terview. tim cook yesterday it's wednesday, january 9th, 2019 "squawk box" begins right now. ♪ i got a moose over my head >> live from new york where business never sleeps, this is "squawk box. good morning, everybody. welcome to "squawk box" here on cnbc we are live from the nasdaq market site in times square. i'm becky quick along with joe kernan and andrew ross sorkin. our guest host for this hour is joe terra nova from vertos investment partners. he is a cnbc contributor as well we've been looking at the u.s. equity futures, and after three days of a row of gains, check out the futures. they are in the green once again. dow futures indicated up by 67 points after a gain of 256 points yesterday s&p futures indicated up by just over six points, and the nasdaq is indicated to open up by about 21 points here take a look at what happened overnight in asia. you're going to see that the nikkei was up by 1 .1%

the hang seng was up by about 2.25%, and then the shanghai composite, stocks up .7% those trade talks extending to an additional day, and we'll talk about that in a moment. you can also see in european equities that at least at this hour you are going to see green arrows across the board. the cac is up by 1.1%. the dax and ftse up by 1%. stocks even higher in italy. up by 1 .25% finally, check out treasury yields, which yesterday pushed back above 2.7% for the ten-year right now those yields have firmed even more 2.735% news just out this morning from fitch it says the u.s. debt ceiling, it says, is more important than the shutdown it says that if the u.s. debt ceiling becomes a problem, we'll have to reassess america's triple-a credit rating it's been talking about this now for quite some time. i think it did -- it made a statement like this in july as well you remember back in 201 1 when the s&p -- when s&p downgraded

the united states, and then got into a fight with tim geithner, who was then the treasury secretary, of course, the question is if you get downgraded, what does that mean to rates >> there's been some legislation in congress, pelosi has introduced legislation that would automatically if you say you are going to budget this, you go ahead and raise the debt ceiling automatically. it's no longer kind of tied in like this.

>> he framed this fight as not just about politics and the border wall, but as his sworn duty to the american people. >> women and children are the biggest victims by far of our broken system. this is the tragic reality of illegal immigration on our southern border. this is the cycle of human suffering that i am determined to end >> the response from democrats was equally passionate nancy pelosi accusing trump of ceding malice and misinformation >> most presidents have used oval office addresses for noble purposes this president just used the back drop of the oval office to manufacture a crisis, stoke fear, and divert attention from the turmoil in his

administration >> also important is what was not said the president did not declare a national emergency, a move that would have given him the authority to build a wall without congressional approval republicans are split over whether to even pursue that strategy, but conservatives remain committed to the wall and that means there is still no end in sight to the shutdown now, later on today president trump will meet with congressional leadership at the white house. he will also have lunch with republicans in the senate, but right now it does look like the length of the shutdown will likely hit a new record. back to you, guys. >> is there anything that you see in the upcoming days that would turn into a new inflexion point? i know he is going to go down to the border, and there's going to be cameras and all of that, but i think this morning, at least the conventional wisdom, was last night was a nothing burger all around we heard the same thing from the democrats. we heard the same thing from president trump. there was nothing new that really changed the conversation. >> if anything, both sides seem even more dug in now with the president. sort of publicly taking such a

strident and strong position on funding for a border barrier you are hearing, again, some growing rumblings amongst moderate republicans i think he'sa murkowski is saying she would support reopening parts of the government while that border security negotiation is ongoing. three other senate republicans have previously indicated they would also support that measure. there's another republican who has implied that she would be behind that as well. shelly morkapato you are hearing some discontent, perhaps, from moderates, but that was part of the whole point of mike pence going to the hill yesterday and the president and mike pence, again, revisiting the senate republicans today to shore up that support and make sure that the party is unified behind the strategy. >> how much does this change after friday when federal employees don't get their paycheck >> i don't know. i mean, we know that friday is coming we -- we know that employees have already seen smaller paychecks. they have been able to avert the

crisis at the coast guard not getting paid i don't know if that really moves a ball we've seeb so many times already the sort of main street real world impact of the shutdown, but it hasn't yet been enough to force both sides to the table. i'm not sure that friday is a real milestone in that >> unless people start not showing up for work, like tsa, right? >> changes when you try to get on your flight to davos. davos man himself cannot make it to davos >> i imagine you're going to start seeing employees speaking out much more publicly there's an op ed in usa today today. services are going to change, and people are not going to show up we're going to have a number of economists on today. at some point it does hit the numbers in the economy at a meaningful way at this point it hasn't just yet. it hasn't yet, but you are saying it doesn't either >> minimal >> minimal always minimal >> minimal >> there's always going to be a heart string story in your mind.

>> yes >> i think judge greg was right. he said when tsa agents don't show up, and people start calling your congressman because somebody missed their flight and they waited in line for three hours. >> they can't even start that over there in davos? i mean, they might call it off where, they might just let's go to 2020. we got to do lennar. >> we should tell you we got a big line-up to react to the president's speech we're going to talk about it in a little bit 7:00 a.m. jason if you rememberan, former economic advisor to president obama marco rubio is going to speak with us. he will be followed by ohio senator rob portman. >> now something terra nova probably is interesting in >> the market. >> lennar is just out with earnings, and the bottom line number was pretty good i loved some of the comments you are going -- they're very interesting. $1.96 was above expectations the revenue number of 6.46

billion was slightly below estimates, and lennar says that fundamentals of low unemployment, higher wages, and low inventory levels remain favorable. the company will, though, defer providing guidance due to continued softness and uncertainty at this slower time of year. they said that buyer expectations aren't matching up with where sales prices are. >> they said it was a temporary disconnect between sales prices and buyer expectations because prices have come up so substantially, and people keep thinking is this temporary or is this for real? >> that doesn't really do it justice, that chart there. you can see it's way down, but from christmas eve, 38 back to where it is. 38 back to 43. it's five on -- it's since those lows, it's up almost -- we've pointed out that the home builders really have shown signs of, i don't know, was it a dead rock bounce? is it a -- >> it's emblematic of the

interest rate sensitive area of the market you have to go back to what chairman powell did last friday, and i think he provided a tremendous amount of comfort >> eight-month lows on mortgage rates. >> he provided comfort to the equity market, but i think additionally, more importantly, and not talked about is he provided comfort to the credit markets. i still believe that the credit markets are what is going to lead asset pricing in 2019 you're seeing the high yield market up about 3.5% so far year-to-date that recovery is lending this stabilization that we're seeing for equity prices. look at what lennar is doing think about the guidance, the pause in it. that's reasonable. that's fair. i think a lot of companies will be doing that. i think overall i think it's built into the marketplace already and what chairman powell did last friday was incredibly powerful, and it shifted a narrative in the market. >> powell-ful. >> that's good >> that's a good one >> that is good. >> doing more of those doing more of those. if you can combine words

together, it's brevity and simplicity trade talks between the u.s. and china have concluded in beijing. talks were extended into an unscheduled third day. china's foreign ministry said it shows that both sides are serious. officials said details would be released soon. we'll see. we are following a big developing story on apple. the technology giant is reportedly planning major iphone production cuts. japanese newspaper the nikkei asian review says that apple plans to slash iphone production by about 10% over the next three months according to the nikkei, this would be the second time in two months that apple has trimmed planned production for its smartphone check out apple shares you're going to see this morning, they're up 1.5% a lot of those probably because of tim cook's interview with jim cramer yesterday just talking about what he sees and kind of giving a calming sense about what kind of developments might be taking place with trade talks too and where that et cetera going to play out >> again, full disclosure, i purchased apple yesterday

morning. i think it's an example of sent meant in the marketplace, which is so suspicious still bearish. ask anyone they still believe markets going back down to the lows. >> keeps people out. >> and i think what you are witnessing is this capital redeployment the negative news, again, priced in what further negative news can you get surrounding apple? then there's the potential that if there is some form of a resolution, a headline resolution, with the chinese and the u.s. -- >> well, there's a correlation to apple itself. >> did you buy the tim cook argument that it was a china problem, or did you buy the wilbur ross view of the world that it was an apple problem >> tim cook. absolutely tim cook >> so it was tariffs and all of these things taking place? >> i believe it was. the analyst community responded accordingly. you saw price targets go from 220, which was the average down to 180

they priced in the bad news. again, what further is going to come out about apple that's going to take the value of this company significantly lower? i'm not sure anyone really knows what that is, and the capital redeployment is going to occur >> let's hear very quickly a little bit about what tim cook said to jim cramer in that interview with "mad money" last night. >> in terms of the naysayer, i have heard this over and over again, jim i have heard it in 2001. i've heard it in 2005 and 2007 and 2008 and 2010 and 2012 and 2013 can you probably find the same quotes from the same people over and over again i'm not defensive on it. this is america. you can say what you want. i'm giving you my honest opinion is that there is a culture of innovation in apple, and that culture of innovation combined with the incredible loyal customers, happy customers, this

ecosystem, this virtuous ecosystem is something that is probably underappreciated. >> you were surprised with the market reaction to both when you decided to not reveal units and when you revealed the shortfall? >> i'm never surprised by the market, to be honest with you, because i think the market is quite emotional in the short-term, and we sort of look through all of that. we think about the long-term when i look at the long-term health of the company, it has never been better. the product pipeline has never been better. the ecosystem has never been stronger the services are on a tear >> we will show you more of jim's interview with tim cook throughout the show today, but, tim, really laying out what he sees for the company, and i think this addresses a lot of the questions that were brought up after the guidance that they had given us just in the last couple of weeks. we're going to talk more about this and then, up next, hedge funds lost money last

year, but they also did something they haven't done in a decade, and it's good news for some of the world's biggest fund managers that's next. right now, though, as we head to a break, let's take a look at the biggest market winers and losers in the dow leading the way, apple, where up 1.25%. exxonmobil, up by 1%, and so is ibm. i am a family man.

