survival it's awaiting for a bid to buy the company out of bankruptcy. and a deal to buy one of canada's largest pot producers it's supposed to be mellow, man. i don't like this hostile stuff. it's friday, december 28, 2018 "squawk box" begins right now. ♪ live from new york where business never sleeps, this is "squawk box. good morning welcome to "squawk box" on cnbc. we're live at the nasdaq market site in times square i'm melissa lee with joe kernen and wilfred frost. our guest host is joe terranova. he's also a cnbc contributor we want to start with the markets after that crazy ride we had yesterday. the dow swinging 871 points in

total to close 260 points higher, this after having been down 611 points intraday this, by the way -- >> at 2:40 >> i saw the whole thing unfold. you picked it up it was insane. this is the biggest two-day percent gain in three years, now trading 3% higher for the week still down 9% in the month of december taking a check on how we're following through this morning, it looks like green across the board. the dow looking to add 136 points to this two-day tally s&p looking higher by 18 1/2 the nasdaq up by 46 points if we hold this, what a way to close out the week >> i was watching. kind of closely yesterday i was thinking we talked about it earlier, will we be down 600 or up 300 it didn't look possible. i saw on twitter, i saw zero hedge, love it or hate it i

follow it now. this one line at 2:30 or so. this is the highest positive tick of the day. it was like 1,452. i said wow, that's high. if only that would really happen i watched in shock as it just -- it was fast. >> the speed was unbelievable. on the floor we had two days in a row of elation from the traders. the day before when we crossed 1,000, everyone was cheering yesterday when it suddenly turned positive with about 15 minutes left to trade, again, everyone cheering on the floor the turnaround was unbelievable. >> the pain should be shared we don't want to be bullish when we're covering the stuff we don't want to be bearish. though we have an inherent bias. we like prosperity and things going up when the bulls, so much pain has been inflicted, so much -- think about the last two months, some of those days. another day down 500 points.

>> i've kind of experienced those. >> it's fun when the shorts get squeezed how does that feel. >> they were cheering the 1,000-point rally. the machines were not bad on wednesday. >> oh, don't -- >> the algos were okay the market went up the last two days >> this guy likes it when it comes down >> we recognize the fundamental strength of the businesses when the market goes down,algoss on monday, all sectors were lower. on wednesday, they were all higher yesterday they were all lower and all higher by the close. it's definitely a week where the machines played a role, not just company earnings >> we can't dismiss this on volume volume was strong yesterday. 9 billion shares, >> even christmas eve was not bad. >> right >> if you think of it from a portfolio standpoint, you look

back at 2017, everything went higher it was a low volatile year you basically had high beta, everything went up 2018, low beta year. everything went down in an environment where everything goes down from a portfolio standpoint, diversification is important also rebalancing at the end of the year you've been provided an opportunity as a portfolio manager. now you see the ten-year at 2.75 who wants to buy bonds with the ten-year at 2.75 equities pulling back 15%, here's your reblangs opportunity. a lot of that is coming into play >> who has the nerve to step in. after 1,000 points, everybody said this is the biggest fake rebound ever then it looked like that was confirmed yesterday. people were not getting n not

buying the bottoms, not buying the dips then they go have a sandwich and come back -- that's the diabolical way that the market takes over >> it takes years to bottom typically. it's not going to be three trading days >> 1,300 points in two days. >> joe, i agree ten-year at 2.75 is not attractive, but cash you can get over 2% if you're buying a cd jim cramer made that point yesterday. >> i agree with jim's analysis, but when you see assets decline the way they have the last eight weeks without knowing the statistics, i would make the argument that cash levels are higher today than eight weeks ago. so there goes the rebalancing opportunity. >> i don't want 2%

keep your 2% if you're 65% you want 2%. >> don't look at me when you say that >> i have to say, my whole life since i've been out of school and had any opportunity -- >> whole life. >> my point being the last decade -- >> we're talking months basically. >> i couldn't possibly save money. there's been no point. it's been zero now you can get something. >> did you notice the japanese bonds? they're zero >> negative. >> or close to negative. does that sound good to you? >> i'm not going to save my money in the japanese bond >> global -- >> i do represent japan today as well >> yes >> there we go negative >> that's distinctively a much different economy. >> i am not saying it's not. but yields around the world are not better >> the rest of the world looks nothing like the united states economy. >> even if you are in your early

50s or whatever, mid 50s, whatever -- you looked at me when you said 60s, even if you are there, i still think -- 2% for ten years, 2.75 for ten years -- >> not ten years, but a one-year cd >> you don't want to go long duration on cds. >> if you can get a -- >> you know that on $10,000, you can buy like a six pack after a year on the interest or something. >> you used to be able to buy half a beer, now you can get six. >> there are times where you are just happy to get your money back >> or you could be down 9% those are the options. >> for two months cash has been better than stocks >> for the year -- >> for the year cash has been better than stocks for the year cash has been better than any asset class around the world >> the other thing to point out is the u.s. equity markets have

been better than the rest of the world. >> they should be. >> i dpree i agree. the nikkei closed its year down by a third of a percent shanghai closed higher by 0.4% in china, 2$2.4 trillion were wiped out in 2018. what a rough year china caps off with this trading session. european equities, let's see if there's follow through there. key is the close in europe we have green arrows across the board. the dax is higher by 1.6%. treasury yields, we're watching that we were at a nine-month low earlier this week. 2.72% was the yield on the ten-year, we're now at 2.752%.

a new reuters poll shows that president trump is taking the lion's share of the blame for the shutdown 47% believe the president is responsible, 43% blame the democrats. the clock is ticking on sears. it's a last shot at survival it's a 4$4.6 billion proposal from eddie lampert, the chairman, to buy the company out of bankruptcy. this would happen through his hedge fund, esl investments. esl is the only bidder to buy sears as a whole as of yesterday the bid had not been submitted reports say lampert had not secured finszing for i infinanct in the absence of such a bid, liquidators would break up the

company. >> green growth, a u.s. based marijuana retailer says it plans to make a $2 billion hostile bid takeover for aphria. it is offering a 45% premium to yesterday's closing price. it said it tried to engage the board before launching this hostile bid and it acquired a meaningful position in the company. shares of aphria up about 20% right now. lockheed martin has won a $700 million contract to develop hardware to support the f 35 fighter jet. last week lockheed was awarded a nearly $2 billion contract to provide patriot missiles to the u.s. and allies. and first republic bank is joining the s&p 500 index. this move will be effective before the start of trading on january 2nd. first republic has branches in seven u.s. states. it's replacing scanta which is being bought by first dominion let's get back to the markets and the big moves this week joining us is bill zock from diamond hill capital management and jason pride, cio of private

clients at glennmeed and our guest host, joe terranova. wilfred frost, our expat from the uk is here melissa lee of "fast money" fame is also here we're out of time. thank you. actually, jason, i'm looking at this the risks of a recession are rising now at 35% i feel like bryant gumbel. why? >> so, you know, i think you have to take this into context this is a model we put into place a couple years ago just to assess a problemistic forecast we have been monitoringthat fo some time. that's been sitting at s susub 20% risk levels. that's about right you see a recession 1 out of every 7 years. now we're at 35%

>> what do you see why? >> so, what it's seeing is it's seeing a contrast between a build up in excesses and some near-term factors that are kind of directional in nature basically we've seen the economy expand enough here that we have a build up in excesses that i wouldn't say it's really all that material. it's just higher than it normally is. therefore it provides room for a pullback in the economy. to put it into context, it had 35% chance of recession. that's more of a yellow light than red light a yellow light meaning that 35% chance, that's 1 in 3. that's not a guaranteed recession. that's not a greater than 50% chance it tells us the economy is more likely to continue but maybe it's fragile >> i understand it's 35% it's 1 out of 3.

it's not 50, which would be 1 out of 2 what excesses? i'm trying to figure out what are you talking about? is it housing? is it -- why go from 20% to 35%? >> there's a couple broad observations in there. >> what are we not seeing that is causing the market to go down you have unemployment where it is inflation not a problem is it global growth slowing? is that it >> i think what it's picking up on is gdp is at potential level. it's basically caught up with all of the downfall that had it from the '08 and '09 recessions. caught up to potential serve levels, number one number two you have an employment market that's full enough that you are starting to see wage growth and some pick up and flow through into inflation. it's higher than before. as a result of that, the other thing that it's picking up on is the federal reserve is starting to increase interest rates, and that's putting pressure on the

overall system that is showing through on the housing side throughout the past year it's showing up in other areas it's really still not that material, but it's enough that the models is picking up its probabilities and saying we're in a more fragile system >> jason, it's joe if you thinkback to the '08 an '09 recession. i think about the credit derivatives. thinking about 2001, you think about the dotcom bubble bursting '90 and '91, the s & l crisis. the phenomenal with each is a financial market imbalance what is the financial market imbalance right now that would cause a recession in '19 or '20? >> i don't think there's as much of a financial market imbalance. the only one we could point to that we have been keeping our eyes on has been this favoring of the market for growth oriented businesses. that's been representing the f.a.n.g.s. that's been represented in the

number of unicorns that come through the private equity side of the equation. you see similar companies in smaller cap areas. an overwillingness of investors to pay for growth, pay for or invest in companies with zero profits now. give them a lot of money and hope everything works out. >> bill, you think the fed orchestrated this build up in credit and just trying to -- when you go the other way, this is what you get when you try to go the other way do you have to look beyond that to understand why the markets are in flux? >> that's the primary factor here the fed and banks around the globe are trying to get out of the business of suppressing

volatility that's not easy to do. i'm reminded of the godfather part 3 where al pacino said just when i thought i was out, they're pulling me back in the markets will not take it easily for the fed to stop suppressing volatility >> terranova, he's not saying anything relax. good that is used a lot. >> the godfather >> no, you pull me back in for an awful movie, that definitely is -- compared to -- >> an awful movie? >> compared to g1 and g2 >> on a relative basis bill, we hit the high for the ten yoo year, 3.26, where do we go in

