it's january 11, 2019, and "squawk box" begins right now. ♪ ♪ >> 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 markets in times square and it's friday i'm becky quick along with joe kernen and wilfred frost andrew is out sick today our guest host for the next two hours is steve grasso, director of institutional sales at stewart frankel, also an cnbc market analyst >> thanks. >> let's check out what's happening with the futures the dow is down by 25 points below fair value s&p futures down 5 1/2 nasdaq off by 19 yesterday we did see gains once again for the markets with the dow, the s&p, the nasdaq, the roussel 2000, dow transports, all up for their 5th session in a row. that's the first time that's

happened for the dow since october and the first time for the s&p since september. again, you do see just a modest pull back this morning with the dow futures right now indicated down by two 2 points overnight in asia, take a look and you'll see that the nikkei actually ended upped by 1% shanghai composite up three quarters of a percent, hang seng up half a percent. in europe where you do see some active trading take is place right now, little bit of a mixed picture. stocks are a little weaker in germany and in france. the ftse is indicated up by just over a 10th of a percentage point. stocks are flat in italy in spain stocks are up a third of a percentage point. finally what's happening in the treasury markets here in the united states, that ten year treasury we've been watching so closely which yields have really picked up since we heard from the fed last week, you're not going to see the ten year looking at 2.713%. >> meantime china is planning to set a lower economic growth target for 2019. that is according to a reuters report that says china will aim

for growth of 6.6% compared to last year's growth of around 6.5% sorry, 6 to 6.5% my apologies the new target will be unveiled in march but was reportedly endorsed by top leaders at a closed door economic work conference in december, as becky already showed you decent performance in asia earlier today. big news on apple in the "wall street journal" this morning. the tech giant reportedly planning to release three new iphone mo iphone models again this fall. it will include the a follow-up to the xr which struggled with sales since its release. apple will release new camera features and a different display system separately, retailers in china are slashing the price of iphones. analysts and telecom experts have blamed the slow down in the chinese markets on a slowing economy, but also on poor pricing strategy from apple. many of apple's new iphone models are priced 25% higher in china than the u.s >> really? >> retailer sunning recently

slashed the price of one iphone 10 r model from $1,000 to 850. and retailers have turned to flash sale pricing to unload iphone inventory, including the highest priced iphone 10 s max for $1,400 a $200 discount from the official selling price >> i don't think i've ever seen a discount on apple products here in the united states, at least, ever. >> they save price they always want to be credible and conservative the problem is in times like this, you can't start doing it because then it looks like a panicky sale >> do you think, steven, if we did see that kind of price cut here, that would be bad for the stock? >> terrible. i think that it would look like desperate measures, to becky's point. you've never seen that before so all of a sudden now, if you see a change, it's what is so worrisome now that they're panicking. >> what if they started to follow sort of samsung type approach and have more lower-price phones >> i think they've tried to figure that out with the phones, but, you know, when you start thinking about data, everything

is in the cloud now. so no one needs to spend the money on the actual storage in the phone any longer >> if you're going to, you know -- if your prospects are based on how do you in china, you can't try to sell thousand dollars phones in china. china is doing great, big economy, gdp is doing well but that's because you multiply it by the population, the gdp. the average gdp per person or the gdp per person is $10,000. here it's $63,000. sohow do $10,000 gdp people bu apple iphones? anyway, here's a competing one of these websites, financial websites the stock market just got off to its best start in 13 years so grasso, we've been talking about how the tone feels a little different for the markets. unlike yesterday, we were down 140 or so in the morning couple of weeks ago, that would have meant, you know, by 10:30 it could have been down by 800

it was met by every attempt at a rally was met by more selling. we did get to the point where most people coming in here said we're no longer a buy the dips market we are a sell the rallies market right when we started hearing more and more of that, we -- >> we had macy's -- big individual kind of down grades >> is macy's a consumer or is it the internet >> well, it was stock specific yesterday or department store specific that's the point >> how was christmas how was christmas overall? i'm just wondering >> they're immune -- >> i want to know how chris has was -- >> macy's is truly -- >> a mall, exactly kohl's >> mals iz cy's is really a mal thing. i think when you're looking at the s&p -- we hit 2350 that was to your point when people were getting so overly negative that was a huge technical level. we bounced from there. but i do think the market is setting up for another retest of

those lows once again, but i think we have further to go -- >> why do you think that >> because i think this is just a whiplash effect now. you have quantitative funds that are just buying, pension funds that have rebalanced i don't think anything has changed substantially going into what we're seeing in the first quarter. >> that's interesting. you called that bounce on i think it was the day after christmas on closing bell. what's the fact or that will lead us to change again? purely market technicals >> i think powell has changed the dynamics and the calculus since october 2nd or third i think that still remains -- has to be factored in for the overall markets. i think you will see the markets dip again because i think powell has a communication problem and he's going to have an action problem. so -- >> what do you mean an action problem? >> think about it. you're still quantitative timing you're still burning through, you know, half a trillion dollars per year no matter how you slice it even if they get a little bit softer on their quantitative

timing >> okay, we're going to get to elon we like terms, shutdown, showdown it sounds almost like you'd want to buy get tickets to that, wouldn't you >> not this one. >> no, not this one. >> wwe >> yeah, wwe doesn't it sound like that she's been waiting patiently if the government shutdown lasts till tomorrow, become the longest in history paychecks supposed to go out today. the prison guards are supposedly working double shifts, which is not necessarily a job where -- i can't imagine -- god bless the people that will do it, that would not be something we'd necessarily want to be tired or not alert or whatever. on your guard, as a guard, as a guard, good point. president trump is considering declaring a national emergency in an attempt to bypass congress and fund the border wall. now with more about the -- i

think you came up with this, did you, the shutdown showdown, was that your -- >> i've upgraded it now, joe it's the shutdown meltdown it really is no progress there is really no other plan b at this point beyond declaring a national emergency that would allow the president to build this border wall without congressional approval and republicans don't love this idea, but no other options have emerged as yet yesterday senator lindsey graham said that democrats refusal to negotiate has left no other option, but he didn't exactly give it a ringing endorsement, saying in a statement, just, i hope it works. president trump is now cancelling plans to go to davos so he can deal with the fall out here at home treasury secretary steven mnuchin was on capitol hill yesterday. i asked him whether he will still lead the u.s. delegation there. he was noncommittal about this he said he's discussing that with the white house and if he does go, it will be with a smaller group of officials. i also asked the secretary whether he could move forward with talks on china while the

treasury department remains closed >> the current intent is that the vice premiere hu will most likely come and visit us later in the month and i would expect that the government shutdown would have no impact. we will continue with those meetings, just as we sent a delegation to china. >> so, guys, if that meeting does go well, it would be a sign of real progress and a much needed win for this administration >> all right, ylan mui, that's steny hoyer on later that's your interview. i'm not -- you're not going to get -- you know what it's going to be. >> i know, i know. what we are trying to do is dig through and see if there is any sort of solution >> why isn't there some type -- why isn't there something that can be border security, a little bit of money goes towards border security and we open the government >> why do they both have to dig in so deep

when you go back -- we've all seen the reports if you go back ten years, 15 years ago, the democrats -- >> five years. six years. >> -- were in favor -- >> no, in 2013, it was a huge bill and 35 of the democratic senators that were there in 2013, every one of them voted for it they're all still in the senate. they're all still in the senate. >> either side thinks they're going to be able to declare a win. you might be able to declare a win for parts of your base, but nobody wins in a government shutdown people get angry because it's a -- >> it's so silly it's on the record we can go back, as joe said, five years, eight years. >> president obama schumer. >> schumer big time. all part of the wall may not have been the same wall. might have been a smaller wall might have been lets -- >> border security >> that's a code for border security i mean, when you ask a democrat -- okay so, are you -- you don't care about any type of border security at all. do you want open borders

i don't know how they -- the other thing -- >> we had josh on yesterday, he's a democrat that supports border security. he would like to see a compromise >> trump is all the way down to 2 1/2 billion. if you put different -- hire more guards, some of the fences or walls, whatever it is, where they're run down, fix them there's a way that you can do this if you weren't doing it to score political points to completely -- >> the state of emergency would be a mistake politically >> i think that's the only way he can do it, though it will be tied up in the courts while it's tied up in the courts, you reopen the government, right? >> do you want to see that succeed, though? we had marco rubio on this week who also said he thinks it's a bad idea because then you're going to have -- >> fossil fuels, shutdown the government so we don't use fossil fuels >> look, executive privilege and executive orders have gone a long way in the last ten years i would say not for the better >> but you're going to hear a lot of -- i mean, we're hearing

supposedly between nancy pelosi and chuck schumer and the rest, how bad they're feeling for employees that aren't -- for employees that aren't getting a paycheck >> it's inconsistent >> i don't know whether -- they keep saying it over and over again, but they have something to do with why they're not getting -- >> of course >> they could move a little bit and solve it, but i don't think they're interested >> that's why i think both sides -- you leave the government closed and both sides are going to take flack. >> i don't know how much more tarnished president trump can get, right people dislike him from the other side people hate him. this is probably one of the most hated presidents from the other side >> there are people in the middle who just getest fr frust when the government doesn't work you can't not have border guards getting paid, you can't have t.s.a. -- >> i agree with you. when you live in new york and california, there is a whole lot

of of america that you fly over that is sitting there saying every time president trump does this, more power to him. we forget about that on the coast. >> people are saying he's trying to keep a campaign promise number one, presidents that don't keep campaign promises get criticism for not keeping campaign promises. what got him elected partly, at least there is some americans, i don't know if it's all 62 million who voted for him, but some think that border security -- that the southern border should be secured so it's just not some transparent attempt to follow through on a campaign promise. yesterday it was a little bit weird. i was watching the guy, i thought he was republican. but he's from kind of a red area of minnesota where i guess trump had won that area. but he was talking about how many calls his office had gotten yesterday. i'd like to ask hoyer about the calls he's getting because this guy said, we got 67 calls, build the wall, five calls, don't build the wall it was a democrat saying this. so he's pressured. so -- >> it's the market starting to focus, not too bothered.

>> market has been up. with the government shutdown, it's terrible for the people that are out of work it's terrible for the people that aren't getting paid but when you try to trade-off of a government shutdowne, it never works properly >> j.p. morgan did shave a quarter basis -- 25 basis points off of its growth projections for the quarter based on this. they went from 2 and a quarter to 2%. depending on how long this actually lasts they were saying on a weekly basis it's 1/10 to 2/10 on a weekly base. >> the other factor is if the president doesn't go to davos, does he miss out on an important discussion with china. >> yes >> which is much more -- now i'm okay, come home early. it's 6:14 a.m. do you know where your commercials are >> it's coming up actually >> it is >> you did >> the show started? >> you would have used that f word a few times i know for a fact. >> financials?

