thank you for everything. make sure you are back here tomorrow. it's time for "squawk on the street". ♪ good morning and welcome to "squawk on the street." we are live from the new york stock exchange. let's give you a look at futures as we get ready to begin trading. you can see we are looking at a lower open. this was the case this time yesterday. we quickly reversed. a couple of hours later we were already headed higher and ended higher. that was before we heard from apple. we'll see if that has the impact throughout the day that it certainly is having early on before we begin trading. european markets have been trading for some time and you

can see a negative reception though not perhaps as bad as it had been preevtsly. italy and spain both up on the morning. the 10-year note yield hovering in the 2.6 level. wti having a bit of a bounce. jim and i will talk about that. let's get to our road map and it starts with what you might expect, the slashing guidance from apple. shares tumbling in the premarket as the iphone maker warns first quarter sales will be coming in at a number that is less than had been expected. ceo tim cook did speak exclusively to cnbc. three days into the deal we have a block-busting pharma deal. celgene shares surging on the announcement that

announcement. as for stocks overall, they are set to open lower on worries on the continued economic slow down in china and the global growth story, as well. so nice to be back with you. >> i miss you. >> you will be out at jp morgan health care conference next week. >> they have to get this deal done before the conference. >> we want to talk about it. let's start with apple. of course, the shares are taking a hit after the company cut the revenue forecast for the quarter. apple citing a sales slow down in china. here is what ceo tim cook told josh lipton. >> as we look at what is going on in china, it's clear that the economy began to slow there for the second half. what i believe to be the case is the trade tensions between the united states and china put

additional pressure on their economy. so we saw as the quarter went on things like traffic in our retail stores, traffic in our channel partner stores, the reports of the smart phone industry contracting, particularly bad in november. i haven't seen the december number yet. i would guess that would not be good either. that's what we've seen. >> revenue will be $84 billion. gross margin about 38%. operating expenses 8$8.7 billion they do come back to the service revenue number to try to get people excited about that. they put it solely at china's feet, so to speak, as being responsible for the short fall. >> on december 7, 10 and 20th. they didn't. that was wrong. they knew. they did it as fast as they can

this year. december was worse than november. i believe january is bad or else you don't preannounce. the usual rule i use is 30 days. they are looking 30 days ahead and preannouncing because of the 30 days ahead. do i believe in china? i have felt all along something that no one wants to talk about. the communist party doesn't want you to buy apple. >> he was quoted as saying here and there you might get somebody out in front of a store saying don't buy this and that. mr. cook at least disputes that notion. >> i think that's fine. i don't this can the chinese government says if you buy we are going to track you down. i do believe that the sales -- i think they are circling wagons. no offense to mr. cook because i think he is terrific. i expect the stock to be down more than it is. we have to recognize that we are

at a cross roads. cell phones need growth. apple had been a great grower. you have to default to ecosystem and the service revenue. it's too early. service revenue is not big enough. they spent a lot of money buying back stock. they did cut the way that you analyze the company by saying we are not going to give you cell phone breakout. those who said that that was significant are right. did they know in october that things weren't going to be the fact is that the october period was just in the wake of what pence did which is to declare economic war against china. if starbucks and nike aren't down you can say wait a second. china has chinese competitors. >> doesn't it have to do with the simple -- and the price of the phone versus what they are

dealing with in the market. now they are fifth in the market. not to mention, interestingly, a lot of people in chinese almost is their own operating system. it doesn't make it as difficult to move out of the ecosystem. >> that's very important. >> that's very important. i believe it is a technological marvel. i believe the ecosystem is terrific. i think there are people who want to move off. i believe the price of the phone is too high. that's why i can't say you have to buy it. one thing i think apple has to be careful about. apple wants you to buy the stock after they preannounce. been in this business since 1979. don't touch our stock. of course, no company, there has been never a ceo who says we are preannouncing. i said are you kidding me? and i almost thought they said

don't buy our stock. this one is buy our stock, we screwed up and we don't know what is going to happen. why would you do that? why? >> what does this -- how does this impact your view of the long term ability of the company to grow? >> whei am not worried about th. china is 20% of their business. this is not insignificant. >> warren buffett is back to even i think. >> maybe a little under. >> i think that let it settle. i wish they hadn't given this buyback. how many companies have bought stock too high it's owned by index funds and buffett. i don't think buffett sells. i felt that apple right now

should say i know we are an innovator. we want to be covered by the people who cover proctor & gamble. we are a consumer product. if they insist on being a tech company they go to nine times earnings. they don't want to hear that. it really doesn't matter. >> what is the impact on the broader market should we view this as solely an apple? it is reflective of a slow down on the chinese economy. yesterday we saw it on t purchasing. there had been hope that perhaps there is this continuing change in terms of becoming a consumption led economy. >> they consume it a lot. it's not apple and china. remember how they view us and we view them. peter novaro wants to do a --

i'm sorry y. lost my train of thought. i think everyone is going to look at china again. people are saying be careful boeing. boeing is not a consumer product. people are going to start thinking -- you don't have to say signs which say boycott apple. what you have to do -- >> you keep coming back to this. >> this is what cook had to say when josh lipton asked him. >> apple has not been targeted by the government. there are reports about somebody talking about not buying our product products because we are american. my personal sense is that this is small. keep in mind that china is not

monolithic. you have people with different views and different ideas. so do i think anybody elected not to buy because of that i'm sure some people did. my sense is the much larger issue is the slowing of the economy and then the trade tension that is further pressured. >> the reason why i have hope, not that disagree whole heartedly. it's the idea maybe apple is no longer a friend. the government never has to tell you what to do, but you listen to what the government said. i think that apple could be a buy when navaro says let's do a deal. i know it is contrary to what

tim said. >> it is a true revolution. >> i think that apple could be a winner in a resolution trade dispute. factories start operating again at a higher rate. >> it goes back to the price. >> i made this point many times and others have although it hasn't seemed to have effected as much. you went away from the installment plans where you are no longer at the carriers. once it runs out, you not paying 30 bucks a month. >> you get the service revenue for $10 a month. get trading. how do you show that you need to be a good guy? you say you know what, we are

going to subsidize that. we want apple to win. that's another reason to own the stock. tim cook can't say that. you think tim cook could say the party -- >> added another one percent to losses. >> it's a preannouncement for heaven's sake. >> lost at least by $350 billion in market value. >> let it come in. it's a great consumer product company. it's loved around the world. if they have to cut the price, that's in the stock at 120. that's my worse case. i am saying i will disagree with tim about one thing. >> apple is not the big news. we have a lot more to talk about. it's a $74 billion deal worth about 104.

bristol not doing as badly as it had about an hour ago. we are going to talk a lot more about this huge pharma deal. take a look at futures. also going to have data from adp, as well, that we are going to share with you, showing private sector employment increase. more squawk on the street. [knocking] ♪ ♪ memories. what we deliver by delivering.

