multivan segment, stop manufacturing automatic transmissions in bordeaux france and consolidate some operations in the u.k >> right now it's time for "squawk on the street. ♪ good thursday morning. welcome to "squawk on the street." jim kramer is still at market in san francisco. we miss him but what a week he's having carl's out this morning. let's give you a look at futures. you can see we are set up for a lower market open after what, of course, has been a strong week european markets have been open pr so for some time. let's check in there and see how things look.

in the red across the board, the declines not too great crude oil really been a story. was above 52 this after not that long ago talk of a potential $40 number the market has been moving along with it. this morning perhaps a different story. it does start with this retail wreck that we're following macy's holiday number missed the mark in a big way. the stock is down sharply. it seems to be taking most of the rest of retail with it. >> stock futures pointing to a lower open despite up beat comments out of china on trade. >> plus jeffrey vinik is at it again. he says it's a good time for stock picking. shares of macy's are down over 18% after reporting weaker

than expected holiday sales. kohl's also falling on what were weaker than expected holiday sales. target saw same store sales growth of 5.7% it's maintaining its outlook for 2018 but its shares are also down after having looked up prior to getting the nice from macy's bed bath & beyond is actually surging on improved 2019 earnings guidance. no shortage of things to go through this morning, mr. kramer macy's obviously taking the lead here, basically saying that things look good and then they weakened in the mid december period and did not return to expected patterns until the week of christmas, that a quote from the chairman and ceo

some cat geiegories strong but r performance in women's sport wear, seasonal wear, fashion jewelry, fashion watches and cosmetics. >> macy's was clearly the worst and it was the biggest surprise. target was not nearly as bad as the stock would indicate there has been a belief from the august quote that the economy was accelerating it's really rather amazing kohl's actually raised numbers but it doesn't matter. it was 1.8 what macy's says is there's promotion and if there's promotion there's inventory and if there's inventory prices come down and if prices come down,

earnings come down bed bath may have hit rock bottom. >> it was particularly surprising to hear this out of macy's because last time we heard from the ceo was on black friday here's what he told this show about the holiday spending season. >> i think it is a very favorable consumer sending environment, record low unemployment i think consumer confidence remains quite high clearly the customer is out there shopping i think we're going up against a positive comp in the fourth quarter of last year as many of my competitors are as well i think everybody is ready for that. >> very positive i mean, all the analysts picked that up. i guess something happened between black friday and now and the question i'm trying to figure out, is it a macy's problem or is it a consumer problem? because the consumer was doing the best

unemployment is down, wages are up, very favorable environment is that not the case >> the stock market cratered you could say many of the stock market crashed after jay powell's comments. again, i'm suspect about the idea whether employment is a leading indicator or not what didn't jive is if you did not offer off price, meaning the level of costco which reported really good numbers just last night for the month of december, then you really just basically did poorly kohl's is strip mall macy's is mall if you're in the mall, you didn't have good numbers unless you were completely off price, i really question how well you did november and december turned out to be weaker than expected months and they didn't correlate with the employment numbers. it didn't correlate with kb homes.

the employment number turned out to be not the tell amazon is more of a tell, costco is more of a tell. people traded down not up. look at those categories of macy's that were weak. they are typically high margin when you start talking about expensive watches, i'm wearing an expensive watch but it's not made by breitling. >> 5.7%. so to sarah's point you do start to wonder were they seeing better flow-through particularly online than macy's efforts at at omni channel. let's go through the numbers it's now flat to 1% comp store sales. they has been looking for as much as 2.5% up. net sales overall now seen down

two to a half a percent. target would have been up otherwise. >> kohl's guided up. michelle gas is doing a great job. she guided up. there are retail etfs. they can bring things down macy's was very jarring. kohl's has a reputation of being an absolutely horrendous trader. i think target is pretty interesting here because it's already come down a lot. i think you have to wait until the dust settles and some numbers are cut. bed bath, this stock was at 80 four years ago with a $13 million market cap and $11 billion in sales now there's $12.4 billion in sales with a market cap of 1.6

billion. this is an amazon economy. amazon wrecked the margins for everyone and i think they wrecked the margins for christmas too. >> i think the move has to do the double digit move and bed bath had a lot to do with shorting the stock. >> yes >> it's not like this company is actually growing its sales maybe a bit of a short squeeze there. >> they also did not cut earnings they're using a two buck number. they have a billion dollars in cash and the stock is 1.5 billion. a billion in cash. they do have some debt they've created some new store concepts that are looking good remember, babies r us wednesday under and that really helped them. >> i went to bye-bye baby every single day for about three months i don't understand that was when the stock was

cratering. it is a need store however you can always use coupons and it's still the case. they always let you use the 20% off coupons whether they're expired. i think that's been part of the problem here. >> i don't know if it's as much of a need store as for you clearly. but i think when babies r us went under they said it really helped them. i think with problem with bed bath in the end, how did they go from 16 billion in market cap to 1.6 billion. amazon, amazon, amazon amazon had a great november december people love free shipping, they love prime they don't like going to the brick and mortar mall. this is a christmas that had you and i gone shopping together we would have detected this >> we've talked about the decline of the mall for a long

time i gave incorrect numbers there it's a little complicated. they are looking for up 2% in comp store sales i apologize nafor that i was looking at the wrong period >> the revised annual. >> it's interesting that you keep taking it back to the fed because we are going to hear from mr. powell again today 12:45 at the economic club in d.c. he sounded a hot better on friday and i know you've pointed that out, much more constructive for the markets, gets the patience thing they're all in wait and see mode now. are we going to get that message reinforced powell's got another shot today. >> travel and leisure is down badly, airlines bad, retail bad, housing bad, chemicals bad, plastic bad, semiconductors bad,

hiring good. it is a little bit difficult for jay. i want to give him some leeway but he should have checked in with some companies that would have told you that we're not getting big orders, reorders from the macy's and the kohl's but he didn't do that. of course we're going to hear that's not the case. had you made the call, you would have realized this was happening. that's what i've been so angry about. perturbed. >> you've been saying that for a long time. i don't believe that mr. powell's specifically been defending himself against your charges but they have made the point in many times of talking about all the different people they speak to and all the work done by those economists at the fed and small business -- i mean, last time around they went through it you don't seem to believe

they're not talking to the lumber people like you are. >> lumber's down about 40% if they outsource this to me, they could bring sales force in, bring me in, bring adobe in, safe the t save the taxpayers a fortune and be more accurate >> even with the fed having raised in december, can they engineer a soft landing? that's going to be the biggest question of 2019 we're going to see a little bit of a slowdown here or something potentially worse given some of the industries you're looking at. >> but you need to see what stuart miller who was the chairman of lennar say continue which is that the last couple days have been good. housing is getting more affordable because mortgage rates fell and because new home prices are coming down you need to see that it's really hard to understand

an environment what fooled jeff, the employment numbers. what fooled the fed? the employment numbers it's an amazon economy when it comes to amazon we'll worry about a divorce. can we stay focused, please? >> yeah. i think the other message from macy's is that there's not a ton of inflation they can't pass on higher prices to the consumer. >> right >> athleisure is not dead not if you look at the nike numbers this is stonington, maine,

a town where almost half the population is self-employed. lobster fisherman is the lifeblood of this town. by 2030, half of america may take after stonington, self-employed and without employer benefits. we haven't had any sort of benefit plans 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.