>> exactly >> when we come back, we have an update in the case against carlos ghosn japanese prosecutors adding two more charges we will bring you those details. plus why are activision shares getting crushed today? it's destiny we will explain next now as we head to a break, let's look at the biggest premarket winners and losers in the dow. looks like right now chevron is leading the way. it's up by one and a third percent. "squawk box" we'll be right back ♪

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plus get $100 back when you buy an lg or moto phone. it's simple. easy. awesome. click, call or visit a store today. ♪ ♪ welcome back a new report from the evening standard says brexit looks increasingly likely to be delayed beyond march 29. the report cites cabinet ministers. the pound this morning is up a little bit we did have gdp and industrial production data out earlier. this is the evening standard, according to sources in the cabinet. i guess it's not definitive either way the vote, of course, next tuesday in parliament. japanese prosecutors bringing two additional charges against carlos ghosn

phil lebeau joins us with more hi, phil >> this is a saga that doesn't seem to be ending any time soon. there were charges filed early this morning in tokyo. two more charges saying essentially carlos ghosn misreported his financial compensation from nissan for another three years now, going through 2018 essentially, they're saying that he abused his position at nissan but the important thing to keep in mind with these latest charges, he is now eligible for bail remember, carlos ghosn has been detained in a japanese jail since november 21st. he's had no contact with his family, very limited contact with his attorney, and his family says he's not doing well. in fact, yesterday his wife issued a statement basically public plea to the japanese authorities saying, they refuse to tell us if he has been transferred to an infifrmery nor will they leet us speak with medical personnel at the detention center i am pleading with the japanese authorities to provide us with any information at all about my

husband's health we are fearful and very worried his recovery will be complicated while he continues to endure such harsh conditions and unfire treatment. by the way, carlos ghosn's attorney says he will file a petition for him to be released on bail. remember, the judge earlier this week said, look, you've got the means. if you need to get out of the country to go to brazil, go to lebanon, go to paris and i think they want to avoid that, so let's see if the judge grants him bail, but then puts restrictions such as give us your passport. you have to stay in the country. >> where is the french government on this >> not happy >> but if this was a u.s. citizen, i would imagine they'd have much more daily uproar and diplomatic fights to get him back on domestic soil. >> and i think that is what's frustrating for the ghosn family when i talk with representatives who are close to the family, they feel like there is not an uproar here over this. now, part of this may be the fact that people don't

understand the japanese legal system, but the other part of this is, you're right, we're not hearing from the french government they own a stake in renault. at the end of the day, that's what this is all about it's about the nissan side of the marriage here. they don't want a full marriage with renault if anything, they want to kick renault out. they've done better than renault. and what you've seen over the last -- since november 21st, you have seen the japanese contingent, the executives there, they have asserted their power. now, they haven't divorced from renault, but it's moving in that direction. >> phil, can i ask you a totally separate question? >> yes is this a very serious question? >> yes, because i like driving when will we be in autonomous electric vehicles exclusively, how many years is your projection >> way, way down the road. i mean, we're going to be -- >> two years >> we have money management with

great track records. we had one individual on, she said two years >> from alcon best >> is it two years, 20 years of technology >> are you talking about me going out in times square, hailing a car and going down to the stock exchange self driving autonomous car? that's not going to hannah for a long time. >> is it the technology -- >> in gated communities, fenced areas -- >> slow migration. >> you're talking about is it the federal laws that are going to get in the way or is it technology is not going to be there? >> the technology, the technology is there and will be there. the problem is we're in that messy transition doesn't matter if you can have cars that can go from here to the new york stock exchange. we're idiots, we're the ones hitting other cars you look at most of the accidents involving way mow vehicles, google drive project, almost all of them are humans rear ending the car. >> an autonomous vehicle in ces

ran over a robot and killed it >> you will have these things -- >> it killed it. >> in vegas they have a shuttle there -- the first day they introduced the shuttle last year, it backed up now, you or i understanding that you have to wait for the vehicle behind you, you know, you lean out the window, idiot, move, i have to back up here there was nobody in the vehicle the shuttle to do it so it backed up into a car those kind of things that are going to -- >> sounds like he's driven with joe the way -- >> i was thinking about killed a robot. >> it's just not going to happen on a widespread level for a long time >> would you call the, what's left of the robot, would you call that remains? because remains does imply that's what's left something went somewhere else. >> remains, what's left after you squished it. >> for a human remains, it's like still the person -- >> i'd call it remains but not remains as in human remains. >> would you want to recycle the remains?

>> yeah, you would >> i don't know how badly -- admittedly i read the headline i didn't read deeper than that >> you talk about organs they love pulling this out >> that was like a 1200 horsepower 911 >> beautiful >> the roads were wet and there was traffic everywhere and they wonder why i'm frustrated. >> thank you >> real quick, don't forget, later today we here from gm ceo. their basic guidance for 2019 and where the company goes from here in terms of capital allocation >> in aoc's green revolution, when do we need to be out of these cars, do you know? do you know what -- >> can i just saw about autonomous vehicles, i don't want one, i like driving myself. but i want my kids to be in -- >> what's your middle name, wouldn't you want to be known as rbq? he's 29 years old, she just -- she's been in like for three days and she's mad that she's an aoc instead of ocasio-cortez

jfk, call me jerk. >> yes, sir. >> i like that >> i do get that anyway, coming up -- wouldn't you be glad if you were an rbq what's your middle name? >> it's an s >> rsq >> bsq -- it depends i have different initials depending -- >> depending on the day. s.o.b. a destiny divorce activision -- we're not talking about that other divorce >> oh, boy >> giving up publishing rights for the megahit game destiny the stock taking a beating this morning. the new york post did not disappoint, did it >> no. >> anyhow -- >> before we came on air >> from bezos teches -- >> it's getting messier for amazon shareholders than we thought. ♪ ♪ ♪ they say that breaking up is hard to do, now i know, i know that it's true ♪

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we are watching the shares of video game maker activision under pressure after the company announced a split from game studio bun gee which develops the destiny game franchise activision will transfer all publishing rights for that popular game back to bungee. >> in other video game news, epic games, the creator of the popular game fortnight, receiving an f rating from the bett better business bureau the better business bureau cites failure to address complaints from customers more than 270 complaints are centered around customer service issues and problems with refunds and exchanges. some of those complaints come from parents whose children made

"end game" purchases without permission and are seeking a refund >> still to come this morning on "squawk box," the s&p 500 on its first five-day winning streak since september. we'll talk strategy after the break. and later we'll get you ready for earnings reports from the banks and the first of netflix coming next week and as we head to break, a look at yesterday's s&p 500 winners and losers >> it was donnerful. >> bravo >> it was great. >> well, it was pretty good. >> well, it wasn't bad >> could have been a lot better. >> i didn't really like it it was pretty tir i believe. it was bad it was awful take them away boo! ♪hold on, i'm comin' ♪hold on, i'm comin' ♪hold on don't you worry,♪ ♪i'm comin' ♪here we come, hold on♪ ♪we're about to save you i'm comin', yeah♪ ♪hold on don't you worry,♪

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>> announcer: welcome back you're watching "squawk box" live from the nasdaq market site in times square. >> good morning, everybody welcome back to "squawk box. we've been watching the u.s. equity futures and they've been a little weaker this morning not by a lot, but the dow futures are down 42 points now s&p futures are down 7 1/2 the nasdaq down by 25. it was an up day for the markets yesterday. five days in a row of gains for the major averages in the meantime, the

government shutdown enters day 21 today this is tying the longest shutdown ever. 800,000 federal employees will not get a paycheck today furloughed workers should get back pay, but government contractors will not be compensated for all the lost hours. >> let's have a look on the markets overseas julia tatelbaum joins us from london with -- not a preview, an update of what's happening in trading in london. hi, julianna >> good morning. well, european stocks this morning are struggling for direction. the stoxx 600 is currently just about flat on the day. yesterday we saw some modest gains for the main european equity index we also, of course, saw positive close for wall street. but today i want to take you through the different regions. we did see green across the board early today, all four main regions. we're trading higher, but sentiment has turned a little bit more negative now and the only major region in the green is the ftse 100 here in the u.k. now, investors are dealing with

a raft of new information over the last week. they are difficult jesting frsh comments from jerome powell, a series of negative headlines in the auto space in the last 48 hours. some mixed trading results from european retailers of course, the big political event and focus here in europe, brexit onta topic i want to take you to one sector in particular that is coming into focus today, u.k. home builders. as you can see behind me, three of those main u.k. home builders are trading significantly higher today. that is on the back of a sector upgrade from bank of america they had an upgrade of the sector from under perform to neutral on the view that we are unlikely to see a no deal or hard brexit scenario come through. and on that basis, the sector may see some relief. very interesting call given uncertainty is the name of the game when it comes to brexit you should be closely watching next tuesday's parliamentary vote, but a lot could change between now and then back to you guys >> very good, julia, thank you the s&p 500 posting its first

five-day winning streak since september. let's talk more about the bounce in the markets with our next guest. joining us president of westwood wealth management, and victoria fernandez, chief marke strategist at crossmark global investments. our guest steve grasso you're here today. that's a promotion >> you guys get overtime >> you, yeah, that's good. >> almost as good as when he gets to join closing bell. >> but you actually have to go to work today. >> i do. >> he's director of institutional sales at stewart frankel, and a cnbc market analyst. you're not available in the middle of the day because you have a real job? >> i cannot. it's very difficult for me to -- >> i understand what you're saying >> very difficult. >> anyway, ladies, i want to make this simple we were for years in a buy the dip market, always made sense because it kept going higher any time you got a 5, even a 5%

deal on the stock market or correction, whatever you want to call it, made sense to buy it. we got to a point where people were saying sell the rallies where are we now, sell the rallies or buy the dips? >> buy the dips. >> we are back to that are you sure >> yes we're positive that there are some opportunities in the market where i think we've seen a change is you're actually seeing a little bit of a shift in the market towards value versus growth so people have been talking about there's been a huge divergence between growth and value for years and everybody has been talking about when do you have some sort of revision back to the mean and what's interesting is if you look at forward earnings for value stocks, they're actually growing at a higher rate than quarter earnings for growth. >> let's stick with buy the dips, but maybe buy the dips in terms of buying value instead of growth >> yes >> a lot of growth stocks seem like they're the ones that you have the biggest discount from where they were. they've come off the most from their highs, haven't they?

