times square is where we are i'm andrew ross sorkin along with becky quick and joe kernen. take a look at u.s. equity futures at this hour we are in the red this morning we're going to explain what's going on here if there's an explanation at all but the futures right now would look down 226 points nasdaq looking to open off about 82 points. s&p 500 looking to open off about 27 points. among the stories front and center this morning, starbucks shares are lower in premarket trading. they lowered their long-term growth outlook they say same store sales may come in at the lower end of estimates. and right now that has the stock down by about 3.5% all of this comes as starbucks announces a new delivery partnership with uber.

both will be appearing on "squawk on the street" and on "mad money" later today. apple is pushing out new software updates to users in china. the idea is to get around the court ban on the models in that country based on chip maker qualcomm apple says they are clear of patent issues. and we are 90 minutes away from a report on november retail sales. after surging by 0.8% back in october. some breaking news out of china this morning china's finance ministry says it will suspend additional tariffs on u.s.-made cars and parts starting next year china deciding to end the 25% tariffs on 211 -- says here 211 cars i don't think that would make that much of a difference. >> i think it's car models >> oh, oh! that's like, that's all you're

giving no, anyway -- this suspect different -- isn't different from what we said. it's just official on the car parts for the u.s. for three months markets are down eunice yoon who joins us now from some of the data points we saw is the real story. didn't do well in asia or europe, right? >> reporter: yeah. that's right but first it's 211 items so cars and car parts. it's not 211 cars in total the way it breaks down is the 25% tariff is going to be lifted on 144 items and then 5% tariff is going to be lifted on another 67 items. and the finance ministry posted an explanation of its decision on its website saying we hope the two sides will intensify negotiations towards eliminating all tariff increases

so immediately after that, tesla announced that it's going to be cutting prices on certain models in china the model s and the model x both by about $15,000 for the model s and about $9,000 for the model x. and tesla is one of the few american car makers that has its cars imported into china as whole vehicles so it would be one of the main beneficiaries of this decision as joe is talking about, the backdrop of all this is the economic figures that came out for november were pretty disappointing. a lot of people were focusing on the retail sales numbers and the industrial output figures which missed expectations. the retail sales figures came in at the weakest level since 2003. looked better but that's partially because the numbers earlier in the year were so weak

the statistics bureau said it was minimal but they do raise question as to what the policy makers here will do next, what can they do next the central bank governor yesterday had said that monetary policy will remain loose this meeting happens every year. what the leadership does is they map out their plans for 2019 so there have been a lot of speculation as to what the policy makers will be able to do since they said that they do want to support the economy with stimulus, but at the same time they're worried about the dangers of rising debt so they have been using a lot of targeted measures so far but at the same time, there's a lot of pressure on these policy makers with the clock ticking down on the tariff truce guys >> yeah.

all right. we're going to actually start with this with our guest host, euni eunice let's get to him larry bossidy former chairman of honeywell. you were a ceo so if someone said, how do tariffs with china sound, your knee jerk reaction would have been are you out of your -- you know it's not a good, never a good thing. then i think of you as a soybean farmer where you're willing to forego a little near term gain because there's an issue with china. have i got you right on that >> you do. i think what we're doing with china is the right thing to do in the sense there's been imbalances way too long there has to be a day it would change >> you would hate it if you were ceo of honeywell >> i would not i talk a little bit about it differently today than i would have had i been in the ceo suit. but nonetheless, i think what we're doing there is the right

thing. i think it's going to take a long time to resolve made a couple moves which will suggest they're going to ease. the best thing we have going in that dispute is the chinese people they stay in power over there because they employ people that employment starts to get con trained, they're going to be pressured to bring more important stuff to the table and i think rather than our negotiating brilliance, that'll bring about a settlement down the road >> earlier we made the point that we're -- it's a teachable moment is the expression and that is it seems like our pressure is working in their economy. it's not the only thing, obviously. they've got their own issues in china. because it's a tough transition that they're making. but here, you know, it seems like we can stand it a little bit better and maybe we're able to exert pressure because we have the upper hand look what happened to our stock market do we really want to force china into a slowdown when it comes

back and bites us in the rear? >> well, you know, i think that's the balance that you got to achieve remember, we import $500 billion worth of goods in china. so if that begins to wane, they're going to be under great pressure i think the settlement will occur. but i don't think it's going to occur overnight. >> you think the settlement will occur, what will it look like? the details are what so many are harping about at this point. are we going back to more of a normalized situation where we had for recent decades or is this going to be a new regime where there really are more access for american companies? they don't need to pick up joint venture partners and intellectual property theft actually comes down. what kind of deal do you expect? >> i think you just hit it on the nose the -- in my mind, at least, the strength of the settlement will be dependent on those two things do we, in fact, have protection

for intellectual property. the tariffs are one thing, but at the end of the day we don't make progress in the other two points, the settlement won't -- >> but larry, we've gone around and around on the ip issue i'm not sure them promising they're going to somehow help us on ip or enforceip rules is going to be a game changer because we've seen what their version of enforcement actually is to me, competition is probably the only thing that's going to get you there. and the question is how much of that is going to be real and how much is going to be a head fake given they have the ultimate 2025 plan. saying we'll relax that plan publicly but we know what their issue is long-term. are we trying to contain china is that what this is ultimately about? or is this a trade skirmish temporarily? >> i do think this that the chinese can enforce anything they want they haven't had any interest in enforcing it

but part of the settlement would be how are they going to enforce it so i think protection of intellectual property continues to be a mainstream of any settlement i do think if we have equal access, we're going to do fine competitively. >> and you think we're going to get equal access you think that's happening >> i think we'll make progress i'm not naive to think it's going to be open and free in the way we express it. but i think it'll be better than it is now. >> we can -- got so many things to talk to you about today i mean, ge good lord. >> ge. >> hello >> you still have some, don't you? >> i do. >> oh, my. why? >> larry, it's not worth as much you didn't have it margined out to -- you know, for any of your expenses, did you? for your living expenses you're going to get a margin call you did a little bit better yesterday. >> well, you know, my life doesn't depend on it but for reasons i can't justify,

i still own some of it >> did -- was it a surprise to you that there was this long-term insurance issue that just seemed to be swept under the rug? did you know anything about that how come analysts have to figure that out >> remember, this was the tail of the sail. they decide to keep this on long-term insurance coverage and think you can ask the question which i certainly don't have an answer to, why wasn't it followed more diligently and where are the auditors i mean, the public auditors. so your inability to identify the risk is in my mind inexcusable. that's one of a whole bunch of -- >> inexcusable meaning somebody was stupid or meaning there was fraud taking place >> you know, i can't believe there was fraud taking place. >> why not >> in my mind, it was over looked -- >> semantics, isn't it >> well, the result is the same but i think the intention is far different. >> intention matters.