2019 >> the first move, higher in volatility this quarter was driven by the treasury market. since the fed meeting on november 8th treasuries have settled back into the background i think if the equity markets can find their shooting, treasury yields will start moving higher again. >> that question of possible recession, is the market looking more than 2019 ahead, and then is the chance possible >> i don't know the market is pricing in an economic recession. i agree more with what bill is saying i think the market is understanding we're in a liquidity recession, and that's coming from the fact that from late 2012 into early 2015 the fed's plans sheet went from 2.8 trillion to 4.5 trillion, and now we're back to $4 trillion. the removal of that liquidity in an environment where you implemented the volcker rule, so

you have less proprietary trading on behalf of the banks, we have less liquidity, we're seeing 42% less volume available for equities 70% if you go to the futures market we're in a liquidity recession it's something the federal reserve has to understand. >> that explains the large moves we see each day it doesn't explain why the moves have been down >> look at the last couple of years it's obvious that the move has been a well established trend higher and higher. i would argue maybe we would not have gone as high as we did if you didn't have the sea of liquidity and also this volcker rule where on the other side you would have had market making and proprietary trading. maybe we went in higher than we should have. >> the sea of liquidity. that's on the moon, i think.

different sea. bill, you are buying the dip or not in a word? >> there are some attractity vel valuations >> all right jason? >> we have hit a capitulation point, even if the face of that higher probable of recession >> so that's a yes >> yes >> grade thanks >> m.i.t. guy, so he might -- he could know something thank you. still to come, they say breaking up is hard to do. that's why the uk is preparing for a hard brexit to separate from the eshg u. we'll talk about that next here's a look at the biggest premarket winners and losers in the dow.

so they say that ai will put the future in the palm of our hands. that's great. but right now you've got your hands full with your global supply chain. okay, france wants 50,000 front fenders by friday. that's why you work with watson. i analyzed thousands of contracts and detected a discrepancy. it works with procurement systems you already use to help speed up distribution without slowing down your team. frank, tell fred full force on those french fenders. fine. fine. fantastic. for ai that knows your industry, choose watson. hello! the best ai for the job.

hello! you have a lot of deadlines in your business, right? we miss deadlines, we don't get paid. what if you lost your network connection? you gotta be kidding me. chaotic. our gig-speed network lets you download files up to 20 times faster. and we go beyond fast with 4g lte backup for complete reliability. so, if you lose your network connection... ♪ ♪ you won't miss the deadlines. having the confidence of something that's never gonna go down would be priceless. 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.

one of the biggest unknowns for the market in 2019 is how the uk will extricate itself from the european union. what would a no deal or hard brexit mean for business >> in the headline there's a lot of uncertainty that said, last week the european commission released a package of 14 contingency proposals that seek to avoid the worst possible effects of a no-deal exit in air travel, one-year approval for the uk to eu point to point flights, and for trucking, the uk can truck goods into the eu for nine months as long as the uk reciprocates. there is nothing addressing the irish border, medicines, data flows, fisheries and nonfinancial services, also no comment about how the eu would make up the 10 billion to 12

billion euros net contribution that the uk makes to the eu budget wto rules would kick in and that means tariffs. uk exports to the eu would face tariffs of 4.3% on average it would also mean border checks that would increase traffic and belays at border crossings the bank of england says the uk gdp would be 7.75% lower, home prices 30% lower, and sterling 25% lower. goldman sachs says we think government reports of a potential 8% hit to output are too pessimistic. goldman does say uk equities could fall as much as 30% in the instance

so there are aims to avoid no deal >> the thing not being discussed about europe is the decision on the part of the ecb to end the bond purchase program it comes at an ill-advised time the growth expectation is not there. these policymakers expected to is he something economically that they're not seeing. so why are you ending that bond purchase program >> on the ecb front it was more dovish or this year was more dovish than at the start has to be. but it's not like they're rushing to end it. there was also a line in the last press conference where mario draghi said some form of qe could be here as a permanent tool forever more. it's almost like he did something that jerome powell didn't do. he didn't seem to say balance sheet reductions will be on autopilot. he said we'll try this and start this i think, yes, growth in the eu is not there for that to happen,

but it also -- i think he's given a more dovish tone over the last couple of meetings. >> this was all over twitter, had no idea what this was. check it out a transformer exploded in queens, new york it lit up the night sky turning it a bright blue the pulsating light could be seen around the city it was a blast at a con edison plant that caused power outages. fortunately no one was injured that was my initial thought. it looked like -- >> aliens? >> independence day. people were saying on twitter this is a real-life will smith sort of thing. but that's what it was transformer fire con edison is investigating the cause of the electrical fire >> i say aliens because the nypd and bill deblasio had to tweet out, no, it wasn't aliens. >> thank heavens for social

media. >> right >> that was not so great >> there you go. sequels rarely are >> i still went to see it and enjoyed it >> in the theater? >> yeah. >> first one was epic. >> pretty good. coming up, we'll talked about the political impact on the markets. we'll talk about the biggest political issues for your money in the new year. that's next. as we head to break, a look at the s&p 500 winners and losers [leaf blower]

you should be mad at leaf blowers. [beep] you should be mad your neighbor always wants to hang out. and you should be mad your smart fridge is unnecessarily complicated. but you're not mad, because you have e*trade which isn't complicated. their tools make trading quicker and simpler. so you can take on the markets with confidence. don't get mad. get e*trade and start trading today.

♪ welcome back you're watching "squawk box" live from the nasdaq market site in times square. looking at 230 points this morning on the dow nice rally add it up, like 1,000, 1,500 points in three days good morning among the other stories front and center, today could be the last shot at survival for sears. eddie lampert put forth a $4.6 billion proposal to buy back the company through his hedge fund the deadline to file is at 4:00 p.m. today if lampert misses, kmart and sears would be on the path to liquidation. as of yesterday it is said la lampert did not secure funding

for the bid. >> long before amazon these guys couldn't compete >> how about jcpenney? >> jcpenney. >> below $1. >> walmart and target got their hands full with amazon sears and kmart. you know what they say about kmart. you don't know >> no. >> okay. >> are you going to share with the american people or no? >> i think most people have seen rain man, kmart socks. >> okay. >> yes >> that's all i know century link customers across the u.s. were without internet services yesterday and into the night the outages affected atms, phone services and 911 emergency services century link tweeting its engineers identified a network element impacting services and they expected to restore services within hours. that stock slightly lower in the premarket. aphria shares are soaring and this is not cool, dude, more

than 20% on news that gree growth brands plans a takeover bid for that company aphria is one of canada's largest cannabis companies green growth brands is a marijuana retailer and aphria is one of canada's largest cannabis companies. >> that was a script from -- >> a mouthful. >> the s&p is up 30. nasdaq up 66 this morning. that is also pretty good move. getting ready to close the back on 2018 but not without looking ahead to the biggest market drivers for the new year. one of the x factors for the market this year is politics it's been a wild year in the trump presidency it look like

things will get more intense in 2019 first, clashes on the hill democrats take control of the house giving them power to block trump's agenda we'll see constant clashes over immigration reform and the wall, but infrastructure could be the one bright spot in the new year. second, investigations intensify. expect house democrats to launch investigations and fire off subpoenas into president trump's finances and the russia matter robert mueller looms large with the possibility of more indictments of the president's key allies in 2019 and finally, 2020 looms large. the race for the white house will get going in earnest as president trump gears up for re-election and a long list of democrats throw their hats into the ring to try to take him down >> for more on how politics are impacting the markets, let's welcome in jim pethokoukis, a cnbc contributor great to see you

>> hey >> hey >> glad to be here >> one thing that jumped out to me in your notes f trump issued a strong defense of the fed, and we got this 100% confidence in jerome powell from kevi kevin hastert, and then it says powell is willing to meet with the president what could be the outcome of such a meeting? >> it's not like crazy that the fed chairman and the president meet i think the risk there is that they have a meeting and then the president's interpretation of that meeting perhaps as expressed via twitter may not exactly be what chairman powell said i think it's good if powell can make a strong defense of the fed and persuade the president about the role of the fed and why intense is important maybe he'll have better luck than people like larry kudlow

have had persuading the if the about trade. i think that is a risky move i sort of think it has to happen >> does this seeming uptick in the markets we've had the past couple of days, does that buy jerome powell more time? >> time -- i don't think ultimately that will change what the fed does i think it's a confidence building measure if this white house is smart there would be many more confidence building measures a strong defense of the fed on video would be great ending this shutdown would be a great confidence building measure. whether it's part of a deal with democrats on daca, throw some infrastructure in there, who knows. getting that done before the debt ceiling in march, that's a confidence building measure. there could be several of those. that would be the focus of the white house. sergeant about uncertainty, start building confidence.