>> well, valuations were much higher, though >> i know. some of the growth stocks are almost in value territory, you know, in light of how much growth they're expected to still have, aren't they? how do you tell a value from a growth stock at this point since the growth stock has come down >> come down, again, looking at forward earnings i think is the key. if you look at the different sectors of the economy, the only sector you're seeing accelerating earnings is in the energy market. so, yeah, a growth has outperformed value, even post correction, by three times since the election growth stocks have compounded around 28%, value around 9%. >> how does that sound to you, victoria you're just nodding or you're going, wow, this person is -- has no idea. what do you think? >> no, i think leah has a good point. we've actually trimmed a little bit with some of our positions over the past couple weeks but we've used that opportunity to find some stocks that did have some good value we added a little bit to our

alphabet position. it was an existing holding for us we saw the valuations in an opportune time we added a little bit to that. but we are also holding some in cash we're not a hurry to put a bunch to work at this point in time. we're willing to bide our time a little bit, find the ones we think give the most value, and invest that way. >> victoria, is the fed issue for markets now, at least on ice, and we can focus back on fundamentals and particularly earnings season? >> you know, wilfred, i think earnings are going to take center stage geneva convention forward. we have citi starting on monday. that's going to kickoff earnings for us i think the fundamentals are going to come back into what most people are thinking about but we have to keep the fed in mind as well only because i really think we have still a disconnect on the fed, which can still bring some volatility. i mean, we had powell yesterday speaking and continued to say, you know, they were going to be cautious, they were going to be patient. but then you have rosen green come out and say i think the

market has it wrong and we're going to have to hike rates. i think there is still some disconnect there i think there is going to be more volatility from the fed, but fundamentals should take over for the next few weeks as we have the big earningscome out and really help us decide how growth is going to go over the next -- >> so rosengren said that -- he said he thinks powell is going to be proven right, that the economy is still strong, stronger than people think so as we go into this year, it's 2019 as we go into 2019, we're still going to get those two or three rates that he promised because he's going to be proven right about the economy. so, rosengren is still in that mind-set that regardless of inflation, if the economy -- let's say inflation even actually looks less likely to rear its head. just from a strong economy, does rosengren think we need to raise rates, victoria? does that make sense do you think so, just one follows the other, good economy raise rates? >> i mean, inflation is the reason most people are saying we don't need to raise rates at this point >> right

>> along with slowing global growth we have to look, average earnings went higher >> good. >> if that continues to go higher, then perhaps we see some of that inflation come in. we have cpi numbers coming out, so we'll see how the headline number is there. but i think we're actually going to see a couple hikes this year. i think we'll see one, maybe towards the end of the first quarter, and i wouldn't be surprised if the economic numbers stay where they are now and we stay pretty consistent, i wouldn't be surprised to see another hike later towards the end of the year. so i think rosengren does have a leg to stand on here because of the gdp numbers that we're seeing, although we know j.p. morgan came out and said the shutdown may bring that back a little bit we have a strong labor market, the consumer continues to be strong i think we can see a couple more hikes. >> yeah, things are going too well we have to raise some rates, nip this in the bud. it really doesn't make sense necessarily, does it we had vinnick on yesterday who is a pretty good manager, jeff vinnick. he said just the disruptive

nature of innovation and the internet and amazon and technology and everything else means it's different in terms of what core inflation is going to be and we can have some wage growth without it filtering into overall inflation. is that possible >> i do think -- >> then why raise? >> i think we'll raise once, twice at the most in 2019. the labor market is exceptionally tight. i mean, we tried to highre peop. we're growing as a firm. if you try to hire people -- >> get some people on the couch 40 years old back into the work force and the participation rate will go up grasso, two years ago zandy and others were saying there's nobody left. and we did 312 on friday, 312,000. who are they where are they from? >> the people that are coming back into the market >> there's no way we were supposed to have 312,000 people available for jobs >> certainly a surprise, yes

>> we're supposed to be down at 106 supposedly, the best we can do anyway, thank you, leah bennett of westwood wealth management and victoria fernandez with crossmark global investment. >> thank you, jeff >> when we come back, think stock rebound. check out shares of netflix, soaring since the start of the year but how will earnings affect this rally we have analysis straight ahead. and then later, if it lasts until tomorrow, the government shutdown will be the longest in history. we'll talk to house majority leader steny hoyer about the possibility of a deal. stay tuned you are watching "squawk box" right here on cnbc sfx: [phone ringing]

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the lawsuit seeks to force google to change its governance and oversight to stop future workplace conduct issues they want alphabet board members to pay damages to alphabet claiming breach of fiduciary duties in corporate waste. the allegations stem from some severance payments to the former head of google's android division and the former head of the search unit. company investigations found credible allegations of sexual harassment against both men and both of them, though, deny wrongdoing >> goldman out with two big calls this morning the firm downgrading starbucks to neutral from buy on china concerns goldman says that the macroeconomic fears out of mainland china could impact sales. you can look at starbucks now. it's down 1 and three quarters percent. goldman also downgrading yum to a sell this is mainly a valuation call. goldman says it's skeptical of u.s. pizza hut's recovery.

that stock is by 2 and a quarter percent. >> tech stocks rebound from the fourth quarter sell off. netflix now more than 20% since january 1st. analyst dee clement ee will tell us will tell us if earnings will survive the season rmy wn qrtarkets in the red now. geando auaer of 1% ♪ ♪ 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 &.

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all right. welcome back, everybody. since the beginning of 2019, the all mighty faang stocks have been reclaiming their position at the top of the technology sector we bring in anthony diclemente it's great to see you this morning. thanks for being here.

>> thanks for having me. >> what do you think we have seen a bit of a bounceback should we be relieved and think that was then and this is now and we can run higher from here? >> i think largely the selloff we saw, a lot of it was driven by technicals. so you saw some technical pressure on the names. getting it back to fundamentals, what investors i talk to want to see is the first quarter and the full-year outlook. earnings is going to be very critical in an environment where there may be slowing growth and thinking gdp will slow this year a lot of that will be driven by contraction in european economies where google and facebook do business if we have a little bit of slowing growth, that could cap the multiple that investors are willing to pay but this bounceback whether it be 10%, 15% for netflix, i think to get another 10% or 12%, we're going to have to get through the outlooks >> you think there's going to be any apple-like surprises in any

of these other calls is there the potential for that? >> you're asking about apple these companies, the faang names largely don't operate in china and i think that that was really what was pertinent for that. a lot of what hit apple, whether it be china, whether it's what hit the equity markets, rising interest rates these companies don't have a lot of debt. rising rates could hurt the terminal value of these names. but basically i think they're safe from those two factors. >> i totally get there was a broad risk-off sentiment to these stock prices last quarter. at the same time, their last set of earnings did see the revenue line miss expectations for a couple of them do you think those previous high valuations that they got when it was a real structural growth story that could go on for

decades in people's minds, is that gone forever or can those come back? >> a couple of thoughts there. first of all, i think investors will gravitate to names that have recurring revenue facebook and google particularly in a slowing environment would be potentially vulnerable to a slowdown i look at amazon and aws as being a really sticky subscription source of revenue similarly with netflix which is subscription revenue. but yeah, i mean, the other thing i would say is the valuations of the two names you questioned are not onerous at all. facebook and google are trading high teens on next year's earnings mid-teens if you want to exclude the substantial amount of cash they have. >> but facebook and google have privacy issues i see that angle of it, but faang has been responsible for the run-up we've seen in the market place to wilf's point, i don't know that multiple on the bigger

names are going to be able to carry us through the growth versus value we just had the conversation in the prior segment. >> so i'm going to say i think we saw more multiple progression through regulatory concerns in 2018 than we will see in 2019. i actually think that -- first of all, with the government shutdown, a divided government, it's going to be hard for any legislation to get passed. but i think even if it were to be passed, it could be a good thing for these companies if it looks like gdpr in europe or a watered down version of that >> let me ask you quickly about amazon we've been talking off camera about the amazon divorce but there is a real question for shareholders if this things gets messier than had been expected if that stake, his 16.3% stake is sliced in half. what is the risk >> no, okay. so yeah. so mackenzie bezos would be entitled to half of that property that's joint property. they were married before amazon.com was founded

so presumably, if those shares are divided, she would be an 8% shareholder of amazon. so it's a real question for investors what does she do with those shares does she sell them down gradually over time the way steve jobs' widow did after he passed with her disney shares? i don't know i'm not a divorce lawyer she may say i want cash. certainly jeff bezos can't fund the value of half of his stake in amazon. question for shareholders if those shares are going to be sold in the marketplace. >> for her, i don't see why it would really matter. half stock, you know, i'd take stock or cash. >> if it's i ludi luted -- >> you could have as much cash as you would want and still hold the shares >> but if she's upset, things could get messier. >> that's amazing that you're talking about $65 billion worth

of amazon securities that if someone is mad about -- >> well, you watched it -- >> there's only one share class, right? so they're not super voting. in that scenario, you could argue the vote on a per share basis has more value because the minority shareholders -- >> there's another thing she could vote against you >> so maybe over time she could negotiate if it's cash instead of the shares, she could -- >> was it confirmed there was no pren prenup i don't know why there would be. >> he wasn't a millionaire until four years after they were married. anyway, good to see you. >> all right it's the most wonderful time of the year. four times it happens. earnings season starts on monday wilfred is so excited. >> i actually am >> i know. i know is your portfolio ready?

preparing for earnings season >> prediction? >> yes >> pain. >> is the market about to see more red flags and warning signs? we've got a preview. shutdown showdown. president trump cancels on davos. thousands of workers are not getting paid we will head to the hill house majority leader steny hoyer and senator chuck grassley will be our special guest. and robert frank has a story you need to see to believe >> heads will be chopped off

>> find out what happens as the second hour of "squawk box" begins right now live from the beating heart of business, new york, this is "squawk box. >> welcome back, everybody we are live from the nasdaq market site in times square. i'm becky quick with joe kernen and wilfred frost. andrew is out today. our guest host is steve grasso from stewart frankel also a cnbc market analyst let's take a look at u.s. equity futures at this hour right now looks like the dow futures are down by 54 points. a little more than we had seen earlier. the nasdaq down by 27. but this does come after five days of gains for the equity markets. if you take a look at the yield on the 10-year, we are back

above 2.7% at 2.719% this morning. then check out the price of crude oil. crude's been on a winning streak in a big way massive move ups that we've seen almost every session through this early part of the year. right now trading up another 26 cents to $52.86. here's what's making headlines at this hour the government shutdown in its 21st day tomorrow it will officially become the longest in history. president trump is considering declaring a national emergency to fund a border wall. jpmorgan says the shutdown is starting to impact the economy cutting its first quarter gdp growth estimates by 25 basis points it now sees 2% growth this quarter. china is planning to set a lower economic growth targetfo 2019 ro compared to last year's target of around 6.5% the new target will be unveiled in march treasury secretary mnuchin

says that he expects more high-level trade talks with china. here's what he told reporters late yesterday >> the current intent is the premier will likely come and visit us later if the month and awould expect the government shutdown would have no impact. >> secretary mnuchin's comments come after president trump canceled his trip to the world economic forum in davos, switzerland due to the shutdown. i was thinking that's not going to work for me, i guess. >> no. no such luck for you you're going >> there's no tsa agents >> we will get there you might have to show up five hours early. >> no matter what? you have your wardrobe ready >> i do. >> every item -- i hope i don't

mess up. >> how many hairpieces are you bringing >> that's funny. because hair grows over four days, you think? >> i don't know. you want to look natural >> okay. is mnuchin, he's going are we going to have him on? >> i don't know. >> i hope so >> i think there's been a lot of confusion just because of not knowing what's going on. >> you know what brings him back we let him throw snowballs at andrew >> that's right. we did that last year. >> did andrew get to throw them back >> no. secret service were with mnuchin. >> yeah, you don't want to mess around with that >> so the gentleman he was referring to is the high-level official that stuck his head in the room i don't know maybe it's -- maybe there's some positive things here >> although, there was disappointment he won't be talking to him in davos. >> but it was a good ten days or so of headlines leading up to that meeting and coming out of it the question now does that abate whether the davos meeting happens or not you can only get so much hopeful

positivity >> you'd be great in davos, by the way. >> he went >> i've been there >> you should go every year. you'd be great there >> joe's got a wardrobe anda room you can take. >> i thought it was going to be because of political leaning >> no. i go over there -- >> but it's because i'm tall i'll take that stop stop >> moving on >> it's the stockholm thing for me i change over there. >> you do. you're much nicer. >> so trump initially said i may not go if is the government is shut down. >> but there are other issues. they need to send secret service over >> pompeo is still going as well, right? there's still a big delegation you can still have positive related trade talks. just not as positive >> if it were a quick resolution, he might be questioning. >> if he did go, would you let him throw a snowball at you? >> after an interview?