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we're in a bull market in retrospect it started in 2009 and if i had to guess, we're halfway through it driven by good economic growth and low inflation. >> halfway through it? >> secular ten years in, ten years to go. i don't know that's my guess. >> ten years to go in a bull market from there. >> optimistic. i think it's interesting that he's coming back in. instead it's a great opportunity for old fashioned stock picking. >> it's interesting. the conversation turned to the changing complexion of the market, the proliferation of funds with their algorithms. this is a guy who was a great stock picker when he ran the fund for four years. then his hedge fund had very

strong returns, over 18% from the life of the fund he says, hey, the market's still safe for stock picking and price discovery. >> i thought that was terrific full disclosure, my 401(k) in the magellan fund. for him to say these things, which we know is very out of sync with most hedge fund managers who come on the show and make you feel like you've got to get rid of your shoe laces and your belts, this was refreshing the oil etfs are down today, so the s&p is down i think is also refreshing if you do a lot of work and come back with some ideas, you will be ultimately rewarded there is no single stock risk like the advertisers say i think people have been brainwashed into saying you can't ever pick a stock.

vinik can pick a stock i am anxious to see what he buys because he's not afraid to say i'm bieg somethinuying somethin. you always hear people come on and say i hate everything. of course they're really rich so they can hate everything because you only need to get rich once. >> true. particularly when you're a hedge fund manager even though your investors may not stay rich as a result given your underperformance in the last decade. >> how many conversations have we had about passtiive versus active managers? is there anything that would actually turn the tide after a decade at least of the out performance of passive managers over active managers we'll have it again. >> i don't know at this point. if you're out there and you are somebody listening, why wouldn't you just go with the broader

strategy and invest in the indexes or etfs. >> if you have the time full-time and you can do what vinik does, it is worth doing. i always tell people, you have some mad money, you can select some stocks. yeah i don't see the etf thing changing the money going into etfs was ridiculous the mindless putting of money into etfs one day can be bad the vinik's view came true, we would have a lot more to do. we would have more fun too. >> yeah, we would. it will be interesting to see how much he can raise given his pedigree. up next, jim's mad dash. let's give you another look at retail stocks before the bell. they will be the feature this morning, macy's the lead there with more than 17% decline

we have a lot more for you

full-titime for a mad dash. jim, glad you're going to be looking at airlines, because we've been so focused on retail that that warning from american may have gotten lost, but now it won't. >> it's weak fares

the total revenue is very bad. i think this group had been moving with the expectation that oil is down. it's just not computing. i have to believe that american is not alone and that this group once again has bedevilled people because when you have great employment, you're supposed to have fares going up. fares are going down i know what happens. have you ever heard it was not an extremely full flight they're an extremely full flight but they're not making nearly as much as they shoul. >> we did hear from delta last week and that wasn't particularly good either, right? >> same thing. the pastiche of numbers, they're

not supposed to be happening these are very disappointing numbers. what they say is that this group, which had been in nirvana is back into price cutting ways. the numbers just simply aren't that good. >> there's another sector for us to keep a close eye on as we get ready to start the trading day on this thursday we've got an opening bell for you about fiveineswa mut ay.

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because the changes we make today... can you hear me? ...shape the possibilities of tomorrow. u.s. bank the power of possible. we are live from the financial capital of the world the opening bell is going to ring in a minute and 45 seconds from right now jim's cross country. you're right next to me, sarah carl is out today. what are you keeping a close eye on beyond currencies or oil or the stock market >> the chinese currency is at a five-month high against dollar it's a sign that the chinese have got it under control a little bit more than they did

last year when their currency was sort of spiraling down despite the fact that we got inflation numbers there overnight suggesting the slowdown continues and potentially gets worse in china. got some ugly numbers out of france but they've been dealing with protests there. as we go into u.s. earnings season, europe we're going to watch for commentary there it's going to be a headache. china is going to be a problem the question is, has the u.s. stock market gone down enough? are valuations cheap enough? what is the s&p trading up 15 times earnings? >> yes. >> absorb some of this messy news we're going to get from overseas, strong dollar, china, europe, tariffs, some of those other problems plaguing corporate america. >> i think we have to repeal some of the great gains we have. now we have to deal with the information that's not as good

i think we're going to have to have a rolling correction starting with retail and airlines when people realize, you know what, one of the reasons why jay powell had to kind of say uncle is because the numbers, he's now discovering, aren't as good was ae thoughas . >> of course you heard the opening bell there for this thursday take a look at the realtime exchange back at our headquarters you can see a lot more red amongst those 500 stocks fans for the cure raising awareness for prostate cancer. over at the nasdaq, mm tech, interesting. as yourolling correction airlines and retail.

as wti goes, so goes the market. this morning it's down although up sharply over the last week and a half. >> back in a bull market, actually. >> some would say, hey, to the extent that the fall was reflective of concerns about global growth, why shouldn't the rise be reflective of a more positive view of global growth >> i think oil is trading with chinese trade talks. chinese trade talks conclude and we don't really have the big deal where they announced they're going to double the orders with boeing maybe president trump will like that look, oil is what matters because if you take a hook look the chart of oil, october 5th, where you had powell and pence call against the u.s. economy, if you just took your cue from economy, every day that oil went down, the next day the s&p went

down that's kind of where we are. if we don't get a trade deal, then oil is going to keep going down. >> the bounceback in oil, up 20% from the lows, just reflects the sharp correction we've seen from the market going up as well. we're up almost 10% from those lows, from that dark day we saw on christmas eve i guess the question people are asking is was that just a bounce as we tend to see for rough periods for the markets, or a sign of a bottom and some stabilization? better, more constructive tone on the u.s./china trade talks, much more constructive tone from powell talking about flexibility. we'll see if that continues in his speech today at 12:45. and a really good employment number, wage growth, 300 plus thousand jobless numbers at a four week low. they're still in the low 200,000

level which is pretty decent. >> to the extent that psychology was improved, i wonder how that sentiment will be impacted today by retail and how much people are going to look through it again, we don't know the answer at this point. is it really a macy's focused problem, or is it reflective of a broader slowdown in consumer spending i'll put the question to you i don't know if you have the answer. >> well, i think you can look at the costco spend and they're good and amazon's good i think that brick and mortar we heard was going to be bad. that's kind of what happened gasoline is very glutted right now. mexico not taking our gasoline i think gasoline prices keep coming down. that's very good for the consumer even though oil went up, gasoline should not go up.

i think it's going to be a mixed picture. what was good for costco was bad for macy's i think this is the more frugal consumer then i go look at housing and the average selling prices are going down, good for the consumer we're kind of neither here nor there and that's a really good time to wait if you're the fed can you have a soft landing or is the macy's negativity going to spread? it's certainly not robust but costco is robust let's watch coast costco. >> macy's is down 18% here in the opening trade. >> wow. >> no surprise consumer discretionary is the weakest sector l brands down 11%, kohl's which was a disappointment this morning, down almost 10%

anything that was attached to weak categories like an under armour is also getting dragged into the slump. >> the stocks are where they were before the economy started getting better this is a complete repeal. this is a total repeal of almost the entire move of the great employment number. you could say, wait a second, maybe these are forward looking. i keep coming back to the amazon economy and the pressure on all these retailers. they have to give away free shipping they've got to get people into stores they can't get the traffic remember the $50 bid >> of course i do. i remember it well their inability to really get the financing done by the way, that's still a question mark now. of course, that is the financing markets. high yield has still been relatively closed, although prices have moved up in high yield of late for some names there, which is encouraging. but we have yet to see a real new issue. there are some important deals

that are going to come to market about $900 million or so hit let's not forget to continue to focus on the high yield market as well. jim, jeff vinik says when asked what are you going to be focused on, it is worth noting with this rally we've had in the s&p over the last week and a half, i mean fang has certainly been the leader facebook up over 8%. netflix up 17% google up only 3% right now. generally speaking a very positive tone to some of the big momentum names in technology. >> facebook hit a level where we stopped reading "new york times"

stories every day about what a bunch of thugs that are. apple, tim cook came on. he was talking about watches watches were bad at macy's prestige watches 1.2 billion watches are sold each year. what happens if apple takes, say, 20% of that look, apple's taken 20 of a lot of business. netflix i don't get at all alphabet has been as close lipped as ever there's a downgrade today of yelp at least there's some positive momentum in terms of the earnings. >> yelp is getting hit, wow, down 7%. >> yeah. >> the rare bright spot in today's session is boeing, actually it's one of the dow winners on the day.