>> was it near term that you know -- >> we're talking insurance fraud. >> take the whole thing. take the whole -- in total >> well, we're going to find out. there's an s.e.c. investigation. >> have you talked to jack recently >> yeah. >> can you share anything that he's -- >> no. we keep those conversations private. >> there are people now writing books. some are going to look at immelt and the mistakes he clearly made and others are suggesting that jack left him with a very bad deck of cards. and that he didn't play them well where do you stand >> i think there's a number of things first of all, an unsuccessful leadership strategically and operationally. you've done bad acquisitions which they wrote off entirely. their inability to see what's

happening in the power sector. the power sector has been cyclical for a hundred years >> we're loading up on real estate before the financial crisis >> so he goes on and on and on so in combination, those are the things that seems to me -- >> why are the actual products they make -- even jet engines, even just the straight operations of the business seem to be in peril >> i don't think the company from what i know and i'm not privy to most of it, i don't think they run the businesses with the rigor they did before welsh left >> there was evidence that i was hearing people preferred with quality and all that stuff. >> but there's two issues there. there's the strategy of when -- and these acquisitions that didn't make sense. but then what we thought were real power in the business >> buying high and selling low was the one thing that --

>> it's hard to win on that basis. so the question is where is it now and what will happen you know, i do think what i read at least makes sense in terms of progress they're going to have to run the businesses with more rigor these businesses produced a lot of cash flow at one time and they can produce it again. running the place more vigorously i think will at least get them on the right track to a better future than what we see now. >> i mean, honeywell is -- we're going to have more on ge is honeywell moving their headquarters >> they are. >> are the jets going to still be nearby? are you going to be flying commercial how is that going to -- >> if the jets don't win, they won't be -- >> not those jets. kicking the can down the road. all right. we'll talk anyway, thanks, larry. we'll have more on ge. interesting analyst call yesterday. that guy was the one who's had it right. >> he did. he called it right >> so you're familiar with that.

okay. >> i'm familiar with all that. >> can we revisit this >> of course. >> call jack get comments for air meantime, we'll have more from larry on ge and other late, bitcoin under $3,300 how low could it actually go the coo of web wallet service circle is going to join us to wnen about a lot of people tak do by this we're watching "squawk box" here on cnbc.

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just one more way we go beyond at&t. right now, get fast, reliable internet and add voice for a low price. comcast business. beyond fast. welcome back to "squawk box," everyone the futures this morning have been under some pressure take a look right now. you're going to see that the dow is indicated to open down by about 264 points s&p futures down by 30 the nasdaq down by 87. this selloff was sparked by data out of china that showed industrial output and retail sales growth for the month of november missed expectations. the worth numbers they've seen in quite some time that has people concerned not just about what the economy is doing in china but what that might mean around the globe and back here in the united states you can see the nikkei closed off by about 2%. hang seng was down by 1.6%

coming up, circle looking to bring cryptocurrencies to the mainstream the company's ceo is going to join us next to discuss the fallout and whether or not it can return we'll be back in a moment. broke my personal record. aflac!? no-good break. gooood break. i'm so sorry we can't make your barbecue. i'm just sick about it. aflac!? different kind of sick. if i can't work after surgery, how am i gonna pay my rent? all these bills? aflac! oh, aflac! and they pay you cash in just one day. see how aflac helps cover everyday expenses at aflac.com.

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welcome back to "squawk box," everybody. cities across the united states and canada were on alert after a wave of bomb threats the fbi is now investigating what law enforcement sources tell nbc appears to be a widespread hoax. schools, businesses, and hospitals in at least 21 states and washington, d.c. were evacuated after threats were received by e-mail demanding $20,000 in bitcoin to keep

explosives from detonating >> bitcoin >> no bombs were found. >> it's a bitcoin scam, sorkin >> it is we're going to continue talking bitcoin now because bitcoin is trading below the $4,000 mark for almost two weeks now far from its all-time high a year ago joining us no talk about what this means for cryptobusiness is circle ceo jeremy allaire. it feels like a lot has changed since i last saw you do you have any thought about what the bottom looks like and what the inflection point would be if there was one? >> yeah, sure. thanks for having me, obviously. couple quick things. i think, you know, something that analysts in this space look at is the fundamental valuation metrics in this space are really focused on the actual usage of these platforms. now, obviously there are hundreds of different

cryptoassets there are flagship cryptonetworks if you look at the square correlations between core usage and value, they're actually highly correlated. what we're seeing, actually, is both for bitcoin and for ethereum in particular, there is some decoupling there. which is to suggest that both of those assets have been oversold. and so in the case of bitcoin, maybe moderately oversold. in the case of ethereum, potentially pretty significantly oversold so the amount of usage remains very high. the amount of people deploying -- >> the other thing so this is the cost of mining the cost of mining now weigh outstrips the cost of the actual coin >> yeah. so it's not quite accurate the way mining works is there's a difficulty rate. that adjusts every, you know, 10 or 14 days and effectively, if it's too expensive for a miner, they'll drop out that's when you see these sort

of hash rates go down. miners are not able to do it profitably but effectively there will always be a sort of marginal cost it does mean, though, there are going to be companies that can compete on that side of the market >> larry bossidy is here i didn't know you were a crypto guy, larry >> i'm not, but i follow it carefully. one of the things i think people are apprehensive about is when is regulation going to happen? in other words, the s.e.c. is supposed to be working on it the ftc, the same thing. you guys ought to be pushing for regulation and remove some of the misapprehension that exists today. when's that going to happen? >> just to be clear, the u.s. actually has more regulatory clarity than any other market in the world. the exchange of digital currency with the banking system has been regulated for over five years. companies like circle and

coinbase are regulated under money translation laws that's significant from a consumer protection. >> what's missing? >> i think there really are a couple of things one is, you know, we've got essentially a collection of commodity markets. and then we have acollection o potentially digital securities or digital securities markets. there has to be a lot clearer definition between what crypto assets are currencies or commodities and which cryptoassets are actual securities that sort of clarity and guidance and then the second is once you have that guidance, what are the kind of market rules that should be applied whether it's for secondary trading of these digital securities or do we need national commodity supervision for the crypto space we are advocating so circle and coinbase, you know, have been very active with congress, with policy makers, with agencies

and everyone involved in this. >> jeremy, what do you think -- >> there's a lot of enganlmegeet >> if you think there's an inflection point coming or a sense it's oversold, what is going to be the ching that's going to change the game here? because you also have so many investors who lost so much money in this, it's unclear to me what's going to bring any of those people back or whether you're going to have to find a whole new generation of investors. >> yeah. you really have to separate two things so one is, you've got something like bitcoin which has a fundamental thesis around a kind of long-term, non-sovereign digital thesis you have to separate that from the kind of blockchain platforms and actually build financial products and services on top of this a great example of that is something that we've launched with coinbase very recently which is u.s. dollar coin. it's a cryptocurrency pegged to the u.s. dollar. it allows you to use dollars over the internet at the speed of the internet at very low

cost that's a building block now that we can build a lot of other innovative financial products and services whether it's in lending or debt or securities or other things. so these building blocks now allow us to have great use cases. so it's essentially moving into this value phase which is going to drive the next wave absolutely not i think it really has its adherence and it has, i think, a very significant role to play as a non -- >> so if we're having this conversation three years from now, what's it worth >> you know, i don't make significant price predictions, but i think it's going to be worth a great deal >> have you bought any at this price? >> i am long in the market >> long in the market with the basis from 2011? or long in the market in the last 12 months >> i have a more recent basis in the market >> but what is your thesis around why it goes up? because that's the big