yeah i would do that. i would like to talk about a follow-up on all the -- you know, i'm not gong to ask him about stormy daniels but i would like to talk about the usmca. i would ask him about that >> the last couple of days, you had decent dollar moves off those interviews >> there would be so much to talk about i think we do it differently than what -- you know, like i said what you normally hear with the questions being thrown at him. >> just have to do it. the s&p 500 may be on a winning streak, but there's been a rash of warnings dom chu joins us now with a breakdown of some of those downgrades on earnings expectations >> all right good morning, wilf we've seen anumber of companie come out and lower the bar and expectations for what they could report in terms of earnings overall. of course the shot heard around the markets this morning is what

apple did when tim cook sent a letter, the ceo of apple, saying they were going to lower their revenue guidance for the year. that took down many parts of the market maybe feeling some of those effects right now. that was a big one macy's yesterday, they grew holiday same store sales, just not a lot. american airlines, the second major airline to come out and cut some of their full year profit forecast based on the traffic metrics they saw and revenue metrics they saw end of last year. now, as we enter that big earnings week next week, because delta reports, lindsey bell says between october 1st and now, s&p 500 earnings growth estimates have come down by almost 6%. 5.8%, 80 basis points lower than where they were just on october 1st of last year over the course of this past quarter. on average over the long-term,

she says analysts reduce their expectations this time they're doing it more than they normally do. what does that mean? it means the bar has become very low for earnings expectations. we are still looking for on average a little bit over 12.5% earnings growth over the same time last year there is the bull and bear case for those earnings expectations over the course of the last quarter. >> dom, what is your year-end target on the s&p? >> my year-end target, i haven't consulted the magic eight ball just yet >> am i putting you on the spot? >> you can put me on the spot. >> how about this? below 3,000 or above 3,000 >> what do i hope for or what do i think? >> he's a genius he's dancing all around. >> no, no. i think it's below 3,000 >> i'm hoping for above 60,000

>> i'm hoping i could retire next year. >> that would be a loss for us and viewers. >> but we'd all be feeling pretty -- i'm relatively young i'm getting older. >> you are but you're wise. >> i still have a college education to pay for for me daughter. >> okay. never mind what's your target, grasso >> below 3,000 >> really? >> yeah. i think you'll see more volatility but you're going to retrace back down to about 2,000 or 2,200 >> we're going back to the lows? >> i think we're going to break the lows i was on air with you guys when we had the breakthrough in the china interview. we both looked at it looked like the market was topped out >> you think 2,200 let's talk more about the coming

earnings season and the markets. joining us now mike thompson we just wanted to hear actual earnings projections from you. i'm not sure you want to make a market call, do you? >> well, i would say that you're probably looking at about -- i think our view is 2,700. >> that was below everyone's target last year >> we've taken ours down >> mike santoli is a cnbc commentator. and grasso is here just a miserable mood today. >> terrible. >> you think we go -- >> two weeks ago i was sitting here and you said i'd take 2,600 right now. you said that. >> what happens when facts change >> facts didn't change that much prices changed >> powell changed. >> that would be it. >> and what happened that day that powell was speaking if we get a 275,000 on nonfarm payrolls -- >> no, no, no.

>> i said if he talks dovish, we're fine >> your worst nightmare. somebody with a memory. >> you want me to go back to your -- to the don't chase us market at 2,100? >> we touched that number. 23 and change. we did it. >> where do you think we are end of the year? >> i don't know. >> would you be surprised to be above 3,000? >> i would be somewhat surprised but it's not out of the question you know what a lot of people are looking at right now everybody in the last week became an expert on momentum brea breadth thrusts. it's all over the place because it's a rare signal that you have this huge intense selloff and a very broad recovery and you have this momentum move and it means -- >> is that one of the teches i'm reading about? >> bret thrust. >> never mind. >> anyway, the technicals look like okay the market, you have some legitimacy to this low.

but i don't think it changed the world. we're in a down trend. right? moving averages above us >> it's the strongest start to a year in 13 years >> look at how weak the week before was when we touch that technical level, that 2,350, it sparked that month end, quarter end, year end rebalancing and you get that thrust moving higher, but not a lot has changed. so if the math has changed now, you're going to revisit those lows >> i don't think a lot has changed from when everyone was at 3,000 except that it's wrung out all the complacency. >> you don't think that money is tighter? you don't think markets hate rising rates >> a lot is going to depend on what happens with earnings what is going to happen? >> thank you. >> you're here for a reason. >> can we talk more better earnings great. >> is there going to be an earnings recession or not? >> no. look 12.7 at the top line

there's going to be some strengthened financials. 25%, 64% energy. consumers coming in at 6%. industrials, 17% yeah pretty good strength your real issue is what's coming in the next three quarters drops down to four handle growth here's the deal. those numbers are not correct. the market has over-corrected in terms of revisions mike had a great spot yesterday, talked about right now everybody's low in the benchmark. you've seen this i've never seen the ferocity of that the next couple quarters are not going to be 4% the market is not even paying -- >> 4% earnings growth. >> right now they're saying 12.7%. it's probably going to come out 15%, 16% if you get -- >> what are you talking about 15%? i thought we were talking about 7% for the s&p 500 growth. and knocking it down >> that's the next quarter

>> we're doing the fourth quarter now. >> i'm sorry i'm talking about first quarter. >> then the next couple of quarters, first quarter 4.3% next one 4 handle. then the next one after that, 3.9%. >> but they haven't lowered those expectations >> those have been lowered those have been lowered. the numbers are going to come in stronger here. the numbers are going to come in stronger for q4. i'd say about 15%. the next couple quarters, if you're not getting any value for earnings growth, they've almost priced in revision the revisions piece was good a lot of analysts jumped on that what happens is you're probably going to see a double of that. currently the market trades at just about 15 times. right now honestly the markets cheat from a historic basis on what you should be getting in addition, as long as yields don't go up and we avoid recession, i think most people have gotten to a point we're going to the earnings story is going to be a good story. >> mike santoli, the problem may be when companies start giving

guidance, they're not going to be confident with things so they're not going to tell you much >> i don't think there's a lot of incentive to talk up the rest of the year. i would argue 15 times is in the fair zone. i wouldn't say it's necessarily cheap. so i think if you hold that 170 number for earnings this year, that's plausible that's going to be okay. it's going to be a lot of push and pull in that number. it's not going to be where that was. everything is great. off to the races we're up 10% off the lows. i don't think that is about earnings right? so we're still far enough off the highs, you know, we talked about the estimates have come down 6% since october. the market's down 12% since october. it's not as if the bar should be very high for this quarter i just don't know if the market is ready to give up -- >> 2600 where i sign on for that was when we were in the depths of our fears -- >> our panic

>> and when we were talking about maybe we test another two or 3% down or something. maybe we get to 2250, i guess my point was if i could guarantee we don't go down 30%, i'd settle for 2600 but now we've got a better tone, now i want 3,000 again am i wrong >> no. >> no, am i wrong for -- okay. in hindsight, the worst didn't come to pass powell seems to have found at least some religion at this point. >> in his words, not his actions. >> well, look at what futures are indicating now a possible cut at this point people have moved. people have moved -- >> but owhat are the circumstances powell is going to cut? >> i'm not saying he's going to. bullard saying we've gone too far. >> yeah. >> can i make one final point to your point, joe? if earnings do beat and earnings do come up, you do realize there's a natural mathematically defined multiple contraction

so earnings come in stronger and earnings estimates do come in much stronger than the four point. you're already in the 14 handle. we're going to drop a full turn to low 14s unless the market goes up. so do you really think yields go forward on a 14 multiple >> all right we'll see. >> wow that was a lot more than earnings that was -- you know who you need to talk to is him >> there was a lot of what ifs if the yield curve means nothing, there's a lot of what ifs. >> thank you, mike thompson. >> he tricked you. we're still on air >> mike thompson of s&p investment and mike santoli and steve -- i like grasso. >> that's the way you pronounce it >> i said i like that. >> yeah. still to come, more charges for executive carlos ghosn plus a cnbc investigation found that one private jet company has left a trail of broken promises.

outraged customers and security concerns on board its flights. we'll break that down for you when we come back. ♪ saved you a seat. this round's on me . hey, can you spot me? come on in! find your place, today, with silver sneakers... included with many medicare plans. call the number on the screen now or visit

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call, click or visit a store today. welcome back, everybody. japanese prosecutors have indicted carlos ghosn on two new charges of financial misconduct. they include aggravated breach of trust for transferring personal losses to nissan back in 2016. he's also accused of understating his compensation from 2015 to 2018. he had already been charged from 2010 to 2015 ghosn's legal team says they will seek bail, but they expect ghosn to remain in detention until the trial which could be about six months from now before it even begins when we come back, a story you need to see to believe robert frank, you've got some pretty amazing video and some incredible things. what's coming up >> good morning. it was dubbed the uber of private jets with a valuation of over $1 billion. celebrity endorsers like kim

kardashian and investors like jay z and the saudi royal family now some customers are calling it a fraud and there are concerns about drugs and cash on the flights. a cnbc investigation into jet smarter when "squawk box" returns. 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? yeah. aflac! you got it. you know aflac! boom! get help with expenses health insurance doesn't cover. get to know us at... aflac dot com.