compounding growth from buybacks, production hikes, margin improvement and best in class management i guess a lot of it has to do with the day to day narrative on the u.s./china trade situation. >> absolutely. one-quarter of all planes go to china. i thought it was a very positive call at the same time, if there's no china talks and no conclusion is positive, i think people are going to sell the stock back down it is doing very well. i had the cfo on not that long ago. i like the boeing story. i wish it wasn't so controlled by the china talks, but it really is. the other stock that's popping is twitter on a double upgrade twitter apparently is having kind of a renaissance here remember twitter has been down very big those are the two standouts along with constellation brands. remember they do own a huge chunk of canopy growth which is

the best run cannabis company. >> i'd say way oversold, the stock is an absolutely fantastic value. in fact, my brother and i acquired 1 million shares in the last week or so. >> well, there you go. >> a million shares, not a million dollars, jim a million shares actually, 1.1. >> all right that's real money, jim. >> constellation got a strong upgrade from goldman sachs today. a target of 211. that's 40% upside. >> the stock came from the 230s all the way down to a level where the wine and spirits -- they're going to get rid of the low end. anything under $11 is not selling well for wine. do people buy under $11 wine to get high

if that's the case, i don't think in oregon, washington state or california they're getting high on $11 wine i think they're getting high on edibles. >> i'm a hard spirits kind of gall i like bourbon and whiskey >> i like mescal >> important have you made it big yet >> not yet it will be how do you buy a million shares right before the company reports? kind of interesting. that's a tremendous level of conviction >> it's over 150 million bucks that's not nothing. >> that's a buy. it's kind of a statement buy, right? i think what he said was interesting, not a million dollars worth of stock, a million shares. >> it was 1.1.

>> right you're getting the canopy's which is growing pretty much for free the cash flow there is great model and corona slowed down a little bit i think when they get rid of the under $11 wine, people are going to say wait a second, what was i doing selling the stock at 150 when he was buying a million shares, not dollars, i kind of found it intriguing. i've liked it before and i was wrong. >> speaking of regulators, just want to bring you up to speed on this new story on nike that the european union is going to be looking into their tax arrangements with the dutch government i mean, this is classic anti-trust of the eu. >> you've got to be kidding me can't you call that friend of yours? she's great. >> she's gone after apple. she's gone after all the tech

giants. >> give her a jingle, will ya? this is sneakers, for heaven sake tim cook's on the board of nike. i like my nikes. >> nike, by the way, says that the european commission's investigation is without merit that's pretty much what we get from all the companies that they go for nike is subject to and rigorously ensures it complies with all the same tax laws as all the other companies operating in the netherlands the worst that could happen here is they could get a fine and they could fight that too like apple's been doing in the courts. >> the government shutdown, we haven't really talked about how it impacts stocks at this point. did want to mention the president on his way to the southern border did say that he's still planning to go to

davos in a couple of weeks in switzerland. but if the shutdown continues, he says he won't go. on the subject of the right to declare a national emergency at the border, he says i'm not doing it yet, but i may do it. view of air force one. morning, bob. >> no emergency here you can blame it on retail i think it's time for a breather folks. we were close to 2600 a month ago prior to the fed meeting we've come back, do the math here, 250-300 points that's a lot that's a huge move i think a breather sideways would be certainly a good idea s&p 500 we noted yesterday up 10% from the recent lows, crude's up 20%, the vix is down 45 the vix was at 37 a couple of

weeks ago. a little consolidation, think would be a good thing. powell will be speaking later today. the earnings situation is getting more real. we were at 10% october 1st we've gone down to 8%. now we're at 6.7%. 5% or so where most people are around, a lot of people have 2600 several people have 3000 on the s&p year targets earnings are getting more real right now. i know everybody's worried about macy's just remember what everybody else has been saying kohl's raised the low end of their guidance bed bath & beyond affirmed l brands guiding at the higher end.

i know everybody's focused on macy's and you can see the carnage here i think the concern is how much of the mall based business is going to slow down again your chico's and ambercrombie. hard to figure out how mall base is going to set up also the airlines. american was a little bit of a surprise, not a dramatic decline in their guidance, but you can see the move and how that's affecting particularly delta we've had one heck of a rally including the airlines in the last several weeks if you look at before we were opening today, airlines were up 7.5% from the start of the year. this is just in the last six trading sessions retail was up almost 8% as a group. and that is not the amazon effect those are just the basic

retailers. bear in mind there's been a lot of air pumped into the market in the last couple of weeks when you see these declines of 6, 7, 8%, remember we've seen increases of 6, 7, 8% in the last two weeks or so. treasury is up, the dollar is up. let's head over to the bond pits in chicago good morning, rick. >> good morning. indeed, most of the treasury complex out to about the mid curve are higher in price, lower in yield we're down a couple of basis points and we're trading around 2.53 2.38 is the low 2019 close if you look at one week of tens, all maturities would look roughly the save we've given up some of the high ground we've slowly ascertained for 2019 if you look at a ten-year chart

of our counter parts in japan, the japanese government bond, this is a ten-year chart we talk about central banking is an important issue it may be the issue that is underneath all major market moves. we've retested some negative yields early in the year on a ten year jgb that hasn't happened since 2016. but the control that the bank of japan exerts over the yield curve, at some point this will be challenged and there will be more tantrums most likely. if you look at a dollar index for one week, we've gone from a 97.5 high from last year now we're testing 95 it all happened quite quickly when we had our first close under 96, a very important key technical level. if you flip it because over 50% of the dollar index is the eu e,

it's broken out to the upside for the first time since about october. the bond report. as we head to break, let's take a look at this morning's top performing stocks on the s&p 500.

stocks are down for the first time in about five sessions coming off of a pretty strong win streak. macy's not helping the mood of the markets after putting out lower fiscal 2019 guidance, lower than expected november and december holiday comp store sales, the stock is down more than 8.5%. david on track for its worst day ever we're talking about going back to when it came out of bankruptcy in 1992. >> wow the old chart slide. >> the holiday season they say began strong, particularly during black friday and the following cyber week, but weakened in the middle of december and did not return to expected patterns until the week

of christmas that's a quote from jeff gannett, the chairman and ceo of macy's, and, sara, they saw some weakness in women's sportswear, seasonal sleepwear, fashion jewelry, fashion watches and cosmetics. >> but then again, david, yield spots, jeff gannett fixed the balance sheet mightily still making some sales of real estate i don't know do you mind if i start thinking the other side of the trade at six times earnings i'm not going to think -- i mean, 6%, when this thing goes to 6% you want to buy it, not sell it, because if jay powell watches our show as opposed to talking to the 27-year-olds he'll say this is definitely our way and you say 5.8% and 6% yields are a winner. if we ever want to bail on jeff. was it time to bail when the stock was at 42 in august when brian cornell said it was the biggest single moment in history. >> i can't forget the cornel