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the good news, they actually beat the total return for the s&p 50000, and it's the first time they've done so in a decade last year they generated 31 pa% basis points the last time they outperformed was during the depths much the financial crisis coincidentally, the last time the s&p 500 posted annual losses hedge funds posted 18 percentage points better in returns back then, but, again, they still lost money why are investors still parking money with hedge funds why are they still paying fees to an industry that can generate alpha, but when they do so, still fails to preserve capital? investors say just because the average manager lost money doesn't mean they all do the world's largest hedge fund

brilkwater posted double digit returns the long-short managers, they saw double digit losses on the year investors patience is wearing thin >> leslie, i remember going back to 2007, 2008 just before things really took a turn hedge funds had exploded just in terms of the number of them that were out there there were more than 8,000 that had built up sure, there are -- the average may be pretty lousy, and i guess it just goes to show that you have to be careful which ones you pick once again. >> and it's, obviously, more of an art than a science, and people talk about all of these things like if, you know, just because someone has past performance, that's bad doesn't mean that the future performance is going to be bad as well it could revert to the mean -- >> or the opposite is true just because you had great performance in the past, doesn't mean -- >> we're saying this with a

straight face. >> joe, can we start a hedge fund and somehow disguise all we're doing is buying the s&p? is there a way we can do that? >> i think that's part of the problem the last ten years is that everyone is starting a hedge fund there is needed consolidation. >> there's got to be a bunch of people that shouldn't be there the best ones -- >> do better, don't they only rich people really are going to -- i mean, for the most part i guess there's ways of average investors to get into alternative -- rich people just -- to help make you a fortune, but invest a large fortune. >> i think the unfortunate -- >> they don't want correlated stuff. they lose money in the non-correlated stuff and feel good about themselves on diversifi diversified. >> they go into bitcoin and cannabis, and that's worked out well i think that what you are witnessing is that the conversation surrounding hedge funds has just been a conversation that blankets the entire industry as unsuccessful over the last ten years.

that's just not the reality, and i do believe there's a place in investing for an active manager. in particular, in an environment where the markets kind of go in a sideways trendless type of -- >> are there enough writing jobs for failed hedge fund managers just to pretend they're still -- >> i don't know the answer to that, but i think ultimately, the other side of this hedge funds are going to come out okay there will be far less of them, and i don't think active management is going anywhere >> i think it's going to be a large harder to charge two and 20 unless you can put up the models where. >> that model is already coming down based on the automation and if you look at the performance so far, you look at renaissance, yes, it's the quantitative model that's working it's where you could reduce head count. virtu financial, an example, a market maker not high frequency a market maker they preannounced last night up 11%. took head count down 60%, created the efficiencies, benefitted with all the volatility, and look at the stock price this morning

the environment is there it's fertile the opportunity is there for active management, but it's just going back to talent, again and efficiency >> can you find me ten stocks that point 99 correlate with the s&p? or find me 20? we buy ten, and we slowly switch around once in a while with the other ten, and exactly -- >> they match the s&p. >> joe and joe -- >> that's -- you're defining the problem. that's basically everyone is a closet indexer >> they are -- can they beach the averages in ten years, though >> andrew, you know this there are still active managers out there that are good enough and will show -- >> i think that's it all the bottom 60% or whatever >> i think what was interesting, at least in 2018, is a lot of the managers that we named having double digit returns are the ones that use a lot of systematic strategies.

>> bridgewater has had a lot of success, but it is an algorithmic. >> they had significant returns last year, and a lot of these hedge funds, especially the biggest ones, are doing these what's called risk premium strategies, which are actually very low fee they're about 50 basis points. >> that's what they're going to say. the fees on all this stuff is -- this is not the two and 20 stuff at all >> the returns that we just talked about were. the whole hedge fund model is changing you have this whole variety. almost a ladder type organization where the fees can be as low as 50 basis points for something that's largely systematically driven. it looks more like a mutual fund than a hedge fund, but it invests in a way that kind of mirrors some of the esoteric st strategies >> you can underperform the s&p for less money than before >> sure, yeah. if you want to -- >> that makes me feel a little better, i this i i don't know >> thank you >> thank you

coming up, some stocks to watch, including two sea suite shake-ups and the escalation between the battle between apple and qualcomm details after the break. 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

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almost 2%. that's also the same as two pennies. it's at $1.23. and herbalife ceo is out richard -- >> herbalife >> lose the h. herbalife is out -- i think the guy from wkrp, herb, richard goudis is stepping down after the -- >> remember that wkrp in cincinnati do you remember the song >> a little bit. who is the guy -- >> we had a commercial with lonnie anderson on >> we did. >> discovering comments -- >> that was fast ♪ whatever became of me >> wow discovering -- >> showing our age, though >> comments he made -- >> not so much if you talk about, you know, "bewichd" you show your age, "rawhide," "gun smoke. comments before he made after taking the helm in 2017 that are

contrary to herbalife's business practices. herbalife naming former ceo michael johnson as its interim leader metlife also announcing changes. steven kandarian will retire in april. the insurer also creating a new position of nonexecutive chairman >> what comments did he say that were contrary to their -- >> i don't know. >> i don't know. >> our stuff doesn't work. i don't know probably didn't say that >> actually, i like their little candy bars they're not that -- >> herbalife >> back to your favorite topic in the morning, because you care about this company a lot, as did on many. apple ceo, says ceo, tim cook, apple and qualcomm, as you know, have been in a licensing dispute now over wireless chips that resulted in a ban of some iphone models in china. >> the issue that we have at qualcomm is that they have a

policy of no license, no chips this is in our view illegal, and so many regulators in many different countries agree with us then, secondly, they have an obligation to offer their patent portfolio on a fair, reasonable and nondiscriminate other basis, and they don't do that they charge exorbitant prices, and they have a lot of different tactics they use to do that. >> in a statement cnbc qualcomm called that statement misleading, saying, "apple has paid less than $20 per phone for access to qualcomm's patent portfolio since our business relationship began." and noted that the price of apple's phones had risen 200% in that time. tim cook also tone jim cramer there have not been any discussions to settle the dispute since the third quarter of the calendar year of last year, and qualcomm took issue

with that as well, saying, "we have been consistent for the last 18 months in making clear we have at various times been in discussions with apple about a possible resolution to our licensing dispute, so i don't know i mean, this is -- somebody is not telling the truth. >> who needs a resolution more who needs to settle? >> qualcomm. >> there you go. >> so you are saying qualcomm is lying? >> i'm not saying they're lying. >> there's something wrong here, because tim cook is saying there's been no meetings, and they are saying there are meetings this is a very basic thing someone could look at a calendar or look at their phone logs. >> i know who i would believe, but -- >> who do you believe? >> i believe the market, and i believe, as i said, qualcomm needs the settlement way more than apple does. now, qualcomm is correct price of the iphone has increased 200% the consumers, the one paying the price. correct? >> the price of the phone has gone up not because of improvements in their patents. you don't get more money because there's nor money. you get more money because of

the improvement and innovation where it comes from. that's the -- >> you don't own qualcomm? >> i don't >> do you think it's worth owning >> sure. >> do you think there's a settlement to be had >> yes >> i think both sides interest to eventually settle in this >> more on qualcomm's. >> we will continue this conversation, but when we come back, artificial intelligence could be a game changer in the fight against heart disease. we have that subject as part of a new study by the mayo clinic we're going to talk to the lead researcher straight ahead. first, we're going to talk market strategy with the dow and s&p posting their first three-day winning streaks since november take a look at futures could keep going for four days at this rate dow looks like it would open up about 42 points higher s&p up about three points. nasdaq up about ten points as we take a break, take a look at yesterday's s&p 500 winners and losers ♪ [knocking]

♪ ♪ memories. what we deliver by delivering.

>> where he could be on our way to a four-day winning streak potentially. the dow it opening up 30 points higher,, s&p 500 up about -- we'll just call it a point, two points for now meantime, president trump making his case last night for a wall on the southern u.s. border during his first ever oval office address he blamed democrats for the government shutdown. >> the federal government remains shut down for one reason, and one reason only. because democrats will not fund border security. my administration is doing everything if our power to help those impacted by the situation, but the only solution is for democrats to pass a spending bill that defends our borders and reopens the government >> democratic response was delivered by house speaker nancy pelosi and senate minority leader chuck schumer

>> mr. president, reopen the government, and we can work to resolve our differences over border security, but end this shutdown now thank you. >> we're going to talk about the impact of the government shutdown on the markets in just a couple of minutes. meantime, in energy news, bp says it has discovered one billion barrels worth of crude the oil giant also announcing two new off shore oil discoveries and a major new investment in a nearby field take a look at bp shares this morning. they are up just marginally. also, checking crude prices, you can buy barrel of wti crude if you want to do it by the barrel at $50.81. >> that's a big deal that's a nice recovery for oil brent got up to $60. oil pushing $51. mlp's, so far the best asset class in 2019. surprise, surprise >> what does that mean we keep talking about earnings being at risk and the estimates

needing to keep coming down. a big part of that was oil >> i think, again, it speaks to a better feeling for the credit markets. we don't talk about the credit markets enough i think the high yield market, that's where there was significant concern as it related to energy pricing. thank you, chairman powell, for comforting the credit markets. >> it would be nice if we didn't have to add in the s&p component of energy to why we're not going to do 8% for earnings gains for this year. we were at 8, and people said, no, we're really at zero because of energy and the slowdown in certain sectors. maybe do four then if energy is not part of the problem. this just -- this is just lessening the downturn, isn't it this is not positive for energy. >> no, you're not back to those levels where. >> no. there would be negative -- will there be a drop in energy earnings still at this point not just lower than expected growth >> i think that there will be, but i think the expectations have been marked low enough where it's to a certain extent been priced in >> yeah.

>> all right right now it's time for a check on the overseas markets. juliana joins us right now from london juliana, good morning. >> good morning. so this morning european equities are adding to yesterday's gains. as can you see behind me, the stock 600 is up about .8% so far. this seems to be on the back of confidence that the u.s. and china will reach a resolution on trade. of course, no deal has been delivered yet, but we heard from the china foreign ministry this morning that the results of three days of negotiations will be released soon they also said that the extended length of the negotiations should be taken as a signal of how serious they were around reaching some sort of deal of course, this comes on the back of president trump's comments last night that the u.s.-china trade talks were going well together this is providing a supportive environment for european equities this morning if you take a look beside me at the different regions, how they are fairing this morning, it is green across the board every major region is trading higher

today, including the ftse 100. the u.k. market is up about 1% brexit firmly in focus again today as we approach next week's parliament vote on theresa may's brexit deal. last night we saw that u.k. ministers voted in favor of an event -- of an amendment, which potentially lowers the risk of a no deal brexit, and the market is interpreting this to make it harder for the prime minister to bolster support for her deal next week. now, sector-wise, we are seeing the trade sensitive sectors outperform today, so autos, basic resources, and technology on the down side the laggards are the defensive names. the back to you, guys. >> juliana, thank you. auto let's continue this conversation joining us now is chris brightman, cio of research affiliates, and, joe, will continue to weigh in he is also a cnbc contributor. i'm trying to figure out if i

would like your job or not, chris. you have a ten-year outlook for expected return. i kind of like that because you are never going to be wrong. >> that would be a call if we weren't going to be higher on the s&p in ten years do you figure we'll be higher? >> we would expect that the.