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it was dubbed the uber of air travel jetsmarter became a billion-dollar company by making private jet travel easy and more affordable now cnbc found the company is caught in a downward draft faced with angry members and questions about security he's robert frank with tailspin. >> i'm obsessed with jetsmarter. >> about to kick off to l.a. >> cool app called jet swsmarte. >> see you in the air. >> have a great flight

>> it took the private jet set by storm with a simple app and a dazzling image campaign and press coverage, jetsmarter claimed to revolutionize the business of private jet travel the company had a star studded takeoff. raising millions from early investors that included the saudi royal family and jay z and there was no shortage of big-name endorsements. jetsmarter signed up 10,000 members and became the first flying unicorn valued at over $1 billion. but our investigation found jetsmarter has left a trail of outraged customers, millions of dollars in losses, and concerns about some passengers on flights. customers around the country, some paying nearly $100,000 for multi-year memberships, now call the company a fraud.

a high-tech showing and unlawful bait and switch. >> the way the system works is a natural ecosystem. >> it all sounded so promising in 2016 when jetsmarter's then-27-year-old ceo and founder appeared on cnbc >> we offer about 50,000 hours of scheduled flights every year. that's like 120 flights a day. there's plenty of lobster for everybody to go around >> and the members feasted at least in the beginning. unlike most private jet companies, jetsmarter sells individual seats on its planes which customers book with the app. sally horchow is a broadway producer who travels between her los angeles home and new york. she paid a $9,000 annual membership to join jetsmarter in early 2015 which allowed her unlimited private jet flights. >> the value proposition in the original company wasry li ridic.

it seemed too good to be true. >> it was too good to last jetsmarter started stripping away the benefits. no free choppers no more free food. and last year it told customers they would now have to pay for flights which were supposed to be included in their membership. >> holy [ bleep ]. like, this is not what i signed up for this is a bait and switch. >> customers like horchow told us the changes made their expensive memberships virtually worthless. the company's membership agreement says that the terms are subject to change, suspension, or termination at any time in a statement to cnbc, jetsmarter said the vast majority of our core customers understand the necessity of these decisions. and it is elevating the quality of people flying together. andrew pressler was one of the jetsmarter salespeople signing up those members he said he was under pressure to

hit aggressive sales targets >> every other month, there was a new what the sales floor would call a money grab. >> that's what you called it >> that's what the sales guys called it. just another money grab. >> he was fired. the company said it was poor performance and he lied to customers. though he said it was likely due to a call over a competing job offer. he posted what happened on linkedin where he called the company coldhearted for firing him. but said he remained passionate about what he provided then he got this threatening letter calling the post false and libelous >> why were they so threatened by me? i had no idea. maybe because the truth got out. >> cnbc has learned that jetsmarter has also fallen short on its promises to investors j jetsmarter made this presentation to potential investors in 2017. revenues would grow from $252

million to more than $2 billion in just two years. and membership would jump from over 11,000 to over 100,000 by 2020 but the losses kept growing. today's membership only around 8,000. jetsmarter refused to comment on its financials members are also concerned about security aboard jetsmarter flights. >> get me to new york, now >> we obtained this video of maurice payolla. a disk jockey in september from l.a. to white plains, new york about 45 minutes into the trip, according to court records, he began threatening passengers >> heads will be chopped off >> the pilot made an emergency landing in nebraska where authorities subdued and arrested him for making terroristic threats. jetsmarter says it has the most

rigorous security standards in private aviation including background checks on the majority of customers before they fly and on the ground security teams that screen for narcotics, explosives, cash, and weapons for shared flights but two people on the flight told us there was no security check. and there was this red flag. just three days before the flight, paolla had tweeted from a jail cell to the private jet, they can't stop me customers and crew also say they witnessed passengers trying to carry drugs or cash on their flights. this suitcase packed with suspected marijuana was confiscated from a passenger the picture taken by a crew member >> there were definitely drug dealers of all kinds who were carrying lots of cash on the planes, you know, in designer bags >> jetsmarter denied any allegations of fraud or bait and switch tactics while

acknowledging a number of members are unhappy with certain changes. the company said it is more positive about the health of our business than ever for the owner, the original jetsmarter dream appears to be further and further away now, cnbc has also learned the fbi has been asking questions about jetsmarter the nature and the subject of that inquiry is unclear, but an industry executive we spoke with says he was questioned by two fbi agents about the business, the sources of funds, and the cash on the flights. the fbi won't comment on any potential investigations and jetsmarter says it has, quote, never been the subject of an fbi investigation >> i mean, there's two different things one is the security of planes. the second would be is this a pyramid scheme pay $9,000 and get all the flights you want it sounded like something that

was too good to be true. >> there are a lot of members that said even though we went back on their promise, we got so much value out of this that it's fine but the membership costs grew over time so by the end people were paying over $90,000 for a three-year membership that suddenly jetsmarter then said okay, now you're going to have to pay for flights when you're making that payment based on the assumption of free flights, suddenly these people paid $90,000 for a membership they can no longer use >> affordable and private jet travel is an ox si my moron. because of jet fuel and those. wheels up. you know what an hour costs? >> $9,000 for the citation. >> or even dr-- i mean, as gooda you can do is $4500 an hour. if you pay 9,000 a year, what do you expect i don't know >> and the question was what was the company's plan to ever make

money under that model >> there are some sort of aircraft companies that try and use the fact there's lots of small airfields around the country and those are working well, it seems or some of them are. so it's not totally ruling out that type of travel. >> no. the security issue becky mentioned is they don't have to go through tsa the downside is when it's a shared flight with strangers, you don't know who's on it >> that's not private jet travel if you're buying a seat with paolli music or whatever the hell he was. that's not a private jet. >> and there was a family with two small children behind him. >> good lord >> robert, great stuff >> thank you, guys >> do go to cnbc.com to watch more of that and read more about it still to come, morgan stanley's ninth annual investment survey. the most cautious they've been in six years

we'll preview banks earnings next [knocking]

♪ ♪ memories. what we deliver by delivering.

. welcome back to "squawk box. the futures right now indicated off a little bit this morning. down about 43 points i guess this is a quick comeback and back to break. this music here, i don't know what i feel like with this what are you feeling with this anyway, i'm feeling let's go to break and stop with this >> this is the music version of

what >> "friday i'm in love." >> oh. very funny coming up, fed speak overload this is really bad chairman jerome powell among the many central bank -- i knew i didn't like it among the many officials speaking on thursday should they stop talking and leave well enough alone? then what would we talk about? we'll get into that next and which financial giant could shock the markets with quarterly results? more "squawk" in just a me ♪ (vo) here's a question. was it necessary to create a luxury car more teched out than silicon valley? with a cockpit fit for aspaceship. hang on. radar that senses things the human eye can't. busted. and the ability to make a thousand decisions before you even make one. was all this, really necessary? what do you think? ♪

the fed remains in focus for the markets. steve liesman joins us now with more fed speak last night in our reality check on the fed's balance sheet so the grateful dead were not in -- >> year of '72 >> it's these black and white silent movies they watch >> wilf likes talkies. >> we have an ongoing debate about -- >> will f was born in 1986 >> they remastered "the godfather" with color so i would watch it >> this is how millennial yuppies think. >> we'll talk about anything to not talk about the fed speak

i get it, folks. this is my job, unfortunately. he went closer than any top official in recent weeks to hint to the rate cut. the financial conditions had tightened materially and recent developments in the markets and global economic outlook represent, quote, cross winds to the u.s. economy he went on to say, quote, if these cross winds are sustained, appropriate forward looking monetary policy should seek to offset them to keep the economy as close as possible to ur dual-mandate objectives. he also said if they're found to conflict with the dual mandate his speech came after jay powell said yesterday the fed can afford to be patient but powell did take some heat when he said the balance sheet

will end up smaller than it is now. the market expects the balance sheet to fall and the fed will complete this runoff somewhere around mid-2020. let's do a quick reality check on the balance sheet while the fed said it would allow no more than $600 billion or $50 bhl billion a month to roll off this year, it will not do that according to its own estimates. estimates see about $442 billion coming off this year and $300 billion next month. nowhere do they expect to roll off $50 billion. this has been poorly communicated by the fed and media, i'd say the fed put this cap in place to calm the market. instead it's freaked the market out. it's not a target. it's we're going to do up to this amount. when you look at their rolloff plans which is on their website, attach sd a spreadsheet to another thing that came out. the biggest month is estimated to be may because of the rolloff

of mortgages which they don't necessarily control. >> this is still a lot coming off the balance sheet. you're talking about almost half a trillion dollars coming off. so the problem is that it's the equivalent of tightening at every meeting. so you have the double rate hike basically. that's what the markets are trying to digest and i think that powell has a definite communication problem i think you nailed it yesterday saying that. >> how should they have communicated this? let me tell you what they're trying to do the predicate to this? nobody's done this before. >> i don't think it's powell's fault on any of this he's got a big message they've got to get through and they're trying to find their way >> he started -- you could look back on the charts the market started falling out of bed when powell was doing the interview on october 3rd >> the heavy lifting he's got to do, there'snot an easy way to tell the markets. >> but even yet.

but what happened? it was a balance sheet again >> let me do the tale of the tape quickly june 17th they announced the plan september they said it's going to happen. i guess they enacted it in 2017. it's been going on and nobody put the words together balance sheet until december okay so suddenly they have a problem. picking up on what becky's talking about. what do you do in that situation? and what the fed is trying to do is move one variable and keep another variable constant. that constant variable is a reduction of the balance sheet and let the rates adjust to the economy. that's what they're trying to do i guess you're saying that's the wrong thing. >> when you're looking at europe maybe on the brink of recession, japan on the brink of recession. maybe china slowing substantially, you have to say maybe the fed is not listening to the indicators. >> let's bring in megan green. what do you think of all of this look, you can say maybe we don't want to hear the fed talking so

much, but i think the market appreciates there is some sort of clarity trying to come through. what we're hearing may be the fed kind of thinking through as they're going with this. >> well, the fed really doesn't want anybody to be paying attention to the balance sheet taper tantrum scarred everyone at the fed at the time they realize how sensitive the markets are to news about the balance sheet. but i also think the markets are fixated on the balance sheet in a ridiculous way the concern is that shrinking the balance sheet will cause some kind of liquidity crunch. examples of that are bear stear stearns. we can look at a few of them there aren't any signs that bank reserves are getting scarce. in terms of a funding liquidity crunch, there's no sign of one in terms of the market liquidity crunch, balance sheet tightening might be contributing on the

margin, but there are a whole bunch of other factors that are causing market liquidity tightening including the u.s. treasury issuing loads of t-bills to finance our ballooning deficit and a market liquidity tightening, is that really a big issue? no it just means that paper is a little bit more expensive. so if you compare borrowing costs now relative to just before 2018, there's still a bargain. so i think the markets are acting a bit like a spoiled brat at the moment and the balance sheet is really just a red herring here >> what's your reaction as somebody who is in the market? >> there's no rate rise that the market is going to rise. when you look at this as a macro level, that's why i keep saying the math has changed you don't get back to 2,950, 2,940 in the s&p if the numbers have changed, the allocation to asset bases has changed as well. >> steve, there was a quip yesterday about the punch bowl being removed from the markets

and it was a joke, it was a quip that chair powell said oh, i've locked the punch bowl away long ago. something along those lines. do you think that was an indication that he's only changed the script over the last month because he was really forced to? >> oh, yeah. >> ultimately as soon as he gets a chance to, he's going to cast the market aside again and focus on the economy >> i think that's right. we talk about hawks and doves. i don't think you get to the point of being considered to be a central banker if you want -- if you like zero rates nobody likes zero rates. nobody likes big balance sheets. they all want to normalize i think this is going to be the script of the taper tantrum where they'll back off and come back and do what they want to do which is to get up a couple rate hikes from here. >> wait a second so that sounds like it's a bait and switch >> absolutely. absolutely if megan's right -- becky, you have some experience here. not only are you an expert in financial markets.

you're also an expert in little kids and that's what you do, right? you pick fights when you can >> yeah. but i don't lie to my children. >> never >> you don't tell the whole truth all the time come on, becky >> maybe >> we're going to the candy store and it ends up being the doctor megan -- >> i've never done that. >> well, okay. megan, what's clarida doing here i was surprised how dovish he was sort of hinting here that thingshave tightened materially real quick, what's your sense of what richard's doing here? >> i think he's responsing to financial conditions which tightened massively in december. but have loosened since then i think also the markets didn't like powell's commentary on the balance sheet. i think he was trying to correct for that as well >> interesting >> megan, wanted to thank you for being with us today. steve, we'll see you back here later, i think >> cpi. >> all right steve liesman. coming up -- sorry