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we have big news in the merger and acquisition land. bristol-myers agrees to buy celgene. celgene holders get one share of bmy and 50 bucks a share in cash. it's roughly 54% premium to the close yesterday. they don't need to go back to an affected price. there has been no shortage of speculation for years. they are talking about 2.5 billion by 2022 saying it will be a creant to eps by more than 40% in the first year. it is expected to close q 3 of

this year. jim, i want to talk to you a lot more. let me give you a quick read on how it came together. these companies have been talking for the last two to three years on and off about a potential deal. there have been periods where celgene was larger than bristol-myers. they have been talking about getting together in some fashion. the latest talks were initiated in september and quickly picked up steam in part because they were in the right place in terms of the price of the respected companies. bristol-myers as the buyer and because your friend had left. social issues became less of an issue in terms of management and the willingness to sell. they outlined a price range in september and moved towards a deal over the last few months with the plan of getting an announcement in san francisco every year. they managed to do that. the only real change i'm told

was bristol-myers did increase the cash component from the range they were talking about in part because bristol-myers stock had been down and they didn't want to get diluted as much. shareholders don't seem to be crazy about it. there are some concerns about that. they do institute what would be an accelerated buyback. give me your take here. as the guy who has known celgene so well for so long -- >> can you talk about the rights >> there is a contingent value right. we see these in these kinds of deals, hardly ever otherwise which would give shareholders nine bucks if celgene gets approval for three separate drugs. if they don't get all three they don't get much of anything. the expectation is this thing is worth about 1.50.

that is the best guest of people i have spoken to this morning. we'll see how it trades. you could receive as much as $9 if they get fda approval for their ms drug by the end of 2020, their cancer drug by the end of 2020 and something with a bunch of numbers and letters, bb 2121 by the end of '21. >> celgene bought a company. they did that because they're too focussed on revelment. that is what created all the money. >> so you've got two companies that need each other. we know that bristol-myers has been losing head to head to mercke. >> their key anti-cancer drug is not doing as well.

>> why is bristol 52 they were perceived as not having enough other than optiva. while was celgene as low as it was? perceived as not having enough. now you have a cancer franchise that people might like. i see here, some say it is out of desperation. i am saying this is a milestone deal. we have had a bear market in so many stocks. >> trading at something like seven times the earnings. it is seen as going potentially patent cliff there. they are buying this thing at about ten times the estimates for this year and eight times next years. >> this was $140 stock. >> what a come down. i like the deal for one reason. both companies i would not have -- i'm intrigued.

this is -- i know apple's news will cover everything. we have been watching bio tech trading through. >> interesting to note, there had been some shareholders who are back there on the prospect. there have been absolutely no talks. that is according to people who are familiar with whatever might have taken place. they say nothing. there is a shareholder vote on both sides. if you are a bristol holder you get the opportunity to vote on the deal. jim, you kind of like it then as a combination. you don't love it. >> does it usher in any other potential deals? >> absolutely.

>> because it is a one product company. it's the biggest drug ever. >> speaking to louis at the jp morgan conference, i like louis's drug better. if you get the dosage right then it is in trouble. no ceo is going to come on our show and say i'm not in trouble because we're not the right place to do that. i think that bristol needed help. bristol is at 13 times earnings. >> they had r&d setbacks. i'm being kind. >> you are more of a diplomat. these companies are more interesting to me. i like the cvr. if you have a product that has very good science group, if that product works, then you've got something to live for.

otherwise, you've got bristol-myers losing to mercke. you have celgene losing in the ms franchise. you have revelman running out. >> it sounds like two drugs holding each other up. >> some could say that. i am saying they are sober. >> okay. >> wow. what a morning. we have so much to do it's frightening. >> we have to get more stuff. we have to talk about my dog. inviddia. do you know it led the market? it is worth doing a mad dash about. >> we have our first mad dash of 2019. we have seven minutes until the opening bell. here is one more last look at futures. more "squawk on the street" after this. hey... saved you a seat.

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four minutes before we get started with trading here. second trading day of the year. nvidia once led the s&p. for years prior it is our first mad dash of the year. why? >> stock only sells at 18 times earnings. this stock, let's get the numbers here. before the pence powell -- it finished at 130.

that was not a two for one split. a lot of it was the criptoid maniacs using their cards and returning them. nvidia is artificial intelligence. it never had a good relationship with apple. that was a big negative until this morning. nvidia gaming slowed part of the problem in china. >> they told you when they announced last quarter that there would be two quarters of criptoid that would hurt. it will begin with easy comparisons. i think if you put away nvidia recognizing that this quarter is not going to be good but next quarter is going to be good, opportunity. it's as hated at 130 as it is loved at 280. i like that. >> the basic point is buy it

now, understanding that perhaps next quarter or two may still see weakness but you will be rewarded given the long term franchises this company has in what a key growth areas in the world's economy. >> i have information on touring which is the next data card. people thought it was too high. this happened ten days ago and the cut is brilliant. it's brilliant because it would smooth the transition. you will analyze the criptoid maniac. last year being what people lost fortunes on. i do think that if you start right here you are going to finish the year well. >> okay. we start trading in a minute and a half. we have been so busy talking about apple and the huge pharma deal we haven't talked at all about the broader market. what are your thoughts >> my thoughts are that oil is

up. it's up 78 cents. i was up at 3:30. i'm back to my lifestyle. >> i was jet lagged yesterday and i woke up at 3:30, as well. i thought of you. i thought you really are insane. 3:30 in the morning. >> 2019, i'm crazy. >> i did think of you. you are up at 3:30, what are you thinking >> futures are going to be bad. i wasn't thinking about apple at all. now oil is up. futures x apple are up. people are worried about boeing, worried about the usual chinese suspects. oil tells me even though it is up, the machines are set to oil. never underestimate the ability of hedgefund management.

where else is it i like that because there are three items that take a life -- i like what i see and it's going to be hard pressed to bringthe markets down. >> here is a look at the exchange back at our headquarters. here at the big board, programs for parents, the nonprofit. it celebrates its transfer to the nasdaq from the nyc american. >> really? >> i know. >> i knew the hand signals. now i feel like when they told you to switch gears to two and

three, don't buy the stocks. >> i did not ask you that. it's not apple. what is the key? >> facebook. >> there had been i think a genuine revulsion to owning facebook at the end of the quarter. the fact is the trail can be a decent business. i think we are starting to get to the bottom of facebook. they need a fall guy. they never brought in a senior person. >> you sold to everybody including the russians. we didn't sell to the russians. i'm doing a -- >> i do.

they are one firing away from a 150 stock. >> it is interesting yesterday as were a number of the names that were beaten down last year, celgene amongst them on a bounce it seemed at the time now 30% on the deal this morning. g.e. was up substantially, five plus percent yesterday. facebook amongst them up over 2.5%. >> now we also have to watch starbucks. people say wait a second. maybe there is something against american companies. i think that starbucks and nike are not like apple. i like this market as long as oil is at 47. if oil went to 46, the machines are set to sell. there is not enough money coming in. i'm not seeing waves of new money. i like the fact that this market is hard to crater and that you see a boeing and a cat and you

are down because people feel that the communist party is not buying planes. one out of every four planes goes to china. they need those planes. there is demand. >> they are excellent technology. >> so much goes into a plane it takes a lot. >> did you know it is one of the top five products? >> they're very good at it. >> i put it top five. >> you seem to think we are going to reach a resolution. >> yes. >> with the chinese. bad is good in china. i think china needs us far more.

