2019 "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 market site in times square. i'm becky quick along with joe kernan and andrew ross sorkin. let's take a look at the markets this morning u.s. equity futures at this hour are indicated a little lower dow futures down by 75 points. s&p futures off by ten the nasdaq down by 37. yesterday it was earnings that came to the rescue of the markets. you saw the dow up by about 140 points after goldman sachs, bank of america, several other companies that we heard from kind of soothed some investors concerns about away we're going to be hearing during this earnings season. we do have more earnings coming today. we'll take a look and see where that goes.

overnight in asia you'll see that the neeks neek ended the day down by .2%. hang seng was off by half a percent. then stocks in china and the shanghai composite down by .4% right now in the early trading that's taking place in europe, again, also, red arrows for most of these the cac down by one-third of a percentage point the ftse off by .4%, and then the dax down by .2%. finally, take a look at treasury yields here in the united states yesterday that yield well above 2.7% it's still standing there a little weaker, but right now 2.718% jack bogle, the founder of van garde, and the father of index investing passed away at the age of 89 yesterday. tyler matheson has a look back at bogle's incredible career that helped shape the investment industry >> indexing always works best. up, down, or sideways. >> reporter: in 1975 jack bogle started the van guard group, and

with it a new way of investing >> jack was the creator effectively of the index fund. >> reporter: index funds, mutual funds whose portfolios match a market barometer like the s&p 500, are common place today, but they were unheard of in the 1970s. much less, the early 1950s when bogle wrote his senior thesis about the concept at princeton. >> i said mutual funds should be operated in the most honest, efficient, and economical way possible i have a sentence in my thesis that said mutual funds can make no claim superiority over the market averages. >> bogle's thesis research laid the ground work for what would become one of the most powerful investing movements of the late 20th century he concluded that active trading mutual fund managers failed as a group to outperform the relevant indexes. especially when you subtract

fees and expenses. >> anybody can do it for a year, and if you can do it for five years and if you can do it for ten years, but over an investment lifetime, there's about a 3% chance that a money manager can beat the market. >> after princeton, bogle went to work for wellington management for over two decades. eventually becoming ceo. he was later terminated for what he called an unwise merger he started over putting the indexing concepts from his thesis into practice at van garde. >> investors suddenly found the playing field more level to a certain extent, in fact, to a great extent, i would say he democratized enveinvesting for individuals. >> reporter: that initial fund, called the first index investment trust and later renamed the van guard 500 index, tracked the s&p 500. skeptics ridiculed it as bogle's folly. by 1990 index investing had

taken root the reason bogle turned out to be right in the 15 years ending in january 2017 nine out of ten actively managed large cap mutual funds underperformed van guard's 500 index. today van guard has more than $5 trillion under management. >> jack bogle is pretty much like a t-rex in terms of what van guard is versus, you know, a little tiny lizard over here you don't see too many folks anywhere in the world that manage that much money >> reporter: after retiring from van guard in 1999, he started a research center on the van guard campus there he continued advocating for indexing and buy and hold long-term investing. he called trading stocks a loser's game >> it comes right out of shakespeare. these moves in the market are like a tale told by an idiot full of sand and fury, signifying nothing i think it's speculators speculating on what other speculators are speculating on

>> reporter: speaking of speculati speculation, few would have bet on vanguard back in 1975, even fewer still would have thought bogle would still be jousting with critics deep into the second decade of the 21st century. he had his first heart attack at able 31. doctors said he wouldn't make it to 40, much less live to 89. he had five more heart attacks before undergoing a heart transplant at the age of 65. >> i may be -- i don't want to get carried away here -- the luckiest guy in the word >> some of the biggest names in the investment world sharing their thoughts on jack bogle black rock's larry fink saying, "his appropriate was a major influence on me. he will be missed, but his legacy will be a better future for millions of people around the world. and then goldman sachs sold david solomon saying, owe i made everyone who makes a living in the markets think seriously about what excellence in this business is all about. warren buffett telling me, "jack did more for american investors as a whole than any individual i've known." warren buffett said in one of