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♪ welcome back earnings season kicks off next week starting monday with citigroup here to talk expectations for financials, betsy grasic good morning >> hi. how are you doing? >> very good good to see you. my first question, last year we saw beats on every quarter yet the earnings decline do the earnings maetter this year >> i think expectations are extremely low for bank stocks. as i'm sure you know, given last year's route at the end of the year we had stocks in december that were pricing in recession-level pes. we're up a little bit off those lows right now but i think expectations are low going into next week >> and if it comes to it, do you think that they would deal

better with a recession this time around? and is that roughly where the valuations are that they're expecting a sort of worst case scenario >> you know, our bear case outlook and let me just frame it a little bit better, we have a bull and bear case outlook and our base case is not a recession. our bear case is a recession and the bear case that we're looking for is a corporate credit recession a la 2001, 2002 not what we had in '08 which was an asset deflation cycle so it -- you know, it depends. the question is do they fair better in the next recession whenever that is going to be definitely versus '08. >> even in your bear case scenario, they're still attractively priced. >> our view is that there's, like, 80% of that priced into the stock today. to be clear, in a recession, if we had a recession that started tomorrow, yeah, there's a little bit of downside to our stocks that we cover.

in particular, you know, median for the group maybe 15%, 20% but on the flip side, recession does not happen over the next 12 months and we have 20% upside for the group, 30% for our overweight rated names. >> let's talk about those overrated names. you like bank of america a lot >> yeah. our top picks, b of a, jp, state street >> and why bac and jpmorgan? >> so the key reason is that, you know, macro aside, we're looking for institutions that we think can deliver positive operating leverage bank of america has been showing that in spades in particular in their consumer business. we think there's more they can do there and jpm is on a roll for market share gain in a variety of different businesses in a very positive operating leverage. >> so when i look at the yield curve, it seems that's the only

thing you should count into factorifac factoring whether you buy the financials or not. then when i look at siti, it means it's short covering to me. why do i have it wrong >> there are a lot of different inputs the yield curve is one of them one thing i would remind people of is that banks don't just match fund, they fund with deposits and net interest deposits 20% of their funding is actually not costing them anything. there is still positive carry. for citi specifically, though, i'm sure you're aware they have a link with emerging markets and as you've seen a little bit of dollar weakness, emerging markets doing better, that typically bodes well for citi stock. >> what's your rating on goldman sachs? big share price decline last year, but a malaysia-related issue hanging over them. >> we have an equal weight

rating on goldman today. >> and what's the sort of view on its valuation if it does get through the 1 mdb scandal with whatever size you've got written in >> so i would just highlight that for our base case, we have a bit of a fine in there it's below the line, not in our published -- it's in the reported numbers not in operating and our expectation is that if the bull case for goldman is if we get through the 1 mdb as you indicate with very little reserving over and above what we've got in our model that, yes, it's reasonable. >> great to see you this morning. thank you for joining us all right, grasso. we want to thank you for being here this morning. >> thanks for having me. >> you've got a real job so you've got to leave. which is proof -- >> think about it. >> we'll be thinking about you trying not to laugh.

shutdown showdown will roll on shawshank? >> shawshank is one of any favorites. at okay. th was '90s. unforgiven

the shutdown nearing a record with the government closure about to become the longest in u.s. history. pain starting to be felt on main street two key members of congress will join us to talk about the

shutdown steny hoyer is with us in minutes followed by chuck grassley and fallen angel stocks. big names we know so well and what they're doing to the market for distressed investments as the final hour of "squawk box" begins right now. ♪ live from the most powerful city in the world, new york, this is "squawk box. >> good morning and welcome back to "squawk box" here on cnbc live from the nasdaq market site with a song that i guess is from the '80s i don't know i've heard it before >> i haven't. >> boston. >> i know who it is. but it's from the '80s i'm joe kernen -- might even be late '70s. i'm joe kernen with becky quick and wilfred frost. andrew is off today. just getting up to speed on this, "the graduate.

come on. >> i rewatched "fast and furious 7" the other day. >> that's okay that's universal watch that as many times as you want the futures right now are indicated down about 70 points down 36 on the nasdaq. indicated down ten right now on the s&p. treasury yields have creeped back up above 2.70%. we're at 2.71% on the 10-year in this country anyway. and in this country, the government shutdown about to hit a sobering record. ylan mui joins us with more. >> the shutdown is now tied for the longest in history and it is all but set to hit a new record. the administration is going all in on this fight pounding in on the crisis at the border the president meeting today on border security. and this comes after he toured a patrol station in texas yesterday and held a round table on immigration >> it's all common sense and nancy and chuck know that.

look, they're not winning this argument they're losing they know it it's not about an argument and politics for me. it's about doing the right thing. >> right now the only plan "b" is for the president to declare a national emergencies so he can build a wall without congressional approval republicans don't love this idea, but no other options have emerged just yet lindsey graham says that democrats' refusal to negotiate has left them no other option. in a statement he said, i hope it works meanwhile, hundreds of thousands of federal workers will miss their first paycheck today there have been protests and rallies across the country guys, it is quite possible that this is not going to be the last paycheck that thoseworkers miss back over to you >> ylan, thank you very much joining us now is house majority leader steny hoyer. >> good morning. >> good morning. thank you for being here i know if i were to sit down with president trump what i would hear from him. i know if i were to sit down with nancy pelosi and chuck schumer, what i would hear from

them but i'm hoping you can tell us something about how this actually gets resolved rather than talking points on this. how do we get to the point we can reopen the government? >> the way we goat -- get to resolve this is open the government, shut down, negotiate. make sure the border is secure we're talking about means. now, when you're talking about objectives and people have different oktives, that's a difficult negotiation. but when you're talking about an agreed objective of keeping the border secure, stopping drugs from coming across, stopping criminals from coming across the border, there's agreement on that notwithstanding what the president says and the question is how's the best way to do it. and obviously many experts don't believe a wall or fence or barrier works best but that technology works best and personnel work best. but in any event, our position is we've got to stop using the shutting down of the people's

government as a strategy to attain our objectives. and when i say that, we've really had three of these. one was under gingrich and he disagreed with the president's wanting to keep education spending pretty high then we had ted cruz and the freedom caucus who wanted president obama to repeal the affordable care act or they weren't going to keep government open and now we have president trump who's going to keep the government shut until we have an agreement on the wall. now, the problem with using government as a lever, as a tool, and taking hostages. not only the 800,000 federal employees but taking all the millions and millions of people who are served by government every day hostage is that that is very, very debilitating to our country. essentially taking our country hostage. sop what we're saying is, mr. president, we need to negotiate. it could be hard you could veto some of our

bills, but don't shut down government in the process. so this is a bigger issue than just the wall or the education or affordable care act it's an issue of whether or not we're going to use as a continuing policy shutting down the government of the united states and undermining the confidence of our employees, the confidence of people who deal with the government, and the confidence of the international community looking to see whether the united states of america can act in a rational responsible way. >> leader hoyer, when the president offered supposedly $2.5 billion which is a tenth of what many democrats have agreed to many different times, if you were to do that, come together, offer $2.5 billion it's a bone, if you will, just to get this done, you could open the government nancy pelosi and chuck schumer could open the government any time they want just by coming together with the slightest bit of negotiation >> is this joe >> that makes me think they don't care about people not getting paychecks either they just care about making a

political point and denying trump anything in terms of -- why is that wrong though i don't get it. >> joe, what happens next time when the president says, do as i want to say and if you don't i'll shut down the government or the next time after that or the next time after that this is a policy that is an immoral, stupid policy >> which one >> shutting down the government. you know, there were ten shutdowns in the first 12, 14 years i was here they average 1.9 days. the longest was nine days. that's simply because you were reaching towards it. this is a policy this is a policy to take hostage the government of the united states in order to force your view on others i said at the white house to the president, mr. president, what's to guarantee that you're not going to shut down the government a month from now or two months from now if you have something that you say i want

and we think is bad policy and maybe we think it's bad policy in a bipartisan basis there are a lot of republicans who believe the wall he's suggesting is not right. what's at issue here, is this a proper policy to shut down the people's government? i think it's a very important issue. much bigger than any of the underlying issues that people claim it's causing but don't say we're shutting it down we have said -- >> you could get it reopened if we really cared that much about -- >> sure, if we did what the president wants to do. >> it's what everybody wanted to do so many times in the past some type of border security whether you -- >> we're for border security. >> whether you fix fences that are down whatever, however you want to structure it you know you could negotiate but there's no negotiations going on whatsoever. >> he walked out the president of the united states walked out.

>> once she said absolutely not to anything. >> no. absolutely not if you heard that statement, it was inaccurate >> okay. >> i talked to mr. mccarthy about his statement, what the president said in 30 days are you going to be for a wall and nancy said no. she didn't say are you going to be for border security we are for border security by the way, the largest amount spent from '07 to 2017 was when democrats were in charge of the house and the senate in 2009 so don't tell me -- the president's not going to tell me i'm not for border security. i don't think people should be coming into the united states that are not authorized to come into the united states but the president is misstating the facts, certainly most of the dire things he talks about are people who come through our check points, our points of entry. we need to beefen that up. we need to beef up our technical capabilities to x-ray and look into trucks coming across, or vehicles coming across we're for that if we need more personnel, we're

for that the problem is the president made a political promise it was a stupid political promise. it was a dishonest political promise. he said the mexicans were going to pay for a wall. nobody should have believed that it wasn't going to happen. the mexican president said we're not going to pay for the wall. and here we are over his political promise -- that's what this is about. it's not about border security it's about his political promise. >> presidents are supposed to follow through with campaign promises i mean, 60 million people voted for him based on some of that. i just wonder if the middle of the country feels differently about some of this, steny. i really do. i'm not sure who is winning this pr battle at this point. >> i'm not sure who's winning either but we've had three long shutdowns. all have been -- >> i agree with that that's not the way to do it. >> all have been initiated by republicans. >> okay. >> over education funding under gingrich >> it takes two to tango >> under ted cruz and the freedom caucus and now the wall under trump

we have passed bills to open up the government we passed short-term bills so we could negotiate. >> leader hoyer, quick final question you said the shutdown in that tactic is immoral. do you think any form of wall barrier fence is immoral >> i'm not into the morality of the wall that's -- >> you called the tactics immoral. >> i understand. a wall is immoral if you're trapping and locking people in a wall is not immoral if you're building it to protect yourself. so i don't get into that argument it's not a question of morality. it's a question of whether -- >> you implied the morality to the tactics. so it's a fair question. >> maybe a fair question, but i don't get into it. the wall for me is not a moral issue. the wall is a practical issue. is it effective, will it work, is it the best way we can secure the border most of the experts i've talked to including people on the border don't think it is that's the most important question >> okay. house majority leader steny

hoyer, thank you for joining us. >> thank you all right. coming up, the senate -- didn't that other person hear the leader speaker i think that other person -- did you hear them in the background? >> i heard this yesterday too. there's so many there. >> if leader hoyer is speaking to cnbc of all places, other people should move anyway, the senate view of the government shutdowns after the break we're joined by chuck grassley it is affecting farmers and also will lay out the finance committee's agenda for 2019. stay tuned you're watching "squawk box" on cnbc ♪