quote, the greatest time for the consumer, what was it, jim >> that he had ever seen in his career jim, it raises a question about other retail stocks getting dragged into this selloff. we mentioned l brands down 10 miss and kohl's also down 10%. you didn't think that number was too bad, but it is being taken that way. >> i don't want to -- we sold some kohl's for some club members. we downgraded the stock. at these prices do i really, really want to sell that one i don't know if it gets to 60 i sure don't. that would be silly. this is a group that is dramatically oversold and i've got to tell you, i just think it's over sold because what happened is that we heard that everything was great, but it really wasn't. if you go back to what manny tirico is saying, pbh, things were not that great in the last couple of months, and i don't understand why people didn't realize it with the exception of the dollar stores, of costco and tjx and burlington where david always threatens to go with me you didn't see great numbers i'm waiting for walmart. i think walmart did have a pretty good holiday season but

that stock is up from 88 that one may be too high, too. >> it's really confusing because we got the data points out of the mastercard saying the best holiday season we've seen in a decade and got it from the national retail federation and it highlights what jim is talking about is that it doesn't get spread out evenly. a lot of it goes online and a lot of it goes off price and a lot goes to discounts and a lot of it makes it that -- the macy's of the world are just not going to feel that effect, not that the numbers are lying. >> total agreement. >> of course, brick and mortar, jim, i mean, we talked a lot about it we've sort of given it a bit of a respite lately given what seemed to be the strength in retail and overall the decline certainly in some of the malls, not the "a" malls, but "b" take it from there in terms of traffic. we know this is a seminal change in the way people shop you've got to consider that that's something still having an impact. >> yeah. look, i think it's a secular change in how people shop and i think a lot of these retailers kind of got bowled up because they, too, were looking at the

employment numbers and thinking great things it kind of reminds me of james cagney in the movie "white heat" when he says, ma, top of the world. the next thing wasn't so good. i just think that these guys kind of got fooled go back to bed bath & beyond on the conference call, they are talking about renegotiating leases, david. they are that you canning about doing what i think a lot of people in the real estate investment trusts, david, the real estate investment trusts were reflecting things weren't so good and they got better because of interest rates going lower. i see some pressure on those, too. >> yeah. macy's, we should point out, has a 5.84% yield. >> that's what jim just said. >> it's safe it's safe, it's safe he's been buying back his bonds. that's what makes me feel better about it no yield is ever safe, we know that, but he's been buying back bonds, not buying back stock the way his predecessor did. >> sorry for leaning in.

>> we'll hear from the president in a moment. what have you got coming up on "mad money" tonight? >> well, you know what i've got intel i always think it's good when you check in with intel, don't you think, david they know what they are talking about and keith block, the new co-ceo of salesforce i didn't want to lit down and have the "c" list small guests i don't like to do that to you. >> what a week you've had. what a week you've h.thank you. >> president trump speaking on his way to the border. >> they all want to see something happen, but they are extremely united, and i don't think i've ever seen unity like this in the republican party the media, which i call the opposition party, a lot of the media in coordination with the democrats, they are not that you canning about the democrats folding. for instance, this morning a number of people came out and said you do need very strong border security, and that includes a wall or whatever it is a number of democrats said that, but people don't like to report

on it. we have tremendous unity in the republican party it's really a beautiful thing to see. i don't think there will be any breakaway because they know we need border security and we have to have it, and the only way you're going to have border security, there's only one way can you have all the technology in the world i'm a professional in technology, but if you don't have a steel barrier or a wall of some kind, strong, powerful, you're going to have human trafficking. you're going to have drugs pouring across the board per hand ms-13 and the gangs coming in, and we've done record apprehensions, we're doing a great job but we need help if we have the wall, we could have far fewer people working in terms of border security and doing an even better job, so if we had the wall, we could have a tremendous saving.

i really believe the steel barrier or wall would pay for itself every three or four months and maybe even better than that in terms of overall. so that said, just a couple of things because i know the fake news likes to say it when during the campaign i would say mexico is going to pay for it obviously i never said this and i never meant that they are going to write out a check i said they are going to pay for it they are they are paying for it with the incredible deal we made called the united states, mexico and canada, usmca, it's a trade deal it has to be approved by congress it probably will be, other than maybe they even hold that up because they want to have, you know, they want to do as much harm as they can, only because of the 2020 presidential election, so mexico is paying for the wall indirectly, and when i said mexico will pay for

the wall in front of thousands and thousands of people, obviously they are not going to write a check, but they are paying for the wall indirectly many, many times over by the really great trade deal we just made congress has to approve the deal >> are you going to go to davos or are you going to cancel it? >> i intended to go to speak in front of the world financial community in davos that's still on, but if the shutdown continues, which is a while from now, but if the shutdown continues i won't go. i had planned to go. it's been very successful when i went we have a great story to tell. we have the best job numbers we've ever had in many ways. certainly with african-americans, with hispanic, with asian-americans, and overall we have the best job numbers in at least 50 years we have a lot of great things

happening. the economy is incredible. we're negotiating and having tremendous success with china, and i find china frankly in many ways to be far more honorable than crying chuck and nancy, i really do. i think that china is actually much easier to deal with than the opposition party >> you left the meeting yesterday. are you going to now declare a national emergency is the that the only option left >> i have the absolute right to declare a national emergency the lawyers have so advised me i'm not prepared to do that yet, but if i have to i will. i have no doubt about it i will i have the absolute right to declare. this was passed by congress. so when you shay what is it passed by congress, it was other presidents have used it. some fairly often. i have the absolute right to declare a national emergency

i haven't done it yet. i may do it. if this doesn't work out, probably i am do it. i would almost say definitely. >> how much longer before you would declare a national emergency? >> this is a national emergency. >> why haven't you declared a national emergency >> because i would like to do the deal through congress and because it makes sense to do it through congress, but the easy route for me would have been calling a national emergency and do it. i will tell you. this is a tremendous crisis at the border look at president obama's statements from the past numerous statements where he calls it a crisis. this is a crisis you have human trafficking you have drugs you have criminals coming in you have gangs, ms-13. we're taking them out by the thousand and bringing them back. this is a crisis, and they don't come in at the checkpoint which they do also, but they go in between the checkpoints where you don't have any barriers.

>> mr. president. >> go ahead, yeah. >> [ inaudible question ]. >> if we don't make a deal, i mean, i would say 100%, but i don't want to say 100% because maybe something else comes up, but if we don't make a deal i would say it would be very surprising to me that i would not declare a national emergency and just fund it through the various mechanisms by the way there, he's more than one mechanism. there's various mechanisms and the lawyers tell me 100% it would be nice if we can make a deal, but dealing with these people is ridiculous i don't know if they know how to make a deal. we need, and i'll tell you what, a lot of democrats, i was looking at numbers a lot of democrats agree, steve. we need national security, and the only way you have it, the only way you have it is you have

to have a strong border, and the only way you have a strong border is you need a wall or you need some kind of a steel -- go ahead. >> you need a steel barrier, and if you don't have a steel barrier or a concrete wall, forget it. >> there are pictures this morning showing steel barrier wall being sawed straight through. what good is a steel wall if they can saw through it? >> that's a wall that was designed by previous administrations. there's nothing that can't be penetrated but you fix it, but it's a very difficult thing to do, but that's a wall and they have other walls we have many walls under consideration. even concrete. there's acid that can go through concrete, but what you do is you fix it, and it's very much -- it very much limits -- it's very, very hard. the wall that we're doing is very, very hard to penetrate >> mr. president, you walked out on the democrats are you going to bring them