what do you think is the biggest underprice the political risk to the market at this point ones that markets are not looking hard enough at >> everyone keeps saying nothing will happen with tech. all the talk about these regulations, worried about privacy, i think that is such a big issue next year. i don't totally rule out there something being done on the regulatory front with these t h technology companies since they're unpopular on the left and the right. you have the gdpr in the eu which people on the left and right have spokens totive s tsse positively about >> do you think mueller's investigation and things related to that spike significantly at some point next year

>> it's weird, if you look at what xhiss are s s aeconomists market strategists are saying, but that could upset the entire apple court. throw those forecasts out the window depending on what that investigation says but we don't know what the investigation will say we can't model it. let's not think about it instead let's talk about if the fed will raise interest rates one, two, three times. >> when we talk about the politicalization of technology and coming off a tough stretch for the f.a.n.g. names, you does that make them less investable is the rebound less sure because of this unknown? >> momentum has become a strategy that strategy will be implemented once again if there are signs of comfort and stability in the market. the first place investors will look at is the growth names and technology provides that as it relates to technology,

it's such a deflationary lmtd. i believe the federal reserve are still looking at the enemy of deflation and it's because of technology >> jimmy, you want to give us a bull prediction for 2019 it's that time of year >> my bull prediction is we're not getting a recession in 2019. i'll take the 40% side of the trade that we don't get a recession in 2019. >> you'll take the other larry >> i'll take the bullish larry seconds p expansions don't die of old age. they had a long one in australia. i'll go with the soft landing. i have to be positive heading into the new year. no recession, sorry, democrats >> happy new year. >> happy new year. >> jim ymjimmy, thanks.

coming up, we'll talk to thomas farley. we'll be back in a couple minutes. in jellyfish. in clinical trials, prevagen has been shown to improve short-term memory. prevagen. healthier brain. better life.

welcome back. former american express ceo ken chenault is retiring from the boards of procter & gamble and ibm in february. he is stepping down to he can spend more time on a range of activities in the next phase of his life he joined the boards of facebook and airbnb less than a year ago. >> i think that's the same guy. new this morning, netflix just released its first interactive tv show aimed at adults it previously released a choose your own adventure for kids. the new show is an episode of the tv series "black mirror" which has been called a modern day twilight zone. viewers can determine what will happen in the show.pparently the

on netflix that was dropped recently sandra bullock >> too scary >> some people had to change it. >> really? >> it's called the bug i can't remember >> don't like scary movies >> you don't >> he's more of a love actually -- >> that and independence day >> i'd like to see those two meet how would those people in love actually -- what would they do >> i think will smith would beat hugh in a fight, that's for sure. coming up, volatility -- not in a verbal fight. hugh grant is snarky he could take will smith >> you think hugh grant could beat up will smith >> in a verbal -- >> i don't think so. will smith is articulate >> you're right. >> his brother could do

something. volatility is back in the market but where is it coming from? leslie picker will explain next. as we go to break, here's a check of what's happening in the markets right now. 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. & with edge-to-edge intelligence you've got near real time inventory updates. & he'll find the same shoes in your store that he found online he'll be one happy, very forgetful wide footed customer. at&t provides edge to edge intelligence. it can do so much for your business, the list goes on and on. that's the power of &. & if your customer also forgets socks! & you could send him a coupon for that item. today, there are more sensors on our planet than people. we're putting ai into everything, and everything into the cloud. it's all so... smart. but how do you work with it? ask this farmer.

he's using satellite data to help increase crop yields. that's smart for the food we eat. at this port, supply chains are becoming more transparent with blockchain. that's smart for millions of shipments. in this lab, researchers are working with watson to help them find new treatments. that's smart for medicine. at this bank, the world's most encrypted mainframe is helping prevent cybercrime. that's smart for everyone. and in africa, iot sensors and the ibm cloud are protecting endangered animals. that's smart for rhinos. yeah. rhinos. because smart only really matters, when we put it to work- not just for a few of us, but for all of us. let's put smart to work. and i'm still going for my best even though i live with a higher risk of stroke due to afib not caused by a heart valve problem. so if there's a better treatment than warfarin, i'm up for that. eliquis.

eliquis is proven to reduce stroke risk better than warfarin. plus has significantly less major bleeding than warfarin. eliquis is fda-approved and has both. so what's next? seeing these guys. don't stop taking eliquis unless your doctor tells you to, as stopping increases your risk of having a stroke. eliquis can cause serious and in rare cases fatal bleeding. don't take eliquis if you have an artificial heart valve or abnormal bleeding. while taking eliquis, you may bruise more easily and it may take longer than usual for any bleeding to stop. seek immediate medical care for sudden signs of bleeding, like unusual bruising. eliquis may increase your bleeding risk if you take certain medicines. tell your doctor about all planned medical or dental procedures. eliquis, the number one cardiologist-prescribed blood thinner. ask your doctor if eliquis is what's next for you.

♪ volatility back in the markets. here to explain what's driving the wild swings in stocks is leslie picker. >> i think a metaphor could be helpful here in explaining this volatility picture a rowboat. if the boat has enough people it will be stabilized if it has fewer people and most of them move towards one side, that boat may tip in that direction. that's akin to what we're seeing in the market this week with fewer participants thanks to the holiday. importantly -- the holiday happens every year, this is happening in the backdrop of quantitative tightening. so it takes far less to move the market one way or another when there's less liquidity out there. couple that with greater uncertainty on the macro front and it's possible to have a couple larger players, machine or human, move the market in one

way or another that's why you have these fast and furious swings like we've seen pretty much every day this week some of this is due to hedge funds, within that group algorithm traders. but says there are other participants are contributing to these moves at the margins namely mutual funds. all of these against the time of year of fund managers looking to lock in the best returns they can mustard before december 31st you have a recipe for some wild market reaction. >> when we get through the change of the end of the year or something is set to stay >> they believe volatility is here to stay at least through the first quarter of next year, just given all the different contours and when you come back in january, there should be more market participants and everyone comes back to work after the holiday

season that should help stabilize things a little bit. the uncertainty is still there he never felt this level of uncertainty on the macro front, at least against the counter party. >> do you think we are at a point in the hedge fund industry, full-tiinally consoli enough i think 2019 is going to be lined up to be the least amount of closings of hedge funds we had in 11 years. do you think we got to that point where we crowded them out enough >> it is a good question it is a prisoner's dilemma you do need fewer capitol in that space according to researchers. there was a report from morning star, right now it is $3 trillion. it is about a tenth of a size

that it actually is for people start to generating real alpha again. there is so much capitol chasing the same kind of returns that it diminishes the ability to do so. >> when you talk to hedge funds managers and top holdings are the faang stocks why am i paying this guy when i can invest in faang index. it was not like they were protecting you on anything >> the quantitative model is momentum driven and defining where the trend may be where do you find it in the faangs. what makes you sick seed ucceedn you fail those that shorted the faan

faangs -- tesla is not a faang but the same momentum driven the stocks it has been a trade that if you can't beat them, join them >> i think one other point is the last couple of years, you have a calm and credit market. hedge funds, the opportunity soars a lot of time. that could present opportunities for hedge funds other the next couple of years. >> of the context of the giant points that we see and the role of machin of machines, a lot of time they are etfs it is also the use of etfs strategies so you are seeing tremendous volume there. >> that's exactly right. >> when you look at in flows

into etfs, a lot of that has to do with hedge funds. quantitative traders use etfs a lot in trying to express those ideas through algorithm. it is a big part of the market >> do you think we'll see a big performance in banks good volatility or bad >> you point towards the fixed income market. you are seeing something where i view it as an opportunity, you have not had dislocations like this in many years the fixed income side, you should see that. your comment on etfs, it is interesting, we have this gravitation towards investing. it is an environment that's aligned itself from a correlation standpoint where the

market as lo volatility and continue to move higher and higher if you talk to a lot of pass t investors, they are going out of the risk curve last year bitcoin and this year in the canada stocks although they classified themselves as passive investors, the appetite is still there. i am not sure if the active men in the industry is ready to be priced into being a dinosaur yet. >> throughout prisoner dilemma >> fast and furious. you did the cross promotion. the new ride you through that in there. >> you didn't expect that. >> that's really good. i often wonder about the prisoners. why don't two prisoners cooperate? you know what i am saying? >> would it depends who your

fellow prisoner was? >> yes, right. if it is andrew and that scenario would come out. >> i would put him away for a long time. >> that's terrible >> thanks lesley. >> coming up, we'll head to tom farley, he's here to talk about volatility what you should be doing with your money for the new year. we are indicating opening higher building in yesterday's gains of the dow. s&p is looking at 22 we'll be right back.