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call, click or visit a store today. welcome back to "squawk box. futures right now around the flat line. a little bit lower, in fact. down 90 points on the dow. the nasdaq down 40 s&p down 11.6. asian markets, decent for the most part. saw a percent gain for the nikkei shanghai up 0.74%. europe was positive earlier in its session. lost a bit of steam such we're down now around 0.3% even as the current

government shutdown impacts u.s. farmers, agriculture now has a critical ally on the senate finance committee. joining us now, iowa senator charles grassley congratulations on that. i know it's something you wanted but you are giving up some other things that has -- did anything really go on in judiciary recently i wasn't around dpp y did you notice anything? did i miss anything that happened while you were chairman of that committee, senator >> i think you sure did if you don't know about two supreme court justices and criminal justice reform but let me give you a big view of it. it's not so negative when you talk just about judges four years, got 61 bipartisan bills out of committee 45 bipartisan bills past the senate about 34 bipartisan bills were signed by either obama or trump. >> wow

you going to miss it at all? you know, we all wish justice ginsburg as much good health as we possibly can, but, you know, nobody lives forever and i don't know what's going to happen next time after that last one, senator i really don't >> i think you're going to -- i was asked this yesterday so let me give you the same answer i expect things will be back to normal at least as far as legislation's concerned, as far as supreme court and district court and circuit court judges i believe that there's a real effort on the part of the democrats just to shut down the whole filling the judge slots we have and i think it's very anti-trump but that's the way they're going to play it our goal has to be to make sure the judicial branch of

government is functioning as efficiently and productively as it can and that means when you have, you know, 10% vacancies in the judicial branch, we ought to be doing everything we can to fill them >> what about this shutdown? i know we want to talk about what your goals are at finance, but how does this -- do you -- i don't know why you would know any more than the rest of us, sir, but i need to ask you, how does this finally get resolved in your view >> right now i don't see any path to review, because the president over the weekend or maybe monday puts a detailed plan of how he would spend the money on the table quite frankly as you would expect, they expected pelosi and schumer to come back with a counteroffer they didn't come back with a counteroffer so it's at a standstill. the president is threatening

emergency action national emergency declaration i don't think he should do that. i think it's a bad precedent and it contravenes the power of the purse that comes from the elected representatives of the people but i believe that he the threatening t. i don't understand why there can't be a compromise here from this standpoint we've already decided in march $1 billion for border security the president thinks he wants close to $6 billion. so newsroomly you split the difference on almost any appropriation bill difference between the house and senate the other thing is we have so many senators and a lot of house members that have already supported 650 miles of fence then you also have republicans supporting something democrats

want, to do something about the daca kids. so it seems there's plenty of opportunity here to compromise but if pelosi wants to be just very anti-trump and respond to her caucus in a way that shuts down government, i don't know what you can do about it but you got to negotiate is the bottom line. >> senator grassley, i hear what you say about negotiation and trying to find a compromise. but if the president does declare a national emergency you said you're opposed to, you're the second republican senator in two days who said on this program they are not in favor of that marco rubio said the same thing to us earlier yesterday or the day before would you -- what would you do if he does declare a state of emergency? you seem to think that's an overreach of presidential power. >> i think you'll find it in the courts almost immediately and the courts are going to make a

decision and if it does go the courts, i don't know the procedure how quickly it can get to the preemt but if the preemt has the -- supreme court has the ability of closing the operating on it and getting it to the supreme court, i think the quicker the decision the better >> i don't know whether you're going out of the frying pan into the fire or maybe it'll be a little less tactical i watched you very closely that was just something for all americans, really, to witness. i think most people on both sides of the aisle were glad you were there i think it's safe to say that. i don't know even that might be saying too much okay now that you're finance, what are we going to do you think they're going to try to roll back -- democrats i mean -- tax reform are you in a position to prevent that from happening? >> i don't think the senate is

going to do anything to upset tax cuts and tax reform. particularly lowering the federal tax rate to be competitive. and lowering the taxes with the deduction you have so you have some equality between individual taxpayers that are small business people versus corporations you know, that ladder thing where about 60% or 70% of the people are employed by small business, a recognition of equality with c-corporations is surely a legitimate thing no democrat would even want to overturn but we've had such progress. maybe more by regulatory -- less regulatory action than the tax bill, but those two things put together have brought us to

economic growth that nobody ever thought we'd ever have before. because at the end of the obama administration, we were in a new normal and we weren't ever going to have growth over 2% again. so consequently, if the democrats want to let that happen, i can't help >> do you expect that go to go through easily i've been told that you would encourage the president to withdraw from nafta if the democrats don't let that go through. >> that was a headline that left out on awful lot of what i said as a condition that surely -- i backed up or i preceded that statement with this. surely no democrat would want to go back to not having a nafta when we have higher tariffs -- or mexico had higher tariffs

than we do it would undo what good nafta's done then the president wants to come along and improve nafta. and he's done pit and if you look at most of the things he's done, it's been to help manufacturing. and union interests. so i don't see why there would be not enough support on this. there's not enough for environment, not enough for labor or enforcement thap surely aren't saying let's go back to the table to renegotia renegotiate. that's a no brainer. because there are encouraging things we could do with understandings that we can add to it. we can't actually amend it under

the trade promotion authority legislation. but there are ways we ought to look at the concerns democrats have and get the bipartisanship it takes to get it done. and that's going to be my job as chairman of the finance committee because we have jurisdiction over this to put that team together >> all right senator, we appreciate it. everybody's affected, obviously. or many farmers as well as we've gone down the list of people with the shutdown. hopefully -- i don't know, can you say hopefully cooler heads prevail? i don't know how this -- there just seems to be no way out. but we appreciate your time this morning, senator >> thank you >> and good luck chairing the senate finance committee senator charles grassley when we come back, we have some fresh ilaonnfti data coming your way that's at the bottom of the hour [leaf blower]

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we're just seconds away from the latest cpi data. the futures have worsened. now almost down 90 on the dow. down 11 on the s&p the nasdaq giving back about 35 this morning the 10-year is above 2.70% again. let's get to rick santelli the numbers? they're hot. >> yes, december consumer price index expected down 0.1%. did not disappoint spot on. down 0.1%. no revisions to the data if we look at ex-food and energy, it's up 0.2% also as expected year over year, up 1.9% year over year core up 2.2% these numbers are totally in line let's look through the rearview mirror a bit on the cpi headline, 0.3 lower than our last look in november

that's interesting on the core, it's the same across the board 2.2% expected, received. that was our last look as well for earnings, as we look at december year over year, weekly earnings up 1.2% hourly earnings up 1.1%. these numbers are much better than the rearview mirror up 0.6% on the weekly. so we've doubled that. and last look was up 0.8% on yearly so we added to that as well. we popped a basis point. 30-year really has been leading the rate increase charge up at 3.04% right now. highest yield close of the year equally yesterday. we want to keep an eye on the long end as she short end seems to be a little less buoyant in the long end.

finally the dollar index has taken two and a half months to develop. also of course at a three-month high but i caution, we really haven't moved all that much. we want to pay attention to how this effects not only the relationship between our curren currency lots of talk with china these days and the chinese currency has been steadily appreciating against the dollar let's see how long that's allowed. wilf, back to you. >> steve liesman is also here on set. your take may number in line >> in line but a lot going on inside it. 7.5% decline in gas prices that's going to go away. that's what's depressing the headline number. the quarter in line.

there's really no increase in the rate of inflation, right commodities down two months in a row. pretty big 1.5 this month these are month on month might reflect the earnings out there. that there's some softness there. there was a lot going on there and transportation costs looking again for the trade showing up with the tariffs. hard to find more into the details to find that overall kind of muted inflation. we're not seeing a partive to change rates >> joining us to talk more is chief global strategist at

morgan stanley investment. rather than just talk about this number, i want to talk about some big calls you're making for 2019 you say that america has peaked and will begin to decline in 2019 >> you know, my basic point has been this would be in america's decade it is the only equity market in the world which has really done well so the market has tripled in value like america and the rest of the world's markets have done nothing in dollar terms this is a complete role reversal of the previous decade down you had the other emerging markets do well. on a relative basis. this has been an extremely long decade for the stock market. done relatively well compared to the other economies. the point i'm making now is we

could be at an inflection point. you know, that the american economic expansion is quite long in the tooth it's quite mature. the dollar is very expensive and the fact that some of the other stock markets are looking relatively cheap and also the growth prospects in those economies is not that bad. like we saw a big sort of workout of the excesses built up after last decade's boom we could be setting up for a big role reversal after this decade we've seen for america over the last few years. >> the extraordinary decade follows some big turmoil as you alluded to but it's also probably a reflection of our central bank and regulators getting ahead of the financial crisis that took down the entire global economy what's to say that unwinds at this point why do you think that happens? and what particular sectors are you thinking about technology is a big focus for you. >> exactly that is the main thing the main reason why the american stock market has done so much better than the rest of the

world over the last decade has to do with technology. and i think the risks are mounting on the tech sector. given the tech lash which is sort of building out there so one thing which strikes me is this that if you look at the regulatory environment, the least regulated sector in america today is the technology sector there's one that pops at me. that the manufacturing sector, the number of regulations you have for the manufacturing sector are over 200,000. the number of regulations in the technology sector is about 25,000 or something like that. so i think what you're seeing basically is the fact that this has sort of grown in the dark of the night. and now sort of regulatory clampdown is biggening as you see from all of the facebooks, google, et cetera that are sort of building up so i think there are many coming together it's happened consistently really the big question.

>> he was making a point that for technology, it's been the americans who have been leading the way. now we're watching the globe divide into two different spheres. the chinese technology and the american and european technology that's got to be breaking apart. that you might be looking at one that reopened and not so collaborative. is that part of what you're talking about or is that a separate -- >> no. that's a big thing in terms of the -- so focused on the trade wars, et cetera. but the real war that's going to take place has to be on the technology front as well yeah i think there's a lot of head winds building up. the margins have been extraordinarily high the margins of the stock market have been very high. but the margins of the sector have been multiple the sometimes of the overall american corporate sector multiple forces which are building up against this but if you recognize the fact it

has been driven by technology. that for me is the big call. >> if two decades was the bricks and the last decade was the american, what is this coming decade going to be who's going to be the champion in that? >> that's always much harder to call, but the big call the rest of the world does much better. in fact, some of these emerging markets which have been so beaten down over the last decade or so could be the ones where the comeback is sort of formed out there. that's the term i come up with, the anti-bubbles that's the piece i wrote about for the times. which is the fact the anti-bubbles are the exact mirror image of the bubbles. sort of markets and economy in which we've been working out the excesses that's what america did. as you rightly pointed out after 2008/2009 it was america who cleaned itself up. >> american exceptionalism, some buy into it, some don't.