his annual letters recently that if there was anybody that you should be building a statue to, putting up a statue to on wall street, it should be jack bogle. he just talked about how he brought down fees and what that has meant for the average american investor. i think you heard in that piece that there's $5 trillion that vanguard is managing i don't think all of that is in index funds. buffett pointed out if you had a trillion dollars in -- being managed in an index fund, that's about $10 billion in fees on an annualized basis if it's charged at 1%. he said he brought that number down to about skbler those are savings that go back into the investors' pockets. >> it's amazing how many people we still have on that make their living saying i'm going to beat the indexes. >> right >> when you have this. >> when you really -- if you look at it long-term i guess some people do probably not the majority of people in the business >> not just a majority i mean, buffett has said that he can count on his two hands the number of people he thinks and maybe even on one hand -- the number of people he thinks can do that over a long period of

time >> for the average investor and i think democratizing it for individuals is what he did, but he was probably a thorn in the side to a lot of people that lived off the fees that were no longer i was joking because i was a stockbroker, and the fees really did come down across the board over the last not just from that, but from other pressure. for everybody everyone who doesn't. for everyone who saves on the fee, there's someone on the other side trying to stay in the business that's not getting that fee. >> there's that old jock where are all the customers? >> where are the customers >> i don't know if you remember this it's an amazing moment i read it last night in the omaha world herald, do you remember buffett surprised him at the annual meeting. in 2017 -- >> when he wrote >> when he wrote about it in the annual report and then brought him to the meeting there was this remarkable shout-out, and then jack bogle wrote a diary entry for the newspaper about being brought there and how he didn't know what was going to happen and how it was this overwhelming emotional moment i read it last night it was one of those moments that

brought me back to the moment just being there because i remember how emotional it was in that room with 18,000 people it really just -- the relationship and friendship had he they had, and also two of the most influential investors in the world in that way in the midst of his cancer, and he talked about it in that diary entry that was published in the newspaper back then. it was something >> i didn't know anything about his health i didn't even know he had a heart transplant >> i didn't know about the heart transplant i did know he had a heart attack at the age of 31 i do remember when i started here 18 years ago or -- 18 years ago, jack bogle was one of the kindest people of all the people i would talk to as a reporter, trying to feel my way around, trying to find things, jack bogle was just a kind person to anyone and everyone he would take the time to talk to you, would say hello, and was a true gentleman too >> right like i said, even buffett who has made a living being smarter than everyone else, is kind of the antis -- buy the market.

>> he is telling his family to do it the bogle way. >> it does for me -- american business, stocks, it long-term is going to outperform those, and that's what index -- >> and honestly, what he did may have hurt certain portions of the industry, but i think wall street overall benefits, american corporations overall benefit when you have a larger portion of the american public that feels comfortable investing in stocks. it does good for both sides. we will talk about jack bogle's legacy throughout the show jack bogle passing away at the age of 89. ♪

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alleged theft of trade secret. the "wall street journal" says an indictment is expected soon shares of zte, as you can see, are off a little bit in premarket trading. down at 15 and change. a bipartisan group of senators introduced a new bill that would ban the sale of u.s. chips and other telecom components to huawei and zte china responding to that proposed legislation calling it in their words hysteria, and in a rare public appearance huawei's founder said that his company does not and would not spy for the chinese government the story at the bottom of the hour i looked over, and i got nervous because you were frantically owning opening an article it was the "new york times." right at the beginning of the show i just got nervous you were cracking open and trying to think about -- >> john bogle dies 89, joseph.