only two to go there is no lack of excitement on wall street right now as investors getting ready to close the book or 2018 we'll get today's trading sessions and oil prices can tell you what you need to know about the market right now our second hour of "squawk box" begins right now ♪ >> live from new york, this is "squawk box. >> no, he's in a bad mood. good normorning, welcome back to "squawk box," along with wilfred frost and melissa lee and our guest host, investoring partner and tom farley, chairman and

ceo, former nysc or boss >> i like boss >> he's been complaining of machine trading. >> stop, stop. >> we made a joke that when it goes down people blame the machines >> that's quite the opposite >> that's the truth. i just blame you for all of the machine trading on the big board. >> it is driving me nuts >> did you write the algorithm yourself >> there is always -- >> confessions of the stocks i have read it >> we need more market makers. >> more market makers. >> what do you think >> really? >> now you are very honest because you have no vested

interest you know where you are sitting >> i want to hear somebody come out and say the market is volatile because the world is unsteady that's what's going on >> this has been going on for three months maximum uncertainty. having watched this for 35 years, don't you always here uncertaint uncertainty. >> we almost went under. >> right >> this is 1987 and the oil shop and four years of jimmy carter, we lived through a lot of 21.5% crime rates. we see a lot of these before >> this is normal. this is a volatile period. >> you think >> absolutely. >> these periods of volatile,

the three biggest economies in the world are having trouble >> i agree on all front. in terms of how fast it holds and the point swings that happens within seconds and hours. algorithm i ctrading would have compress the time frame. >> maybe >> 22% >> portfolio insurance >> with the benefits of hien hindsight, we always want to blame at machines or dark cause. a lot of analysts are saying christmas week or tax selling or reason b, c or d did not make any sense to me. have you seen how much volume have traded this week? on monday 6.5 billion chairs >> do you think there is liquidity? >> yes >> people stayed home from vacations. people are asking me about the fed. it is not like two-thirds o f

the world is off this week and not minding their portfolio. we are in a volatile period and it is christmas week and it is going to continue into the new year until we sort a few of these things out >> sorting things out is asking questions of the economy >> is china growing 6% i don't think that's the single most important factor as some people do think. certainly western europe which you have been all over it is a brexit it is a big deal for the u.k. and for the rest of the e.u. the behavior of the market can become incredibly volatile and depressed and exhuberant >> the environment that we were in then and the daily ranges that we were experiencing in the late '90s, was that the machi s

machines that's what investors have to understand and manage around, those are emotions and not worry about placing blame on where volatility is occurs but how to react it because volatility is always going to be there to tom's point. >> there were some crazy things going on >> somebody called amazon. >> you can order on the plane something on sky mall. >> nothing had under pending back then. we can value apple and facebook on conventional measures we don't take a side hopefully but wednesday and thursday were pretty interesting 1,000 points on wednesday, we have not seen that we got to four digits. >> yesterday -

>> 900 points. >> you said this is normal >> volatility is normal. >> i don't remember it started flying and went down to 650 and came back. >> i am sure it happened >> it was the biggest in ten years. >> there were some big days in federal government of this year if you recall the dow drops and then in october, the vix double in october while this week is interesting, there has been some crazy day already in 2019. >> why do you keep on mischaracterizing what everybody says it is amazing. am i sitting in this chair >> yesterday it was me >> really. >> andrew is out >> there are opportunities out there. and the benefit of hindhindsigh am going to say it it could be something down the line with the benefit of hindsight,

there will be a number of those. i hope viewers are not panicking. there is a potential to sell i don't think we discount what you are going to say obviously you have bullish biassed overtime >> because i used to work -- >> no, i like stock market to go up and gdp at 3% i can't be absolutely objective on people. i know people are short and i need to give credence alongside. >> i am a realist, the trade war continues to go side way >> do you think the trade war is apart of this? >> yes definitely it is a bigger issue >> i don't think it is >> joe, come on. we are going to have guests later on today if fed is the single biggest

issue. >> you watch cramer? >> i understand it >> when you say you are going to raise four more times next year and stay on autopilot, scare the hell out of them >> how do the tax of 10% of goods from china >> we are still domestic we don't need china for everything >> tell that to retailers. >> i still think at some point, this is the prisoner's dilemma that we are talking about. why don't rational countries decide -- >> this month in december, the dow was 3500 points higher and we had leverage over china it clearly changed >> you have not been watching cramer much. >> i support cramer and i support the policy but it is a different world when the dow is 27,000

>> do you see the journal? it is about china. u.s. equity futures we have been talk about, it is implied and everything we have been saying 170. add it all up, 260, close to 1500 point in three days what do we lose? 5,000 or so? it was 26 in total >> in total? >> around about 4,000 points treasury yields for joe. >> i thought it was in japanese. >> it is nice but he's their successf successful it is nice of money if you don't care about >> if you are yielding negative

in japan >> keep what you have. >> let's talk about the global markets and european trade is up by 1.7% and 1.8% trade does follow over 2% decline over yesterday which is around about 17% for the year. but a nice positive end to the week asian trade which has now close to the year as a whole the nikkei is down 0.3% is up. >> all right, let's take a check on codtimmodities and currencies right now. we see weakness across the board. take a check on oil, this is something we have been watching closely. we start at 1.5 year low on wti and now we are at 45.17. we are up 1.3%

it is sort of a chicken and egg situation where oil could believing equities right now brent, oil is still on track and for a losing year is down about 20% we found stability with the recent market decline that we are trending slightly slower in today's session. 1280.6 >> making headlines right now. the measure of home sales, contracts signed but not finalizes and yet expected to rise 1%. >> that follows dell the new york yankees talking with several potential partners of teaming up to buy the yes

regional sportsnet wo network wh carries yankees games. it approach cable a rater as well the yes network is among the assets that disney needs to sell >> coming up, bank index is down more than 20% this year. the biggest factor in play and what 2019 can bring next for the group. let's check out bitcoin as we head to break. >> can you believe that we are at 20,000 about a year ago $3,600 in change on bitcoin. you are watching "squawk box" on cnbc it's time for our lowest prices of the season on

the new sleep number 360 smart bed. it senses your movement and automatically adjusts to keep you both comfortable. and now, the queen sleep number 360 c4 smart bed is only $1299. plus, 24-month financing on all beds. ends new year's day.

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, it has been a rough month for banks and investors. joining us now, director of bank and strategist >> do you think people's expectations of what the u.s. economy may do next year >> it is twofold

you have the fear of recession and yield curve flattening that kind of got people anxiety up we saw some slowing in some of these this uncertainty and variables across the world all that came into play. the banks this year in transition from the catalyst that they had over the past couple of years which were lower rates and efficiency gains and lower credit cost. the market have not gotten their bearing on just yet. >> clearly the price earnings valuation multiples come down a lot. do you think earnings can reignite improving >> we do 2016 was followed by a great year in 2017

we still think the bank is going generate double digit earnings growth this year we can see as it yields and starting to move higher. >> marty, do you think we'll see mma for the banks? >> we'll eventual will eventualy we are not through recovery is still in place as long as these banks can generate profitability improvements that we are seeing here, there is no need for them to look around and consolidate a lot of big players still have gases in the tank and returns higher and eps in the double digits >> marletin. how much more can it be enough is this an opportunity to go and buy goldman sachs?

>> you have to watch wells fargo through the last couple of years or jp morgan of the issues they had. it takes years to work out reputation issues. goldman sachs is a long-term by. value is compressed of the franchise value of the organization it will take time for them to come out in the back end of this 12 or 18 months mattis wis the look at goldman sachs. >> can he come out and relay some of those fear in tshort terms. a lot of analysts have mentioned we want to hear from him we are not going to see jail time or anything spreading more widely >> yes, that'll be able to get some transparency and communications going on of what's happening behind the scenes or as much as they can

share with us. how much is earnings going to matter goldman sachs earnings are 20% higher this year it is not about earnings fundamentals have been there we do need to see strategic direction of what they are doing of consumer lending and internet banking. as they are expanding, we need to see which direction they're going to take because it has been tossed up we can hear more of the details of this reputational issue and the earnings will apply forward. that's where we think 12 or 18 months from now, we are not going to be below. >> marty, it is joe again. following up on the goldman sachs question not calling for the full repeal but basically do the banks need relaxation to have the ability to grow? >> you are the first person that asked me about that. i talk about it all the time

it makes earnings much less volatile we don't have to guess who's right or wrong in the market in any particular order what hurts more is this volatility because we can't have market participants going in and adding capitol and allowing for some of this trading to clear without having to find the other side of the trade. i think it created a little bit more volatility that we see. all and all, it does help their earnings in the sense of much less volatility. >> you factor anything about the new leadership and the house in terms of -- >> you mean maxine waters? >> our congressman -- waters >> yes, i have seen various things, it could be bad -- where