>> the price you pay for a series of cash flows has a profound impact on the return that you will receive over coming periods trying to forecast the daily or weekly or quarterly ups and downs of prices, much more difficult, but trying to understand the long-term return is a function of the price you pay, and the price you pay for the u.s. stock market is very high relative to cyclically adjusted earnings. >> so -- will that be the highest return asset class even though it's low single digits? >> no. not at all >> what will be? >> i would expect emerging market equities will be -- >> equities just not domestic equity emerging market equity is that where they are right now? >> less than half the price of the u.s. equity markets in terms of cyclically adjusted earnings. >> so we should do this

immediately, and issue domestic equities and go where? >> most investors, i find, have an under-diversified portfolio they tend to concentrate into mainstream stocks and bonds. now is a particularly appear tune time to diversify way >> frontier markets, emerging markets, europe? >> sure. >> south america where? >> i think a broadly diversified emerging market portfolio is the right answer for most investors. if we are to scrutinize individual country markets to find the best bargains, you'll find them in places like turkey, russia, brazil i wouldn't suggest that people put a lot of their money in an individual emerging market country, but i kind of like brazil the changes there i think are quite positive for -- >> it's the election -- >> the election. >> you know, the brazilian

trump. is that good >> what happened to the u.s. equity market right after trump got elected? >> i don't like to talk about that you know, it goes against -- morally everything that i think about, where anyway -- >> how do you explain the volatility, though, in a lot of these asset classes to the investor in particular, the emerging markets. >> well, they are very volatile, and they're very risky you can find any number of very good reasons to expect a high risk premium, but that's just exactly how you earn higher long-term returns is high risk premiu premiums meaning discount prices, meaning higher returns the least risky market, the most expensive, therefore, likely the lowest return over the long run. >> the other thing that i think is really important about the u.s. equity market is peak earnings we have had a quarter century of faster growth in earnings per

share than the economy, and that's not normal historically, and i think it's coming to an end, and i think usually you want to disregard politics, but today politics is quite important, particularly the focus on new anti-trust regulation >> i mean, i would like to think -- >> i would like to think that we have in ermz it of rule of law here innovation, the ability to get capital for start-ups. >> we have -- >> educated work force all these great things i would imagine. i would always like to invest here, but i can see what you are saying because the term it's already in the market, it's already in the market that we have probably our economy is probably stronger. we may have, you know, a better platform to succeed, but we succeeded for years already, so it's not quite as cheap as other places is it as simple as that? >> i think it is yeah i think it's more than in the market >> okay. even more than in the market >> ten years, joe. >> i know.

ten years. >> think back ten years. what happened ten years ago today. do you know? $100 billion market cap. the iphone >> the iphone. >> i saw out in -- >> ten years ago today >> invention of the year in 2007 was the iphone they had it out there. >> 12 years. 12 years i'm sorry. i go the my years off. 12 years >> got it. >> he didn't give us a 12-year thanks to chris brightman of research affiliates. when we come back, a new study from the mayo clinic details how artificial intelligence can save millions of lives lead researcher dr. paul friedman will join us to explain. and, later, a big line-up to react to president trump's primetime address. starting at 7:00 a.m. with jason fuhrman, former economic advisor to president obama by the expert, or the one awarded by the people?ert, uh... correct! you don't have to choose, 'cause, uh... oh!

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welcome back the tokyo court has rejected carlos ghosn's request to end his detention. ghosn appeared in court yesterday. we talked about it he proclaimed his innocence. he has been jailed since his arrest on charges of financial misconduct since november 19th coming up, artificial intelligence could be a game changer in the fight against heart disease. that's the subject of a new study by the mayo clinic we talked to the lead researcher, and that's next. for your heart...

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welcome back, everybody. more than 600,000 people die every year from heart disease making it the leading cause of death for men and women in the united states. the mayo clinic revealed a new study how artificial intelligence could possibly save millions of lives. joining us no explain is dr. paul friedman from the mayo

clinic doctor, thank you for being with us >> thanks for having me. it's a pleasure. >> tell me about the study you take artificial intelligence and read a simple ekg. what are you capable of finding under those circumstances. >> that's exactly right. it turns out that 7 million people have a weak heart pump and don't know it. and if they knew it, it's important because there are treatments, medications, implantable devices that can prolong life we can look at the heart's electrical signals, the ekg, which is done by putting electrodes on the chest. now as you could be recorded from a smart watch to a smartphone and we used artificial intelligence, a network, and trained it to read these signals. a network learns the way a child learns you hold up an apple and say

this is an apple and the child learns over time in the same way, we fed into a computer literally tens of thousands of ecgs and then the computer over time learns which ones are normal and which ones are abnormal we tested it by showing it unknown ecgs and said does this person have a weak heart pump. to give you a sense of measure, we measure with the auc. a pap smear would have a 0.7 a mammogram a 0.85 this tests the computer's ability to find it and it was a 0.93 it was a powerful predictor. and what surprised us was that -- i'm sorry. go ahead >> you finish your thought there. i'm just wondering -- it's serious. i don't know why it's

asymptomatic and what does it put you at risk for in ternls of a prognosis if you are one of the 7 million any one of us here could be the 7 million. i wouldn't know it and number two, how would i -- i wouldn't necessarily mean i'd have a heart attack, would it? >> yeah. so if you have a weak heart pump, then you may not know it for awhile but at some point, you may get short of breath, may get swelling in your legs. may get winded going upstairs. you may have dangerous heart rhythms. you may collapse from a life threatening arrhythmia there is a whole slew of having a weak heart pump. some people may go for some time so the whole goal is to detect it before it becomes severe. one of the things we found was that if this test shows you have a weak heart pump and then you do the gold standard test which is an ultrasound of the heart or ct scan and it says your heart pump is normal, what we would

call a false positive, if you follow those people were three to five years, they have a four fold increase risk of developing a weak heart pump. in other words, this test not only tells you do you have a weak heart pump now but it seems to predict who is going to get a weak heart pump. of course it can't see the future we think it's detecting the very early changes in the electrical signals that occur before the heart no longer pumps well and because the neural network is trained on hundreds of thousands of examples, it can see hundreds o thousands of patterns in an ecg that a human just can't remember the subtle nuances of so many patterns to interpret. >> doctor, we're almost out of time i know this is not yet approved by the fda, but what's the plan? when could people potentially see this >> sure. we're starting to test it in our own practice we're in the process of planning to roll that out and the goal would be even if you live in a far town far away from expensive testing, you

could get an ecg that would alert what's needed. and we've also partnered with a company that makes a stethoscope with electrodes on it. >> that's very strange that a false positive -- it's not really a false positive then is it >> well, no. >> it's predicting -- >> it's showing the possible future. >> we got to go, but i don't know of any other instance where it actually is a positive -- i mean you'd want to know that >> thank you very much we appreciate your time. please come back also joe terranova, thanks for your time. coming up, we'reoi gng to talk about the president's speech with jason furman, former economic adviser to president obama. under care by focusing our mind on whatever's on yours. this is a tomato you can track

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and we're trying to figure that out now. if i had had a little advice back then, i'd be in a different boat today, for sure. plan your financial life with prudential. bring your challenges. shutdown showdown. >> this situation could be solved in a 45-minute meeting. >> reopen the government and we can work to resolve our differences over border security but end this shutdown now. >> how the government shutdown is affecting your money and the economy. former counsel of economic advisers chair jason furman joins us with reaction to the president's address to the nation cook on the defense. >> when i look at the long-term health of the company, it has never been better. >> the apple chief speaking out on china, wall street

negativity, and innovation plus this orning's market movers and shakers as the second hour of "squawk box" begins right now. live from the beating heart of business, new york, this is "squawk box. good morning, everybody. welcome back to "squawk box" here on cnbc we are live from the nasdaq market site in times square. i'm becky quick with joe kernen and andrew ross sorkin after three days in a row of gains and yesterday a gain of over 250 points, dow is indicated up about 53 points s&p futures up about four points here's what's making head lines this morning a short time ago, $1.96 per share beating the estimate of $6.46 billion was below estimates. fundamentals of low

unemployment, higher wages and low inventory levels remain favorable for the company. also jcpenney says same store sales during the holiday season fell 3.5%. it said it would close three stores this spring but they did reaffirm guidance for positive cash flow and inventory. we'll see whether that's going to be enough that stock up 1.5% this morning. then a tokyo court has now rejected carlos ghosn's request to end his detention ghosn appeared in court yesterday proclaiming his innocence. a few stocks to watch this morning. bank of america upgraded by ubs. saying the share price offers and attractive entry point and keurig dr pepper getting an

upgrade. saying it's a quality defensive name in consumer staples with high earnings visibility and improving margins. the 12-month price target is now $30 a share. you have a keurig? >> i do not. >> i do. >> you've got one of those george clooney espresso things >> absolutely. >> you got that? >> but by the way, starbucks is about to do an espresso -- a lot of the companies that used to be espresso only. now they're opening it up to other people >> i just had a personal question about keurig. eventually you're supposed to do something to it. >> you're supposed to clean it out. >> there's some solution you put in and press a certain button. if you don't do it, does it start tasting bitter >> we clean it out with vinegar. you put vinegar in it and clean it out >> but don't places -- like, businesses, they have a hundred cups a day we make we make one a day.

how often would you clean that, would you think? >> more often if you're using it less frequently. you're having stuff -- they get clogged up. >> they stop working what do you do, trenert? does somebody bring you coffee >> right no we have a regular old coffee machine with the drip and all that stuff >> all right just wondering liesman? you're a coffee alcoholic -- or coffee-holic >> yeah. >> they put a coffee in front of him a few minutes ago and he said yea and then they said it was for jason and they took it away >> the show starts at 6:00 a.m we have an excuse. >> we have a lot of coffee going. intraveno intravenous. >> anyway. i had questions. about my air pods as well. >> we'll do self help assistance

during the break president trump addressing the nation last night about the government shutdown and the wall ylan mui joins us again with that >> the president made clear he is not budging from his demand for a border wall. he tried to frame this issue as a humanitarian crisis or a crisis of the heart and soul he said this is a matter of national security and that protecting the nation is his sworn duty to the american people he also tried to make an economic reason for the wall >> america proudly welcomes millions of lawful immigrants who enrich our society and contribute to our nation but all americans are hurt by uncontrolled illegal migration it strains public resources and drives down jobs and wages >> democrats say his numbers don't add up they say mexico is not paying for the wall directly or indirectly and that taxpayers shouldn't be forced to foot the bill

>> we can secure our border without an ineffective, expensive wall and we can welcome legal immigrants and refugees without compromising safety and security the symbol of america should be the statue of liberty, not a 30 foot wall. >> on capitol hill, cracks are starting to emerge in the party. five have said they would be interested on ending the shutdown president trump will visit the hill today congressional leadership will then head to the white house for closed door talks. there does not seem to be an end in sight let's bring in our guest, former counsel chairman jason furman he's the professor of economic policy at the harvard kennedy school and a reasonable guy.