i'm saying that today is a -- if we can shrug off apple, we can shrug off anything. >> it's no longer the biggest market cap at $684 billion now. this was a $1.1 trillion market value. >> do you think we will see trillion dollar companies again? do you think that is the end of the trillion dollar era? >> we are below it now with microsoft in the lead at 766 trailed by alphabet and amazon at $748 billion. apple is not in the top three any longer. >> that's good. low expectations. bristol-myers now 3.5 --

>> it's down 12% on the deal to acquire celgene. we get one share of bristol-myers. that's no longer the case. >> it's 102.43. >> put your m&a hat on. you know what we had in the month of december? >> nothing. >> big, big, big. >> small, small, small. people don't realize i was being facetious. what else is in the pipe >> we start the year with potentially what will be one of the biggest deals of the year. >> we have been waiting for the consolidation. we have had more losers in

pharma than i can shake a stick at. >> your point is being heard because gilliad is up 3.8%. bio j biogen is up. you are going to be covering a lot of this next week at the jp morgan conference which everybody goes to and is always a place where companies can also talk to each other and discuss the possibilities of further alliances, linkages, merges, takeovers and the like. >> i like that. have you noticed that f.a.a.n . f.a.a.n.g. -- it's not the aa. i come back to the idea, where are the big sellers? like people are waiting for a big one, i recommend body guard.

we are seeing it knocked down. >> facebook up. alphabet up. netflix up. >> i would say this is 9:36 and it is early, we have gone through a full six minutes. i do think if we go down 400 and we stop, i'm going to look at the mcdonald's and clorox. don't dismiss that. don't sniff at that particularly the product. >> don't sniff clorox. that will hurt you. >> if oil goes down, the machines are playing -- >> it all comes back down to the machines and the use change in the complexion of our market that we don't talk about enough which is basically who's actually doing price discovery. it's like 15%.

it's index funds, etfs, machines and hedge funds that never seem to get it right. >> i think you are absolutely right. i think that is absolutely right. >> and some usual fund managers. >> i happen to like the delta news which is saying we're doing pretty good. they don't like the four percent i was hoping for. but the fact is they announced -- it's down three. people are freaking out on an overall demand environment friendly stock. that comes back to you. it's an etf. there is etf that has the airlines. it is set stupidly to sell. again, i come back to the market doesn't have price discovery but the market should be down much more off apple. every single apple supplier had been down for days. let's take a look at sky works.

>> exactly. that's my point whm. when do you find -- when do you see serious logic, corvo. the stock is down 11. >> don't go against -- he is a visionary. let's get away from that. how much will it be up by the end of the day we don't know. >> people behind the bristol-myers celgene deal would

like to remind you of cigna and how that stock got beat up and then was -- >> it was a big buy. >> bristol-myers is down 12%. >> those who sell cigna will be classified as morones. that's like you know the circle. morones are right in the middle. that was a really good deal. express scripts plus cigna equals unh. >> is this a time to be buying bristol-myers at 46 based on the prospects for this deal? 45 billion of expected free cash flow generation over the first three full years also the potential for accelerated repurchase by bristol-myers. to the point we are making earlier and i said two drunks holding each other up, r&d

failures, concern about where the growth is going to come from, the market is sort of saying you are not going to sell yourself bristol-myers which we hoped you might. and we don't know about the growth prospects. >> i know cigna. >> i know jack kennedy was the debate. >> i worry about bristol because i was concerned about celgene. i'm hoping that they did more work and realized they have next generation cancer drug. do i want to buy bristol-myers do i want to buy big pharma. who is the winner in this? it tells me merck is the winner. i think that merck goes back and yields aumt three percent. frazier is the winner because

they are the defacto new cancer drug. that's why bristol had to do what they did. >> our friends at quaalcomm would like you to focus once again as they always would on the continuing patent dispute, royalty payments dispute that they have. dispute is putting it mildly. do you think this puts more pressure on apple to settle there and the impact at all? quaalcomm didn't post the bonds. you have the continuing question in china about the ability of them to sell, unclear whether that had any impact here. >> i think that at this time, if you are apple, you need every friend you can get. i know that there is no love lost. i know they are about to go to

court. if they want their stock to go higher and they want principle to prevail then there is nothing wrong with that. apple will be under pressure and quaalcomm won't be. quaalcomm seems to be winning. >> so i don't want to own semi conductors other than nvidia and broad com. it moved away from cell phones. it is so hated right now that it's a chance to buy the highest quality semi conductor down 160. they don't talk about him with quite the same heroic terms that they once did. >> who knew? >> it was going to miss the quarter and it was ugly. it was all about the crypto maniacs. they hang on to people like this. >> they return some of the cards

that they bought from nvidia to do that. >> i would rather be a coal miner than a crypto miner. >> we had one on yesterday. >> he is a surgeon of gold. >> let's get to seema mody with more on what is moving this morning. >> apple warning certainly stoking fears of a broader slow down in the chinese economy just one day after china's manufacturing data disappointed to the down side. apple shaving about 100 points off the dow. s&p lower by one percent. the nasdaq the under performer. taking a look at apple with today's losses is down nearly 40% from the october high. the market cap has fallen to a nearly two-year low putting it behind google's alphabet. overnight we saw global markets trading down despite a modest

rebound that we saw here in the u.s. something electron some global tech names are moving to the down side. back here in the u.s., a number of apple suppliers are coming under pressure. let's also talk valuation. some analysts say apple looks more compelling now that it is trading at 12 times forward looking earnings. it is trading cheaper. facebook and microsoft which are trading at 18 to 22 times respectively. no surprise technology one of the worst performing sectors. what is holding up is energy thanks to the bounce we are seeing in oil with wti crude getting close to breaking $47 a barrel. the safety bid continues to lift a number of assets including gold up about $6 in today's trade. check out the japanese yen continuing to move to the upside as the dollar moves lower. >> seema, thank you.

ford is out with its auto sales numbers for december. phil lebeau has them. >> december may end up being a half way decent month for the auto industry. it is volumewise a pretty strong month. ford down 8.8%. cars, suvs, trucks all lower. one note, ford f series for the year sales topping 900,000 vehicles for the first time since 2005. best f series sales since 2004. toyota out with sales dropping down 0.9%, a little bit weaker than the expectation from edmonds. a decline of 1.3%. fiat boosting sales by 14.3%. note this. jeep because suvs are so hot, jeep sales last year jumped 17%. jeep almost sold 1 million

vehicles as a brand in the u.s. coming in at 973,000 vehicles sold. it shows you the power of the demand for suvs. >> thank you. phil lebeau on those ford numbers. let's head to the bond pits now also in chicago. it's rick santelli at the cme group. there is a lot of market volatility. we know a couple of big events whether china and the trade with regard to the yen, what is going on with apple. adp was definitely better than expected and it brought back the maturities after dropping yesterday. look at the two day of twos and then the two days of ten year. as the ten year hovers up a few basis points it is hovering at the lowest level since last january. remember, last january is unique. we started out at 240. the low yield in the year was established the first trading day of the year and we ended up