are you on that? is it more on uncertainty? >> it is more headline risk if you find yourself like wells fargo and goldman sachs, reasons to have to answer questions. it is going to be deterrent to your valuations that you have to work through overtime. it will be a forum for them to explain what kind of strength they created the banks have increase capital ratios and ins crease tcrease a look at their stress test. >> marty, i listen to your explanation why across the board have gone down and goldman sachs. but, should we be concern on this side of the ocean about exposure by any of these banks to europe and i ask you this because obviously the european banks are trading horribly and

deutsche is down 60% there is no good explanation as to why u.s. financials have taken such a beating when the outlines are pretty decent, what's going on here >> what you have to look back, you got to go back to the transition, investors are telling me is twofold. we are ten years into the expansion. the recession has to be coming that in total clock, you can't belong the internal clocks have been broken it is much slower and longer than what we have seen we have an index we have a two-year clear path that we are not going to see that recession that's the first thing if i have that risk and i don't have clear catalyst to push earnings is higher, they don't see these new catalysts yet or full effect or historically wide yield from market rates to portfolio rates. those things are going to show

positives in 2019 just like what we saw when they question well deposit rates are going to lag they question that and then it happens. 2019 is going to look a lot like what we saw back in 2019 >> marty, the big cap in. >> super regionals are in the big cap. we think sun trust is positioning very well with the going jog pgeography they are i. we look for the ability for them to hit in all cylinders. >> marty mosby, thank you very much >> we'll talk to cathie wood from arc invest. first, let's take a look at our market to see who's the winners

and losers

coming up, this morning's top stories including stocks on a volatile week. stay tuned, you are watching "squawk box" on cnbc [leaf blower] you should be mad at leaf blowers. [beep] you should be mad your neighbor always wants to hang out. and you should be mad your smart fridge is unnecessarily complicated. but you're not mad, because you have e*trade which isn't complicated. their tools make trading quicker and simpler. so you can take on the markets with confidence. don't get mad. get e*trade and start trading today.

so, the whole world is talking about ai. big, bold promises like... it'll find life on mars! but here's the thing. you don't live on mars. (beep) you build wind turbines. supply car parts to thousands of cities. answer millions of customer calls a year. like this one: no, i didn't order this. it's terrifying. and that's why you work with watson. hello. it knows your industry, protects your insights, and works with tools you already use. that's why it's the best ai for the job.

♪ good morning and welcome back to "squawk box" here live at times square. there are a lot of stories today. if we were to decide try to rank three big ones, we may pick these. after yesterday's huge swing, stocks are up again. second one is oil. oil prices have rebounded a bit this morning but are now flat.

it is going to be be hard making head ways if the market continue to -- you can say it supplies so many times before people start sto worry. >> the market is pulled back and energy has declined. >> remain close to the lowest level in the year. three, it is day seven of the partial government shutdown. at this point everything suggests that it will continue into the new year and hopefully includes the federal reserve and they'll be back to work any time soon sears on the brink lick kw lick adequa liquiders will step in the bid has not yet been submitted nor has financing been lined up

the most on u.s. airs, spirit is on time about 81% of the time, better than any other u.s. carrier and the complaint rate is down 73% from three years ago. the stock market have calmed stock fronts in flows of $5.2 billion >> check this out. a new study finds that having an active social life in college could lead to higher gpa >> researchers follow more than 200 college freshmen in switzerland. students who has more friendships tend to get better grade than those who are socially i socially isolated. >> because they were happier

>> it got to be to a certain extend >> no exponentially. >> do we need to define what friends are. millennials think that how many people follow you on facebook, right? >> we do >> you have any actual social contact? >> no. just work. >> just here >> it is rough >> does it make you happier or do you feel more isolated? >> today firing up -- this as close as our friendship. >> you guys did the jumbo together >> joe has a suit of armor you are untouchable. >> i survive the halftime show everyday >> exactly >> sometimes of uncertainty, our

next guest, tlongest bull marke, cathie wood, it is always great to see you >> great to see you. this is a process here we are still going higher. >> yes, we believe so. if you look at what's happening recently, we saw the same thing early '16, i remember there were running for the hills and lower oil prices are a good thing. that's a tax cut for 90% of the world. again, we were going through this massive so your point of energy, joe, and interest rates coming back down because inflation is going to come down partly because of oil but also because of the deflation forces that we see associated with technology massive innovation is taking place that's permeating every sector and it is causing a lot of confusion oil prices are going down for us is more electric vehicle

starting to make a dent into the demand side of the equation. we think oil demand will peak in the secular sense in the next one or two years and then it is going down >> it is partly because of electric vehicles and autonomous electric vehicles. >> yes when you put this in together of what you see across commodities complex, it is not just oil. we have a backdrop of slowing economic growth around the world. we got aluminum prices the industrial metals are trading off significantly and we have oil down. does it give you another picture of demand not being there? >> dollar going up is one reason the world including china has been slowing down. i think has been note worthy and not mentioned enough, i am a

disciple watching what china is doing on the tax front, they are cutting income tax rates aggressively and cutting import duties aggressively these are massive tax cuts they're not using monetary policies this time around. we think again just like in the early 2016, it was china's stimulus that got us back with momentum in global economy i think it is going to happen again. >> kathy, i am wondering if something is changing in realtime your case is articulated and i want to believe it when you see banks are down and u.s. banks down 25% and consumer sentiment is down and investor sentiment is down, is it possible that you will come back on three months from now and well, it was not apparent in the data on december 29th or 28th, but it has been manifested that things are not as quite as good as we hoped.

>> that's always possible. our confidence that we are going to be on the other side of this volatile market is increasing as inflation comes down and interest rates coming down and valuations should go up and we are at 14 times earnings, that's pretty inexpensive as long-term interest rates are coming down so discount factors are coming down do you think that china stimulus is going to surprise i think it is healthy. it is not just monetary policy ors de or debt. i think there will be strong demand coming out of china europe and the banks, we have been staying away from europe for quite some time. europe has not been an engine of growth for the economy for quite some time. we do think banks are also in the process of being

disinterimmediated and they are facing the flatten yield curve which we don't think it is a bad thing. the yield curve will invert, it will be problematic for financials the reason is going to invert is inflation is going to surprise on the low side of expectations while growth on the high side of expectations partly because of all these innovation took place. >> i am fascinated by the story line is it possible that you're fast forwarding a bit in terms of the actual impact of the banks and transactions that's happening everyday that still require traditional banks and vehicles autosales, they're down from their peaks but they are still pretty close to their peaks. autos are being sold strong. >> autos we think are in the process of peaking globally partly because and this is happening sooner than most

people anticipate. autonomous network is going to evolve, tesla is lead ing the charge there as we speak the vehicle miles travel of electric cars, the vehicle mil s travels using electric cars are going to increase dramatically the next five years. >> many indicators, the ground is changing underneath them because of new technology. >> can banks be as much as retail has been as much as you believe cars will be or these threats coming later in the psych that they're kind of already more prepare for this thing than retail was 10 or 15 years ago? >> i don't know - we think company like square, paypal to

some extent and venmo, they're going to start taking place of these brick and mortar banks it is anywhere from 500 to 1500 per customer, for square, it is $20. their customer acquisition cause are so much lower and they have so much data on their clients and so quickly and realtime and they know when they need working capital or a loan to extend their business and so forth. >> what's the bull buying in this market now? >> oh, the bull buying the corner stone stocks, innovati innovation platform includes tesla, electric vehicles, collaborative robots we think robots are going to permeate every sector and nvidia it is a short term inventory

adjustment when it comes to artificial s m intelligence and autonomous vehicle is a prime mover we are nibbling at gtbc. >> yeah, you are really describing a deflationary environment. >> how can it be so positiv positivpositive positive -- you see asset prices moderate and you are describing an environment that's so deflationar deflationary, how can that be positive >> if you look at dna sequencing in the healthcare space.

dna sequencing are dropping 50% of the year. that drop is causing an explosion in the demand for whole humans geno fsequencing 15%, we think that's way too low. it is much closer than 30% last quarter, they did have a big surprise what you are thinking is a deflationary bus we are thinking of the opposite, a boom this is hard for people to get their arms around because you have to go back to the late 1800s and electricity and telephone to see the same kind of environment, deflationary, boom, where you have a curve more than half of the time -- >> it won't deflate house and market and asset price

>> no, it will be very positive. >> when am i going to be in an electric taxi? >> tesla is saying it will be, it will have its national network in place next year we have to adjust for elon musk's time here, maybe within two years. >> you really believe -- i got some air pods, i am slowly transitioning. do you think i am going to transition into electric car and i am not going to be driving. >> it is joe kernen's time >> i have got to have a tattoo >> do you have a tattoo yet. >> no. i don't live in brooklyn >> how long do you take to --

>> i have people arrange the car members for me >> how nice, other people arrange the cars for you >> very elitist of you >> no, wait, two years you are nuts -- >> i love it when people think i am nuts and the market has not priced -- >> wind airplanes to and no fossil fuel. >> cathie, i want tohit the sing singularity. >> how many gig do you need? >> enough. >> coming up, we'll focus on some of these tesla discounts type of life anyway, i am just kidding.

god, people go nuts. the tesla era, they go nuts. we'll take a look at tech and we'll take a look at tech and what's in stor growth opportunis with a level of protection in down markets. a lot of futuristic stuff apparently about shield℠ annuities from brighthouse financial, established by metlife. from brighthouse financial, take prilosec otc and take control of heartburn.

so you don't have to stash antacids here... here... or here. kick your antacid habit with prilosec otc. one pill a day, 24 hours, zero heartburn.