fundamental question >> yeah. i mean, so, again, you got to kind of separate all these different digital assets, different forms of cryptocommodities or cryptocurrencies they have very different -- >> i'm asking specifically about bitcoin since it's the one on our screen at the moment >> i think the key thing with bitcoin is it is unique in its security and scale and, again, as this idea we need a non-sovereign store value, a scarce non-sovereign store value that individuals can hold and hold in a protected fashion. that's attractive all around the world. >> we're going to have to run, but my other question, because you're introducing all sorts of other coins when you talk about a dollar pegged kind of currency or ethereum or something else, do you think there's a winner take all situation or you really think there's going to be dozens of these currencies >> i do not think it's a winner take all we have a phrase the

tokenization of everything we think cryptotokens rb there'll be millions of them in years. >> and you don't think that undermine this value of bitcoin or any of these currencies given there's going to be all of this different supply >> they're going to have very different valuation frameworks a security in a company is going to be valued on the basis of that company a commodity used to consumer resources, going to be based on that yeah >> jeremy allaire, happy holidays >> thank you general electric got a big boost yesterday after one of the biggest doubters upgraded the stock only to a neutral from a sell is it likely a short-term bounce is management on the right track at this point? we're going to ask longtime ge executive and guest host larry bossidy more about what he thinks is happening with ge and the future of the company. as we head to break, here's a look at u.s. equity futures. the s&p is down 27 dow jones down 239

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welcome back to "squawk box," everybody. here's what we're watching this morning. china's finance ministry says it will suspend tariffs on u.s.-made cars and parts starting january 1st a record amount of cash based out of stock funds last week according to new data from lipper while a near record $13 billion poured out of bonds. and some m&a news this morning lvmh buying belle monday in a $26 billion deal paying $25 a share that's a 40% premium over yesterday's closing price. that deal is expected to be closed in the first half of 2019 okay we're still doing some research on belle monday. i thought andrew would have -- huh? you know of one in south africa. >> there's a handful of good

ones fabulous hotels. but i haven't stayed at them myself >> which is a shocker. >> i love a great hotel. i do >> i know you do coming up, we're going to talk about this morning's market move news coming out of china on tariffs and lower than expected productivity in retail sales numbers. as we head to break, here's a look at this morning's biggest losers and losers -- no. winners and losers if we can find any >> chevron is the biggest winner up 2 cents >> in the dow. "squawk box" will be right back. when you retire will you or will you just be you, without the constraints of a full time job? you can grow your retirement savings with pacific life and create the future that's most meaningful to you.

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in jellyfish. in clinical trials, prevagen has been shown to improve short-term memory. prevagen. healthier brain. better life. welcome back, everybody. let's get a check of the markets. joining us now is ceo of zoya financial. gentlemen, welcome to both of you. it's good to see you this morning. andr andres, let's start with you the idea we're looking at weaker markets this morning in part

largely because of the weak n k nick -- economic data we got overnight. tells us we're a little concerned about that catching up to us too. what do you think? >> i think that's a fair assessment the global economy was not doing well actually coming into the second half of this year to begin with now we have the u.s. paying attention. the reality of it is especially with what's going on in china, you have a u.s. economy that had a fiscal boost that might become a head wind into the second half and china actually currently all those things combined probably make the investors more nervous than they used to. >> does it make you more nervous than you used to be? >> valuations were not appealing to begin with. now they became maybe a little bit more appealing but ultimately i feel the same way which is when you look at

the next five to ten years, equities don't look as appealing as it used to. >> in terms of recommending a course of action to your investors, do you take alternative investments into account now opposed to just the regular equity markets >> i mean, depends what type of wealth you have. if you have a hundred thousand dollars, it's probably not in the cards. having said that, they have equities that could be helpful i think there's something there. having said that, private equity going into this year was already fairly expensive some might have thought it was more expensive than public markets. i'm not sure about the thoughts on that. >> i think that's true the returns have been outstanding. >> but past returns don't predict. >> that's what they said then too. >> let's talk about what's happening around the globe it's also what we heard from the ecb earlier this week.

what do you take when you add it all up >> well, the ecb really had to strike a fine balance of ending quantitative easing. and at the same time knowing it's not the right decision. europe is make no mistake, it's the region around the world that is slowing most seriously, most aggressively there's still a lot of uncertainty. i agree with andres on the global picture with the current state. however, the data today are a little bit in the rearview mirror because we're looking at november decelerations which we already sort of expected to a large degree but if you look on a going forward basis three to six months, some of the seeds that we're planting with respect to the decreasing trade tensions, some of the statements that china is making, we could find ourselves actually in a situation where over the next six months emerging market asset classes may do much better than developed market asset classes you saw it already in the

october/november correction. emerging markets being the most risky do not underperform. em equities outperform through the correction that's a sign that valuations in emerging markets at the moment are a bit stretched on the cheap, on the downside and you could have an interesting pause where the first half of 2019 delivers a bit of a risk appetite surge >> is that an argument that they're going to stop hiking rates? >> if i may rephrase that slightly, partially this rebound could be driven by the fact that the fed has taken the foot off the pedal. the dovish turn by poul is critical in helping especially emerging markets finding a bit of a relief. treasury yields are lower. the dollar is stabilizing. that could really help a foreign assets do better >> andres, back here in the united states, you say there is

no alternative is dead at this point. >> i'm glad you brought that up. if the fed hikes in the upcoming mee me meeting, it'll mean it's the first time it's higher than core inflation. which means that cash is a viable option. you couldn't say that for a decade what does that mean? especially for fixed income, right? now there's something else to look at. which means that eventually there might be a better opportunity for stocks if they keep hiking rates. i think that's a new pair dime for the investor that's actually now on the table. >> but just because they hike this time around doesn't mean they're going to keep. most people think they're going to hike and then really slow down >> so we'll see. but even if they keep where -- let's say they hike next week, that's already an option above inflation. i mean, for most investors, i don't know if you saw this news, 3% sounds like what is this?

that was not an option for a decade that's going to continue to be a litmus test for the appetite >> outside of emerging markets, what else do you like? do you like u.s. stocks? or is it something you would avoid? >> in the equity space, we're overweight and underweight meaningfully so european equities. is that is broader economic call and also the federal reserve you think that's the biggest issue facing u.s. markets too? >> it certainly is -- it's the fed -- their latest turn certainly helps. the u.s. economic picture is still a relatively favorable one. monetary conditions despite the fed tightening it's not something that worries us at the moment it's more we'll have a negative impact a couple of years down the road credit conditions are still very genero generous >> how big of a deal are the trade talks? depending who you ask, it's

either the most important issue or just a sideline issue >> right now it's one of the main issues. i would say most of emerging markets than u.s. stocks >> why is that because the risk is really there. the disruption to supply chains and where the sentiment is the weakest is in emerging markets. >> that helps other emerging markets if the supply chain starts moving to their shores? >> there's not much more to move to emerging markets in terms of supply chains. that's what the problem here is with trade tensions. the risk is that there is a divestment of foreign direct investment out of emerging markets back into developed markets. that's partially what the trump administration has tried to accomplish, right? bring back some of the old industries into the united states >> gentlemen, thank you both very much.