browing about 32 basis points in january last year. into the 270s. so you can see that there is a lot of room to keep comping the january. 240ish is probably your best support. tomorrow's number four jobs will be huge. you see the one year chart of tens there. it's all about foreign exchange and also about reversal of carry trade. you can call it a safe haven, but i'm not sure it was a safe trade to begin with. it's against every currency. look at the dollar versus the yen. intraday it would have been a much longer comp but it is well off the worse levels. even saying that, we are still at the worse levels since june. in terms of the pound versus the yen we are back to november of 2016. this volatility permeating in many different directions, many traders continue to say that the carry trade may have been the

finance structure behind f.a.a.n.g. trades. jim, david, back to you. >> thank you. rick santelli. as we head to break let's give you one more look at apple off the very lows of the morning. down nine percent. you can see it there. ivent done the exact math but it is more than a $400 billion loss of market cap over the last couple of months since the stocks have been at the highs. >> off to money heaven. let's take a break, take a look at this morning's worst performing stocks on the s&p. we are back after this. alerts -- wouldn't you like one from the market

when it might be time to buy or sell? with fidelity's real-time analytics, you'll get clear, actionable alerts about potential investment opportunities in real time. fidelity. open an account today. . bristol-myers does the big deal and it's suffering right now. many saying, well, celgene has

some issues, pipeline failures, cash flow is going to go to paying down debt they took on to do it. that's why the sock is down 13%. coming up next, stop trading with jim

all right, apple shares down on slow demand from china, now we get this from the president this morning the united states treasury has taken in many billions of dollars from the tariffs we're charging china and other countries that have not treated us fairly, in the meantime, we're doing well and various trade negotiations currently going on at some point this had to be done the only point i would make is money is coming in by treasury but it's not being paid by china, it's being paid by the buyer of the goods from china which is the u.s. consumer. >> i'm going to reiterate they need us more than we need them the weakness there as indicated by apple, we would not have that our country is stronger than they are right now the belt-and-road initiative, they took over the port of another country. china is waning right now and that makes it more likely there will be a deal.

are we going to do a stop trading? >> clorox. roll cost down, sales up bingo. >> love it that's the way and what's on "mad" tonight? >> well, we have amn, a health care company that's stocks is what you buy right here. i love being back. i hate vacation -- well, my wife doesn't watch. vacation is a huge waste of time which is why i'm so glad i called in so many times. can't beat that. >> well, i'm glad to have you back melysf. we have more "squawk on the street" coming up. stay with us

welcome back to "squawk on the street." a real floroar in the pit. breaking news, ism factories a miss, 54.1 that's over three points below expectations, sequentially follows 59.3 54.1 is the lowest read going back to november of 2016 november of 2016 now, let's go through the internals, shall we? ism employment, 56.2 down from 58.4 prices paid? a big drop from 60.7 to 54.9

finally, new orders, lost a handle from 62.1 to 51.1 we have been talking about how any number anywhere near 60 is historically huge. this is a read that backtracks a bit and it shouldn't be so shocking that some of the market volatility caught up with one of the important feel-good indices we all pay such close attention to sara, back to you. >> feel good and a leader. rick, thank you. on that disappointing manufacturing number, welcome to "squawk on the street. i'm sara eisen with david faber and contessa brewer live at post 9. markets didn't like that number. dow moving lower, 364. just a moment ago it was down 400. s&p 500 down 35 points, 1.4% sharp declines on the nasdaq as well, no surprise given apple's stumble down almost 2% for the

broader index. a ton of news to get to today including apple shares which are under pressure after stunning wall street by slashing guidance on big concerns out of china ceo tim cook sitting down exclusively with cnbc. we will bring that to you. stocks tumbling on the heels of the big apple news plus a new congress convenes today in washington and we'll begin by dealing with the government shutdown and a massive pharma deal. bristol-myers buying celgene we have full coverage and analysis for you of these big stories moving the markets. we begin with apple, of course tim cook speaking exclusively to our own josh lipton after the company cut its revenue guidance for the first quarter. josh lipton joins us now with more josh, you got a wide-ranging interview out of the ceo of apple. >> that's right, contessa. as for that revenue miss you just mentioned, that was all iphone related and primarily

china, though tim cook telling me the developed markets disappointed as well talked about dollar strength and fewer carrier subsidies. >> in addition to those two things, we've started a program worldwide where we dramatically lowered the battery replacement price and so we have sort of a collection of items going on, some that are macroeconomic and some that are apple specific and we're not going to sit around waiting for the macro to change. i hope it does and i'm optimistic but we'll focus really deeply on the things we can control. >> now, beyond iphones, cook did point to services as a bright spot which jumped near 30%. >> this is exciting for us because so many things hit records in there the app store did, apple music hit a new record, apple pay hit

a new record our searched a product from the app store hit a new record icloud hit a new record. and so it's very wide. >> but pressure in china clearly front and center cook say he's dealing with a weakening economy and talked about pressure in trade tensions, too. guys, back to you. >> josh, thank you. >> thanks, josh. $420 billion of market cap loss since the highs only in october and then since then of course concerns to a certain extent about weakness we saw a lot of suppliers over time their stocks weakened as they did not say specifically it was due to apple, raising concerns about it but he puts it squarely at the feet of china and nothing more nothing less. >> it's a micro story and a macro story. i think that's certain and this came on the heels of a manufacturing contraction in china. news that we got that.

then to confirm from apple which is a major consumer company in china that it's slowing, it sent shivers through the spines of traders who are worried about global growth. you saw that in the dollar/yen, actually the yen spiked, it had a flash crash overnight and that clearly reflect this is risk off global slowdown concern so yes concerns about the iphone and innovation all factoring in here but a bigger broader worry about china and the visibility that u.s. multinational companies have right now doing business overseas in what has been the fastest-growing market for them. >> so you have to wonder whether we're going to see similar guidance from boeing, from caterpillar. are we going to see this trickle down to the companies that i cover in macau with gaming eventually but my big question here is, is this the end of the damage because, remember, there's a ban that will go into place on some of these older iphone 6s in china. there's a ban coming in germany

as well on variations of the 7, the 8 and the x. could we see more iphone collateral here? >> there's an injunction in germany, part of the dispute with qualcomm and they're litigating that in china as well and apple says it doesn't appear to have pressured them there but do the companies you cover such as nike, apple is operating at a much higher price point and conceivebly a more competitive market where there are alternatives that are lower priced than nike. >> which we're getting a completely different message out of a company like nike which is consume yediscretionary. two weeks ago nike had earnings 12/20, 26% revenue growth in china. the cfo said this, the u.s./china trade fight, we have not seen any impact. and, in fact, did not warn on the future, continues to see china as the growth engine for this company and raised their

guidance i haven't heard anything from nike since then but you'd have to see a dramatic dropoff in business i've been speaking with other consumers companies, for the staples universe,they're not seeing dramatic slowdowns as a direct result of the u.s./china trade war so i don't expect many warnings like this from those type of companies of american brands that do business there. but this is having an impact and apple with its expensive iphones and maybe symbolism as an american company is feeling it differently. >> let's find out more joining us is jeff quall, is it apple specific is it that the phone is so darn expensive and in a market like china where things are slowing in terms of the overall economy it's going to take a hit >> i think the overall smartphone market in china has been difficult for much of the