. let's check in with stocks good morning to you stan >> great to be here. >> talk about the faang names and whether they'll come back? >> specific names like apple and amazon and facebook and others right now we are cutting into a fork on the road situation going into next year and not just seeing valuations does growth come back specifically in iphones. how much do you give the cloud sort of these, at this point, we'll have to wipe a period for faang names and get into the next six months specifically apple and especially china being front and center is a big one. >> we have done ours yesterday

he seem to imply that apple has pulled back enough so that he's not constructive long-term on the stocks but the valuation is very attractive. >> we view that about $450 billion valuation and take out the cash, you are getting the iphone business for about one time here. in my opinion, it is about as worse, sentiment apple and going back to six or seven years one where right now investors are baking in 10% or 15% incremental cut to number. if we don't get that in the stock significantly bouncing from here. the one variable that i want to highlight is china in terms of foxconn and supply chain eruptions from the continued china trade issue. >> you like the semi >> i feel like there is an ebola

virus going on you start to see numbers that continue to go down and you can buy semis until you see more numbers cut. fundamentals, a lot of it is relates to iphones you see supplier cut and with apple going higher so well the semi especially in china, that is much rather own software >> let's talk about microsoft, it is a name that i own. i believe it is now the world's largest in terms of market cap since it is the leader does that provide for you in terms of technology exposure and the most diverse >> you see what's happening on 365 and the hazard that's a name where the number continue to go higher on cloud

growth only 30% of workloads today are in the cloud hybrid it is a two-horse race it is aws and microsoft. microsoft is a cloud player, google and gcp, kind of the third player microsoft that continues to be your core large cap cloud play going into microsoft as dell and continuing to keep the cloud tragedy higher >> do you think apple is spending more money on its buy backs. they lost $9 billion on this a if you are an investor and you heard about a deal where they lost $9 billion at the first nine months, you will not be happy about it you are sitting on a lot of cash and generate a lot of cash and all you can do is buy back your stock. >> it is a major issue that we hear from investors.

more so in a market that has really put the discount on chairs >> as well as no mme strive. at this point they'll have to meet a content acquisition for apple because folsomundamentall that's where they are losing out. if there is no accelerated buy back >> is someone buying twitter in 2019 >> i would be more on the cloud side as well as the content side in terms of acquisitions that's where you look at cyber security i think you will see a bonanza cyber security look at google oracle and gcp is taking over for diane. you are going to see significant mme for google >> dan iverom fweb bush

>> stay tuned, you are watching "squawk box" on cnbc

you have a lot of deadlines in your business, right? we miss deadlines, we don't get paid. what if you lost your network connection? you gotta be kidding me. chaotic. our gig-speed network lets you download files up to 20 times faster. and we go beyond fast with 4g lte backup for complete reliability. so, if you lose your network connection... ♪ ♪ you won't miss the deadlines. having the confidence of something that's never gonna go down would be priceless. 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. take a look at a couple of stocks this morning. aphria is a take over bid from u.s. pot retailer. the stock value is about $2.1 million >> first republic bank will become the newest member of the

s&p 500. restaurant chain, wing stop have been upgraded. wing stop has drivers in place the drivers in place -- not delivery drivers >> that could be one of the drivers. >> autonomous delivery wings >> restaurant sales growth and increase profit margins. see i long said that we should do the electric vehicle autonomous delivering the wings but we should use alumina, you get two per chicken, right >> why not six or eight or twelve or -- >> just a blob with all wings

around it. >> how about boneless wings. >> much more humane. >> it is nice to eat the breasts as well and the legs >> you don't like it >> i do. but think about wing chains. i guess they used all of those >> we are staying out of this. >> that's a ton of wings at buffalo ldinwi wgs and wingstop. take my word for it. >> "squawk box" is back in a moment

back from the brink. stocks stayed a dramatic late recession recovery to end in the green and put us on pace for the most positive week in all months >> steven moore will be joining us >> and thc in green. u.s. based marijuana retailer planning to make a bid over canadian pot dealer. we'll have the details for you as the final hour of "squawk box" begins right now.

live from the most powerful city in the world, new york, this is "squawk box. >> good morning, i am joe kernen along with melissa lee and wilfred frost and tom farley and cnbc contributor for how many years >> five years. >> powerpoint. >> you don't know how much he contributed. >> joe, turnover, cnbc contributor and you are going to be here at noon as well, right on cnbc. >> i am on the halfti"halftime report," yes >> i know you watch. >> if i don't watch, i dvr it.

>> we had some fantastic interviews lately. >> yes >> scott does a great job. >> i call scott the bob acosta is the business of the economy >> anyway -- you have been to his house, right >> i have not. >> oh, you have not. >> anyway. futures right now, friends get to go over there >> i have been >> and you aapparently >> are you implying that we are not friends? >> i am not sure >> you adid you invite joe on t show, will >> great weekend awesome book >> beautiful >> treasury yields right now, we love these

>> things are very attractive. >> the two-yr. and put in $10,000 you will get $250 that's exciting. three big stories for you, one, come back from the recent ages, the dow is at 871 point turn around. the dow s&p is still on pace for the worse december all the major averages are back on track for a positive week crude isoil, now trading at 44. on wti, it is now down more than 40% from its most recent one-year high. the clock is ticking for sears the last shot of survival is a proposal from its chairman eddie lambert.

the deadline is at 4:00 p.m. today. if the offer does not come in, li liqui liquidators will come in and break the company. >> for more let's welcome steven moore. former economic adviser for donald trump he's now at the heritage foundations of projects for economic growth and author of

"trumponomics. >> you are not an ever trumper >> we have known each other for a while. >> i saw a couple of -- they were like this is ruining everything because they want republicans on board if there is some trouble in 2019 they want more republicans on board because we are in a recession. they were hoping for that. they called themselves republicans. >> is that where you are coming from >> is it china why are we raising rates when copper and oil -- >> the difference between 2.5 or 2.75 funds rate is all the difference in the economy. >> there were nine increases >> anyway, go ahead, steve you are exactly right. a lot of people in washington who hate trump more than they

love the country they want the economy to fail. >> but, i actually think the turmoil of the stock market is atrittable to two factors. the trade war is the most important issue of all here. the next couple of months we'll see this kind of sea sawing effect of the stock market as we come to what is it 60 days now before the chinese have to come forward with some offer. i if you believe that trump can pull it off and we can get a deal to make a deal with china where they make real consumption. trump is not going to agree on anything if that happens, the market is going to go through the roof would you guys agree with that >> yes, i guess the one caveat

if i can be a downer is global growth brexit can be a disaster and if it turns out gdp in china is not six, it is two yes, i agree with you. >> you are right, is it a disaster >> can you say it again stooeevn so joe can hear it >> i am teasing. >> it is not a disaster that the fed funds rate is going up a little bit it is interesting. if you track the stock market. the big decline, it began in september, right >> yes >> that's when the fed started raising interest rates one of the points i have been making is if you look at commodities and you look at the early '80s he kept his eyes on the commodity prices when commodity prices were rising, he raised interest

rates. and what we got now, the biggest problem i have with what the fed is doing, think about what the economy is doing you got the lowest unemployment rate we have 7 more workers we got great christmas sales this year for retailers. we have wage increases finally for american workerworkers. my point is show me the problem here that the fed is trying to fix. >> that's the thing. my view is more newer than what you are saying if china is a lynch pinch of global growth and if we hurt china, i can see what you are saying that's where i think -- >> joe >> one quick point about that. >> if china does slow, it could

be bad for global growth but that's tough >> i am a free trade guy, i have disagreed with president trump i think now is the right time to pick this fight with china your point is really important what you said is exactly what donald trump believes. this is a guy that believes in leverage when you are in negotiations he believes his number one point of leverage. i like your guys thoughts about this he believes his leverage that china needs the united states more than we need them that happens to be true. that's kind of a scenario where we are going to hurt you more than ours. that's his leverage point and that's where he thinks i talked to him a couple of weeks ago, he's confident that he's going get a deal with china. >> you said you spoke to him a couple of weeks. i was on the program a couple of weeks ago and the dow was 4,000 higher in the month of

september. the leverage tilted a lot more towards the president at that point. at this moment, i think there is a much level, it will be interesting to watch it play out. >> that's a good point >> you are right the fact that our economy has faltered a little bit, the stock market has weaken his position in these trade deals we both need something done and chinese can be belligerent, no, we'll hold off and weigh you out donald trump >> he was looking at markets and there is always a lot of criticism, inverted yield curve predicted nine out of the last three so they don't want to use an inverted yield curve. the fed predicted zero out of the last nine recessions the worst predictor in history