jason, welcome what >> i'll take it. >> i was waiting for the other shoe >> and steve liesman, senior economics reporter here at cnbc. our guest host for the next two hours is jason trenert jason is chairman of strategas partners jason, i'm not sure you'll disagree with me wholeheartedly that neither side -- >> just partial heartedly? >> yeah. there are bases on both sides. there's the build the wall base and there's the don't say yes to trump on anything base and i don't know how the two ever meet, but neither side, i don't think, is really being looked at fondly by the average person is either side distinguishing themselves with this

people are just wondering, let's just -- isn't there some way to do this? that we don't have to -- >> joe, i think this is a lot more clear cut than that back in december, the senate unanimously passed legislation >> you're going to take the partisan -- but back in -- >> no, not the partisan side a hundred senators had a way forward. there was one man that didn't. everyone else agreed >> you've seen the quotes on securing our southern border by obama. you've seen what schumer has voted on before on securing the border you're part of what i'm saying i can give you all the talking points from one side you're giving them for the other side. >> it's not a talking point. it's pretty simple. >> that only kicked the can down the road for another month there's a bigger problem >> others agree we need to -- don't call it a wall then. call it -- do a comprehensive thing. why don't you -- jason, let's do it right here. throw in a dreamer thing throw in a daca thing and we'll do the $700 million there and

trade that for correcting a wall can i get you to agree with that >> i think that's the way out of this figure out not how to only narrowly get through but solve a bigger problem we have dreamers we have people that want to contribute to the economy. we send them home. we have people who want to come into this country and contribute and we have security issues on our border let's try to solve all of those. that would be really positive for our economy. really positive. >> on a practical perspective as someone who's spent a lot of time in washington, how do you get -- what is the inflection point that's going to turn this conversation from what was a "saturday night live" skit last night, by the way, by all sides, into something real? >> i think you do something that reopens the rest of government where you don't have any fight you buy some time on the border. and you use that time to do

something bigger that gives something, you know, not just to everyone but gives something to the u.s. economy you know, a year and a half ago, you almost had an agreement on dreamers for border security why don't you take a little bit of time -- it's not going to take 45 minutes. you're going need to buy more time than that, but do something bigger and let everyone win. >> steve liesman, i want to understand do you think there's a true economic impact? when we get numbers -- both in terms of gdp and jobs. >> it's the same thing as trade. where i call up the economists and they give me numbers that are not whole numbers. they're 0.1, 0.2 the longer it drags on, the longer it's the equivalent of the city of milwaukee no employee in the city of milwaukee getting a paycheck that's the impact.

where the "x" factor -- there's an "x" factor in all this stuff which is one ofuncertainty, perhaps, and what it means for the private sector businesses that do business with the government that can add up. by itself, minimal for the u.s. economy. my question is you start adding up trade factors, the "x" factor global economic weakness "x" factor and at least what they seem to do is offset the "y" factor that would come from -- >> trenert manages money -- >> can i finish my thought, joe? i want to finish the thought >> okay. >> that's rude, joe. >> okay. all right. so is going eight minutes on -- >> i'm going two minutes the "y" factor is the positive you would get from the tax cuts this year. the question is the balance between that >> so have you changed anything you're doing >> no, we haven't. you know, i know it's from the administration, but kevin hassett is a very good guy, has

kind of lamped at 1% on gdp every two weeks. and in my opinion, its impact -- the shut down's impact on business confidence which to me the "x" factor you're talking about is the most important thing. frankly, i don't think it's particularly large my own opinion it's hard to say what regular americans think. it's a big deal for washington, d.c. but the rest of the country, it's not as big of a deal. seeing photos of overflowing garbage cans on the mall isn't going to get normal people -- >> but what about when they miss a paycheck then tsa isn't going to show up, you're not getting tax returns back >> all of those things will eventually make a difference but it would be very hard to come up with the point at which

this has had an impact on the way the average person or the investor thinks about the overall economy. the economy is just too large. this is not big enough, in my opinion, at this juncture to change your investment strategy or change your overall outlook >> is that because you think there's a settlement reached or something eventually gives >> i don't know what the point at which becky, maybe at the end of february or something i'll say this is a fairly big deal. there also would be a giveback effect moat of these people will get paychecks. i don't mean to be blase about people not getting paychecks. >> i wouldn't imagine it would take three hours >> the thing i could spend eight minutes on is how it affects the data the answer is it doesn't it washes out on either side and if you look back at the

2013, it didn't. the only way it affects is we ain't getting it >> jason, does 312,000, does that allay your fears of a slowdown and does it resurrect fears about wage push inflation that the fed should really need to deal with what did you think of that jobs number is it an outlier is it going to be revised? what's happening >> i mean, that was a terrific jobs number. it wasn't just december. you saw october and november revised up my worry is that gdp growth has been slow iing and the combination, weak gdp growth means productivity that's been the biggest problem our economy's had for the last decade it's the reason why most economists think our potential growth rate is something like

1.75%. and i think that's the growth rate we'll be heading towards in 2019 regardless of what we're doing on trade, regardless of the shutdown, regardless of whether or not the tax cut's working. we can't get faster productivity growth, we're not going to be able to sustain faster economic growth >> but mr. fuhrmann, wouldn't you say the tax cut is something that's completely designed to get productivity i think the policy mix you had before largely incentivized engineering opposed to capex where this passed the end of 2017 is completely designed to spur capital spending. and so far the record is somewhat mixed, but there has been a meaningful pickup in the first three quarters of the year will that not increase productivity >> that's certainly what the tax cuts were designed to do i did an analysis with a colleague here we found a very, very small

effect that it would have on capital accumulation and productivity but we'll see. and none of the growth we saw last year was -- you know, that was short run. that was keynesian, that was demand we're going to have to wait a couple years to see if that pans out. i'm a bit skeptical. but we'll see. >> kennedy school. you're near harvard square, aren't you you're not on the over side of the river. >> that particular paper i was talking about was done with someone who is a supporter of the tax plan >> you're a couple of steps from harvard square now you're not on the other side of the charles, are you >> correct i am on the -- >> all right it's tough you're inundated it's like an avalanche of that type of, you know, peoples republic anyway -- >> take a look at what errness

and young did -- >> i follow you. our thanks to jason furman of the harvard kennedy school he's sitting there with things behind him like kennedy, leadership, harvard. you're just nodding because this guy's got to know a lot with all those buzz words behind him. look at that who doesn't like ken dnedkenned? our own steve liesman was here as well. jason trenert is sticking around >> if you'll have me >> good. i can relax a little coming up when we return, this morning's market movers we'll also hear what tim cook is saying about the economy we'll also talk trade talks. and marco rubio is going to talk with us small business, the government shutdown whab he thought of president obama and the democrats' reaction to his

oval office announcement last ayght. st tuned you're watching "squawk" here on cnbc i'm ken jacobus and i switched to the spark cash card from capital one. i earn unlimited 2% cash back on everything i buy. and last year, i earned $36,000 in cash back. which i used to offer health insurance to my employees.

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developer they have hired cbre group to market that property. the abu dhabi investment council paid $900 million just before real estate prices plummeted it'll be interesting to see whether they get the price tag they're looking for. all right. in energy news, bp says it's discovered $1 billion barrels worth of crude at an existing oil field in the gulf of mexico. the oil giant also announcing two nor offshore discoveries a -- >> i can't believe they're still in the gulf of mexico. >> peak oil. let me revise that all right. when we come back, u.s./china trade talks wrap up in beijing the president tweeting yesterday the talks were going very well we will talk about the world's two largest economies and what it means for your money.

plus apple's tim cook speaking to jim cramer last night about the product pipeline and much more we'll have much more from jim's interview. >> we manage the company for the long-term. the most important things in apple, one, a culture of innovation this team is unbelievable in creating hardware and software and services and getting them all to work together it just worked >> we'll have more from the apple chief in just a bit. "squawk box" will be right back. people know aflac... aflac! ...but not what they do. so we're answering their questions. aflac is auto insurance, right? no. uh uh. is it homeowner's insurance? no... uhuhuhuh! is it duck insurance? nope. ahhh! do they pay me money directly when i get sick or injured?

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all while helping you to and through retirement. can you help with these? we're more of the plan, invest and protect kind of help... voya. helping you to and through retirement. trade talks wrapping up in beijing yesterday. we want to talk about that and so much more and welcome daniel rosen who served as senior

adviser for international economic policy with the national economic council and the national security council. where do you think these things landed >> well, they're still sort of in the air right? this wasn't the end of a negotiation, this was the beginning. it's extraordinary to think since the state dinner this is the first time we sat down together seven weeks in, six weeks to go. and we're just kind of framing out what the contours of a deal are starting to look >> how do you handicap it if you think march 1st is a deadline if it is? >> this would be a high degree of difficulty landing for anybody to stick this is unconventional in terms of how we're analyzing this whole thing. willing to do a bunch of come poe ponets here. the part that's going to be much tougher and passed off to more senior staff to handle in washington later this week --

month, are the big structural pieces of this china willing to put soes in a box. state owned enterprises. that stuff is going to be much tougher. we're just partway into this. >> in terms of the different chess pieces, one of the other things that's happened is the arrest of the huawei executive, things like that do you think some of that stuff gets resolved as part of this? >> you can't this stuff a hard enough just by itself if you protect it from the politics >> but zte became part of the politics >> the attention for the extradition for a huawei executive. these elements are the context then all sorts of stuff can come apart at the seams it's hard to do business if we don't have an agreed framework >> go ahead.

>> i would just ask in terms of the way the economy's working out and how that influences the negotiations, it seems like we worry about a hard landing in china every two years. and china has a pretty standard playbook as to how they deal with it. what are your thoughts on that now? we saw them cut the reserve requirement last week. are you going to see more stimulative actions from china to ease the path for which to give them more time to negotiate? >> there are two-year cycles there are five-year cycles then there are 50-year cycles in an economy and china especially, a lot of the heavy structural stuff the u.s. is saying has to be in a deal, this is new, this is not just something that happens to happen every couple of years this is stuff that needs to get put on track for the decades and decades ahead. china has to do it the pressure on them if they don't deal with these questions of how do we get state enterprises out of the way so

private companies can play a better role, china has to do that for their sake. it's a whole new era in the spacing. >> the markets and media's concern is are we going to come to some sort of agreement that both sides can really walk away from and say, okay this is a deal and obviously that may not be able to be completed by march 1st, but are we on track for that and is there the push on both sides to want that >> you're right. folks are looking close in is there a little bit of a spin and the answer to that is yes. there's a big part of the market here there's trillions of dollars sitting at the doors of china deciding whether to go long for the decades. nowhere on earth is going to have more growth for the decades ahead. you're not going to find that kind of opportunity anywhere else in the planet right now but it's contingent on there

being an agreed framework. that's what this negotiation is really about and we're not going to know for sure whether beijing a ready right now to put that on the table until much closer to march 2nd unfortunately. >> one question on ip because that's always part of the topic. you can see a lot of things but how do you enforce it? i always thought you can't enforce it the real way is through competition. having much more competition in the marketplace. what do you think it puts in place? when you think about the framework for that >> every now and then an economy has a chance to put some new piece of institutional governance down on the table america did it with antitrust in the 1890s and again in the 1920s where we put our money where our mouth was and say we're actually going to break up the most powerful american companies on the planet standard oil to show we're dead serious about what it means to look after the consumer >> we've peeled away from the dead seriousness since that. >> china is now at one of those

moments on intellectual property for the first time they set up a new intellectual property court system under their own supreme court that has the potential to be that kind of game changer whether it is or not has everything to do whether the communist party has the power to do what needs to be done we know what needs to be done. we need to actually protect people's intellectual property we'll know pretty soon whether this time is going to be different. >> a all right daniel rosen, thank you. coming up, stories making headlines at this hour then later tim cook speaking to jim cramer last night about china, the pipeline of the company, and the state of all things apple highlights and the street's reaction straight ahead. as we head to the break, take a look at u.s. equity futures. up a little bit but green across the board. about 40 points on the dow just under ten on the nasdaq.