>> thank you coming up when we return after an initial pop of 9% in the stock, general electric fell back to session lows steven tusa at jpmorgan upgrading that stock we will ask our guest host about the moving management, the shedding of assets, and whether or not ge could be bought. also programming note, starbucks expanding coffee delivery with uber eats. be sure to catch jim cramer's talk with kevin johnson and dara khosrowshahi "squawk box" back in a moment. [leaf blower] you should be mad at leaf blowers. [beep] you should be mad your neighbor always wants to hang out.

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right now, get fast, reliable internet and add voice for a low price. comcast business. beyond fast. we are joined this morning by larry bossidy, former chairman and ceo of honeywell, former executive at ge for many years. this gentleman went from a sell to a hold. what do you think the all clear would be for not a hold but for buy, larry what does culp -- what is his first order of business at this point? >> he says he wants to get the balance sheet fixed as the first order of business. he's identified assets to be sold which i think is on course. it's going to take awhile to get to where he wants to end up. but it's at least started.

and i think one of the things i'm looking for is to see better performance from these businesses i mean, he's got some good businesses there that have underperformed of late i'd like to see more rigor in the running of those businesses. i'd like to see some cash flow when you see a succession of asset sales and some cash flow from the operating businesses retained, i think that's going to be a sign to everyone that they're on the way out of this ditch. >> which businesses do you think are not performing up to par >> power systems, obviously, is one that's been discussed here it's a cyclical business it's been made worse by the acquisition and the need to write it off it's been made worse by some troubles with gas turbines which will be expensive to be fixed but will be fixed. when you see the corner turn on that, it will be a sign of optimi optimism the aviation business has been strong, continues to be. and so, you know, i do think

when you see some cash flow, things will look better. >> do you get calls from private equity guys that say you know this company pretty well, we'd like to -- we're thinking maybe we should make a run or a play at this division or that division or where's the opportunity here >> i got one vague call, you know, when the market cap is $60 billion, it conceivably could be in play. i think that's unlikely. but, you know, ten years ago that was out of the question as i say, i don't think that's going to happen. but i think there are people looking at it. >> what kind of people do you think it's a private equity kind of people? or it's strategics >> could be both i mean, there's big enough private equity firms now that could probably swallow it if they decided to. there's certainly some strategics that could deal with it >> these activists, whomever, how do they -- i just -- i don't know are they really good at what they do all the time i mean, where did he decide that this was, you know, that some -- it was at 15 or so when he

decided i'm going to shake this up there was another 50% downside do they know what they're doing in terms of, you know, how they value these things >> you know, i know him on the board. he's a quality guy i don't think that, you know, there was full knowledge across a wide spectrum of people. for example, this long tail on health insurance, i don't think that was -- >> it would be good to know before >> i know. the company didn't know. it'd be hard for you to know and they didn't, obviously i don't think they recognized early that alston was going to be such a bust i'm sure they did their due diligence, but on the other hand they're surprised. >> larry, just back to not assessing risk properly in the portfolio, anybody you talk to in the industry says that should have been glaringly obvious. >> i think that's an oversimplification you look at this insurance

lienlt -- liability, it's the tail of the sale i'm not saying it should be excused, but i'm saying it's not a big deal >> maybe not in the beginning but for a long time it was getting more and more obvious. >> as i mentioned earlier, where were the auditors? they have a responsibility too >> that's my question. could this happen to anybody >> not anybody >> it's crazy though. >> did you hear this stuff anything about these kind of issues when jeff was there immelt, that is. >> i heard some rumors that weren't favorable in terms of people desertions. and the company didn't have the same rigor it once had lots of rumors like that but nothing to the extent of what unfolded >> how many asset shuffling and we're going to restructure this, restructure that that's all we really -- and we know -- we used to be owned by ge so we were following it closely for the last 15, 16 years.

i mean, there were so many assets sold president not just cnbc go across the list of what ge used to be and all this restructuring that was supposedly necessary to reposition it for the future and all the asset shuffling. now here we are again. once we get through with the restructuring -- there were like five restructurings already of the company. everything that was done with shuffling it around seems like it was -- you went into popular things like subprime right before it hit the fan there. you went -- you know, you doubled down on energy right before oil came down from $100 it's not the same company that it was how much is left from when you were there >> well, first of all, it's not the same company that it was and a lot of the restructuring prior to now i guess was to try to have a new path, future for the company which didn't work. i mean, clearly didn't work. now the restructuring is aimed

at fixing the balance sheet which is out of control. and that's essential not optional, but essential. once that happens, you're going to have a less diverse company certainly one without a financials arm that made contributions over the last 25 years. >> let's say nothing had been done >> pardon? >> let's say nothing had been done still owns nbc didn't buy amerson still had ge capital on financing the lighting business and the medical imaging and all the other stuff. >> no, there was a need to move some of those. >> gen worth still there you think you needed to do all this >> some of it. i wouldn't say all of it for example, i do think lighting had run its course in other words, there wasn't much delta earnings -- >> used to hold up ge as an example of -- because you look at ge and westinghouse in 1991 westinghouse didn't exit anymore and ge became the preeminent company. >> the reason ge became

preeminent is it did move on its portfolio. >> in 1991 >> yes and after that jack did a lot to reposition the company from what it was when he found it this particular fray has not been successful. >> would you try to claw back income from jeffrey immelt >> i don't know. i don't think about that i'm certainly disappointed in his performance, but i'll let others decide that >> should i ask about the second plane? did you ever know about that >> about what? >> the second plane. >> of course not of course not. i don't know if it's completely confirmed that there was now, some people say yes, some say no but of course not. we didn't run it that way when i was there. >> honeywell, you had two planes following you, i thought in case the second one didn't -- >> and on the ground >> all right larry will be sticking around. i don't know whether we can

glean anything else. we'll move onto something else next time. but ge is -- >> it's a sad situation. all right. when we come back, reaction to news out of china that they are halting tariffs on autos the former u.s. ambassador to canada will join us to talk futures. dow futures now indicated down 236 points s&p futures down by 27 nasdaq down by 87 points this comes after weakness in asia and worse than expected economic numbers coming out of china. ♪ ♪ the new capital one savor card. earn 4% cash back on dining and 4% on entertainment. now when you go out, you cash in.