year i think year date through november china's smartphone demand was down 15% and actually the data that we've seen has apple down plus or minus commensurate with that so through november it didn't look as though they were losing a ton of market share. that may have changed in december given there's talk of iphone boy coutts. >> but just a slowdown overall not necessarily a move ray way from apple the marketplace itself >> that's the bulk of the explanation. the magnitude of apple's miss suggest there's more going on in december so we have to find out. probably we'll have to wait until the end of january to hear. >> i think isn't just china. tim cook and apple alluded to that in his release letter to investors last night and his n his comments to josh the bulk of it is china but

there's also this piece he talked about how the subsidies not being there. basically price sensitivity in some developed markets was hurting them as well and i think it's early to know exactly what's going on but it's worth considering the possibility that apple overplayed its hand with the iphone x line and then continued with the xs, xs max and xr meaning there's a certain segment of the iphone user base that has money and was willing to upgrade but what used to happen in the past was well, then the slower adopters come on and adopt the newer phone. they didn't do that in the same numbers this time. they stuck with their older phones, the replacement cycle lengthens, they don't want to do that upgrade so apple is in this position in china, yes, of having a slowdown effective in there but possibly also in developed markets. >> jeff, they can talk all they want about the watch or service revenues which are significant this is still the engine that

drives profitability with the company. have you cut your numbers? what are your expectation for iphone sales >> i think apple has been very clear to say that they haven't run into any challenges with price elasticity so i think this is the first time apple has come out -- and they didn't say it directly, they said it indirectly, hey, look, carrier subsidies are a big deal even in developed markets so that was a little change for them. it's not something they can shift because it will take time before they can adjust what their product road map looks like so it's not a near term fix more them. >> bulls would say it looks like a u.s./china trade deal and this puts pressure on president trump to have one of the biggest companies in the u.s. having to low their expectations so much bears would say this speaks to innovation concerns we had around not having the next new product beyond the iphone and

the iphone is slowing. there -- which is it >> those are short term and long term variables in the near term we can hope for a bit of improvement in china but let's keep in mind the overall china smartphone market isn't great so we shouldn't expect an enormous snapback in china. that brings us to long-term concerns about innovation and that's right it's fair to say that the amazon echo should have been a product that apple pioneered but i also think that, look, we tend to lose sight of the watch because it is a much smaller piece of apple's overall revenues but that beat our estimates again for the this quarter. >> what's your view on services? if they're going to lose some revenue coming in from selling

iphones in china, can they make it up with services in china >> i've got my doubts. the reason is the services business is driven somewhat by the installed base of apple devices and largely by the installed base of iphones. i think it's unclear at this point. apple put out the number on how the installed base of active devices is up a hundred million. i'm not sure that number matters to services as much as the installed base of active iphones and the growth of that if i got an iphone and then i got a watch and apple tv, am i going to spend that much more on services year after year maybe not. maybe the iphone itself when i buy that game, when i get apple care on it, et cetera, et cetera, is when the spending comes in i don't necessarily spend more as the others happen but i want to go back to this issue of subsidies why did carriers subsidize the iphone in the first place? because it was the absolute best salesman for 3g and 4g, right?

you build the network, spend all this money as a carrier then you have to get people to spend money on the network how? well apple is the best at saying look what you can do with 3g on this phone look what you can do with 4g now we have 5g coming. the question is, can apple build a phone for 5g that gets people excited about the networks where the carriers are willing to subsidize it and the fight with qualcomm is front and center >> this is what we were talking about with the litigation in germany and china right now over qualcomm and the iphones from. >> qualcomm posted bond in germany this morning. >> we talked about that earlier, yes. we'll leave it there but thank you, we'll see you at 11:00. stocks moving sharply lower. the dow is down more than 500 points apple signals concerns about the global economic slowdown

fallout from the trade war and, just in, recent disappointing numbers on manufacturing in the u.s. joining us is allianz chief economic adviser ism manufacturing down to 54, the lowest level in two years. the new orders component down to 51.1 a dropoff from the prior period which was 62.1 are you concerned about these numbers? >> i am. and think of the global growth story. it's interesting in your apple discussion you said it's a micro and macro issue. global growth used to be about synchronized pickup. then we went into divergence with the u.s. outpacing europe and china. now there's evidence of the wrong type of convergence. that the convergence is happening with the u.s. slowing to where the west of the world is and this is why the market reacted to the ism number. the bond market has sensed this because if you look at the ten-year deferential between

u.s. treasuries and bonds, that's below 250 basis points. so the concern is we're getting the wrong type of convergence in global growth. >> the market already sniffed this out global growth, slowing u.s. growth that was the story of the last three months of 2018 where are we relative to expectations on how much the u.s. is slowing? >> in the last three months the view has been the rest of the world is slowing, particularly europe and china but the u.s. has enough momentum. now there's two types of concern -- one is that the policymakers aren't sensitive enough to the spillbacks, to the possibly that we get contaminated from what's happening abroad and the second concern is that market volatility could feedback into economic weakness so it is

different. this is a different type of concern than it has been earlier. and it speaks to how do you regain momentum? how does the fed regain control of its narrative that will be important over the next 24 hours as we get the jobs report and as chairman powell speaks tomorrow. >> are you reading anything into the weekly jobs numbers we got in the increase from the adp jobs and the increase in what was expected in terms of jobless claims >> it confirmed the labor market remains solid and we continue to create lots of jobs and that wage growth will continue to rise the problem is those are lagging indicators and that's why the market responded so quickly to the ism number the market thinks of the ism number as being the leading indicator and that came in weak.

so, yes, we are going to get confirmation of a strong labor market but people have moved on and are worried about well, what next >> one thing that could change momentum would be a trade deal with china i won't ask you to give me your opinion on it because nobody knows. but if we did reach a deal with china, would it have a positive impact on sentiment and turn the global economy back? >> at the margin, yes, david i've been consistently saying we will get a good deal with china because china has no other options than to do what mexico, korea, canada, the eu do, which is provide concessions to the u.s. because the u.s. wins a trade war. the issue is that that is not the main concern out there the main concern is that there

aren't enough pro growth policies certainly not enough in europe and in the u.s. we're not seeing much come out on infrastructure which is important so yes it would help at the margin the first thing to change to the positive if you think of the three things that are undermining markets, fundamentals, liquidity and technicals, the first things that will change are technicals, market psychology. if you're looking for something to look at on a high frequency basis, follow what is happening on market technicals and the fact that we had differentiated performance this morning was encouraging. >> although it's not getting much differentiation now as we continue to weaken after we got that number from rick at the top of the hour. >> very weak manufacturing >> because the ism number confirmed the fundamental weakness. >> so chances of a u.s.