♪ welcome back, everybody. here are the stories we're watching this morning. president trump making his case for a border wall and blaming

democrats for the government shutdown lasting so long this morning, fitch's warning of a possible cut to the credit rating if it continues. trade talks wrap up as the hopes of a deal build. the dow notching its first three-day winning streak since late november yesterday. i guess we're going back to break. >> we will go back to break. we will come back and continue the conversation on what's moving markets this morning. as we head to break, check out this morning's premarket movers in the dow we've got a lot more coming up on "squawk box" in just a moment sfx: [phone ringing] you still have service? call the insurance company it's them, calling us. it's going to be a week before they can get through on these roads shhh, sorry, i didn't catch that. i said ask how soon they can be here not you. right now? what's now?

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just ok is not ok. especially when it comes to your network. at&t is america's best wireless network, according to america's biggest test. now with 5g e. more for your thing. that's our thing. let's get to dom chu who has this morning's market movers dom, you're going to give us some -- you're going to add a few stock os watch on our radar. we're also watching lennar so when you get to that, just know that that's already on our radar. >> it's already been blipped on there. you're seeing it blip on the rad radar? >> but the others, i don't think, are those are new for us

take it away >> we will like you said add a couple stocks to this. on the tech side, perhaps some of the headlines from oracle shares this morning as you see there was downgraded by analysts at barclays to equal weight. next generation data base cloud computing products in the early stages of their life cycle the target price there, 55 bucks. on the financial side, upgrading morgan stanley to a buy from a prior neutral. the target price there 48 bucks citing among other things better market revenues from more market volatility and then you've got home improvement retailer lowe's which is getting downgraded by analysts at barclays to an equalweight from overweight. they cited tougher macro and industry trends and uncertainty over comparable store sales growth there as well but that housing theme from

lowe's carrying out like you said lennar shares, joe. i know it's already on your radar. but still mild losses now accelerating down 2% you can see volumes likely picking up as well that trend for housing stocks has been lower for some time now. that's also going to carry through into trading into some of the exchange traded funds as well check out the itb ticker over the course of the bast year has been one of the indicators but we are now leveling out here around this $33 area that has been as you can see there medium near term resistance over the course of the past few months. back over to you >> thank you very much for more on the markets, we are joined by monica divence rks nz.

you say the biggest concern everybody is grappling with right now is to figure out if we're headed to a recession. >> after september, people said that was scary now the question is do you own what you want to own we don't think we're going to have a recession in 2019, but if you were rattled what happened, we've rallied 10% from those lows, it's time to maybe look at what you own and make a shift. i think it's still a trader's market we're going to see volatility. >> what would you be telling people to get out of and then maybe what to get into if you can't handle that volatility >> we think about how low rates were so high yield has rallied year to date. if you own bonds, you don't want to go long-term and what is going to happen to spreads and if it gets more expensive to service that debt. maybe you should be rotating to

something safer. >> although we heard from powell, doesn't seem they're going to push higher quickly >> this environment where rates are in this range, you want to own. we're about to enter earnings season we're not going into an earnings recession. >> jason, where do you come down on this? first of all, let's just look at earnings as a potential. that's probably a win based on what the market's expecting right now. >> the most non-consensus view right now is i not only think we're going to have recession 2019 there's a decent chance you don't have recession until 2021, 2022 >> two more potential years. >> there are times you have earnings recessions and don't have an economic recession you never have a period.

i don't think it's a sugar high. it is something. it is a supply side tax cut that should provide the basis for greater investment, greater productivity, and modest inflation for a long time to come i'm quite optimistic i would be going into the industrial sectors, didn't work last year. this gives you -- i'm sorry to keep going off on this if you were given all the fact pattern of what happened last year, 20% earnings growth, 3% to 4% gdp growth, and said the best performing sectors are going to be utilities and health care >> but that's looking at it in a vacuum not considering the gains we got. >> that's fair and i think there are real concerns about the sustainability of the recovery going into 219 i think especially now with powell unlikely to make a policy error, unlikely to make a policy

error by the fed, it's safe tore go into -- >> safe? if i'm reading into it, it sounds you think there could be bargains out there >> i think the least safe place to me right now is the safety trade. which are utilities, consumer staples. maybe to a lesser extent, health care if you look at the valuations of those sectors, they're bid up to the point -- >> you're looking at a whole group of investors sitting on cash thinking this was supposed to be the year of a recession. or a recession is coming and that they're waiting for this moment and always the question is, you know, is there a moment or does the moment already pass? did it happen the week of christmas? >> certainly a moment happened the week of christmas for some sectors. you saw some of those names in the biggest days of weakness starting to stabilize. but there are values still in some of these sectors. think about this this is something for years to

come >> i mean, cramer was saying last night there's still time to buy many of the faang stocks i think he left netflix out of the group, but facebook, apple, amazon, all of them down the line -- google >> i think what we learned is in the right size you have to take the opportunity to look and say am i too levered. shouldn't be masively ov lly overweight >> thank you very coming in, monica jason is with us for the rest of the show when we return, apple's ceo with cramer. remember kudlow and cramer cook and cramer, you think there's a show there anyway, top of the hour former presidential candidate marco rubio is going to be our special guest. we'll talk about the government shutdown, china, small business, what he thought of president trump's address from the oval

office last gh quawk" returns in just a moment hey, batter, batter, batter, batter.

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cuts japanese newspaper the nikkei asian review says that apple plans to slash iphone production 10% in the next three months that would be the second time that apple would have trimmed production for its smartphone if that's the case. we're going to hear a lot more about what he had to say to jim cramer >> we're going to talking about that tim cook talking to our jim cramer in an interview cook addressed the naysayers >> in terms of the naysayer, i've heard this over and over again, jim i've heard it in 2001. a i heard it in more years you can probably find the same quotes from the same people over and over again i'm not defensive on it. this is america and you can say what you want, but i'm giving you my honest opinion. that there is a culture of innovation at apple. and that culture of innovation combined with these incredible loyal customers, happy

customers, this ecosystem is something that is probably underappreciated >> then you were surprised with the market reaction to both when you decided to not reveal units and then reveal the shortfall? >> i'm never surprised by the market, to be honest with you. i think the market is quite emotional in the short-term. and we sort of look through all of that. we think about the long-term and so when i look at the long-term health of the company, it has never been better the product pipeline has never been better. the ecosystem has never been stronger the services are on a tear >> joining us right now is will power. he is robert w. baird senior analyst. you know a lot of analysts who have talked about the end of apple for quite some time. your take on his comments, tim cook's comments about the company being underappreciated >> well, good morning.

thanks for having me yeah tim's right. we've heard the same rancor over the years. and i think, you know, the key narrative here for us and i think what tim cook was trying to express is this is really an ecosystem story. and that still has the opportunity to drive, you know, opportunities as we look forward. and i think one of the key numbers and this was an update from the release last week was they're up close to 1.4 billion active devices i think the key opportunity for the company is to build new revenue streams off of that active engaged customer base >> let's talk about that the revenue from devices themselves versus the services revenue that they seem to be trying to move into. first of all, people are owning their phones for much longer i have the new phone and i'm a power user, they just upgraded or forced me to upgrade my icloud service from $2.99 a

month to $9.99 a month i'm now in with them for $120 a year >> i pay 99 cents. what are you storing on there? >> couldn't even back up the thing until i was willing to say i'll take the upgrade. pictures for the last decade or whatever we've got the whole family plan or whatever it is >> oh that's for a bunch of phones >> $9.99 okay you were really doing something. >> by the way, that's -- people talk about this being a high margin product that's really high margin revenue, right, will >> well, that's exactly right. i think i'm still at $2.99 i may have to check my bill on that the key is making sure the customer is happy. if you become dissatisfied with that, that's a problem >> they've got you if you don't want to lose all your photos, they got you. >> there's a piece of news, i feel like it got underreported or missed in all this. it happened this week with samsung where apple on the apple

tv which used to be the device, the box you get, now made a deal with samsung so it'll be on samsung tvs. how much of that is an acknowledgeable to actually build the services business they're going to have to go off platform or start to put their platform -- their system on other hardware >> i think that's an important point, andrew. they do seem to be broadening some of the partnership willingness, i guess, if you will than i think they probably have maybe ever and part of that's come back to partnering with some of the tv providers. and that may feed into video content. making sure their video can be viewed on multiple devices, whatever you want to use beyond your core apple device so i do think it speaks to them looking at the broader opportunity for services >> but what about the slowing sales or at least slowing growth

of the sales of the phones themselves i'm holding in my hand what's always been the highest margin product that's actually kept this whole thing going if i'm going to hold onto this phone for three years instead of two, is that the issue or is china the issue? or do you believe it's a combination of all these things? >> well, i think it's probably a come by naugs of those things. when i step back and look at the strength of ecosystem and hear the naysayers say is this the new nokia or blackberry. i covered those back in the day. at the time when the first iphone came out 12 years ago and android on top of that, you know, these were game changers in terms of being software driven, app driven, et cetera. i don't see anything on the horizon that is more revolutionary. yes the upgrade cycle has slowed, but you're still going to go to an iphone there really isn't a better

alternative out there. so you're going to have these potholes in the road, i think, from time to time. depending on the cycle we think there's still an annuity stream around iphone and of course as we've discussed, you've got services going 28% to help offset that -- more than offset that at that point. >> jason trenert here. in terms of what would better shareholders at this point given the amount of cash that apple has, i mean, are there any discussions? i still find it hard to believe that stock trades at 12 times earnings and at a peak, might trade at 14 times earnings is there any talk about share repurchases or increasing the dividend or anything along those lines that might give long-term holders of the stock a little bit more comfort >> well, yeah. as you made known, i think this exited the past quarter with $130 billion net flow. it has been their intention to get to a net cash sere position

over the next couple of years. i think it's the plan to buy back stock i don't think they have plans for a special dividend the question has been m&a. could that use that on that front? it has not been part of their dna. i think it's going to be much of the same on that front >> two quick questions i'm also a watch owner i wear the watch so i'm all kidded out here but the question on the watch and tim cook has been very aggressive and feels i think very ambitious about what this watch ultimately could be. how big a driver of the growth do you think this watch could be when it kooms to this ekg stuff falling down, do older people start buying these watches in a different way? >> i think you're already seeing that tim cook alluded to this i thought one of the most

interesting comments from him last night was when you look back some years from now at apple and how you think about it, he thinks people are going to look at it as a health care company. i think the watch is part of that and perhaps the tip of the spear so to speak is for future health care opportunities >> well, we've got to run this morning. appreciate your time when we come back, senator marco rubio is our special guest. we'll be tkialng china, government shutdown, and business confidence. [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.