back how can you get a deal if you won't talk to themle >> well, the news incorrectly reported because i said, well, if we go back and everything is peachy doer and you say we'll talk over 30 days, at the end of 30 days, are you going to give us great border security which includes a wall or a steel barrier? she said no. i didn't pound on tables i didn't raise my voice. that was a lie what you should do is give them pin observingos because if you ask mike pence and you ask kevin mccarthy, you ask anybody in the room, they will say because i know if you do that you're going to report it, but you report it anyway because you're fake news, but let me just tell you something. i very calmly said if you're not going to give us strong borders, bye-bye, and i left. i didn't rant. i didn't rave like you reported. some of the newspapers, then

schumer always has his standard lie he had a temper tantrum interest i don't have a temper tantrum but it plays to his narrative. it's a lie i very calmly walked out of the room i didn't smash the table i should have but i didn't smash the table, and that's the story. so all of that -- wait all of that narrative is a lie >> how can you get a deal if you're not talking to them >> well, we'll see let me tell you. i think there's far more pressure on them because the people of our country want security we want to be a secure country we don't want drugs pouring in most of our drugs come in through the southern border, and they don't come through the portals. they come in in between the portals where you have no barrier. >> say it. >> [ inaudible question >> well, you know who has more human pain, the parents of

people who have children killed by an illegal immigrant that should never have been in the country. you know who has more human pain, the husband that lost a wife or the wife that lost a husband to an illegal immigrant that came in five or six times that shouldn't be here that's the human pain and the people that will be paid but maybe a little bit later, those people, many of them, are on my side they want to see border security, and by the way, nbc may be -- nbc may be the most dishonest reporters of all time. >> mr. president. >> [inaudible question ] >> i have no idea what they are doing. go ahead next question. i can't hear you [ inaudible question ]

>> we have plenty of funds if there's a national emergency there's a lot of funds i just want to say if we declare -- if we declare a national emergency, we have a tremendous amount of funds, tremendous if we want to do that. if we want to go that route. again, there is no reason why we can't come to a deal, but you have another side that doesn't care about border security the democrats which i've been saying all along they don't give a damn about crime. they don't care about crime. they don't care about gang members coming in and stabbing people and cutting people up they don't care about crime, and if they are not going to care about crime, then i agree. they shouldn't do anything at the border, but i care about crime and acare about drugs. we're spending a fortune on trying to stop drugs, and they pour in through the border, but

i see it more now than ever before the democrats don't care about the border they don't care about crime. >> mr. president >> say it, say it. >> the emergency on the border, when did it begin? >> it began a long time. president obama. obama used to call it a crisis at the border, too i think he said it in 2014 look, look you can all play cute, and i say 80% of you are possibly in coordination with the opposition party. i mean, the whole thing is riduculous all you have to do is look at the borders. rent a helicopter except you don't want to know the truth and watch. by the way, here's the story there is another major caravan forming right now in honduras, and so far we're trying to break it up, but so far it's bigger than anything we've seen, and be

a drone isn't going to stop it and a sensor isn't going to stop it, but you know what's going to stop it in its tracks, a nice powerful wall. >> mr. president [ inaudible question ] >> the buck stops with everybody. they could solve this problem in literally 15 minutes we could be back we could have border security. they could stop this problem in 15 minutes if they wanted to i really believe now that they don't want to. i really believe that. i really believe that they don't care about crime i really believe this. the democrats don't care about crime. they have been taken over by a group of young people who frankly in some cases i've been watching, i actually think they are crazy, but they have been taken over by a group that is so far left i really don't think they care about crime, and you

know sadly they are viewing this as the beginning of the 2020 presidential race, and that's okay with me, but they have been taken over by a group of people that don't care about gangs. they don't care about human trafficking and drugs. they don't care about anything i'll tell you what they have gone crazy >> mr. president. >> how much longer is the shutdown going to last >> we have to get a win or i'll have to go national security one or the other either we're going to win or make a compromise. i'm okay to making a compromise. compromise is in my vocabulary very strongly, so we're either going to have a win, make a compromise because i think a compromise is a win for everybody, or i will declare a national security.

>> what about the courts >> this is a thing that the lawyers tell me is 100%. you just have to read the language just read the language the special counsel's final report, do you want it to be made public? >> we'll have to see there's been no collusion whatsoever we'll have to see. >> mr. president, do you know that paul manafort was securing polling data from your campaign to the russians? >> i didn't know anything about it. >> do you have any reaction the news of jeff bezos' divorce and a his affairs. >> i wish him luck. >> that's it is. >> i wish him luck it's going to be a beauty. >> all right >> wishing jeff bezos luck with that the president is off he is off to mccallum, texas, where he'll go make his case as

he just did that he's not backing down for his demands for border funding wants that $5.7 billion to pay for the wall no real progress when it comes to any deal-making ordeal talks with the democrats he took the opportunity, david, to bash them again, stand his ground and also insult the media, calling them fake news a number of time here we are day 20 into the shutdown second longest on the record if we make it to january 12th which seems saturday and seems likely that would make it the longest on record. >> yeah. still saying he plans to go to davos. you're going to be there. >> right. >> the week after next. >> the week after next, unless the shutdown continues then, but he did bring up, of course, the idea of declaring an emergency said he's not quite ready to do that but does feel the lawyers, as he said, have given him the right to do so there's a lot of potential opposition to that idea, but we'll see, declaring a state of emergency, but still says he's got the vocabulary that includes the word compromise though it doesn't appear that there's any real progress being made

sara, we talk about the government shutdown and the lack of impact so to speak more in our world in terms of corporations, but i am at least starting to hear the idea that, you know, there are plenty of companies that do business with the u.s. government. you can think software companies and/or technology companies that have large budgets that have been allocated for government purposes, and things are slowing there. you know, you're not getting decisions made on a contract and things of that nature. that's going to start to be at least something that i think we hear a bit about. >> also, the overall economic impact the rule of thumb, and bank of america and merrill lynch just put out a note on this is that a shutdown usual little drags .1 to.02% these are small numbers. they are temporary theoretically until the government reopens and that's why you haven't seen much of a reaction on wall street i wonder if you have to start to see some political or financial

pain to actually get a deal through. let's bring in our ylan mui who has been covering this shutdown. here we are day 20 what are we watching for next? >> the president said that compromise is in his vocabulary but that's not what we heard him talk about in those ten minutes or so on the south lawn of the white house. the president is right that republicans are unified right now behind him there has been a full-court pros by the vice president, jared kushner, the legislative director at the white house to spend a lot of time on capitol hill making sure that rank and file republicans are behind their strategy we viau it yesterday when only eight republicans defected and voted for the democratic bill to reopen the treasury department in the house of representatives. only eight republicans voting for that bill. there was some thought that perhaps more could defect and vote with democrats, sole right now republicans really staying in line with the president and that might be good for him

politically, but in terms of either side then moving towards the middle, i think that's very bad news right now both sides are talking to each other. they are talking to their bases. they are not -- they are not having that negotiate that will be so important to ending the shutdown the president said that he won't go to davos if the shutdown was still going on guys, i think it's very likely we're still in shutdown by the time davos rolls around. >> he's supposed to be there a week from tuesday, and i think investors see that as a potential next step in the u.s.-china trade talks with reports that he's going to meet with the chinese vice president. unclear what happens if he doesn't go ylan, thank you, for recapping the news. meanwhile, retail stocks continue their downward spiral but macy's is seeing the worst of it after slashing its full-year sales and earnings outlook. the stock is on pace for its worst day ever, now down more than 19% kohl's, l brands, target, nordstrom also moving sharply