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could there be light at the end of the trade tunnel? china suspending u.s. auto tariffs for three months a live report for what that really means is just minutes away futures falling on friday. markets could wipe out gains for the week with the latest pressure coming from weak chinese economic data. and the saying goes, when the bears have thanksgiving the bulls have christmas we'll put that to the test with a big market call when 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. i'm joe kernen along with becky quick and andrew ross sorkin our guest host this morning larry bossidy. he's a cnbc contributor. the futures right now are once again in the triple digit down mode down 240 points almost on the dow. the s&p down 28 or so. the nasdaq indicated down 90 might not be a surprise that treasury yields moderating again today. today we're above 290. but trouble in china big trouble and little trouble -- there was a kurt russell movie something like that >> "big trouble in little china. >> yeah, well, it's pretty big 2.88%. so below 2.9% again.

still inverted down between the 2-year and 5-year we are watching three big stories this morning one, china says it will suspend tariffs on u.s.-made cars and parts starting next year that suspension will last for three months two, markets pointing to a sharply lower open on wall street as joe just opened. as it stands now, weekly gains for the dow would be wiped out at the opening bell. although the futures are slightly higher now than they were earlier this morning. and three, key retail sales numbers out 30 minutes from now. economists are expecting a 0.1% rise for the month of november when the data is reported at 8:30 a.m that would follow a 0.8% jump from october few stocks on the move to tell you about costco reported mixed quarterly results. the company earned an adjusted dollar $61 per share. same store sales up 8.8%

adobe systems beating on the top and bottom line for its latest quarter. earned an adjusted $1.90 per share. revenue was slightly above estimates as well. raised the revenue forecast for the full year. yet you're watching that stock down 2%. and a deal to tell you about belle monday agreeing to be bought by french luxury goods maker lvmh the price tag, $3.2 billion including assumed debt >> chipriani in venice >> is a belmond >> all those things. yeah there's three of them around here one right up there where you can get a bellini. peach flavored >> peach juice and champagne, i

think. chinese ministry decided to end the 25% tariff on 200 car models and car parts from the u.s. for three months. eamon javers joins us now with more just to clarify for you, it's not just 211 cars. that would not be a big deal >> that's right. >> that's what we've been saying all among. it's more than that. but this is the same 40% to 15% we thought we were getting it's just official now >> what the chinese have done is announced a temporary suspension of their temporary tariffs right? so they were raised on u.s. manufactured vehicles earlier this year in response to the tariff tensions between the united states and china. now they're announcing our eunice yoon passes this along from the chinese finance ministry overnight they're announcing a percentage of that. they're suspending on 25% tariff

on 144 items 5% tariff on 67 items. autos and auto parts that are going to be seeing that suspended tariff all this taking place in three months the decision takes place on january 1st. and ironically, some of the biggest beneficiaries of this could be bmw and mercedes. daimler and bmw both manufacture vehicles in the united states and export them to china they might benefit in a big way. they've said previously that their profits might take a hit from this trade war. the other big beneficiary here could be tesla which makes all of its vehicles in california. china is the biggest electric vehicle market out there and so that might be a benefit to tesla going forward general motors interestingly enough manufactures a lot of their vehicles sold in china in china. so they aren't affected by this

at all it's not as direct and linear as you might think. >> so what else, eamon was it going to come before christmas? it's not coming before christmas. >> i don't get the sense that mueller is going to be wrapped up we saw this report yesterday in "the wall street journal" that investigators are now looking at the trump inauguration >> attorneys in manhattan are looking. i initially thought that -- i don't know is that sort of a -- there's gambling going on here we're shocked there might be some donors that expect something from giving to the inauguration >> that's the fine line of washington politics all the time, right? >> i don't know. it just seems -- >> if it's -- the line you run up to is if it's an overt quid pro quo. you can donate money in the way of generating general good feelings but if you say i want "x" policy outcome -- >> okay. so you mean like a clinton foundation quid pro quo. >> if you have an actual quid

pro quo. >> oh. like that! i don't know if it rises to that level. no, i'm kidding. i withdraw the question, andrew. i withdraw the statement >> you can't withdraw the statement. >> i just did! >> you can't unring a bell >> what are the implications of -- and i don't know -- while we've been on the air, this michael cohen interview has been running with stephanopoulos. >> that's a guy i'd get to interview me, i think. did he get the questions directly from bill, do you think? and hillary? or no? >> okay. i think the question is going to be what michael cohen has an tape >> what michael cohen has said and what you think are the implications of him saying in this instance where it sounds like mr. trump knew what he was doing and knew that it was wrong. >> yeah. the question there is are the hush money payments to the porn star and the playboy play mate, are they actually campaign contributions? because were they done to effect

the campaign or were they to spare him embarrassment? john edwards was accused of something similar years ago. ultimately the government was not able to make that case with john edwards in this case though, what you have is michael cohen saying that this was done to benefit the campaign you also have ami, the pub lischer of the national enquirer saying these were made to effect the campaign the other thing that looks bad for the president is michael cohen saying this morning i'm not going to be the villain of this story so michael cohen clearly thinks that the villain here is donald trump. and he thinks he has the evidence to make that case and he's a guy who was taping a lot of conversations surreptitiously. so he might have some proof that he was directed by the president to make those payments he may be able to even prove the case he did it to benefit the

campaign the question is what happens to that does congress ultimately feel that's an impeachable offense? >> person of high character. >> or does the president say that's small >> but you know -- we're dancing around it. he was running for president of course he didn't want -- no one would want that to come out before a campaign. >> rudy giuliani said that >> the question is whether it's high crime maybe it is, maybe it's not. it could be a felony >> right that's a political judgment that congress gets to make. >> people argue that cohen pleaded guilty to things he shouldn't have pleaded guilty to but he did it for whatever reason i don't know >> here's the incredible irony here the president could actually help himself legally if he can prove that he paid off a bunch of other women in previous years for their silence when it wasn't a presidential campaign year right? then he could say, look, this is my pattern of practice this is just how i operate and

it had had nothing to do with the campaign >> the porn star and the playmate >> so normalized which is crazy. >> it was normalized long before this guy i know you're shocked to hear that >> okay. >> politicians have that proclivity >> we're going to move on and talk about the markets right now. are the markets in a bull pause or are we seeing bear paws do you get it? you get it okay i mean, that was almost too clever by half joining us now is doug ramsey. good morning to you. we've been trying to make sense of the news out of china all morning, what it's done one way or the other to the futures this morning. i want to start there, actually. then maybe we can move onto where else do you think the market may be headed before the end of the year is out

>> it's interesting. the market has a funny way of causing the news rather than the other way around sold off and then we got a blink from chairman powell then we got some recessions on trade and now most recently from china. so it's actually a big part of the way that we look at things economic causation very often is in the reverse the market will cause the news i think that's what's going on right now with respect to trade and fed policy >> and so what are you doing about that >> we've been cautious for quite a while. we're assuming that we're in the midst of a new cyclical bear market and quite frankly, if you look at declines in foreign stocks, you don't have to make that forecast i mean, it's there it's happened. foreign indices are down composites are down 20% to 25% small caps are down pushing 20%.