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the shutdown goes on still asking for billions for a border wall, the president slams democrats from a speech in the oval office. we'll speak to marco rubio and rob portman on how leaders can find a way out apple planning iphone production cuts. but ceo tim cook says apple's long-term health has never been better and a billion barrel discovery. bp says it found a huge deposit of crude we'll tell you where the final hour of "squawk box" begins now ♪

live from the most powerful city in the world, this is "squawk box. >> good morning and welcome back to "squawk box" here on cnbc live from the nasdaq market site in times square. they cleaned up. they do a good job of that, don't they >> i will say there's still a bit of confetti here but it's impressive. >> i'm joe kernen with -- there we are a lot going on out there if you have sensory issues. you don't want to hang around here anyway, i'm joe kernen along with becky quick and andrew ross sorkin >> you're talking about outside, not inside with us >> or that this inside is very pleasurable. >> pleasant. >> our guest host jason trenert which, you know, we always mention. forwards, backwards, doesn't matter trenert. >> palindrome. >> captain palindrome. that's right >> that's really your name >> that's really my name that's it.

>> it was cooler when you were at isi because that was also -- but you're not anymore you're at strategas research partners it would be five out of six or six out of seven day ifs we were to end higher today. whether there's a different tone recently -- remember we did go through six weeks where every morning it would be a reason to be red and now every morning it's not a specific reason, but kind of like the default color has been green recently i don't know whether that means the lows are in or not you think they're in, trenert? >> i think they're in. >> you do? >> i do. i think they're in for the year. >> and what do you think -- i'll tell you something that i think -- well, here's treasury yields you know what the average s&p target now is? >> no. >> 2700. i don't know if that's average, but that's what i'm hearing from a lot of the people that come on here they were at 3,000 last year so they've given up on the -- we got a whole new year

it's only january. are you sure -- >> we were at 2950 at the beginning of october, at the end of the third quarter so it seems to me if the economic forecast hasn't changed dramatically which for us it has not, it seems unlikely that you would go a lot lower >> doesn't mr. diabolical market, isn't that its intention when it goes through a construction to wring out the bullishness and complacency? that's what it does. >> i think so. this year will be an interesting test, too, because we have a lot of high profile ipos one thing we talked about, it's very odd about this bull market. i still think it's a bull market it started in 2009 has been there's been very few individual investors that have participated in any sort of meaningful way. we've had net redemptions from inflows into mutual funds and etfs together since 2009 so it's largely been driven by

corporations buying back their own stock, foreigners buying stock. and so this is -- you don't have the types of animal spirits you normally have at the end of a ten-year bull market that's part of the zeitgeist and people are swapping stories. and that's part of the reason i'm also pretty bullish. there's a lot more room to get euphoric and i think if we pass some of these structural issues, some of the things that are really worrying people, people will get excited. people get happier >> jason is with us for the rest of the program we'll have more to talk about with him meantime, president trump slamming democrats from the oval office in a primetime speech from the oval office ylan mui joining us again with that >> if anything, both sides appear to be even more dug in on the shutdown president trump doubling down on his demand for a border wall saying there's a crisis of heart and soul at the border framing this fight not just about politics and money but about right and wrong.

>> how much more american blood must we shed before congress does its job this is a choice between right and wrong. justice and injustice. this is about whether we fulfill our duty to the americans we serve. >> hundreds of thousands of federal workers will miss their first paycheck in a couple of days and democrats are using the heat to reopen the government while the two sides are talking about border security. >> we promised to keep government shut down for months or years no matter who it hurts. that's just plain wrong. the fact is we all agree we need to secure our borders while honoring our values. >> president trump has said he is considering declaring a national emergency to build the wall without congressional approval but he didn't do that last night. and on the top republican in the house armed services committee

said that he wouldn't support that move. so there is division within the gop about whether that's even the right strategy president trump will meet will lawmakers today, but there is little hope of a breakthrough. for more on the shutdown, let's get to senator marco rubio. senator, we haven't seen you in awhile it's good to have you with us today. how is the wall and by this i mean the republican resistance wall in the senate holding up right now? we had a graphic not too long ago and i think we're up to five or so saying that maybe we should do some of these individual funding initiatives that the dems are proposing. how do you think -- but then i saw lindsey graham's comments. the real spartacus in my view. but suddenly there is -- there are some cracks appearing, would you say?

or not >> there's always a lot of different opinions in the senate at large most people don't want a shutdown we voted to prevent one the day before the house voted back in december that said, i think it comes down to a fundamental problem we have here and that is on the one hand, this isn't people who voted for the president, voted for him to do this. if you asked the democrats, they would say the people who elected him elected him to do this what you're seeing at the level is happening in the broader debate number one, shutdowns aren't good for anyone. i'd never seen anyone win a shutdown and real people are hurt if people don't get a payment on friday, and miss a mortgage payment, that ruins their credit that's unfair to do to them. i don't understand this irrational resistance to border security if i would change one thing about what the president did last night, i would have laid out to the american people that the $5 billion that he wants are

not for a wall alone it's $5 billion to fund the top ten projects in the border security program laid out by the experts and people it isn't just throwing $5 billion to build a wall. it's for a specific set of projects that put together a program for border security designed by the people who entrusted with enforcing our laws >> senator, is there anything you believe is on the -- i'm not just going to say democratic wish list. because i think it's got to be the schumer/pelosi wish list say a bargaining chip. daca, or dreamers. i don't even think that would do it at this point >> it wouldn't >> they're going to insist that the government gets reopened before they do anything. because they think it's a winning political hand

>> they believe it'll be a devastating blow and improve their chances of winning in 2020 >> maybe if he said i'll resign after you give the $5 billion. >> that might be tempting, but that's not going to happen for them if you look back a couple years ago with the daca debate, the president offered to not only give a path to citizenship but opened it up for those that didn't apply but were eligible all he needed was funding for the wall and they didn't agree to that either it's troubling because if you stand here and ask people, no one knows how this ends. there's not a clear way out. >> that's the question, senator. to the extent you were going to play a role in all of this, what do you think could be the inflection point >> well, look. maybe we fund the top eight projects or the top nine projects or seven projects the problem is we've got to get to work on the border security plan it is a magnet the fact these poor people in

guatemala, honduras, these trafficking networks go to them and convinced them come with us, we'll get you across the border. people are crossing every day. it serves as a magnet to bring people here. then they take this dangerous journey. women are sexually assaulted, children are used in many cases as a ticket into the country horrible things. you are now in the hands of some of the worst human beings on the planet they're the ones winning here, the traffickers. if we make it harder to krooss than it used to be and discourage some of those journeys, that's good for everyone and i hope reasonable minds can prevail on that. >> do you think this changes on friday when the paychecks don't go out >> i don't know. i hope we can avoid that from happening. but again, we really need to do two things here. avoid the shutdown showdowns on a constant basis because they're not good for anyone and really hurt people that have nothing to do with this and the flip side is i don't

understand -- well, i do understand this. but -- >> those are two issues that may not be able -- you may not be able to have your way on both of those issues are you with the president to the bitter end on this or do you look for a compromise even if you don't understand the resistance to his calls? >> my job is to make things better not to make things perfect anything that makes the border more secure i'll be in favor of supporting but anything that helps improve security on the border in a real and measurable way i'm open to that in this republic, you have to reach agreement with people that you strongly disagree with >> are you willing to put 800,000 federal workers on the line for potentially multiple weeks and under the hardship issues that you talked about whether it was their own personal credit rating. >> no, i don't want to see that happen. >> that's the fundamental question of the situation that we have now.

but it's more complicated than that house did the same and the president vee tos it unless you have veto proof majority in both chambers. the pruitt is instead of bringing bills up and voting on them just to create political theater, we should be trying to convince all three sides the senate democrats, house, and president to come to an agreement that will pass and become law we really don't have any time to spare at this point given what you just pointed out. >> senator, do you think the president has constitutional authority to build a wall for national security purposes under an emergency what would be considered a national emergency? >> i think the president has broad powers to declare national emergencies. i think they should be used very judiciously. i'm not prepared to endorse that right now. i want to dig into some of the historical record as to why that power is there, how it's been used in the past i think we need to be very

careful about that is my view. it sets long-term precedence i can tell you from people on mie side of the oil, one concern we should have is today the national is border security. we all support that. tomorrow the national security emergency might be climate change so let's seize the fossil fuel plants or something. maybe it's an exaggeration, but my point is we've got to be careful about endorsing broad uses of executive power in our republic that said, i want to learn more about how it's been used in the past >> senator, government shutdowns, the debt ceiling have been used now as negotiating leverage over the past couple of years in this back and forth just this morning fitch came out and said that it would potentially lower the credit rating of the united states over the debt ceiling is that something that worries you? >> yeah. i don't think it's a good idea in real life going around threatening to harm yourself if

someone doesn't give you what you want this is ultimately -- these things come and go and we harm ourselves. >> if you believe that, why not separate those issues completely >> we have to be clear, the senate on whatever wednesday that was three weeks ago voted unanimously for a bill that funded government through february then on thursday morning, the white house had a change of view and wouldn't sign it now, we can't go back. it happened. and that's the case. i think if there were indications that they would sign that now, that would pass again. ultimately the position we're in now, the democrats need to reach an agreement between themselves and the president. the only way we get out of this is something that all three of them can agree on. i think senate republicans are prepared to support anything the president will sign. >> have you ever seen, senator, where sometimes washington is dragged kicking and screaming into something because you see the public -- suddenly the public is at 60% pick your issue where the public

seems to decide first. do you see polling for a wall or border security changing at all? because it's about different things the 40% solid trump is an illegitimate president is going to stay rock solid until 2020. i don't see any way that public opinion changes here who's going to move? i would think in my view and i may think about it differently, all these guys voted for a lot more than $5 billion and everybody agrees that border -- you know, you can't have open borders. especially when you're suddenly given free health care in california and new york city it's like we can't provide to the entire world and give inducements for everybody to

come here. we'll never secure it. but i don't see that poll moving just out of pure trump hate. >> and the bigger problem to understand there, that may be the national polling numbers so i think that's part of the difference here. we have real diversity of opinion. very strong opinions in different areas of the country >> okay, senator we're going to get the other side from senator rob portman -- actually, maybe not. we would like a democrat -- i don't know why we don't have a democrat today >> i'll wake around and find one here >> one question before you go. we heard reports earlier this morning that named five different republicans in the senate who said they would like to see a vote. would you name be added to that list at some point >> potentially, but i'm not there right now. and because i'd like to see the white house have a chance. the president was elected and he was elected on this promise.