recession in 2019 right now? >> small unless we get a huge policy mistake don't underestimate the momentum in this economy. we only fall into recession through a massive policy mistake. >> many people we've seen that from the federal reserve. >> nothing that can't be corrected. what we've seen is miscommunication and miscommunication on two points one, insufficient openness to spillbacks from the rest of the world, from market technicals and, two, this notion that a very important policy tool, balance sheet reduction is on automatic pilot. the market doesn't want to hear that the market wants to hear the fed is open to using all its tools to fulfill its objectives and i think chairperson powell has the ability to start changing the narrative. but it's not going to be

instantaneo instantaneous, it will be a process. >> has it been underestimated? >> yes, just as it was underestimated the effect that qe would have, i remember when we started qe-2, people underestimated the impact on financial assets and now there's been an underestimation of what qt does to markets. >> do you any the fed realizes that it doesn't sound like they do. >> i think it will take time i think robert kaplan's comments are important in saying, yes, we should be open minded about this notion of automatic pilot so it will take time just as it took time the other way around. >> yesterday sara and i were talking about a renewed focus on balance sheets of corporate america in terms of leverage ratios will there be an increased focus on the balance sheet of america itself given the deficits we're running into next year >> i'm not worried about america

itself in terms of the government debt. i think that's manageable. but do look at the corporate sector high-yield issuance has stopped completely and you have firms that have high cash burns, little liquidity and refinancing needs. so you'll start seeing a pickup in the default rate in the high yield complex and that's an issue to keep an eye on. >> given these factors, do you think we're in a bear market and would you tell people to buy stocks in this environment >> i would tell people to be very selective this is an opportunity for active management to show us whether they can produce or not. second, don't underestimate the value of cash, it's difficult to hedge if you're not a sophisticated investor and cash gives you guilty to pick up the third point which is you'll get massive overshoots

you're already see overshoots in companies that are very solid and yet have been beaten up. so i tell people be selective and be able to afford your mistakes this market will surprise you with the fact that it's overpromised liquidity with the proliferation of etfs and passive invest. >> and here i thought you were going to tell people buy the yen. i know that 3% move overnight got your attention. >> it did. and it shows you liquidity is an issue. the system doesn't have as much liquidity as it promised to its end use. >> always value to believe check in with you, thank you. >> thank you so the dow down more than 500 points when we come back, the first big blockbuster deal of the new year bristol-myers buying celgene for $74 billion.

what that means for big pharma and speaking of bristol-myers, here's the s&p 500 laggards "squawk on the street" will be right back don't go away. so lionel, what does being able to trade 24/5 mean to you? well, it means i can trade after the market closes. it's true. so all... evening long. ooh, so close. yes, but also all... night through its entirety. come on, all... the time from sunset to sunrise. right. but you can trade... from, from... from darkness to light. ♪ you're not gonna say it are you? onmillionth order.r. ♪ there goes our first big order. ♪ 44, 45, 46... how many of these did they order? ooh, that's hot. ♪ you know, we could sell these.

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to acquire the cancer drug maker. it's a cash-and-stock deal that initially had a value of $74 billion. given bristol-myers' decline it's not worth quite that much right now. joining us to talk about it, the senior biotechnology analyst at baird and on the cnbc newsline, geoffrey porges, senior analyst at leerrink partners they probably just got off the celgene/bristol-myers call let me start with you, brian i would think for celgene holders it's positive. do you like the prospects for the combination of celgene holders owning 31% >> from celgene's perspective and shareholder perspective you're diluting the primary risk people have and that's the l longevity of the franchise

shareholders get the benefit of bristol's franchises and personally i would rather have exposure to on tivo and eliquis on bristol's end than a pure play given the risk there is so it's a fantastic transition for celgene shareholders is it a fantastic company combined i don't see this as a deal that is driven by enthusiasm, excitement on either end i think it's two mature companies with consolidation benefits they have a lot of overlap in terms of r&d and sales force, i would expect that to get eliminated that's driving the deal. neither company has a fantastic new asset driving the deal so i don't think the new company will be fan datasticfantastic. but from celgene shareholder perspective, it's a fantastic day to kick off the year for

them. >> jeff, give me your take i know you don't necessarily cover bristol but what is that decline on that stock saying about investors' views of the prospect of the overall transaction? >> the big risk brian pointed out is the revlamid patent and the erosion of what will be $16 billion in revenue by the early 2020s and it wasn't directly stated on the call but many people asked about what was it that got bristol so excited and i think that they think in the late stage programs celgene brought to the table they can off set that erosion i think many people are skeptical about that that's why celgene stock was trading at 6.5 times lower earnings, and bristol has in some ways taken on the yolk

celgene's management has tried to prove they can do that and that isn't a small undertaking proving they can bring the products to market, commercialize them and offset the revenue will be bristol's challenge for the next five or six years. >> one component is this contingent value that could be worth as much as nine bucks. brie what do you value it at given it would require them to hit approvals over the next three years for three drugs? >> we peg it in the $5 to $6 dollar range it won't get paid out far couple of years we think all of these assets are high probability assets to gain fda approval we don't think there's a ton of risk but there's a reasonable argument around one drug that's had a tripup at regulatory but we think the clinical value of these justify approval

how they perform commercially, that's more of the concern is this $15 billion number that they're putting up is that realistic or this a pipe dream to justify the deal? >> it's sara it kicks off 2019 with a bang for pharma is this the beginning, the middle or the end of a biotech consolidation cycle? >> it sure does kick it off with a bang look, folks have been talking about this suggesting it was going to happen and was necessary for two or three years now and you can't help but think that since the customers of the biopharmaceutical industries have consolidated creating three or four dominant customers for pharmaceutical products in the

united states now, certainly by the beginning of 2019 that the industry has to respond and one of the themes that came through today was the benefits of scale. that the combined bristol and celgene portfolios would be better able to negotiate with those pbms and payers, get in the door and see physicians, have a presence in the hospitals that they might quite not have with their individual products i don't know if that's totally true but this is a theme we're hearing for many companies of the industry that in the current environment scale has its advantages and it's that theme that persists throughout the year and the combined company stuck to win positions and contracts and everybody else will think they need that scale as well in order not to be excluded and we might see that wave of consolidation. now, i don't think people should rush out today and buy stocks thinking there will be another deal next week or the week after

because this deal has been in the incubation for probably six months at least and maybe longer than that but by the time you get to the middle to second half of 2019, if this deal is successful and the company is commercially effective, people will start looking for more such megadeals to take advantage of that scale. >> well, we'll keep an eye on bristol-myers' stock price because that's not exactly a great vote of confidence, down about 14% though there were shareholders hoping for a deal for bristol itself guys, thank you for your insights, brian and geoffrey porges joining us. the dow down 573 points, 2.5% the nasdaq closing in on that and the s&p down 2%. let's get to sue herera at headquarters for a news update. good morning, everyone here's what's happening at this

hour. saudi arabia is seeking the death penalty for five of 11 suspects believed to be connected to the murder of "washington post" columnist jamal khashoggi. the case has strained the kingdom's relationship with the u.s. after a cia report found the crown prince ordered the killing, a claim saudi officials deny we are getting our first look at the far side of the moon china's space agency successfully landed an unmanned rover on the surface of the moon which never faces the earth, sending back the first close-up images of its terrain. dutch authorities are warning people off a beach where a cargo ship that washed ashore could contain dangerous chemicals. a strong storm caused the ship to lose 270 containers while sailing off the northern coast of the netherlands. and just in time the ruin your new year's resolution, girl scout cookie season is here. 10 varieties are being sold, including a new cookie, the