are bureaucratic >> maybe we ought to wait and see what happens before we say we are going to do it three times or four times or autopilots >> that's crazy. >> joe, you got it exactly right here >> i know. >> i just need you around more >> you got it spot on. there is a few on wall street that somehow these people at the fed are some oracle from god what kind of idiot, this was one of the most idiotic rate hike ever >> well, supply. >> the surpriprice is down but not just oil ask farmers if they think the price is too high. everything is falling to price i don't see the rational except

for the fact that it was kind of arrogance of what the fed dhid we are going to do what we are going do do. >> i will take the other side of that >> it was signalled to the market, it was priced in by the market and for ten years we held down rays artificial lily low ad it is fallen to jay powell >> the rate increase last wreee was a right decision >> should the president meet chairman powell then >> i prefer independence of the fed. i suspect mnuchin meet with powell >> there are people that said we have no price discovery for ten years. >> when powell was getting the

job, schwartz was the other guy. you saw their editorial last week he would probably, maybe erase this time, -- just because you appoint the guy does not mean all of a sudden he's god >> if we can go back in time in our time ma seen, i would have done exactly what you said, raise the rates. >> he's ending on a few weeks away and he can redo his press conference >> the other thing that fed should be doing is stop selling assets it is very simple. we put in place the most progrowth policies in the last two years. >> everybody wants dollars because they want to invest in the united states. there is a global demand for dollar and the fed is pulling dollar out of the economy. i don't think the interest rates

are big factor here. i think it is the fed depletini its balance sheets they should think about buying treasury security or so onto get the dollar liquidity out there we have a ton of economy out there. 2018 was the single best year of american workers we had wage increases and did you see there was -- i was driving down the highway, i am not making this up there was a sign that says we manufacture, you don't have to pass a drug test to work for us. that's how eager businesses are to find workers now. >> cramer is on the same side with you onthe idea. for ten years, people that held assets had all their money marked up. now we are getting some wage gains. >> exactly >> ten years and people like you

double and triple and now -- >> i feel guilty >> i think he's more on my side than your side >> no, i won >> international audience saw that >> okay. thank you, i think there is something for everybody. it is stephen moore from the heritage foundation. >> happy new year, guys. >> coming up >> thanks stephen for being on my side. >> next year is more growth of cannabis to the budding of sector we'll come back and bring you the pot play book for 2019 stay tuned, you are watching "squawk box" on cnbc

you have a lot of deadlines in your business, right? we miss deadlines, we don't get paid. what if you lost your network connection? you gotta be kidding me. chaotic. our gig-speed network lets you download files up to 20 times faster. and we go beyond fast with 4g lte backup for complete reliability. so, if you lose your network connection... ♪ ♪ you won't miss the deadlines. having the confidence of something that's never gonna go down would be priceless. 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. marijuana is one of the biggest names this year. aditi roy is joining us withmel big news yesterday for aphria.

insider believes that we'll see more deals next year 2018 was a year for marijuana industry and you can expect that growth to continue here is what to look out for as the cannabis industry barrels into 2019. first, sky high sales total u.s. cannabis sales could top $15 billion in 2019. up from $10 billion this year. also, expect more retail stores to open a newly recreational state like massachusetts and michigan a big boost for u.s. cannabis company ancrhanchorage. >> second more big deal in the new year you can expect more firms

joining forces with canadian cannabis firms other u.s. players looking to enter the space are consumer package goods, pharmaceutical and alcohol and tobacco companies. canadian partners could include tilray and aurora cannabis finally, cbd in the spotlight. the u.s. farm build can be a game changing moment for the cbd instrument it is an active agreement that does not make you high it is a big ingredient to everything of location and supplements. you can expect big box retailers like walmart and walgreens and department store brands stocking their shelves with cbd products. >> green growth brand, aphria was an attractive target

back to you guys >> aditi roy, thank you. >> fascinating area. >> i just keep on saying that this and hostile this is not what pot is all about like one company is trying to take another one. everybody needs to mellow out and have some taco bell or something. >> coming up -- >> a big part of the cannabis industry is medical. >> i know, i know. >> it is not just getting high and all that >> i know that >> taco bell stuff >> what about colorado transport is seeing a tumble not everything is driven to the

ground when we come back, what's working in the transportation sector stay tun, edyou are watching "squawk box.

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, like this one. no, i'm pretty sure i didn't order a squirrel playing a guitar. that's why you work with watson. it works with your systems to resolve calls faster and improve customer satisfaction. i detected fraud and helped reassign a new credit card. honey, they're overnighting us a new card. woooo!!! woooo!!! for ai that works with tools you already use, choose watson.

hello! the best ai for the job. news coming in from tesla. larry ellison is skroinijoining

board. we'll talk about tesla i had no idea where two years what we'll be? >> driving electronic vehicles >> none of us are going to be driveri driving anymore. it is a graeat addition when he caught people attention it was in an oracle meeting. he defended elon musk and he criticized about elon musk i thought he'll be named chairman of the board, independent chairman of the board which went to robert done holmes >> this company has terrible governan governance >> it is not a question of

ellison improving the government >> but herks n's not afraid to k his mind >> you get the two independent directors and now you are in co compliant of the sec there you have it. >> turn the page that 5% is the gain here for the premarket. well, it is a tough year for transport. joining us now to break down the sector looking ahead of 2019, don, great to have you with us >> great to be here. >> when fedex warns, how much do you extrapolate to the rest of the coverage that you have >> well, you know they were doing what fedex does, they're trying to be transparent and

things are decelerating in europe the u.s. economy continues to be very robust. the market fixated on the negatives, we are at 180 degrees from where we were six months ago. now everyone wants to fixate on the negative the bottom line is we have a record holiday shipping season you saw that in truck volume and container volume and fedex and numbers in particular. ecommerce had yet another booming, booming holiday shipping season. how you push down the shares of things like fedex and hpo by 40% or 50%, it does not make sense >> how much of that volume is inventory being brought forward to a preventative measure in

case the tar aiffs going higherr wider? >> no, those are retail goods. that's not things you hold any inventory. if you look at inventories that are held or fulfillment centers or distribution center, there s is -- >> which stock are more domestically oriented? >> the most domestically oriented is the tracker. they had one incredible ride last year but the logging devices are a huge squeeze in capacity we saw spot rate going up as much as 30%. contract rates have followed now up to 10% or 15% those have fallen right back down to relatively flat with over year levels

you got names in that segment like warner and j.b. hunt. they can well post order earnings on of of record earnings in 2019 >> that looks weird, that looks like an old chart and it is supposed to go in the opposite way. >> if it is truly supply, it is causing oil to crumble then the transportation ought to be invert unless it is demand related. >> you are so right. >> i have been right a lot today. >> everyone keeps on saying that i am right >> it is hard to be right. >> no, i have. >> don, to follow on joe's question about oil >> can he answer my question >> absolutely. >> joe, you and i had some epic back and forth there are two joes

>> so i am happy to tell you, you are wrong when you are in this instance, you are right. i think everybody is trying to compare this in 2008 and i keep on saying this is not 2008 this time it is in the euro and brexit we have big uncertainty on global trade in a 1998 poetically there are all these similarities in 1998. when we realize the sentiment is too negative, things rebounded oh yeah, don't forget in 1998, we are talking about how technology is going to disrupt everything and that's the big concern now. amazon is going to take over the

world. not really, not so quickly, hold off because it is hard to assault the amazing infrastructu infrastructu infrastructure >> don, thank you for jour tiyo sfooch >> always a pleasure >> coming up, we have a bare market scratching the door does that mean a recession is on the way or could it mean that we are already in one we'll dig into the data and tell you what a volatile market like this one means for the overall economy? as we head to break, take a look at equity futures, they're up but they were up more earlier. 124 on the dow we'll be right back. comcast business built the nation's largest gig-speed network. then went beyond. beyond chasing down network problems. to knowing when and where there's an issue. beyond network complexity.

to a zero-touch, one-box world. optimizing performance and budget. beyond having questions. to getting answers. "activecore, how's my network?" "all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast.

♪ >> good morning, welcome back to "squawk box" here at times square

among the stories, front and center, cannabis producer, aphria say nou-- >> the yankees is teaming up top buy the yes network of 21st century fox. one of the assets of what disney has to sell is apart of the government deal. the yankees are in talk with amazon and sinclair broadcast group and there is also approach cable operator usa >> i think they own 20% of that already, thas rigis that right? and ken chenault is stepping down from the board. february 13th, i think he stepped down from his post

both of them at american express earlier this year. >> they seem like going hand in hand wine does not mean the other is around the corner. steve liesman is joining us with more >> what does it tell you when we get into a bear market what is a bear market when we fall 20% from the prior highs? what have they told us there has been 13 of declines of 20% from prior high. seven times we were already in or on the verge of recession that's not good news the bad news is six times where there was no recession within 24 months take your pick it is a flip of a coin >> maybe that's better than the economy. i am not sure if they predicted fewer than 50% >> let's take a look at some of the -- when the bear comes

knocking, what happens 2001, there was one in three weeks. not giving so much warning at all. if you were not aware of what's going on in 2000s, '02 and '08 at 2009, we had one. 8% average fall after we hit the 20% so further to go 14% average increase within one year that's good, something you can bet on there here is what we call the meanest bear of a 52% decline. maybe the cutest bear, i don't know if that's the way to put it, only a 21% from 1956 to 1957 big shout-out for smoking investment helping me put these data out that we crunch. that i can your pick here, folks. >> i mentioned at the 6:00 hour, in each of those recessions that you site, there was a financial market in balance, where is the

financial market in balance i indicating a recession is coming >> i am going to answer that in two ways there are financial in balances and financial in balances cutting into the -- it did not hurt the financial system because it was not inside the financial system the reason why i answer it in two parts because everybody is pointing at the cio markets. if you tell me those markets would go down and have a big blow up, i would ask you if that's going to hurt the banks i don't think it will. there are financial balance that is can cause a recession but whether or not they cause a huge recession or long, i think it determines -- will is here and he can tell us the percentage.