i think he has a right to try to keep it. i think his request is quite reasonable i really do. and if you compare what he's asking for for what he kind of -- the image, the ideas people got from him during the campaign, this is very reasonable it's not an irrational or unreasonable request i think if his name was anything other than trump, he would have gotten it. i think he deserves a chance to get that done. >> i don't know. if his name's cheney -- >> maybe cheney too. >> bush 43, i don't think. >> now he's doing all right. >> isn't that weird? it's unbelievable. i love that guy. nice man >> all things relative >> anyway, thank you, senator

rubio. good to be with you today. >> thank you coming up when we return, shares of liquor and beer maker constellation brands getting crushed this morning we are going to explain why right after the break. down over 11%. back in just a moment. i don't know what's going on. i've done all sorts of research, read earnings reports, looked at chart patterns. i've even built my own historic trading model. and you're still not sure if you want to make the trade? exactly. sounds like a case of analysis paralysis. is there a cure? td ameritrade's trade desk. they can help gut check your strategies and answer all your toughest questions. sounds perfect. see, your stress level was here and i got you down to here, i've done my job. call for a strategy gut check with td ameritrade. ♪

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welcome back to "squawk box," everybody. the futures are now indicated up dow up about 103 points. s&p futures now indicated up by just over nine points. the nasdaq up by about 29. spirits maker constellation brands is getting crushed. the company's earnings and revenue beat estimates but third quarter profit was down 38.5%. burdened by higher freight and input costs. the company lowered its 2019 outlook. constellation expects net sales of its spirits and wine business to decline in the low single digits in 2019 and if you want some more color on what's happening, the ceo is going to be on "mad money" with jim cramer >> do you think this is a result of pot use >> i think it could be up based on that instetd of down based. because they're going to try to

get into it. >> i thought maybe they're smoking and drinking more. >> yeah. that they would be right? >> i don't know. >> i don't know. five years from now, what is it going to look like we got some -- i think when the guy said when the first nurse throws somebody off a roof after getting high, people went nuts with that. >> with that book. >> yeah. >> we had a conversation about marijuana yesterday. >> i guess you never know. stuff happens. but that's not what most pot people thinks is going to happen when you smoke a joint >> and it's so political i didn't realize how political it is. >> i think it's personal too there are people who not only have money riding on this, who wants it passed. >> traditional people like myself for very -- it's a social issue. i don't think it's been tested with tens of millions of mepeope

>> i've done some testing. i went to colorado, boulder. i ask what kind of percentages versus the placebo are you talking about? i never felt like throwing people off a roof. actually, i can't say that on. >> off the set, yes. when we come back, the fight to end the government shutdown of all shutdowns after the break, we'll be joined by ohio senator rob portman who's got a unique take on the problem paralyzi whitongasngn right now. stay tuned you are watching "squawk box" right here on cnbc l. l. yeah, he's so nervous.

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welcome back to "squawk box," everyone the futures this morning have been up all morning long but we are sitting at about the

highest levels so far. dow indicated up just over 103 points s&p futures up nine and the nasdaq up by 27. the government nearing an all-time record. and president trump and the democrats blaming each other >> the federal government remains shut down for one reason and one reason only. because democrats will not fund border security. >> mr. president, reopen the government and we can work to resolve our differences over border security. but end this shutdown now. >> our next guest has introduced legislation to end shutdowns in every congress since 2010 with no success he will try again. joining us now is bob -- senator rob portman of ohio. good morning to you. >> good morning. how are you? >> i'm good. what was your reaction to last

night's back and forth >> he was presidential, stuck to his talking points, and made a good case. i did think that neither side really showed any willingness to compromise we need to be sure we get this resolved i'm not big on government shutdowns as you said. the taxpayer always ends up paying more. but i think the border needs a lot more help right now. i think it's interesting the democrats who in 2013, you know, were willing to put $46 billion against border security and even as recently as last january, schumer talked about $25 billion in exchange for citizenship for dreamers so defense act as you know back in 2006, democrats rain shower planning to go with fencing then it seems there is opportunity to find middle ground >> let's talk about that opportunity. i didn't see it on both sides last night it felt like the needle is d not move on either side. i'm sure there will be a "saturday night live" skit about it on saturday but in terms of a way forward

from your vantage point, what would it be? what would be the inflection point? >> i'm introducing a bill this week i've introduced over the last several months with john thune. it simply says $25 billion over five years for border security some of which will go towards new fencing. i think it's the best compromise it's simple, it's clean. so my hope is that we can get beyond this shutdown and we can get beyond the back and forth by coming up with a simple solution >> would you be prepared to separate the issue of the government shutdown and border security at this point there's some reports that a number of senators are -- republican senators are potentially leaning in that direction. would you sign on with them? >> i don't think government shutdowns are effective. i offered this legislation every congress for the past several. i haven't had much luck because appropriators in the congress don't like it because it takes

away some of their discretion. if there's a spending problem and you haven't had had the new spending bill approved, you reduce it by 1% in the first 90 days to give them the incentive to get back to the table i think that would be better because the dislocation that occurs is -- you know, it's inefficient. as you probably know, all these folks are going to get paid back yet they're not working, some of them >> given that position you've taken historically, would in this case you'd be willing to sign on with some of these republican senators who may, in fact, be inclined to separate these issues at this point given that we're now up against this friday deadline where 800,000 federal employees are not going to get a paycheck? >> i'm reaching out to my colleagues, democrats and republicans alike having a meeting on it today, in fact, to find a solution. that's why i'm going to offer this legislation today or tomorrow that says let's just simplify it and say some money

for fencing. some money for border patrol some money for drones. let's ensure we do have a more secure southern border the heroin and now the crystal meth is coming in almost exclusively from mexico over that border. so there's lots of reasons to do this in the past, democrats have agreed to that i prefer that. the problem with the republicans in the house or the senate saying that they would like to go ahead and do what nancy pelosi has said. mitch mcconnell says he's not going to put it on the floor so it's probably not a worthwhile exercise let's try to solve the problem. >> with mitch mcconnell saying he's not going to bring any vote to the floor that the president doesn't support, have you taken this idea of a compromise and run it by the white house? what have theysaid about this idea >> i mean, look. it depends who you're talking to, to be honest but some people are realizing

there has to be some give on both sides i think the president knows that and i think he will eventually get there. my hope is in the next couple days you're seeing progress towards a compromise the democrats are at $1.3 billion. but let's say $1.3, the compromise is $3.5 billion and the question will will there be a wall? the president said there's going to be this fencing some will go there but also to other things so i think there's room for compromise here. i look at the past votes democrats have taken my hope is we can resolve this issue. >> senator portman, do you have a sense of how much the shutdown will cost the economy from your experience the longer this goes on. is there some rule of thumb that

investors can hang their hat on? >> yeah, look. i don't think it's a significant cost yet i think when it starts to get much more problematic is you don't have inspectors or tsa agents, issues like that i don't have an exact number but every day, it's inefficient. taxpayers pay more not less when we do these shutdowns. i think it's important to get it resolved for a lot of reasons including the heart headache these families are feeling that aren't going to get a paycheck this week. they're told they're going to get paid back later, but if you've got a mortgage payment, you've got to make it. my hope is we can revise this issue. we should talk about not only are the futures up today but the economy is doing great 312,000 jobs last month. if you look at what's happening after tax reform versus before tax reform, the projections have doubled in terms of the amount of jobs per month. and in fact, we're exceeding that now, those predictions. so tax reform regulatory relief

worked the economy is doing well. there are more jobs out there than people looking for jobs this is extraordinary. i think we weren't tied up in this other issue, we might be talking more about that and the need to do other things to grow the economy. >> related question to that. given the success of the economy, are we going to get the tax receipts to pay for all of this fitch came out this morning threatening to downgrade the united states aaa rating that they have on our country based on the potential of a debt ceiling showdown which also then relates to our overall debt and deficit. >> yeah. that was an important warning shot we've got to also focus on the debt ceiling i think we'll deal with that and as you know the house would like to deal with it as part of appropriations i think that's possible. we've got to come up with another i hope two-year budget agreement. as part of that, the debt

ceiling will be handled. again, bottom line is our economy is hitting on all cylinders right now. and we need to continue to do things to encourage that, not discourage it. >> okay. senator rob portman from ohio, thank you. appreciate it. >> great state of ohio all right. coming up, some of this morning's biggest market movers. later we'll get you set for the day's release of fed minutes what to watch in the separate bank's language when "squawk box" comes right back. as we head to break, take a look at u.s. equity futures we'll be right back.

welcome back to "squawk box. we are following a big developing story on apple. the tech giant reportedly planning major iphone production cuts nikkei asian review says that apple plans to slash iphone production by about 10% over the next three months. this according to the nikkei, this would be the second time in two months apple has trimmed production plans for its smartphones. apple has not commented on that report we should note the news hasn't hurt shares of apple in fact, they're up slightly this morning and shares of apple supplier sky works also trading higher

despite lowering its guidance. coming up, we're about to get some key insight into the federal reserve's latest thinking later today the central bank releases the minutes from its december meeting we're going to get a preview i hope he doesn't say we're a long way from neutral. would he do that >> no. he was pretty clear last go around >> okay. i want this minutes to come out. we're going to look at them. and try to figure it out stay tuned >> it's backward looking

welcome back to "squawk box" this morning take a look at futures right now. we are in the green. if we could stay that way, this would be the fourth up day we've had. dow looks like it would open up now close to a hundred points higher s&p 500 up about 8.5 points 37. the fed minutes will be released this afternoon and steve liesman joins us now with a preview. you do know "squawk on the

street" starts at 9:00 >> so you want me to keep going? >> it's a three-hour show. >> just getting me back for the last hour. >> just -- i mean -- >> you got to watch all three hours to understand. >> you do. even though i am -- and i also told him -- >> you did not apologize for interrupting me. >> i will never apologize. love means never having to say you're sorry did bullard say something honestly >> i don't know. looks like a 5:00 thing, but i don't know the source of it. i didn't want to necessarily say something about it but there is something on the wire saying something. let's hold off and come back to it let's talk about what i do know. which rafael bastic forecast