caramel chocolate chip that one will send you off the rails. that's the news update, guys, back downtown to you. >> i'll stick to thin mints. sue, thanks. sue herera. mixed picture for oil prices despite a brief rally yesterday. president trump turning his attention to the oil markets as well listen to what he said. >> i made calls, i say you better let that gasoline flow around they did and now it's down to 44 and i put out a social media statement yesterday i said, do you think it's luck that that happened it's not luck. i called up certain people and i said let that damn oil and gasoline, you let it flow, the oil. it was going up to $125. if that would have happened you would have had a recession, depression like we've had in the

past >> joining us by phone, former saud ci saudi aramco held of operations sadad husseini do you get the sense that the president spoke to saudi leadership and told them to let oil flow >> well, that's way beyond my understanding. he may well have but i'm not aware of that. >> how do you see the massive price drop in the price of oil 25% down last year what's behind it >> well, clearly there was an excess supply. this was largely do to the sanctions on iran that were supposed to be very stringent so in order to avoid a shortage of supply the opec companies pitched in and added oil

starting in october which hit the markets in november, the sanctions did not materialize and so there was an excess supply however, in december it was very effective organizing a cutback of supplies. it's working very well there's already been a significant drop in opec production and it's continuing on target to come down to 32 and 100,000 barrels by the end of january. that's almost beyond the 800,000 that was reported based on october starting from november that's more like over a million just from opec so it's moving along quite well but it's a slow process. markets don't move as fast as

financials so as a consequence we have to wait it out by the end of january going into february/march i'm sure we'll see the markets. >> there's so many moving factors, president trump's relationship with saudi arabia, saudi arabia cutting with opec along news that sent oil prices higher yesterday the u.s. producers, still in the middle of their revolution, who has the most impact on prices for 2019 >> i think unfortunately the most impact comes from the financial markets who are not closely connected to the typical markets, the u.s. has plans to have capacity. there's 400,000 barrels that should happen in 2019 but shale oil has a lot of issues that are not well understood outside of

the industry, it produces a lot of water which requires gas-gathering infrastructure which isn't there which requires water disposal, serious pollution water which also needs to be beefed up so the growth of the wti type of crudes from shale oil is going to be hampered going forward the higher producers, the more declines on the other hand, the rest of the world on conventional soil a far more steady observation so in the long term i think conventional oil will be more significant in maintaining a stable oil market and the unconventionals will have to come in as the markets allow them. >> good to get your thoughts on this big move. a dad sadad allahu sane-hussein.

one analyst upgrading apple while his peers throw in the towel. apple shares ron pace for one of the worst days in history, down 9.7% and as sara mentioned, look at the averages. dow off 2.8% the s&p down 2.5%. nasdaq off 2.8%. rough ride on wall street. "squawk on the street" will be right back i am a family man.

i am a techie dad.

i believe the best technology should feel effortless. like magic. at comcast, it's my job to develop, apps and tools that simplify your experience. my name is mike, i'm in product development at comcast. we're working to make things simple, easy and awesome. selloff on wall street is deepening here with major averages near session lows the dow is down 2.7% the nasdaq down 2.8%, s&p down 2.3% apple set the tone, no question about it, cutting its guidance for the fiscal first quarter blaming largely weakness in china and the u.s. trade war it by itself is the biggest loser on the dow, taking 100 points off the average.

but you have broad weakness and manufacturing numbers didn't help stocks took a leg lower once they crossed 54 was the ism that was lower than expected and marked the slowest manufacturing activity in two years. within that components were weak like employment, like new order which is doesn't bode well for the u.s. economy as far as what's working, defensive stocks are the only dow winners right now. as far as groups within the s&p higher, it's real estate everybody else is lower led down by technology. also groups like energy and financials >> if you made this point earlier -- well, you didn't make the point, you mentioned oil is down it had begun the day up and there was a lot of algorithms, jim made the point so much of our trading is led by machines and algorithms and oil up seems to go one way in terms of the market, oil turning around indicating it may have been

slower and may have taken the market down another leg. >> supply and opec cuts and president trump making calls but the concern really is sbloebl economic growth and when you get weak u.s. manufacturing numbers followed by weak chinese manufacturing numbers yesterday it tells the story and that's driving action in commodities, stocks, currencies and bonds. >> and companies with exposure in china are following suit. you're seeing intel off 4.5%, caterpillar off 4.2%, boeing, 3m, dowdupont, nike. let's continue our coverage of apple shares on pace for their worst day in almost six years and a sea of wall street downgrades this morning, new street research upgraded the stock to neutral saying, quote, they don't see much risk of further disappointment, joining us to discuss, new street analyst

pierre farragut. others have said guys, lower your expectations. >> you want to put that into context. we downgraded the stock in august what we saw at the time was two things -- consumers keeping their iphone longer and longer they like the iphone very much but they replace them less often and then to find out that in 2008 the iphone x was successful and that created a pull forward. there was consumers replacing their phones and not being in the market in 2009 so this is what's happening and as we see that playing out today we feel like our call has played out so what else do we see? we see an economic weakness like a broader weakness in china and tim cook in his letter to investors have been very specific and we estimate it's 20% of the weakness so 80% of

what happened to apple is really this demand in 2019 and 20% is china being weak so we think apple doesn't have any specific further down side risk so we upgrade to neutral but our price is $140. we think the stock is where it should be now. >> why do you think there's no more down side risk? if the china need economy falls further? if a trade war lingers we talked about this litigation with qualcomm and whether chinese courts will follow through in banning older versions of the iphone and tim cook said some of those older versions are important in emerging markets because they cost less so how do you see there being very little down side terrific? >> one important thing to consider is whether the down side risk is broader than apple or specific to apple and our

rating is relative so if the situation in china worsens it's bad for apple but it's also really bad for everybody so i don't really care. if you think about things that can be specific to apple in what you listed, i would say china is not, the broader micro is not. what's specific to apple is the risk that business is broken, people abandon their iphones and we don't see that coming through. people replaceless often but that's in the numbers, so it is in the stock price and the last thing is qualcomm. i'm happy to come back to that but i see that as a relatively limited down side risk. >> you're to be congratulated on a good call. we take shots at analysts, most well deserved but in august you were not a lot of company being negative on apple as you were so how should we view the demand picture for the iphone

is there going to be growth? >> that is a key question going forward. if you look at people using iphones it's a population that is still growing, like high single digits (you look at people buy apple like firsthand that population isn't growing. we have fairly strong indications of that so the key question is what happens to replacement cycles, how are consumers going to replace their phones more often or less and less often? we think less and less often so we might see further down side in iphone revenues. that's the reason why we are still cautious. >> why less and less often >> less and less often for a combination of reasons reason number one is that innovation is slowing down in the way it's perceived by consumers. they're thinking, well, why would i buy the next iphone? it looks like the one i have in my hands and the second reason why is something backfiring on apple which is that these iphones are getting more and more expensive.

look about how it works for a consumer in new york city. three years ago you were buying an iphone every year for $700. today you're buying an iphone for a thousand dollars if not more and that's not it you buy an iwatch, another $450. so you are spending much more with apple and you think twice before refreshing your hardware so these things will continue to be like head winds into iphone revenues for apple now look at what's happening at apple outside of the iphone. what you see is revenues growing 20% a year, that's services driven by the broader in-store base, not only people buying first time iphones, everybody. that's a watch and all other devices as well. >> are we going to still see apple buying back stock at the pace it's been doing >> well, i would hope so because it's going to be more efficient than what they did before that and i think tim alluded to the