>> i thought you were -- >> that's what i was looking at. >> i thought you were looking at the -- because when i -- >> and i was looking -- >> when you hear someone staying in jail until march, don't you say -- >> i tell you what else i was looking for. >> carlos ghosn. isn't it january >> january he has already been in -- >> he is in jail for -- >> i was looking at the -- >> i was looking at the placement of today's column because guess what i got my hands on last night? >> what? >> larry fink's new letter i don't know if you saw what happened last night. yesterday. >> no. >> there was a fake letter, a fake letter by a group of hochsters. they were saying that black rock was going to get rid of all the fossil fuel stock. they had to remove the article from the website all of the stuff that was -- >> we got put on posted on black rock's website >> it looked like a -- to be --

he sends out an annual letter to ceos every year. then i went on the hunt for the -- >> really ironic if he just copied that and did send it out because i could see him doing that i -- >> that's not what he does in this year's letter, and i was looking -- >> it's as if -- it's actually a very interesting piece this year because it goes back to the letter last year which we've had lots of debates about, including when sam zale said who made larry fink god in a way it's actually a remarkable defense and sort of explanation of what it actually means to have a purpose and how the purpose and profit are actually completely aligned. he goes into it. it's actually very, very well done hopefully we'll get a chance to talk a lot more about the letter >> it makes it sound ridiculous or like it's -- >> no. there was a hoax letter yesterday. >> it's the one that's -- >> that's out. no, i'm saying we have the actual copy of the real letter >> okay. the real letter. >> that just went out to ceos literally i think overnight as i

was looking to see >> it's a good thing we have larry on next week >> see, for me -- >> we had him on yesterday >> if you gave me five of them and told me -- >> pick the real one >> with larry, i'm ready for anything i am i'm ready for him to ban fossil fuel >> he says in his letter that he doesn't think it's his role to actually tell you what to think. >> that's a revised role that's a -- >> i don't think it is >> it's after all the criticism. >> i think he is just clarifying >> i think it's -- >> he is clarifying his position >> it's a clarification of what it means to have a purpose he says specifically in the letter, i'm not telling you what your purpose has to be, but you actually have to have a purpose. by the way, if your purpose is -- if your purpose is to -- if your purpose is to sell guns, he is not telling you stop selling guns he is saying your purpose is to figure out in this world how guns work into it. >> i'm just wondering where. >> what do you mean? >> would you say the same thing? you tell me about income inequality and tell me about guns you seem to be very comfortable

telling me how i should feel >> his role is a little different. >> so you are allowed? >> he is a passive investor. >> i know. i'm just asking you because you're a very -- >> he is a passive investor, and he is saying as someone who has $6 trillion on the line, i can't sell the stocks out of the index. i can't totally -- to the extent i have a view and want to hold you to account in some way -- >> he can't do it. >> i can't do it the best i can do is i can vote against your board i can vote against certain policies i might if i think it's out of line with the purpose of the -- and recognition of what it means for your company to succeed over the long-term. he might say to himself on a fossil fuel company, if you don't have a plan that deals with other types of either -- other sort of recognition of where the world may be going on a long-term basis, i might vote against that >> he clarified it yesterday where he said basically you need to live in your community. if are you an american company, you can't just be wedded to the american communities that you operate in if you are operating in china, you need to be wedded to the

local communities there, too reflect those populations. >> i saw this the other day, and it's a similar thing it turned out it was the onion, but when i read it, i believed it totally polls show increasing number of voters blamed the founding fathers for starting america now, did you -- i thought about you immediately. it's really their fault if you think about it if you go back to it it says those guys back then, these old men living really in the 18th century with 18th century ideas. if you are going to blame someone for the mess we're in, i think it's those guys. >> i want to -- >> doesn't that sound like -- i read it, and i thought, oh, my god. is this aoc? who is this? >> one other thing i was going back to try to find it >> you won't respond to any of my stuff why won't you that i my bait >> it's so obviousus >> he is smarter than that >> one of the things he does say is millenials, we talk about millenials, he this iz that they're going to change the face of what a company has to do and