lower. joining us now is cnn niffon, oliver chen and dana tellsy of tellsy advisory. we turn to all of our retail experts on a day like today. how much of a surprise was this macy's number and release in. >> i think the macy's number, the comp may not have been a surprise but the impact on earnings is the surprise where's the margin and where's the flow-through is the ke question that i think for 2019 with sg & a up and margins down, that's not the equation you want to see the weakness they had and the underperformance in certain categories combined with a fulfillment center and promotion that didn't work was an impact, and an impact when transactions were up and yet international tourism do a little better, they couldn't recover from it there's a lot of work that's still to be done. >> shome questions, jan. macy's problem, broader consumer spending problem >> oh, it's not a consumer

spending problem consumers are fine the number put out is strong, a strong consumer. not just a macy's problem. i didn't think any of the releases today were very good. they ranged from okay to not so great and even the target release which was strong on the top line they didn't show any increase in earnings i mean, they didn't raise their earnings guidance because of that, so even in that case it wasn't great, and when had you looked at kohl's it is just okay l brands was a disaster and bed bath & beyond, they got the most bang for the buck, but, you know, they were down 5% store for store in store so it's not like in-store sales were strong for them this has been an online birks an off-price business and it's been had a local business that hasn't been a big company business other than online. >> let me get to oliver actually do you agree with jan there? we're all trying to sort sort through the idea, the question sara asked which is consumer

reflective of a weaker consumer than anticipate or really specific to these names and the trends that we've seen for years now? >> well, we're seeing a strong consumer in terms of unemployment and wage growth however, this is really a mixed bag. as you think about retail. you think about on mal being macy's and off mal, those not in the mall like target and kohl's being much better. women's sportswear was tough at macy's, and keep in mind we had a long holiday period between christmas and black friday what happened was shoppers took a little pause in the middle but just taking you back to stocks and what you should do now, we like target. we like kohl's we think the target number plus 5.7 was very row bufrkts and we think broad line retailers such as target and walmart are actually great opportunities to own the strong consumer. we are more cautious on the high end. luxury goods could be negatively impact by the s&p performance, and tariffs as well as margins

are something to watch out for underscoring holiday this season, digital sales were quite good they were up 29% at target up double digit at most retailers, burks again, macy's being on mall, macy's being an apparel retailer, those are tough structural places to be, and that's a little bit different from the kohl story which has done a great job in active and target which has done great with toys, home, baby. toys "r" us was a market share opportunity this season as well, so there's a lot of cross-currents here, but there are some good stock ideas. >> so dana, is that how you think about the difference between target's better sales and macy's worst sales is it just simply that they are in different categories and some categories are doing better than others, or is target executing better than a macy's >> i think one of the things you see between target and macy's, look where target is located, like oliver said their locations are definitely a benefit for them it's a higher cost of doing business today than what it was

in the past with digital target's online penetration isn't as great as macy's, and overall what we've been seeing is that lower to middle income consumer who has gotten a pop, the new brands that target has brought in have been compelling. with macy's there's a lot of work being done and whether it's the in-store initiatives, growth 50 and the backstage, they allocated more labor to drive the sales, and you have to balance out the costs with the level of sales increases that you're getting i think there's still a lot of work to be done in terms of where's the margin for every one of these companies, margin flow-through is going to be the theme of 2019 in the face of what continues to be a strong consumer >> right, okay strong consumer, but margins as you point out, dana, the key and certainly not great formationy's jen, who is going to be the beneficiary here when i see amazon's numbers or walmart's numbers am i going to see that there is success there. >> there is no inflation in retailing, and there is rising

costs. everybody is facing that the people who can handle that the best will do the best. target proved that to us walmart will prove that to us when we see their numbers, but the problem have you can't pass anything through message to the fed there is no inflation. 70% of the economy is consumer consumers are doing fine, but we can't get them to pay more for anything because there's an enormous oversupply. apparel is not really the problem. apparel is up over 7%, but pay peril and where they are buying it is the problem, and we're not seeing any ability to pass through anything to consumer the mall is struggling i agree with everything that dana said and that oliver said, but i will say that going into 2019 every quarter is going to be slower than the quarter before because we're going to rotate through this benefit from the taxes, so we're going to see a good first quarter, not as good a second quarter and slower third quarter right through the end in retailing, but it's not the consumer itself. the consumer is fine they are all working, their

wages have been going up they are fine. the problem is the cost structure in retailing is dramatically going up. >> i would say who is going to win in retail. >> go ahead. >> value. >> i still think wall smart going to win. >> value means off price value means costco and value means also a $10 membership at planet fitness so as we think about the future of retail it's offering really compelling prices and having the margin structure and planning to offer those low-prices to consume, like a costco and like a planet fitness. as you know sara, beauty is a great category with the selfie generation and a lot of innovation we're seeing with digitally native influencers and contouring beauty is another powerful sector as well there's ways to own retail retail is back retail is going to use stores for fulfillment. all of target's online growth was driven by driveups and using stores as fullfulment so the

future of retail stores, there are selective good opportunities. >> i love how you just mentioned the contouring trend we'll leave it on that thank you all. i'll a big contour fan. >> that's god to know. >> let's get to the broader markets now. you can see right across the boards stocks, of course, have been up roughly 10% since the 26th of december, but for now the s&p, look at that, is down today. major averages do remain in correction territory the question, of course, how much longer is that going to last or how much longer is the rally going to last. we heard from legendary hedge fund manager jeff venoc on "squawk box" who said volatility is an indication to buy. algorithmic trading goes down, et cetera, at the end of the day if you look at companies, in my opinion, they are driving by their earnings prospects, so whether or not they are volatile

or whether they go down too much because of a program hit, that's an opportunity to buy them at the end of the day, a year from now, five years from now, companies will sell evaluation based on that company's fundamentals that's always been the case, and in my opinion that's always going to be the case and there's volatility that we have is the word of the day for me at least, opportunity. >> volatility is opportunity joining us now bny wealth management corrector of the investment and also with us senior global equity strategist scott wren scott, i'll start with you do you have any concerns given retail this morning in particular macy's but across the bond, sort of a concern there in some of these names, sore that not affecting your view of the overall equity market? >> well, we talked to our retail analysts this morning and, you know, basically the bottom line there, the winners keep winning and the luresers keep losing so online, buy online and pick up

in the store those types of retailers seems to be doing pretty well. we have some -- some of the big boys that will report here and we're expecting big numbers there, and you want to remember like a department store, that industry group, that's a very, very small cap group within the s&p 500, so, you know, a number this morning, a lot of retail sales and it comes on the same day that you see an initial jobless claims number that is at 211. 211,000. that's a multi, multi decade low, a great leading indicator we have a very good jobs market. wages are going up we have confidence in the consume, and if you look at it at a sector level over the last month, the consumer discretionary sector has been the secretary best performer, relative performer obviously that's been a roque month, but, you know, the consumer discretionary sector is definitely one we like, and we want to continue to like. >> it's interesting, jeff. you get -- you get a big whammy

like a macy's today, and dow is only down 63 points. some of the groups in the s&p right now are turning green. i feel like if this happened a few weeks ago, we were in a market where any shred of bad news was just taken as a reason to sell and a bigger picture concern about the u.s. economy and earnings and all that. have we shifted here in sentiment where it's more of a glass half full kind of market instead of glass half empty and is that significant. >> i think what we have analyzed last year's significant pullback into christmas eve was how much of that was exacerbationed potentially by tax loss selling, hedge fund redemptions, those types of sellers that needed to get out of the market and then you throw on algorithmic trading on top of that and you get some perhaps very much increase downside vol which we did recognize. certainly coming into this year, the very fast reverse afl that a couple of breath thrusts which have taken place earlier this

year in a market which seems to be a little bit more resilient as we tin 2019 so i think you're hitting the nail on the head, sara maybe not a real paradigm shift in here but had a market which discounted a lot of bad news in december which is now looking up forward into 2019, seeing perhaps a more docile fed, still strong overall retail sales and a decent economic backdrop, and it's starting to use some of these dips to reposition themselves into risk assets. >> scott, resiliency as jeff just mentioned, sentiment change to a certain extent this year in terms of a bit more positive do you agree with that, and do you think that's going to continue >> well, we need clarity you know, i've talked -- i've been a guest on your show before and we've talked for the last year about the two issues this year, fears about the fed, fears about a global slowdown, so as far as, you know, we're concerned, the fed is obviously talking more dovish.