$130 billion he has on his balance sheet and the fact that he wants to go cash neutral so this is $130 billion that they are probably going to use to buy back stock, yes. >> it goes further to your point than it did, they were buying back stock at further prices >> i wish they had anticipated that but you can't get everything right. >> pierre ferragu, merci. >> merci. let's get to rick in chicagoing with the santelli exchange. >> i'd like to welcome my guest. >> good morning. you said we're going through the period of price discovery and i'm pretty sure that we are but the issue is that qe built a foundation we're trying to get real market discovery on top of a foundation we're not sure is accurate give me your interpretation of

what's going won price discovery and how it may play out in the form of volatility. >> right whenever we look at an asset we look at valuation and think of it in terms of where are the fundamentals i think the fundamentals the market agree on, that we're probably slowing in terms of real economic absolutely collapsing. so that's good the problem, rick, is that when we execute and move into quantitative tightening and you get higher volatility, what price is an investor willing to pay for an asset that will have more variability in that price over time. an investor needs to be compensated for risk of higher volatility today is a perfect example you have the dow down 2% we can't be in a market whereas et prices are moving around at such high degrees of magnitude without investors saying we demand a lower entry price if this is the new normal for volatility now, i would argue we're overshooting some volatility at this point, but the price

discovery, we are trying to hone in on where that is. until we see that, we're not getting calmer markets, but it is a process of time and eventually we will get there >> going from manage to price discovery. another issue you've written about, it is all or none investing mentality, made me hungry i think of in and out burger might be a great burger but not a great investment strategy. tell us what you mean. >> cash has been the best asset in 2018. the problem is that when you exit quantity i have easing and get tightening, all assets correlate. you have equity prices and bond prices going down, no place to hide except cash if cash is the next best alternative for investment, you're into an investment or out of it. that's the all in, all out what that means is if you can't find a hedge, a reasonable hedge to find uncorrelated assets, owning some fixed income and

equity, portfolio diversification, you get all in, all out, you get bigger swings in the market when cash is your hedge or cash is the alternative. >> jim, thank you. we're going through some wild times. we would like to have you back soon when we see a little less volatility, especially to talk about risk parody strategy and equities and whether they come back back to you. we are picking up the stock market selloff, dow down 600 points art cashin joins us, ubs director of floor operations we have apple and then u.s. manufacturing. is that what's causing the pain here >> pretty much in fact, apple got a little bit of a one-two punch you did an interview with dan niles, i thought that was even a bit more damning than the downgrade that cook went through. he is talking about not having a

5g phone in a 5g environment. >> he has been shorting the stock too. >> i understand, but if that's true and he said with some sense of certainty, then apple will continue to see some difficulty here c here looks like they're trying to circle the wagons here i don't know how much success they're going to have but usually we try to make a little bit of an open run between 11:00 and 11:30 as european markets get ready to close. >> that number top of ten. oil seemed to turn also. >> they haven't turned a great deal, but that will be critical. if oil begins to sell off readily, it will take the market with it. >> it was up this morning. now we're down >> they did bounce back. you and i had this discussion about if we start to see we

weakness in oil and wti gets around the 40 level. going to have a problem with bonds and financing and see where they're going. they're hoping to hold them and see if they can mount a small rally. i don't have a great deal of hope for it. >> why not >> i think they've done a little more damage than usual we looked like we were having simple volatility swings and getting back in the game this is not a good beginning to 2019 yesterday's bounce back was false. they stopped pretty much in line with where the rally faded in the previous two, three days they've got the market under control. you can go this far but not much farther. and if that continues, i think the bears are going to have more pronounced control on the market that's an event for next week,

more than anything else. you get payroll numbers tomorrow, you get some commentary from powell and others i think you may find them being very cautious. i think essences readily that the wrong word from the fed, they sent williams out to clean things up but even there it wasn't successful. keep your eye on oil and on commentary out of the fed and of course we have the negotiations between the white house and congress >> not to mention the shutdown. >> dow has lower growth outlook and airline stocks tumble on top of that. what might shore up some confidence >> i think they've got to get back to data dependency. i think if powell said something like we think the latest move we

brought ourselves in line here, now we'll see how the economy goes before we make any further moves, i think people will be far more relaxed on that i have been saying for a long time they were one and done and i think they still are, but not many people believe that, and the more people you can start to convert to that thinking, i think the more relaxed they'll be. >> in that context, art, does the market want a bad jobs number tomorrow? would a weaker number be a signal that the fed would be more comfortable pausing, would that be good >> you have to almost define bad for me >> weaker than expected wages and headline number. >> well, the wages are going to be a critical thing. if it indicates there's little to no pressure, upward pressure on wages, that will give the fed and market a more relaxed look. >> didn't work for

manufacturing. it wasn't like all of a sudden the market shared that >> no, no, i'm not saying that i'm saying what you need is a nonthre nonthreatening wage number the hours worked short term hiring, overtime, if they look relaxed as if there's a little room there, i think the market will accept it more readily. >> how much do days like today and what we saw in december with up and down do you think trickle down to retail investors and consumer confidence in general, that when you start to see the stock market featured on nightly news, it possibly have an impact >> it does because it's not more than ten years ago we saw people's iras and 401(k)s turned into 201 ks.

you didn't get anywhere. i think you'll have that conversation around the kitchen table with the markets, did you see the stock markets on the news again, yeah, i did. are we comfortable as long as we are or should we trim back i'm not suggesting they go into panic but they might say i want to cut back. i'm hearing people say that about apple. they thought they were albert einstein, they bought in, the stock went up, now it is coming back, and they're going maybe i'm a little overinvested in one security, maybe i want to narrow back >> thank you good to have you on a day like this, helping make sense the dow down 569. >> off the lows with the s&p down exactly 2% right now. that last trading hour of the day is going to be vitally important. >> always is. >> nobody better to take you through it than my colleague here on the 10

sara eisen what else coming up on closing bell >> we'll have all of the angles covered on apple and what that warning means. is it an apple problem or broader problem for the global economy and for u.s. stocks, not to mention what we got out of manufacturing, guys. and we have the final tally on auto sales that's also an important economic indicator. >> bertha coombs is at the nasdaq >> apple is responsible for the decline, but spreading over suppliers. look at chips today, having one of the worst days since the october lows back on october 24th a lot of apple suppliers that are ones that raised red flags last fall and suffered then are suffering again today, feeling collateral damage. on the flip side, biotech today is shining, folks are wondering

about the price they're paying, celgene is up 25%. that's spreading through the rest of the biotech sector seeing some others move higher it is a seasonally good time as they head into the jpmorgan health care conference next week a lot of them start talking about pipelines and usually get a lot of good buzz, so going into it having this big deal gives them a tail wind as we are seeing tech hit hard today back to you guys >> all right thank you. it is 8:00 a.m. at apple headquarters in cupertino, california, 11:00 a.m. on wall street, and "squawk alley" is live