change the face of investment. >> in a good way >> this phenomenon of companies both employees pushing back, investors, will not only -- will grow as millenials and even younger generations occupying senior positions in business >> oh, god >> he talks about the study that says that 63% of millenials say they want to improve society over profits he says this generation will drive not only their decisions as employees, but as investors with the largest transfer of wealth in history about to happen $24 trillion froo baby boomers to millenials as this wealth shifts and investing preferences change environmental, social, and government issues will be material to corporate valuations that's what this is about. >> it matters. i heard a piece this morning on the bbc talking about ghosting how employees sometimes just don't show up for a job. they decide to quit. they don't tell anybody. they disappear i've always thought that was a terrible practice, but they also talked about the other side of that where you have companies that will send you through three interviews and never get back to you. they effectively ghost you these are the same people the

millenials that watched as they were growing up or were early in their careers one of them was saying someone who ghosted her employer said, yeah, you know, you go for an annual review, and half the people wouldn't come back because they were laying people off left and right. they don't feel a responsibility >> god help -- great economists, many in the past, have warned about the down side of creating a permanent leisure class. we've heard about this you actually forget that it was capitalism, hard work, profit incentives, price discovery, adam smith that gets you to where you can have these really high-minded ideas that are going to solve everything, and, look, europe is very advanced in terms of culturally and you can just measure the gdp and the economic growth when you start to just forget what put you on the map when you forget what -- >> i think you're making this religious. >> i -- religious? >> i always complain when we go off script, this was totally off script >> because i asked you -- >> but you -- >> i got nervous i got nervous because i saw you

reach for that paper i go, oh, no, it's the "new york times. he is opening -- he is getting his talking points >> steve sedgwick has been waiting patiently. he is across the pond, as they say. we should get to him now because after a stunning defeat in parliament, british prime minister theresa may who attempted to negotiate a compromise deal for u.k.'s exit from the e.u. and, steve, my apologies, and thank you for your patience where you are now in britain good morning to you. >> no, no, don't apologize i learned a lot about the founding fathers and about the new veracity of the onion. don't worry about that whacky races here in parliament. you have to remember, 24 hours ago or, in fact, 48 hours ago the prime minister had the biggest defeat ever. last night the same people from her own party, of course, who didn't back her 24 hours earlier then backed her to stay as prime minister she got just about over the line with the support of the

unionists from northern ireland as well. extraordinarily, the people who hate her policy don't want anyone else to be prime minister that's how many people are reading it after her big victory last night by a massive vote, she then said i want to reach out across the floor. i want to speak to all politicians of all stripes from labour party and elsewhere to find some form of consensus to find out we what we do want brexit to look like. they decided resoundingly they don't like her version of brexit that's as opaque as ever the labour liter, jeremy corbin said straight away, i will not enter into talks with the prime minister while she's holding a gun to our heads, while we still have this no deal brexit as the default position that will happen because it's in british law by march 29th if there is not some form of other solution going forward or there isn't some form of extension to this technical article 50 which means that the british will be out of the e.u. on march 29th

where we go forward from now remains unclear because the prime minister can't drop that no deal default position without potentially losing the support once again of those people who voted against that in that big initial defeat of hers if she were to drop the no deal as a default position, then, of course, that opens her up once again to another no confidence vote and losing the support this time around of those tories. one thing we do know, she has to come back within two or three days with plan b, and then we believe that on march 29th, mps will vote on plan b. the problem is no one knows just yet what plan b looks like it's exciting. back to you. >> thank you, steve. >> still arguing >> i'm worried about the world >> still arguing >> i mean, if there is -- we did this >> straight from the baby boomers to the millenials. anybody in between gets squeezed out. >> if we seize the world to the millenials, woulder in trouble is there a better representative of the permanent leisure class