slower growth this year. he said uncertainty calls for caution. the fed should not move policy into restrictive territory now, plenty of comments from the fed chairman markets get to hear the minutes today and should get a better idea for how the entire rate setting federal market committee feels about a series of hot button economic issues what the committee thinks about the outlook risks including global growth and trade. balance sheet flexibility, how it thinks of market volatility, and what it thinks of rates. quote, we see a good chance that today's minutes will provide long awaited confirmation if the fed attempts to have an boont operating system as the new normal in the years ahead. market's got to digest the minutes and then all the fed speak. seven fed speakers on the docket including here we go, we've got

bostic this morning. rosen, barken tomorrow, bullard will speak tomorrow. that's what i'm surprised to see comments on the wire today evans again tomorrow and there's rich clarida, the vice chairman for the board. >> bullard gave these comments in an interview to "the wall street journal." >> okay. >> but he's got to be emboldened >> you're right. >> in fact, he said the fed is coming around to the idea of holding off on rate increases. coming around to his idea. >> right but he's even more assertive in his opinion than -- he wasn't unassertive when we had him on he was very dovish after -- he flipped quickly. >> should we remind what he said while everybody was forecasting further rate hikes ahead, jim flatlined his forecast he went 2.5%, 2.5%, and now the market has come around to him. one thing i'm picking up from the fed is the question of whether -- not they misjudged

the effect of the balance sheet reduction by itself. whether they failed to consider the effect on investor psychological from their plans together with those of other central -- >> say that again. >> so the fed gamed out reducing its balance sheet. they announced it, prepost announced it everybody knew it was coming then they get to december and the markets pretty much freaked out about it, right? and one of the things i'm hearing is maybe the issue is this not what they were doing but what they were doing together with the ecb, bank of japan, and these other ones. that the cumulative effect had a negative -- >> as the economy turned, too, you can't just keep it on autopilot. you maybe need to be willing to be a little more flexible. >> right the only pushback they would give to that is that is what they said all along they were going to do.

now, it's 8:44 meaning i've got 16 minutes to keep talking >> assuming you don't -- >> no. and then the second hour of "squawk on the street" is at 10:00. then there's "squawk alley." but i don't see anything pressing until noon, really. >> nothing pressing. >> why don't we bring in nathan sheets nathan, just listening to all of this, has the fed changed its tune is bullard right is the rest of the economy coming around to his point of view >> i think the federal reserve has moderated its message by two notches. and i think the federal reserve is probably moderated in its expected policy by a notch as well i'm not sure that the center of the committee is exactly there with jim bullard saying 2.5% will be enough but is it imaginable that unsettled markets and maybe some

risks around investment and some worries about the housing market, that the fed pauses for a bit temporarily waits to see how things play through. and doesn't hike rates in march and waits until june or the second half of the year. is that a possibility in this environment? absolutely and i think that the markets are starting to realize that it is a possibility. and the fed is communicating its optionality and flexibility to be more effective than it had before >> just two other comments from bullard. he says the bond market continues to warn that the fed policy is too tight. he also says if the economy unexpectedly weakens, he would be eep would be open to rate cus >> i asked that, has that market gone too far has powell expressed too much

flexibility in now they're betting down the road on a 2020 hike cut, sorry >> i think that we need to keep in mind the core of the u.s. economy still seems pretty strong and we were reminded of that on friday by that very strong payroll report and the consumer's solid and there will be more fiscal stimulus lifting the economy in 2019 >> can i ask -- i want to turn to you, jason. joe and i were talking about saying you're sorry, okay? >> love story. >> what will it take for the market to say, you know? we were wrong. the economy is really strong what kind of things would turn the market -- not that the market would say it's sorry, but -- >> listen. i think what the market reflected in the last couple of weeks in the last year in my opinion in kind of this order, one is markets were extraordinarily thin second, people were quite worried about the fed making a mistake. i think chairman bernanke said last week, you know, business

cycles don't die of old age. they get murdered. there was some sense that the fed might actually murder this one is the way it normally happens. then there's also trade. so i think in many ways, last week chairman powell almost read off a wish list of things equity investors wanted to see which was flexibility on the balance sheet and the data coming in as far as future fed tightening is concerned one other thing i would mention with regard to what you said before i don't know how you feel about this, but i am extremely skeptical that the ecb and bank of japan are going to make any sort of meaningful attempts to tighten. and mainly because i just don't think they have the flexibility to do that i know they would like to do that but given what's happening in the economic data particularly in europe, i think there's a limit to how much the fed can really go off the reservation as far as the world's other central

banks without causing a lot of financial market instability >> i broadly agree with that i don't think there's any hint of meaningful tightening of policy in japan. maybe a slower pace of purchases. but they're going to continue to be stimulative and i think the europeans are going to need to see a stabilization in their economic data before they do any more than they've done. yesterday's industrial production data out of germany were very, very concerning and raise the possibility of technical kind of industrial recession possibly happening in germany. >> just answer a quick question. you're a big believer in the tax cuts i followed your research at your group which has been very strong, i have to say. is the idea that the economy cannot withstand 3% on the funds rate and there being continued gains from the tax cuts, do

those things work together or do they work separately >> no, steve i would say the level of what the markets can withstand in terms of rate increases is different than what the economy can withstand. i think the economy has shown that i can withstand higher interest rates. it is just that the financial markets after ten years of quantitative easing, those muscles are flabby in terms of the real economy is outperforming the financial markets right now. and i think it took ten years to get into a situation where you quintuple the balance sheet. it is unrealistic to try to get the balance sheet down skinnier in a very short amount of time >> okay. nathan, thank you very much for joining us today chief economist at pgim fixed income and steve liesman. >> 8:50. ten minutes early. >> unbelievable. we got to switch gears completely big news on apple this morning tech giant reportedly made planning some major iphone

production cuts. last night on "mad money," tim cook told jim cramer he hasn't been surprised at the market's reaction to apple's recent revenue warning. or its decision not to reveal unit sales >> i'm never surprised by the market, to be honest with you, i think the market is quite emotional in the short-term. and we sort of look through all of that. we think about the long-term so when i look at the long-term health of the company, it has never been better. the product pipeline has never been better. the ekosovo systcos system has better >> to san francisco, where we find jim cramer. remember almost every one of the negative calls in thakt fa jim -- funny to watch, but after talking to tim cook, do you -- what did you glean, you know, from body language behind the

scenes and everything else from the entire process, jim? where are you on apple now >> i think that the company's stock is selling at about 11 times earnings, future estimates and i think that takes into account the idea that you got the 10% cut. i know the people will sell the stock again on the 10% cut, they'll sell it again if there is another five. what tim cook is saying, look at the eco system, it is doing pretty well. there is a note saying maybe there is more deceleration in the growth of the services stream, more important than the 10% cut. but what tim is saying, you got to weather the storm if you decide to take a look at a snapshot of where the company is, you really understand that 11 times earnings actually pretty reflects all the bad news, doesn't reflect the good news >> someone sent me a piece of samsung and howapple in terms of iphone unit sales in china might not be that different than samsung and that apple doesn't have a moat either there and samsung, you know, their market

share just dropped off a cliff in china is that true for apple and is china always going to be sort of the linchpin in the apple story or is it bigger than that >> tim cook is confident that there could be some sort of trade deal, things get better. i think right now if you're a consumer of -- and want a new cell phone in china, you might feel like it is not right to buy a conspicuously american product when you can get a huawei, of course, which is regardleed as n outcast in this country. i agree with you unless china turns around or we get a trade deal, i think the stocks will be under pressure once again, i do -- i come back to it 11 times earnings, you know, trades like a steel mill trades through new core. i question whether everything isn't reflected, all the cuts are reflected and not getting the ecosystem. you had dr. paul friedman on

a strong interview you did he's at the top of his game at the mayo clinic. we need ekg readings to save 11 million lives, from a smartphone, that's apple, that's the watch, that's what tim is talking about, health. >> i don't know if you've been watching constellation getting slammed. i think you have the ceo on tonight. i think the stock is down over 10%. anheuser-busch and others getting hit. is this a function of marijuana use, by the way, canopy and till ray got initiated as overweight by piper jaffray this morning as well don't know if you see an irony there. >> i wonder where constellation put $4 billion in canopy maybe that's a hedge bet i was surprised that beer is down slightly. the wine and spirit forecast i think is driving things. it is down single digits that's extraordinary we haven't seen these kinds of clear and whiskey and wine down this much. but you had a little comment

this morning about that deequil the break. it is the only one that is up. i know he's got a good tequila, but, you know what, wine and spirits are slowing down and you have to wonder, you have to wonder, andrew, if that isn't because cannabis is on an upswing. despite alex bernsen saying we have to worry about the long-term consequences what is the alternative when it comes to health care it is opioids. i prefer to think that pot is better >> okay. we should do a cramer bernsen debate on pot. >> i love alex i love your show this morning. you hit everything thank you. >> thank you >> i can't -- >> cramer saw that too. >> yeah. a big part of the show, tim cook comments jim, thanks. we'll see you. and liesman is not going to step all over the 9 apparently. you'll be on at 9:00

no problems there. >> do it in step. >> i want to do it. >> a very important announcement when "squawk box" returns. [knocking]

♪ ♪ memories. what we deliver by delivering.

all right, welcome back to "squawk box," everybody. we have big news from the labor department the squawk labor department. we want to extend a very warm welcome to the newest little squawker executive producer ann taroni giving birth to a baby girl named caitlin mary yesterday morning. both mom and baby are doing very

well look at that beautiful baby girl caitlin is here, big sisters ann and meredith also thrilled to meet their little sister we want to send our very best wishes to the entire tironi family all from the "squawk box" family here yea, ann, yea, don. >> beautiful want to get a final word today from our guest host jason trenor you're pretty optimistic. >> i'm pretty optimistic i'll be optimistic i think the market discounted a lot of bad news in the last couple of weeks last year. but the economy itself i think as senator portman suggested, i think he's right, the economy is -- >> all this doom and gloom talk in december, the prechristmas, the world will come to an end in 2019 or 2020 is wrong, or just a function of powell changing his mind for now >> i think what you -- the only way to get a recession in my opinion, 2019 or 2020 is through a policy error

i think the fed is not going to make that policy error in my opinion. and i -- >> where do you put the government shutdown, china, all of that? >> i think president will make a deal and i think we'll make a deal on -- >> thank you. >> thank you >> guys, thank you make sure you tune in tomorrow "squawk on the street" begins now. ♪ put the body in motion start the commotion ♪ >> good wednesday morning. welcome to "squawk on the street." i'm cart quintanilla with david faber. dow futures up 100 points here, stocks on the longest win streak since november optimism on u.s./china trade, but negative preannouncements from constellation and sky works. fed minutes to play at the 2:00 p.m. eastern time. oil back above 51 today. our road map begins with the market and the rally optimistic tone out of china trade. negotiations as the boxing day