we'll hear more from the chairman today, but stocks were oversold we've obviously had a big bounce since the christmas eve low. if you're a technician, you're probably watching this 2630 level on the s&p 500 we're probably not going to get through that on the first time, but overall we see a good economy ahead here and abroad. we don't see much inflation. we think valuations are attractive, so, you know, we've wanted our clients leaning the same way as we've had them leaning towards sectors, like the consumer discretionary sector that will benefit from the creation of this expansion we're positive and bethink pullbacks are opportunities. we haven't changed our tune there, and i don't see us changing it any time soon. >> all right no changing the tune scott, thank you jeff, thanks to you as well. >> thanks, guys. >> that was the second mention of breath thrusts that i've heard in 24 hours on cnbc, momentum indicator there talk about jargon. >> trade talks wrapping up

between china and the u.s., at least the latest trade talks, with chinese officials saying progress has been made between the two countries. we're joined from beijing with more on this very important story. good morning, eunice >> reporter: good morning, dave. well, the commerce ministry was generally positive about the trade talks. the ministry issued a statement saying the two sides conduct in-depth and detailed exchanges and laid the foundation for resolving mutual concerns. at a regular press briefing, the commerce ministry spokesperson had said that the one-day extension also showed that the talks were serious now as part of these discussions, a lot of focus has been on how to get beijing to make good on its promises. one of the big complaints in the business community is that beijing also flouts the spirit of an agreement so the ustr in its statement referenced that saying that any agreement should provide for complete implementation subject to ongoing verification and effective enforcement.

well, today the commerce ministry pushed back on that saying china thinks a mechanism is important, too and both parties have an obligation to keep their promises. so that comment really shows that china is also a bit mistrustful that the u.s. will be able to hold up its end of the bargain. now amid all of these talks there was a new data out of china which showed that the economy here is continuously slowing down, consumer prices as well as producer prices, both missed expectations with the cpi dropping to a six-month low and producer prices fell to their lowest points in two years and the trump administration has been saying that they believe they have the upper hand when it comes to these negotiations, but because the economy here is starting to weaken or is weakening, but at the same time we're expecting now that this new data will probably embolden the policy team to believe that they have even more leverage

now, because of the kind of good feeling here about the discussion, a lot of people think it was constructive, the expectation now is that both sides are going to want to meet again face to face there is no onfirmation as to when and where this would happen, but one calendar point that's worth watching is that president trump have supposed to go to davos, switzerland for the world economic forum sometime in the next couple of weeks, but -- and the chinese vice president is also supposed to be there and the hope was the two would meet there, but because of the government shutdown now that is all in question. guys >> eunice yoon, thank you very much for wrapping up the latest on the trade talks from beijing with the yuan, the chinese currency at a five and a half month hoy on a signal of optimism there when we come back, former fdic chair sheila bair is here with us on the latest "new york times" op-ed and when she thinks of the late comments from fed chief jerome powell.

a look at the s&p 500 now. your pg&e is on there, david constellation after a sharp drop stdaanyeery d ge some recent laggards on top today "squawk on the street" will be back i consulted with your grandmother's doctor. we can do the screening at her house. hi. this is the man that's going to check your eyes grandma. cognizant ai solutions are helping healthcare companies advance diagnostics and prevent blindness in patients with diabetes. everything looks good. you have beautiful eyes. ♪

i am a techie dad.n. i believe the best technology should feel effortless. like magic. at comcast, it's my job to develop, apps and tools that simplify your experience. my name is mike, i'm in product development at comcast. we're working to make things simple, easy and awesome. good morning, everyone i'm sue herera here's your cnbc newspaper update at this hour.

secretary of state mike pompeo meeting with egyptian president abdul al sisi as he continues on his nine-nation tour of the mideast. afterwards at a news conference with the egyptian foreign minister, pompeo said the u.s. will continue to fight isis despite withdrawing from syria >> the threat from radical islamic terrorism is real. isis continues we fight them in many regions around the country our commitment to continuing to prevent a daesh's growth, isis' growth is real it's important we will continue at that. >> injured people were treated at a hospital in yemen after a bomb-laden drone flown by houthi rebels flew into a military parade at a government air base killing at least six the attack targeted high-ranking military officials and meghan markle visiting smashingworks which helps long-term unemployed and vulnerable women regain their job skills she met with staff members and also women who have benefitted from that organization's support. you are up to date

that's the news update this hour sara, i'll send it back downtown to you >> thank you, sue herera. coming up, investors' eye on the fed today. chairman jay powel speaking at 12:45 p.m. eastern we'll speak to former fdic chair sheila bair and shares of american airlines falling sharply, ouch, down almost 9%. the company cutting its outlook, issuing weak guidance. more ahead on "squawk on the street." dow is down 50 points. i am a family man.

i am a techie dad. i believe the best technology should feel effortless. like magic. at comcast, it's my job to develop, apps and tools that simplify your experience. my name is mike, i'm in product development at comcast. we're working to make things simple, easy and awesome. welcome back to "squawk on the street." i'm sara eisen here with david faber live from post nine here at the new york stock exchange one hour into the trading session let's get a check on where we stand stocks are pulling back. nothing sharp though s&p is down a third of 1% and keep in mind we're coming off of our biggest ten-day rally since 2009 potentially a chance for a breather with some pockets of strength in utilities, staples and industrials. markets are down, but they are off their lows

investors are waiting. fed chair powell speaking later today at the economic club of washington, d.c. his second public interview in just the past week the last one investors celebrated joining us now former fdic chair sheila bair is here at post nine and out with a new op-ed titled "the shutdown isn't the only threat to the economy. welcome. nice to see you. >> nice to see you. >> what is the big threat to the economy that you're warning about today? >> well, it's financial stability. the fed has a tremendously challenging job ahead of us trying to engineer a soft landing, and we don't know what the trajectory of interest rate increases will be, but what they really need to be focused on is the regulatory and supervisory roles. they have been putting too much on monetary policy, raising interest rates it contain imbalances and not enough about fragility in the financial system if we have a disruption we'll have a deep recession. that's been the history. we think, i think, that they

should be building bank capital buffers now and should be getting banks to prepare while the economy is strong and very profitable corporate debt is a particular problem now. >> why do you say that what do you mean it's a particular problem >> so we never really delevered after the financial crisis so we -- the banks declever and to some extent, it's 50% higher than they were going into the crisis so they were pretty low to begin with. mortgage debt went down and a lot of that was through foreclosures, and corporate debt went up and government debt win the and non-mortgage consumer debt went. >> cash flows have corporations have gone up substantially increasing their ability to pay the debt. >> that's ratios have increased. this is a vulnerability that the fed itself identified in its financial stability report janet yellen has been speaking about it for a long time as well as some of the governors leverage lending has been a particular problem lending standards have been