as someone who lives at home with their parents looking at a screen 24 hours a day and facebooking or whatever? >> look at changes as people grow up and they get married and have kids, they all -- >> that's the key term right there. grow up. that's the -- >> that happens. >> when? 40 >> when they grow up irrespective of the issues you're talking about, their interest in some of the other issues are going to matter by the way, it's -- this is about consumer behavior. this isn't about whether you think you work hard or not i think we're talking about two different things here, joseph. >> i'm talking about whether you have any idea how to run the world in terms of what works and what is going to end up where you are going to end up eating zoo animals for food or eating your pets because you're hungry. >> we all sound like grouchy old men. >> i have heard that before. i don't care if you are right. >> i hear myself doing it. i'm trying to stop >> i have seen in the past i have seen when i was growing up, people that get to a certain age, and they don't recognize -- they said back then they didn't recognize the world they were still living in, and i'm

starting to see what they were talking about. >> get off my yard >> you'll see, andrew. you'll see you're right in the sweet spot right now. you know, the world is your oyster coming up, new -- a new development in the case against carlos ghosn this, you know, could have -- he is going to be in jail for six more -- what do you do if you are carlos ghosn >> nothing, basically. >> it means that the ousted nissan ceo will remain in jail for at least two more months that could be two days, two weeks. details next plus, a couple of big names on the day's earnings calendar. going to hear from morgan stanley later this hour. then, today after the bell we're going to get reports from american express and netflix "squawk box" will be right back. was ahead of its time.

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welcome back to "squawk box. out new this morning a tokyo district court has upheld an earlier decision to deny carlos gh ghosn bail the ousted nissan chairman has been charged with financial misconduct he must stay in jail for at least two months after charges are filed. that means that ghosn will be in jail until march 10th. after that the court will review his detention each month his attorney has said it is likely he will remain jailed through trial, which isn't likely to begin for at least six months. >> wow >> can they just continue to add new charges every time every time -- it's this game of did. >> i don't know if there's -- is there a limit to which you can continue i imagine there's no limit >> will you give me the list of the countries that we just want

to absolutely not -- >> well, this was the question >> i mean -- >> they dant can't do anything you have to have done something. >> i know. >> that's the question >> this goes to the issue of we were talking about flying places with oscar munoz there are ceos and other executives want to go to china? >> how about switzerland >> except for the avalanches >> how about france? >> tell me i'm willing to listen. >> i don't know enough about the legal system i think you'll be okay over there. >> yellow vesters are all over the pla is i think there's another thing planned for saturday i do i think they're calming down a little bit at this point more on "squawk" to come new jersey looked pretty good. new york city is pretty good talked about it right here >> squawk. stocks under pressure after yesterday's rally. fueled by better than expected bank earnings. we're going to talk strategy

next an offer at 82 points right about now. plus, we'll get quarterly results from morgan stanley in the next half hour we'll bring you those numbers, of course, and instant reaction from the street, and as we head to a break, take a look at yesterday's s&p 50000 winners and losers

zbliefrmt welcome back you're watching "squawk box" live from the nasdaq market site in times square. >> good morning. welcome back to "squawk box" here on cnbc take a look at the u.s. equity futures at this hour dow looks to open down about 78 points nasdaq off about 37.5 points s&p 500 off about ten points all of this may change we have big earnings reports coming up in just a little bit several big earnings reports to note, as i mentioned, morgan stanley expected to report this half hour. we'll be watching that one quite

closely after yesterday's banks beat helped poll the markets higher after the closing bell. today we'll be hearing from american express, and, of course, the one that so many people in media and tech are focused on, which is netflix >> the monthly feed, does anyone notice it's got to be great for the company, right >> i think the question is when there's a downturn, what are people going to start. when i say downturn, there's an economic down turn, a recession of any sort, whether you think people start to say, okay, you know what, netflix, hulu, amazon >> maybe competition >> at some point you'll have to do those >> that will be good for consumers, obviously if you are in a hotel, and they have movies that are still in theaters and you drop $20, and then it's $12 for netflix or whatever, i mean, it still seems like as much as you might use netflix, it just still seems like a pretty good deal. doesn't it i mean, it's a great business model. it's unbelievable. >> oh, dollar for dollar -- >> that's what i mean.