so in terms of that definition, we're already there. i think, you know, the dow and the s&p are always the ones that put on this show of superficial strength right up until the very end. i think they'll be the last to crack into next year >> if you're running for cover, you're running for cover where >> rather than selling across the board, we've got a quantitative hedge product where we keep our existing longs in place. our longs are not all as defensive as i'd like them to be we do have a big slug in health care things like the managed health care stocks, bioteches, believe it or not. doesn't sound like the perfect play for this market but then we hedge that with various statistical, you know, overvalued fading momentum stocks and technology. i mean, there's a lot of energy, a lot of materials in that short group. so we use a hedge rather than selling across the board >> doug, larry bossidy

given your viewpoint in terms of some negative economic news, where does the s&p 500 finish at the end of 2019 and where do fed funds go >> i'm always reticent on giving a date and a number at the same time but i mean, this is just an illustration i mean, our work focuses on conditions rather than price levels but just as an illustration of how high valuations got at the peak of this market, if you were to mark down the s&p 500 to this same pe on trailing earnings that existed at the market top, the historic top back in october of 2007, the market would have to go down to 2250 and if you marked it down to the same price, the sales ratio that existed in october of '07, the market would need to go down do 2050

and, you know, it's been overvalued for a long period i mean, what's changed, we think -- i mean, the trade is sort of noise that maybe is exacerbated fundamental conditions but really it's the strain on liquidity. the monetary squeeze going on around the world the change from a qe world to a net qt world so that has been the catalyst. it's been slow to unfold >> doug, is that a call for another 20%-plus drop from here? >> yes yeah, i think eventually over the next 6 to 18 months. i think it's very likely again, it's the point that i don't need to give you a draconian assumption to get that much downside. i'm just saying, look. if we go back to the same valuations at the top, that's another 20% from here. it's remarkable. >> we talked to paul tudor jones earlier this week. he talked about a 10% drop on the upside when you talk about a 20% drop, does it look like a quick hockey

stick. it drops and pops again? or is that something where you think you drop 20% and you hang out there for awhile >> we'll have to see what the sentiment numbers, what the price action, valuations look like at that point but there are some values being created. i talk about this idea of going down just for reference the trailing pe peaked at 25.4, went down to 18 you already had that marked down in small caps. so it can happen it's already happened and has created value in small caps. >> doug, we got to go. thank you for leaving us with such happy thoughts this morning on a friday. appreciate it. >> all right have a good weekend. thanks when we come back, president trump celebrated the deal to replace nafta with great fanfare. but it still has to pass congress in order to take effect is that going to happen? we will dig deeper into yet another congressional fight when "squawk box" returns in a ment

a business owner always goes beyond what people expect. that's why we built the nation's largest gig-speed network along with complete reliability. then went beyond. beyond clumsy dials-in's and pins. to one-touch conference calls. beyond traditional tv. to tv on any device. beyond low-res surveillance video. to crystal clear hd video monitoring from anywhere. gig-fueled apps that exceed expectations. comcast business. beyond fast. welcome back to "squawk box," everybody. the trade deal was signed by the big three leaders, it was supposed to overhaul the nafta agreement. however, this may face significant changes in order to pass congress. joining us now is former u.s.

ambassador to canada bruce heyman thank you for being here today >> pleasure. >> many of us looked at nafta 2.0 as a given but you're saying there will be challenges >> in this particular case we've made it much harder in that the calendar is now working against the president in that he lost the house. you have election in 2020. a lot of candidates are starting to pace themselves on this and you have a new government in mexico so all of that means it's going to be harder i've been on the phone with members of congress on the democratic side both at the senate and the house side and staff. and i have a sense that there are paths of getting this done but it's going to be a large part on how the president and his team behave going forward. >> how much of this is sound and fury and threats that are coming

through and how much do you think it would really be a situation where they decide not to pass it because just thinking back to during the negotiations for all of this, it was both republicans and democrats saying if the president scrapped nafta and got rid of the treaty, that would be a horrible thing for business. isn't this basically the same thing? it reminds me a little bit of the brexiteers and the eu is not willing to renegotiate. >> i think your read on this is correct. if we have no deal and the president threatened this last week that he's going to withdraw from the sitting nafta which would be disastrous for our equity markets really for a guy who says he cares about the price of the dow and the s&p, this would be horrific that being said, the path ahead, these are always really hard to do but in talking to democrats, i

think they want a deal, but they want to see them enhanced and amended in a way that is good for american workers and a win politically. there are specific things they have already begun to identify that i think are reasonable things to bring up and have conversations about. >> ambassador, larry bossidy i'd like to change the subject a little bit if you were togive advice to the canadian government given the situation they're in with the huawei matter and the arrest of the cfo and the u.s. extradition and the detainment of two citizens, what would be your advice to their government? >> my advice would be what's going to happen today. today force minister freeland will be in washington meeting with pompeo and mattis these are high level meetings

that take place between our koun countries. but today is the day we have to have a serious conversation that, look this is an extradition law this is by justice and law this should never, ever fall in the realm of politics. and the president's language this last week was unacceptable and we need to clarify this is by law and not by politics if he turns this into a political scenario going forward, i think he's really putting a vice on our best friend and next door neighbor canada i think the canadians are going to tell the americans that >> okay. again, back to this idea of thinking we can renegotiate the deal how likely of a situation is that it feels like we barely got over the finish line with the deal that all three countries just agreed with. you go back and start opening this up, and, man. >> well, it depends what you ask for and how you implement that so first of all, there are a lot of good provisions in this

agreement, but i think upcoming speaker nancy pelosi has made it clear she wants to make sure they're enforced are they strong enough to uphold the agreement that we put together so she says enforcement, enforcement, enforcement second, they have a $16 an hour wage level and all they're saying in the congress side is, why isn't that indexed to inflation we have a 25-year-old nafta. can you imagine setting wages 25 years ago? >> but if you index that to inflation, that was already a huge gift for mexico obviously they're the ones that will have to do more you want to ask mx khouw to do that you may be dealing with a tough negotiation. are they willing to risk what they be a better deal for no deal you know, i hope we could find paths to compromise. so i think the word that needs to be held both with this

upcoming budget negotiation in the next two years i think there are paths to getting this done. and side letters can be done without reopening the entire negotiation. so there are a lot of things that can be done here to find paths to compromise in getting it done. so everybody can claim victory on doing something for the american worker and our economy. but if the president withdraws from nafta or they -- he basically pushes his bill forward, i think it's going to be a tough road forward. >> add one more worry we thought we were through back to the table. ambassador heyman, thank you coming up, we're about to find how busy consumers were in november key retail data coming your way in minutes stay tuned you're watching "squawk box" on cnbc chasing after short-term returns? instead if getting caught up with the crowd,

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welcome back to "squawk box. we are seconds away from november retail sales data take a look at futures right

now. dow looks it would open off 250 points right now over some anxiety about weakness in china nasdaq off about 94 points this morning. s&p off about 29 points. let's also show you the 10-year right now before we get to rick santelli in a moment in chicago. the 10-year trading at 2.882%. rick, the numbers, please. >> all right our advanced look on retail sales for november up 0.2% better than the up 0.1% many were expecting a nice revision to last look up 0.8% now 1.1% take out autos, still holding at up 0.2% as expected. take out autos and gas, you end up with a better number. up 0.5%. and also more than doubled our last look from 0.3% to 0.7%. the control number, buckle this is a big dee.

inputted into other data points. up 0.9%. we were expecting a number up 0.4%. move from 0.3% to 0.7% this is compelling data. obviously could always be stronger maybe ex-autos could have been better, but it was as expected but that control number is pretty good number the dollar index having a stellar day, actually. if we were to close here on the dollar index, it would be a fresh new high going back to the summer of 2017 you mentioned china, there's nervousness in the leverage loan markets. and we're looking at a preequity that doesn't look great. we're up three basis points on the week becky, back to you >> all right thank you very much. have a great weekend, all right? >> you too thank you. >> all right see you later. steve liesman is here. he has more on the numbers what jumps out at you? >> this is a good number what rick points to, the control group.