deteriorating for quite some time risk is massively underpritsd. this is the same kind of dynamic we saw going into 2008 then it was mortgage debt, and a lot of dynamics are the same with leveraged loans, they buntled and sold off to investors. a volume-driven business because of low interest rates and investors are searching for yield and leaving them to underpriced risk. >> we keep hearing from the banks and everybody around them that banks are in so much better of a place. >> yeah, you know, i hear that, you know i'm inclined to say fake news, fake news. look, they are much better capitalized than they were, but bear in mind the minimum capital ratio, the leverage ratio which is the most effective in my view of capital ratios still allows them to fund themselves with 95% coming from debt most of them are around 96 -- excuse me, 93%, 94%, so they are still highly levered they are approaching the capital levels that we saw among smaller banks, the community banks and regional banks prior to the crisis which incidentally did a

better job of lending both before, during and after the crisis, so, yes, they are better capitalized. that doesn't mean they are adequately capitalized, and the fed has a rule, and i'm hoping he'll talk about it in his remarks. it's designed to deal with the situation just like this when the economy is still strong. bank balance sheets are strong and still earning money to raise those capital buffers there. will inevitably be a downturn and trouble in the corporate debt market. >> refinancings have a ways to go yet when you look at high yield. you believe risk is massively underprice and you're not going to sea a wave of refinancings where the corporations need it until a couple of years from now. >> well, i hope that's true, and the tax cut helped a lot of that was used to pay down debt. that helpful, but if you look at the overall numbers historically, you're still seeing especially joining debt and low investment rate at highs that are very elevated by

historical standards, and, yeah, i mean, i think if -- look, you have a big default, right, there are a couple of iconic names, low investment grade, you have a bankruptcy we don't know what that will trigger. my sense is that investors are skittish already the debt market is pretty much dried up. >> high yield dried up. >> i'm curious. >> yeah. >> obviously the risk was spread far and wide with the securitization of mortgage products do you feel as though that's still the case here? >> it's a good question, because i think -- let's just say this turns to be very bad one thing that will help, a problem we had with the mortgage debt market is that lots of smaller loans with retail investors. at least you'll have two sophisticated sides in this kind of a situation dealing with the need to restructure the debt, to rehabilitate the company, to forego some payments or whatever, reduce principal those are the kinds of tools we used but were very difficult to use because we had millions of

mortgages and investors, you know, scattered hither and yon it's very difficult to get the two sides together to gets the loans restructured in a way that would have been in more position to help. >> doesn't all of this just get kicked down the road even later. >> that's the whole idea of a countercyclical capital buffer regulation is typically procyclical. when times are good and you loosen up on regulation and everybody is happy losses are low and the risk-to-base capital ratios go down and when things tighten regulation is tightened at the wrong time. >> tightening capital standards are good and when things are good and when the downturn comes you can eliminate the buffers and let banks expand their balance sheets. >> sheila bair, thank you for joining us to talk about the op-ed and the warning. >> nice to see you >> former fdic chair see what powell says today let's get a quick check on the markets. atinks climbing back towards the fl le here "squawk on the street" will be right back

tech investor dan niles says wall street is the missing a major part of the apple story, and it could lead to more main ahead. find out what that is on tradingnation.cnbc.com more "squawk on the street" is coming up.

welcome back to "squawk on the street." we're keeping a look at shares on mgm resorts minnesota viking on the headlines saying the activist hedge fund built by jeffrey smith is looking to seek changes in mgm resorts we're watching shares of caesar's entertainment as well a couple of stocks to watch in the casino space back over to you. >> thank you, dom. dom chu. let's go over to the cme group in chicago and join rick sell who has the santelli exchange. >> thanks, david i would like to welcome my guest david sylvia of dynamic economic

strategic. thanks for joining me this ming. >> thanks, rick. >> there's a lot written about paying closer attention to outside exogenous forces whether it's policy in japan or how the stock market moves, but many also say it's because the stock market is predictive they need to pay attention i likes flexibility but i don't think it's because the stock market is predictive it's going through a rehab after an addiction, and all that have was caused by the people at the fed that need to give it flexibility during this rehab. your thoughts? >> well, it's interesting, rick, how quickly we forget the old adage that the stock market predicts nine out of the last four recessions. sometimes the stock market leads and sometimes it's reacted, and i think it reacted to the realization that the economy was going to slow down in 2019 in conflict with the fed's intentions to keep on raising

the federal funds rate that fundamental conflict led to that market correction, so i think in this case the market was reacting to changes in economic expectations as well as the realization the fed may quen we're all dancing around, john, is if you charted global stimulus in the form of quantitative easing and put the stock market on top of it, it followed the mountain up now we're going to follow the mountain down. investors want to know is there a better outcome, is there a way to separate the angle of the decline with regard to removal of stimulus and the level of the stock market >> well, i think that's what the fed is doing, and i think when you look at the fed's balance sheet, rick, i would suspect what they're going to do is moderate pace of reduction in the balance sheet at this point in time. i think they're going to moderate the decline in an

easier or flatter slope than what the increase was in the last six years >> excellent john, quickly, we're basically out of time. forgetting the fed, do you think the dynamics underpinning the economy is strong, 80% strong, 70%? your final thought. >> 70% as strong as last year. there's good sustained growth, especially in the consumer sector. >> excellent john sylvia, thank you for joining me david faber, back to you >> thank you, rick santelli. jon fortt is back from las vegas. he has a look at what's coming up on "squawk alley. jon? >> good morning. ces wasn't just about devices, it was about platforms chips were a big part of that. we'll talk to lisa sue and she's t sged about what she brought toheta yesterday and competitor action. that's coming up on "squawk alley.

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sawyformer vice chair of the federal reserve don cohen will be here to react to the powell

speech and the other speakers we heard from he was number two under ben bernanke, important voice on that and how the markets are taking it. >> looking forward to it shares of american airlines have been tumbling this morning after the largest u.s. airline cut its profit forecast. we're joined by phil lebeau with a breakdown of the numbers >> david, this is the impact of low jet fuel prices, holding down fares look at the profit warning from american airlines. for the full year, the company expects to earn 4.40 to 4.50 a share. the con vens us this morning was $4.62. revenue is being pressured we'll explain in a little bit. fourth quarter is in for increase of 1.5%, down from the previous guidance which was for increase of 3.5% here's one of the reasons why. jet fuel prices, as they move lower and have persistently

stayed low, that's weighing on fare prices for all of the airlines as a result, top line revenue is not coming in as much as airlines expected. you can look at all airline stocks they're all under pressure delta and united earnings are next week, perhaps more color of what they're seeing in the economy now. that's starting tuesday. david, back to you >> thank you, phil lebeau. all of the airlines are quite weak. >> the latest warning there. when we come back, chamber of commerce ceo tom donohue joins us "squawk alley" up next one-millionth order. millionth order. ♪

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good thursday a.m. 11:00 a.m. at macy's headquarters in cincinnati, ohio, and 11:00 a.m. on wall street "squawk alley" is live ♪

♪ good morning, welcome to "squawk alley. i am here with morgan brennan and david faber. carl has the morning off we begin this morning with retail shares of macy's getting crushed after reporting weak holiday sales results, slashing its outlook. other big retail names like target and kohl's feeling the pain courtney reagan is back at headquarters with more courtney >> reporter: hey, jon. i'm actually standing in indianapolis here, but you're right, that disappointing sales result from macy's is dragging down the entire retail sector. for the holiday season which