>> why not raise the prices a little. >> some people will say it's the cheapest -- some people use it as a baby-sitter, i hate to say. >> okay. >> no, really. if you think about -- >> anyone you know john lynch, chief investment strategist and here on set is david bonson, chief investment officer of the bonson group. like a brother from a different mother, when i read this stuff that you are saying here, david, that i'm afraid to say in public really -- >> i can tell you're afraid to say it >> yeah, exactly >> you remain overwhelmingly pro-brexit >> of course >> even if it was just -- even if it was with not a deal. get out. >> it's entirely unnecessary, but if that's what it took as a hard brexit, it would be superior to the alternative. i don't think it's going to come to that. >> why are you -- there's people that think -- most people that have a horse in the game, and

i'm talking about blankfein or previously they look at brexit like it's the end of globalism how would that ever make sense >> it's not a rhetorical question i've asked the same question to some of the types of people you are referring to, and will never get a satisfactory answer. i think just down to the question i asked that you are talking about in my notes, when has freedom ever been bad for markets? just in a basic sense. the answer is never. there's never been a time where increased freedom -- >> hence, increased markets. >> that's what we were brought up to believe here, right, in terms of our believes and our american private enterprise. i do believe if brexit were what its opponents have said, it would be bad for markets if it represented a wall to doing more trade i think the opposite i think u.k. negotiating their

own trade deals will lead to greater trade, and i think that there is absolutely -- there's tons of precedent in other countries. i just want to point out -- i'men going to get into specifically with blankfein, but our other critics of brexit said the exact same thing it saved their economy or country that they didn't join the debacle of a currency 20 plus years ago now, one of the things that i think could happen is a big unexpected bout of monetary stimulus, and that would absolutely spark their markets it just kicks the can further. i don't want them to do that, but i don't think it's off the table. i mean, when they talked about the bazooka, seven p years ago, he meant it, and so to me the issue of them trying to go more fiscal stimulus, markets respond negatively it doesn't work. they're not doing what they really need to do to cure what ails the european economy.

for us there's no scenario i see where things go really well in europe and don't go really well in america so that exposure we would normally have to european equities as global investors, we just are a little more u.s. heavy in that sense. >> john, you're listening. are you nodding or rolling your eyes >> to a degree i'm fod inoddinge good morning >> good morning. >> look at the way the market -- is the market getting complacent you think what happened on june 16 to the pound sterling as well as to the global equity market ask then you see the way the market performed this week while the other guest has very good points, david does, i think it's important to keep in mind that the impact of uncertainty on future investment and that's why we're concerned, and it sounds like david is also concerned about europe en only is it the uncertainty of brexit that could slow down personal consumption as well as business investment, but we have slowing growth in germany. we have certainly the italian

debt situation, which really is a big deal when you consider the two extremes and coalition governments trying to get everything together. it's a third or fourth largest credit market in the world we're more concerned about italy than we are brexit >> in terms of the markets here, david, let me just summarize quickly what you are saying. last month when things were pessimistic, there was really if you look into the abyss, there was nothing necessarily there to account for it even though now we've come back a little bit there are significant headwinds, but things overall are -- don't really explain a 20% drop or whatever it was. >> that's right. fang having about 40% come out from peak to trough. i can justify all day on a valuation basis. these -- that was away what scared me is some of the companies dropped 40% and then were trading at 100 times earnings fang is sort of a separate story. within the broader market, particularly the dividend growth stuff that we do at bonson