i was primed for a good number and i'm excited to see it. i'll tell you why. i think the market's gotten ahead of itself in counting on the downturn and the slowdown next year. i think there's probably going to be a slowdown it just seems like the market is predicting disaster. and i think all the indicators you would look at point to a strong consumer for not only our holiday survey but, you know, employment and wages all those things that you look at that would tell you that the consumer is going to be pretty strong they're doing pretty well. and i like that. >> consumer is doing well. but we had jerry storch on earlier. >> i heard that. and you did not commit suicide after talking to him. >> no, no. his point is, look it's going to be a good holiday season we just don't know if it's going to be a great holiday season it's a longer holiday calendar this time around because thanksgiving was earlier if you're using this as an economic indicator of the consumer, that's one thing >> things are cheaper but

they're not making as much money. >> this is terrible, but i don't really care. from an economics point of view. you want to know what people are spending right? i mean, you guys will do the stocks i do the other stuff i'm the janitor. i'm cleaning the toilets out here you're running the business. >> that's true good then we're back to four hikes next year. >> that's the thing. >> you can't give me anything i like >> no. because you're not doing it right. >> it's all bad news >> it's not all bad news. >> if it's really above expectations then -- >> oh, my god. not four hikes but not zero. which is what the market's thinking about you can't have -- you're like a guy, joe you want to eat the broccoli -- you want to not eat your broccoli but want your mom to serve dessert. >> we all are. he said something that struck me as i haven't thought about before we always talk about retail sales. there's not any inflation there. that's because goods have been made in china and they're so cheap. you never see prices go up in

these things and the advances we've made in electronics. he said he thinks the reason you're not seeing more inflation is because of the internet and differences in competition and ways they're coming through -- >> absolutely. that's part of the change dynamic. joe likes to emphasize that. you're making monetary policy according to old rules in a new world. but can i talk quickly about online there's one other aspect from our survey yesterday we didn't talk about this is that notion get ready to throw stuff at me. you like to do it every morning. have online sales peaked i want to show you our survey data we asked people what are the one or two major places you do your shopping take a look at the first graphic here look online is the far away winner. okay 44%. what you don't see in that chart is that that's the same as last year, that 44% there's been -- after meteoric rise -- i indexed that 2012 to a hundred and compared online with everybody else in the next chart. >> okay. >> now take a look at what's

happened to the growth it kind of flattened out now, it's flattened out before and you can see -- i'm wondering if the bricks and mortar stores -- there's one more chart where we asked a follow-up question a lot of shopping online or a little shopping. and the next one shows the little shopping is now even. the people who do a little bit or none online, people who do a lot is now even. so okay. we've had it flattened out before i have two points i'd like -- >> who's doing less shopping online >> it's just not less. do you do a lot -- you do a little or do you do a lot. that's the two groups we have. >> do i do a lot or all? that should be mine. >> dollar value, not units again. >> okay. here's my question for all of you. >> okay. >> have the bricks and mortar stores or their attitudes towards them changed if you go into a best buy to buy a tv, do you think the price

online is cheaper anymore? >> no. if i make the trip, it's convenience. if i make a trip to the store, i'm walking out with it. >> this is why i wonder if it's a way that -- and this is from courtney reagan. when i showed her this data, she was skeptical. i'm skeptical of it because it's only a one-year trend. but if they have stopped this idea that i can definitely get a cheaper price online, then maybe they've found a way to even things out >> right >> closer margins in the meantime >> one thing here that i think argues against that is the number of store closures has never been higher and it's going to continue on in other words, you can't go to the same number of stores you once did in terms of bricks and mortar that drives you to online. hard to believe with that data it's going to slow down. >> so coming back next year we only do that survey one year and it's going to be higher still. >> i'd bet that way. >> there is also a lot of talk that the retailers are on the edge of implementing in-store

type technologies that are enhancing or increasing the in-store experience. now, i guess i got a soft place in my heart for the bricks and mortar guys. >> wait. >> i like going to places. >> i like the smell of the department store i do i like the smell >> you've got to recognize they're not making money that's troublesome >> you walk in there you always smell them. >> i hate all the perfume. >> let's categorize this with something worth noting with an asterisk and come back to it next year. >> can i just ask one more question one more question though when you ask people if they're shopping online or at retail, the traditional bricks and mortars, does that count target.com and walmart.com as an online retailer or traditional so many of the bricks and mortars have bigger presences that maybe there's a drop in the online shopping, it's i bought that from walmart or target but online >> we ask a separate question about where people do their

online shopping. >> right >> and amazon wins everything. >> because that's what -- >> but by how much >> orders of magnitude, i don't have it. it's like 73 whatever it is. it's like a big number but that's also constant amazon did not pick up market share relative to -- >> but it's confusing in the question at this point did i buy from a traditional retailer or online from a traditional retailer but online or if i returned it to the store then i think it's a hybrid purchase >> to the question goes like this where do you do k-- where are te one or two places you do your holiday shopping >> in my bedroom in the car >> number one is online. then big box stores, department stores, costco, wholesale, dollar stores. we ask seven or eight different categories do people answer it wrong? i'm sure some do >> we're digging way deep into the woods. but i mean -- in the weeds

it's interesting >> i will tell you mobile shopping has increased and we also find mobile shopping increased in older demographics. >> because it's gotten so much easier. >> so grandma and grandpa are on the cell phone buying stuff now. >> because all the sites are much easier to navigate. >> it used to be clunky. >> i have one other point -- i know we got to go. have the technological advances of online shopping, is there more wiz bang this year than last year? i think with the advent of the mobile phone it was bigger this is about the same as last year >> amazon changed something where you can't do one click shopping anymore you have to swipe instead of just click >> interesting if they come along with another way to make it easier to go online, you might get another search that it follows the technology >> steve, thank you. >> my pleasure thank you. coming up, the market thinks it knows what the fed is going

to do next yoo we-- week, but wa about next year? when we come back -- >> what do you want? you want the whole thing to shut down >> everything is bad in this market everything's bad nothing's good >> no matter what happens it's bad. >> we're going to get inside the fed's head and talk about the impact of rate hes oikn credit markets. stay tuned you're watching "squawk box" on clinic cnbc. so they say that some day ai will transform the human race. well, today you're a little busy transforming your call center. dealing with millions of customers a year,