but if it's a real thing in terms of people all around the world came here for a reason they were risk takers. and we have a certain economic system that hasn't been surpassed anywhere else. certain amount of freedom. what's to say we shouldn't win every decade and if we've been winning every decade since 1776, why doesn't the united states deserve to have a top spoth why does it vz v to regress and a continent trying to take a single currency without a fisine financial threat why don't they pass us why does china deserve to pass the united states. i don't understand this whole idea there's a reversion to the means justbecause we were good the last ten years >> joe, i completely agree with you. this is not a 200-year theory. right? this is the fact i totally believe in the exceptionalism. the beginning of this decade was exactly that

but look at the post world war ii history which is the fact that every decade which is one team that captures the imagination the 1970s was oil and commodities. '80s was japan 1990s was again america. yes, america can have it again >> but the top ten tech companies over the last ten years that happened to come from the united states -- and they all do that the top tech companies don't come from american ingenuity and tax reform, whatever you want to attribute it to. why won't it come from here again? >> that's been changing as you know look at the top 20 countries in the world. 11 american, 9 are chinese this was not the case even a decade ago in terms of what's happening. my point is broadly something else which is i feel that the tech sector everywhere has been overhyped in terms of what happened that i think is a major reason as to why the american stock

markets relative concerns in the coming decades this is not the end of america >> we haven't had a bad decade since the '70s i think >> no. the last decade was exactly that the s&p 500, last decade had zero returns >> but from '80 until now, you're talking 700 to 26,000 >> i'm with you. the fact that america will always be the dominant economy >> sounds like a reversion of means. >> for awhile. that's what happened between 2000 and 2010. >> fat and stupid. that's what happens during these booms. >> you mean fat and lazy >> you get fat and lazy during these things relatively others become hungrier and look cheaper. >> i think that's a big factor as well. that's what happened from 2000 to 2010. >> it's a theory

it's a good one. >> thanks for coming in. steve, thank you coming up, the fourth quarter selloff hit stocks hard but debt not as much when we come back, we'll speak to victor khosla about the role of big name fallen angel stocks. as we head to break, check out the futures. stay tuned you're watching "squawk box" on cnbc a business owner always goes beyond what people expect. that's why we built the nation's largest gig-speed network along with complete reliability. then went beyond. beyond clumsy dials-in's and pins. to one-touch conference calls. beyond traditional tv. to tv on any device. beyond low-res surveillance video. to crystal clear hd video monitoring from anywhere. gig-fueled apps that exceed expectations.

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welcome back to "squawk box," everybody. we've been watching the futures this morning you're going to see right now dow futures are down indicated by 100 points. we started with the futures down over 20 points this morning. now as you can see, we have seen a little more weakness s&p futures are down by just over 12 points

and the nasdaq down by about 40 points >> news just crossing the wire an information sharing and engagement agreement between citi and valueact. the agreement will allow valueact to engage with citi's team on operational planning valueact is not seeking a board seat but citigroup is up 1.25% this morning. it kicks off earnings for the banks on monday morning. along with the rest of them throughout the rest of the week. >> all right under an hour now until the opening bell let's get a look at some of the biggest movers premarket from our intrepid dom chu that does this for us on a daily basis have you got some things today >> i do. and maybe things that may or may not be on your radar because you guys cover a lot in the morning here but let's take you up to speed on the analyst actions so far this morning, joe.

first off you got a couple of downgrades both for restaurant companies. first after wul ab starbucks getting downgraded at goldman from a prior buy they're still positive on some engagement trends and comp store sales growth it's handily outperformed the market over the past few years and now there's more caution around china macro concerns amongst other things those shares a little weaker meanwhile, yum brands also getting downgraded to a sell rating based on valuation as well as more skepticism about the recovery of yum's u.s. pizza hut operations and momentum over a taco bell as well. and we also saw a new slate of analysts for netflix as well citing among other things original content strategy and investment it was also upgraded at ubs to a buy rating and expected growth in both u.s. and international subscribers.

but in a tempering of bullish sentiment, morgan stanley kept it overweight but lowered the price target if you look at modestly just how much longer term margins among other things have played out, netflix shares did get hit especially hard during the recent turmoil you can see they're from the lows but it's bounced back strongly versus the overall market since christmas eve. so netflix continues to get those analyst actions. we'll see how it goes with those shares they already had. >> thank you, dom. dom chu for us at headquarters let's look at the distressed market now joining us now strategic value part ners. a distressed focused firm with $8 billion under management. victor, great to have you with us clearly, massive equity selloff we saw last quarter and particularly in december high yield spreads did gap up

significantly. how much did they gap up as you expected with the equity market pullback >> equity market pullbacks are 20% give or take, you often see yields gap up 800, 900 basis points to treasuries this time around, they went from about 300-odd basis points to 540 basis points so this q4 selloff was much more centered around equities than debt particularly high yield >> is that encouraging for the fundamental outlook for the economy? what factors can you draw from that >> i wouldn't draw too much into it you know, in a lot of ways since christmas, the markets have retraced 40% of their losses so we are living in more fragile markets which are extremely volatile so i think drawing big teams from something like this, i just wouldn't go quite that far >> just before christmas, there was a lot of debate about the

level of liquidity in the markets following a statement from the treasury secretary. what's your view on the distress levels >> it is abysmal right? and can i just step back for a moment, right? if you look at high yield, you've gone to a market now where 25% of it is daily liquidity. so 25% of junk bonds are set up where you can redeem out of them daily. at the same time, the trading desks which make markets on this stuff, their capital is a fraction of what it used to be ten years ago. so when you think of -- so when you look at kind of where we are, the markets are just much more fragile, modest moves and redemptions and otherwise particularly in credit markets look in equity markets, you've got trend following, you've got funds. in distressed markets, you've

got this liquidity mismatch which is now just going to make stuff just so much more choppier going forward. >> people talk a lot about leverage loan market at the moment is that a genuine area of fear we should be more focused on >> can i -- the spreads went from 316 to 538, right in high yield, in leverage loans, over the course of q4 that's sort of -- your average high yield spread over 15, 20 years is 500 basis points. >> you say the liquidity is abysmal. a gap here in your rhetoric. what am i missing then that explains why we don't need to be that worried >> the things to -- worrying about kind of monthly moves, weekly moves, overstates it, overdoes it. i would expect just to have much more choppier monthly moves quarterly moves, but the fundamental underpinnings of which are demonstrated by 538

basis points, i wouldn't just overreact to that. >> thank you for joining us. >> pleasure. thank you for having me. >> victor cosla. >> out to san francisco, jim cramer joins us now. i was hoping that the eagles and saints were tomorrow, but it is not, it is 4:00 on sunday, jim, which is okay. >> right. >> i don't have a dog in this race i do have this tie on. i thought about you. even though honestly i don't -- i got a daughter who goes to philly and thinks she's a big eagles fan now all of a sudden but the spread is between 8 and 12 points i think. i don't want to think about that last game at all do you it is a different eagles team now, isn't it? >> you know, i think it is first of all, it is foles, defense has gotten much better when i see that line, usually the -- the bookies are not that wrong. that say blowout it is very concerning to me, because while that is cool to be the underdog and the eagles like

being the underdog, the real worry here is nobody wins in the dome you don't win. only the saints do i am concerned. >> i don't see how a guy that is 6 feet at most can be that good either, drew brees i don't see how that -- i understand the clemson guy, the clemson guy, you know, everybody else is like here, he can see everything, but i just don't see how drew brees does it anyway, jim, we're getting back a little today what is the, you know, knowing that tsa guys might be out, knowing that, you know, craft brewers are sitting on all this beer, it can't be bad. long-term it can't be a positive sentiment for the market, which would seem to get beyond the fed and beyond china for a while and now we got this. >> look, i think if you got literally i do believe if you got the emergency call by the president, which just says, listen, we have to do this, it would help one of the stories that i keep reading is that the farmers

haven't gotten their payments. the farmers are the president's base, the farmers are deere, deere stock is signaling there could be something positive coming on. you get the -- some sort of resolution to shutdown it makes people feel better. i get electricity numbers. the electricity numbers in the d.c. area are down big i think there is going to be impact we haven't factored in starting next week it would certainly ease the pain if we got the people back to work. >> huge week of interviews for you out there in san francisco and including last night what stood out for you most of all this week? >> well, i think what stood out for me is that the data center is actually accelerating again after a bit of weakness. data center numbers are very strong, which helps everything from intel to amd to micron to limb research. these are making a comeback. it makes sense we need to know more about apple and china. apple and china. today there is a story about how apple, we know that decelerated in december, give me a break,

the same news over and over again. nikkai news, that was inthe preannouncement. we got the preannouncement out of the way now we need to see something positive about a trade deal. >> and despite the samsung guidance that came through as well. >> yes, i do, exactly. that's why i felt the american -- you speak to intel and hear great things about data center unbelievable things about autonomous driving that is both nvidia and intel. autonomous driving is the star of the show out here we spent some time with uber yesterday, doing work on autonomous driving and volvo volvo is owned by the chinese. there is much happening in that segment, little carry over from the excellent work that jon fortt did at ces. >> this is a broader question, longer term issue. we were talking about technology he says the last decade was america's decade now we're facing more competition. ian bremmer has been talking about how you're kind of seeing technology split where you have the americans and the europeans,

and then the chinese and the markets that cater to them that are breaking apart and you won't see the sort of one world domination we have seen in the past is that something you think about long-term or concerns you long-term? >> it does for 5g. the chinese are heading to 5g. i would like to see apple resolve something with qualcomm. talked about intel and 5g last night. i think we can play catch-up to 5g, but we do not want the chinese to have a year ahead of us we do not want that as a people in terms of technology leadership 5g is is the next generation can't go to the chinese before us. >> all right, jim. there are three other games too. they're all pretty good. i think it is going to be -- >> we're taking the red eye back to see it. we changed our plans i said i want to go to new orleans. a compromise, taking the red eye and coming back and watching it. i was ready to go to new orleans. i love that town. >> a lot of perks in terms of food and everything else when you go down to new orleans

jim, see you in a couple of minutes. don't miss a big interview, monday, with cantor fitzgerald chairman and ceo howard lutnick 8:40 a.m. eastern time ay tuned you're watching "squawk box" on cnbc screening at her house. 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. ♪ hey, how ya doing? uh, phil. are you guys good with brakes? we're ok. just ok? we got a saying here. if the brakes don't stop it, something will. that's not a real saying.

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welcome back we have been watching shares of activision the company announced a split from game studio bungee which developed the destiny game

franchise. you can see activision shares down 9% on this news news just crossing citigroup, information sharing engagement agreement, value act one of citigroup's largest shareholders with 32 million shares the agreement will allow value act to engage with citi's management team with strategy, government and international planning not seeking a board seat, but citi says if they propose one, it would consider the request. stocks jumped more than it is initially, before the open, up 0.7% and i guess this highlights no major clash between this large shareholder as opposed to anything >> retails, trying to finish this before we get out, i want to ask you if you'll watch any american football, retailers in china are slashing the prices of iphones. analysts and telecom experts blame a slowdown in the chinese market on a slowing economy and

poor pricing strategy from apple. many of the new iphone models are priced around 25% higher in china than they are in the u.s >> yes, i am >> you are going to? >> that was the question am i yes. >> the eagles is the only game i care about, honestly >> eight teams left. >> i only care about the eagles. >> you don't care about kansas city >> no. >> all right >> we'll see you guys. have a great weekend we'll see you back here. wolf, thank you for being here time for "squawk on the street." ♪ california >> good morning and welcome to "squawk on the street. i'm david faber with sara eisen. we're live from the new york stock exchange jim cramer is out in san francisco. final day out there for him. carl is just out today some news to get to on gm, but first a quick look at futures. you see how we're set up for the open roan