group, says to me if those issues with the fed, they really do blink, which it appears that they are blinking. >> you say no hikes or cuts in 2019 >> that's our forecast, and it's clearly what the fed funds futures market is saying as well it's a kind of lifetime thesis of mine. i don't think any fed is ever going to shock markets again the fed futures are going to give you a better indication the other issue i refer to is the trade war, and business investment did collapse in the last quarterly gdp print it was so large and fourth quarter 2017 and first and second quarter 2018 that cap-ex investment that we got out of president trump's tax reform and some deregulation, all these good things, it collapsed, and there's no explanation to me other than businesses hitting the brakes around the threats of the trade war. that needs to be resolved, but i also believe it's going to be resolved >> okay. john, similar thoughts sorry you have to keep responding to david like he is the grand poobah, but what are

you thinking >> i think david is correct on the capital investment stand point. we grew about 10% in the first half of the year, and as the trade uncertainty escalated, it ground to a halt, and, unfortunately, we may not have the data now on january 30th like we're expecting for fourth quarter gdp, but nonetheless, we really believe that the federal reserve -- we don't look for a cut this year, but they have several other tools they can use. they can announce a pause and then they can pause. there are a variety of things that can go on i do believe they're going to maintain balance sheet reduction, which as you all know, will have an upward bias on market interest rates, and we think that will be a positive for the economy pointing towards continued growth and the 2.5% range in 2019. >> so end of -- the highs of the s&p this year, john, in your view will be just approximately? >> i think we can finish out the year near a new high typically, it takes about a year to repair the technical damage like we've experienced if you look at the last 100 years of bear markets, but if we've made

10% back, right, but i think we would all agree that was an easy 10%. we dropped like a rock there was no base camps. now we really have to count on the fed. we have to count on profitability. a path towards progress on trade, and then when you get that sort of clarity, i think that's when equities will respond. >> it may not take a whole year, and here's the two precedence i'm using. remember august of 1998? that's when they dropped 20% in a month for a lot of the similar situations we have now the fed completely blinked, and you had the markets rally hard in less than one quarter then you just go back three years ago. january of 2016. worst january in the history of the market we reversed by end of february, and markets are making new highs by summertime. i think that those two precedents are a lot more like what's going on now. it was not a recessionary correction it was much more technical and short-lived and cyclical in that sense. >> okay, david david bonson

john lynch of lpl financial. still to come this morning, morgan stanley set to report in just the next few minutes. just a day after beats by goldman and bank of america helped drive stocks higher we will bring you those numbers as soon as they hit the wires. later, two branches of the u.s. government are going after chinese companies accusing them of spying for china's government we have the details straight ahead. also, remembering an investing legend jack bogle passing away at the age of 89. we will talk about his life and his impact on the way that americans invest and save. stay tuned you are watching "squawk box" on cnbc

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the "wall street journal" reporting that federal prosecutors are now pursuing a criminal case against chinese tech giant huawei for allegedly stealing trade secrets from u.s. business partners, including t-mobile this comes a month after canadian authorities arrested huawei's cfo at the request of the united states. joining us to break this down, jacob frankl, former u.s. federal partner and prosecutor at dickinson write help us understand what you think the implications are of this and, frankly, how this ends up playing out in the larger context of this trade war between the u.s. and china. >> that's a great question because there's that tendency to

associate investigation and criminal prosecution with the trade war. the fact is, in the united states as we know, prosecutions, criminal investigations in particular, are driven by the merits of the allegations. what's particularly unique here and particularly in the economic espionage act of 1996 derived investigations is we're seeing more and more of the civil litigation involving theft of intellectual property driving a criminal investigation i think that's what has occurred here which is the information has come out of the civil litigation to me there's no question this is part of the trade war, but this investigation is going to stand on its merits, the most important message from my perspective, particularly when you're counseling boards of directors, is theft of intellectual property is very much a hot topic and the timing of the news of this investigation, whether there is or is not a criminal prosecution, i think there very likely could be one and this could potentially be the highest