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welcome back to "squawk box," everybody. we've been watching the futures

this morning all morning we've been in the red. right now the dow futures indicated down 223 points. that's about the best we've seen through the session. nasdaq indicated down by about 84 points. s&p down by about 26 there are many fed watchers bracing for a rate hike out next week at the central bank's meeting take a look at the odds as they stand right now looking at next week and then 2019. for more on rate hikes and the impact on credit, let's bring in adam richman for morgan stanley who says a credit bear market is upon us. thanks for joining us. i think the demise of the bond market might -- at least the 10-year might have been greatly exaggerated to some extent still you think it's on track at some point to normalizing? >> yeah. look, we -- our broader view, you know, we're cautious on credit markets part of it's fed related

but there's a bigger story behind it. you know, we think a bear market and credit has started it started when investment grade credit hit the tights this past february it's been hitting, you know, global credit markets this year one by one the high yield market has finally cracked. that took longer to roll over than we would have thought and even lenverage loan market has rolled over. a big point that we're trying to drive home as part of our 2000 outlook is a turn in the credit cycle is not just some specific point in time. it's a long slow process that starts when growth is strong and when policy gets tight we think the process has started and as it continues to evolve you're going to continue to hit the links. the excesses that really built up over the course of this long credit bull market starts coming to the surface >> yeah. that's -- we're in that boat now, aren't we how serious is that going to be? we -- i thought that we all

agreed that the ber -- bernanke fed was going to be trouble free do we need to revisit that should they have taken a victory lap? is there a real day of reckoning to come for all the excess liquidity that went to places it shouldn't have gone? >> yeah. i mean, i don't know that i would phrase it that extreme, but yes. if you look at what monetary policy has done in this cycle, it was hugely supportive of credit markets for many, many years. so the fed took all this duration out of markets. and the flows the money had to go somewhere it went into credit markets. that incentivized companies to issue debt to buy back stocks and other purposes they did that. and so now we're starting to see the process in reverse the fed tightening, hiking rates while shrinking the balance sheet at the same time and naturally you should expect to some extent that has the

opposite impact. it's weakened the flows into credit markets it was always something we thought investors were underestimating as we headed into 2018. we think the story for 2019 starts to become a little bit less so about just this sort of tightening and liquidity conditions and morphs into slowing growth, slowing growth expectations, weakening earnings growth as that happened, some of the fundamental pressures continue to spread out and we continue to progress along this slow turn in the credit cycle >> so the latest equity market volatility that we've been dealing with which seems to either portend that the fed was going too fast or that the economy was near late cycle or, you know, that the recovery was coming to an end is any of that overstated? has the path of the fed changed for next year based on the last six weeks of market volatility combined with growth expectations coming down

or is it the same it was are we overstating that? they still going up three next year >> so our house view is that they're going to hike in december next week they will hike again in march and june then they will pause you know, i -- clearly the market is very, very focused on, you know, exactly when and if the fed is going to pause. i think to some extent, we might be focused on the wrong thing or maybe too focused on exactly when they pause. if you think about in past cycles, the bulk of the spread widening actually happens from the point when the fed is done hiking until the point when they -- when we are deep in a rate cutting cycle because that's when the economy is really weakening. if the fed pauses a little bit sooner because of this tightening of financial conditions but hypothetically let's say that happens when growth is weakening, that's not necessarily going to be that bullish in markets or for credit >> all right

so in terms of the economic cycle, that you're basing all of this on, what do you think for next year in terms of gdp? can we muster 2.5% that'd be slower than this year. >> we have growth slowing from about 3% our chief u.s. economists has growth slowing from 3% down to 1.7% in 2019 and in fact, the low print is the third quarter of 2019 of just 1%. and even more importantly, we are -- so our equity strategist has talked about the likelihood for a modest earnings recession next year. so call it a quarter or two of modest negative year over year growth is reasonably high. liquidity conditions keep getting squeezed for now you get this fairly meaningful slowdown in growth we have earnings growth which starts to stall. that's a challenging environment for credit markets we've had a couple mini growth

scares in this cycle in 2011 and in 2016. and credit markets trade at recession-like valuations in both of those. >> wow those are horrible numbers i wish i hadn't even had you on today. what did you say 1.7% next year >> really low. >> from what from what? from what? from china from trade you think all this tax stuff was kanzian and it just dries up >> part of it is the fiscal stimulus starting to fade. part of it's fed rate hikes already impacting the interest rate sensitive parts of the this economy. look, i don't want to be all bad news so what i would tell you silver lining is sentiment is much more negative in credit. >> did ellen predict 3% this year or was she one of the we can't get above 2% ever? >> i don't think it was quite as high as 3%, but -- >> okay.

>> -- in that direction. >> all right all right, adam. thank you. adam richard monday, morgan stanley' head of u.s. credit strategy >> thanks for having me. when we return, we're going to go hang out with jim cramer at the new york stock exchange get his sense on what's jim craw york stock exchange, take a quick look at futures right now, we are in red, all triple digits nasdaq down to 88 points and s&p is looking to open down at 27.5 points we'll be back in a moment with jim cramer the future of technology investing lies beyond the tech sector. it's about technology transforming every sector. ♪ at pgim, our bottom-up approach uses a technology lens to identify long-term winners. from energy...

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get down to jim cramer, live at the new starbucks roastery in new york is that where they have alcohol? >> they do have alcohol. >> there is a move i can get on board with i don't know about at 8:53 in the morning. coffee and alcohol go very well together they offset the effect of things >> it is pop shell alcohol it could be had any time it is only the lower shelve. >> i think that nice mexican

eatery in brooklyn serves a little alcohol, too, are you familiar with? >> on sunday i can make you a bloodymary and it will knock your socks off >> i like my socks being knocked off. >> hey, what should we talk about, jim retail numbers are good. we are saying it is all bad, right? anything good is bad and anything bad is bad. >> absolutely, joe, it is so horrible i am on a balcony, after i am done, i am going to jump off because it is so horrible. costco's numbers were not good there is some sort of weird group thing going on right now if the stocks go higher, they say they love it heaven forbids, someone says stocks going down, it is all heard. >> it is >> we got larry bossity here and

we have been hearing from people of what happens hat general electric and all that kind of stuff. i have my on opinions on them. whatever happened it is a tragedy of this company founded by thomas edison >> yes, it is. i am sure mr. bossity will agree with me that what he's doing is taking the emergency action initially and going into a growth cap i am not talking about three years. i am talking about 18 months, larry culp bought this company, larry, i don't know, do you agree with me? >> i do. i am optimistic in the street than the future of ge. >> mr. culp is really a star he knows what went wrong and

he's taking swift action breaking with the past and i think his aerospace business no matter what they did, it is still the best in show >> you are right, jim, thank you, we'll see you in a couple of minutes the cameras are going to go from you, whatever you want to do after that with the high end stuff, don't miss the double shot that's a plan. a big interview of kevin johnson and dara khosrowshahi,sqwk t seet. "ua stay tuned h card from capital one. i earn unlimited 2% cash back on everything i buy. and last year, i earned $36,000 in cash back. which i used to offer health insurance to my employees. what's in your wallet? at&t provides edge-to-edge intelligence, covering virtually every part of your retail business. so that if your customer needs shoes, & he's got wide feet.

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host this morning, larry, the former chairman and ceo of honeywell and our cbs contributor, are we getting out early? >> now we are wasting time >> larry, thank you for being here quick last talk. >> more optimistic about the u.s. economy than most i think we'll have a reasonable year in 2019, not as good for 2018 >> i want to wait and see a few more things happen >> like you want it to come down >> reinvest, reinvestment

income >> i get it. >> it is 15 derivatives of reinvestment of income >> i think the economy will be better in 2019 i am still a believer. >> we have to go, have a great weekend everybody, make sure you join us next week, "squawk on the street" begins right now good friday morning, welcome to "squawk on the street," i am carl quintanilla with sara eisen at the new york stock exchange jim cramer is at the starbucks roastery where he'll talk to kevin johnson and dara khosrowshahi. the chinese will temporary halt some