>> i can't tell you the precise percentage >> but do they have a lot of the junk >> they have some. >> they peal off business. >> either way that capital is much stronger. regardless of whether we hit a recession or not, how much can gdp growth be surprise and tracked downside because of global gdp next year >> half as point of extra growth came from the unexpected strong global numbers that we got we had a lot of optimism, the election of president trump, by the way, it was sort of smart to expect that to go away why would you keep up performing and everybody was blindsided by

the return to trends i think according to half a point. you keep on adding a quarter in half some of the other things that are out there. >> let's say a quarter and a half from the fed. >> i see .1 to point-to-.2 if it continues. one of the things we are learning here, i call them the x factor the economists estimate that the effect of the tariffs is very small, .1 or .2 on prices and on gdp. what we are seeing to be seeing is the effect of uncertainty created, if you read some of the commentaries out there from ceos are bigger in terms of undermining uncertainty. >> that carries into tom's point. >> joe, getting fwoback to whatu

are saying this is the same thing that we keep on arguing about. why can the dislocation be overall build-up in debt across the board globally every other recession is caused by the fed does their own thing or goes up >> how do that level blow up >> is it possible to go too high if you got your debt service, you don't care what rate, you are going to feel it >> that's possible >> can you argue both sides of it how many people are saying the fed is too tight >> i know, we are arguing the fed is too easy. >> i know too easy policy created the president. >> there are people that said two years ago is a chance to do it >> can i explain why >> is it possible that they can be raising at a point where

it -- >> that's what the market and copper and oil and stock market. >> look, i am incomplete agreement with the idea of the fed. nobody is sitting here saying the fed is doing the right thing. the markets are sending us signals. >> there is no confidence in wall street. >> i am not sure if the fed and the market should be best friends at all times >> maybe we are paying for qe 3. >> is it the long run right thing to do? that's what i want to know the other thing i don't know and we have been on this thing the whole time here if it is the balance sheet, somebody explain to me the mechanism of the liquidity is hurting the stock market i keep on talking to people but

joe, can you not get liquidity to buy stocks right now? >> there is much different liquidity. >> what does it mean >> there is liquidity. >> to sell something -- >> this money was in excess reserve. it was not in the market >> we'll have to leave it there. >> it is an important conversation >> it is >> we got to go. we'll be back in a couple of minutes. here is "squawk box" on cnbc (indistinguishable muttering) that was awful. why are you so good at this? had a coach in high school. really helped me up my game. i had a coach. math. ooh. so, why don't traders have coaches? who says they don't? coach mcadoo! you know, at td ameritrade, we offer free access to coaches

and a full education curriculum- just to help you improve your skills. boom! mad skills. education to take your trading to the next level. only with td ameritrade.

welcome back to "squawk box. futures are up right now i have seen it below triple bin digits >> it is bouncing around >> just like the rest of the session. >> it was a hectic week for the mark santa claus did kind of show up. joining us now with mohame

mohamed el-erian economic adviser, do you believe in santa claus >> how old are >>. >> it has man modern for a long time >> you have been sort of positive of under lining fundamentals recently, mohamed and you have been a voice of calm of what has been turbulent in the past two months >> where are you at today? >> i am still constructing in the u.s. economy but, the under line economy remains strong and the business sector remains strong. i think joe, we are simply paying back years of ampl and

predictability having the toughest values on fundamentals and having change behaviors and now we are going back to something more normal that is good for the long-term but we got to aggregate this journey. >> the old normal. you got to cone that term, we are going away from your new normal back to our old normal? >> the big admiration of the market was not this year, it was last year. everything went right to investors. they got great returns and every car relation book in their favorite that's the operation and now we are transitioning back to something more normal which by the way is better over the long-term, we just have to minimize two risks one is the technical contaminate of the economy and the u.s. and two people, lose confidence in the functioning of market.

do we tell investors to look at these markets and saying i don't get this maybe i should not be into these markets. >> usually you can get to a studio or saint, what are we talking about? why the phone? let's see the lifestyle zof the rich and famous. where are you? >> i am at home in my pajamas at 5:30 in the morning. >> you got that little -- >> no, so does this finally work itself out mohamed where we don't worry about it of another 20% down in the stock market >> we had these appearance in the sf the stock market, it comes right back just to piggy back on joe's

question i think what i am hearing you say is that's not going to happen again >> unlike february, the global economy is more uncertainty. now, we understand that europe and china and japan are slowing. we have central banks that are stepping away. i am amazed how much flag have gotten relative to the ecb the ecb is tighten into a much lower economy and political vierm vie environments och environments >> no, this is not going to be like february. >> will the cbd get more criticism or the fed >> i think the fed should get less criticism as to what it is

doing. it should be held accountable. i said they made two big mistakes and you can't emphasize the balance sheet management that's a way too much of a burden on the interest rate % polici policies secondly, you have to convince people that you are much sensitive to spill backs if you do that, the fed can navigate the spirit. >> so mohamed, in an environment what group of stocks and asset ? >> what works here is what works in technically vulnerable market which is pick up the other shoe. when you get these adjustments, the good is not so bad with the bad. there are a lot of companies out there with high cash generation and good business models and navigate through fine but they

are going to trade for a while that's what people should focus on it is really a security selection environment across the board. not only in stocks but in bond as well. >> the biggest whisk is a huge policy mistake that yo yoyou you -- paralysis because of politics you got china misstepping and the central banks turn out to be a massive amplifier. >> in 2018, do you expect elevated volatility to continue? >> yeah, i do. i keep on looking at the vix chart and seeing the collaboration is not what we see now.

>> the relit was not low volati. it was repressed >> now, it is finding its own level. we got to figure out and we are figuring out that the system over promise liquiditiy to end users. and now people are realizing they don't have much liquidity as much as they did. when that happens, you end up selling what you cancel and w s what you should sell >> we got to go. there is a lot of green on the team that may be a team in the future are you living in l.a. now have you picked one of the l.a. teams or some good ones or are you going to go with the patriots ochlt. >> the only thing that matters is on sunday when the jets play the patriots >> yes >> let's go.

>> go arsenal. >> okay. he's an international guy, soccer, right? >> that's right e. >> is he over and under on every game that's zero >> i use the same jokes over and over >> what, you do? >> thanks mohamed. the old normal i like that. >> when we return our guest hosts on the market and the economy and the fed and the big 2019 gas is still at 193. s&p is up by 15, "squawk box" will be right back prap

your brain is an amazing thing. but as you get older, it naturally begins to change, causing a lack of sharpness, or even trouble with recall. thankfully, the breakthrough in prevagen helps your brain and actually improves memory. the secret is an ingredient originally discovered... in jellyfish. in clinical trials, prevagen has been shown to improve short-term memory. prevagen. healthier brain. better life. most kids today will have jobs that don't exist yet. the engine management systems coordinate with autonomous vehicles. financial data, so now we can predict the future. our new flexible propeller design. by collaborating with public schools on a program called p-tech, ibm is helping students build the skills they'll need for tomorrow. revolutionizing. aerospace industry. it's an entirely sustainable approach. any questions?

when you rethink education, everyone can put smart to work.

coming up, on monday, joe zidle will join "squawk box. we'll be back in a couple of minutes. what's critical thinking like? a basketball costs $14. what's team spirit worth? (cheers) what's it worth to talk to your mom? what's the value of a walk in the woods? the value of capital is to create, not just wealth, but things that matter.

morgan stanley

our guess today tom farley

and joe. you got you sitting in the p center and two of us here and you are trying to keep it to the "halftime report." you got to plug it in there. she takes over in the morning. >> i let you be right, joe >> all right it is hard to stop >> what are we going to take away from this >> the one story that we did not hit today that i want to hit briefly, mohamed, said volatility will be great next year i i agree. uber can do whatever they want you look at the whole list, slap, pinterest and air bnb

>> watch you on "halftime rep t report" and "closing bell". >> happy new year, we'll be back here on monday "squawk on the street" is next ♪ >> good morning, i am carl quintanilla, i am with sara eisen and wilfred frost. david is off cramer is going to join us by the phone. europe is up 1.2%. japan closes the year down 12. they are closed on monday. oil is back about 45 ou