profile prosecution of a company under the economic espionage act of 1996. the fact is, this is a topic that should be part of board discussions, audit committee discussions during the meetings around this time of year along with the other hot topics. it's a good reminder and there's a hope that a prosecution investigation is profiled. >> just to put a fine point on it, you don't put this as a chess piece in this larger debate if not fight with china and the reason i ask is because people have looked at the arrest of the cfo in canada as a chess piece in that fight. we saw how zte was used in the fight thus far. >> i do not. because this case has been in the courts for a long time it's certainly put on the chess board and will be discussed that way but for there to be a criminal investigation, that mean there is has to be allegations that rise to the level of potential criminality

we've seen that here that's why this is being pursued. i think the doj, despite the fact that there is the possibility of -- obviously priorities are set by the administration and we also have to remember that the president during the campaign set a zero-tolerance policy for s intellectual property theft from china. so it's a chess piece but i don't think it's driving the investigation. >> do you think huawei will be able to sell in the united states long term >> that's the trade question i do think, particularly with the legislation introduced on the hill that could be challenging but i think when you talk to people into the into lech which you will property space there has been a recognition that the relationship between huawei and the chinese government is one that caused those who understand the industry to stay away from

huawei products. but i do think -- i do think there could be limitations opposed and that's where the chess game does come into play. >> real quick, huawei's founder came out publicly, spoke for the first time, said we're not spies, we don't do this. >> my answer is our investigations are driven by the merits if there's a criminal prosecution. that means u.s. federal prosecutors believe that there is information, that there's evidence that would form the -- that would be sufficient for a jury to return a conviction. i think what we have to see is is there a charging document what does it allege? but if you look at the purpose of the economic espionage act, there potentially is a basis for prosecution. >> jacob frenkel, thank you, sir. great to see you. coming up, we'll talk stocks on the move ahead in the opening

bell futures are indicated down just under triple digits. we'll talk about the impact of this week's big bank earnings including waiting for morgan stanley. and later remembering an investing legend we'll talk about jack bogle and his impact on the markets in the lives of mliilons of investors stay tuned that's "squawk box" on cnbc.

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break down the market's reaction. the government shutdown weighing on the economy and homeland security. senator shelley moore capito talks about getting a deal done. and remembering a legend, jack bogle passed away at the age of 89. we'll talk about his life and impact as americans invest and save as the second hour of "squawk box" begins right now. >> announcer: live from the beating heart of business, new york, this is "squawk box. good morning, welcome back to "squawk box" here on cnbc we're live at the nasdaq market site i'm andrew ross sorkin with becky quick and joe kernen nasdaq off about 36 points, s&p 500 off 11 points. we have big earnings reports

coming out today we'll get to morgan stanley in a couple minutes and later this afternoon lots of eyes are going to be on netflix. >> that's better that's better than all eyes because you can never really say all eyes. >> all eyes on something let's tell you about a few other headlines. vanguard founder jack bogle died at the age of 89 he was best known for the introduction of the index mutual fund he's being remembered by many on wall street today and we will talk more about that in just a little bit the government shutdown continues into a 26th day and the latest economic numbers that won't be released as a scheduled result are december housing starts and building permits. however, we will get the latest initial jobless claims and the manufacturing index. those hit at 8:30 eastern time and a widely anticipated earnings reports comes after the closing bell when netflix releases quarterly numbers netflix is expected to report earnings of 24 cents a share on

revenue of $4.2 billion. netflix shares surged after the streaming service announced a price increase this morning stock is trading at just above $350. we are getting earnings from maybe not the companies we raised a big flag on but alcoa, a couple other stocks to watch alcoa reported a profit of 66 cents a share and that was above forecast by 16 cents although it was in line in terms of revenue. stocks not responding, though, down over a percent. and csx beat estimates by two cents. quarterly profit of a dollar while revenue for the quarter was inline shares of the railroad operator forecasting slower revenue growth for 2019. china confirming high-level trade talks with the u.s we'll pick back up they say at the end of the month china says its vice premier will travel to washington for two days of negotiations those talks get under way

january 30 the united states is reportedly pursuing criminal charges against china's huawei and zte for alleged theft of trade secrets. the "wall street journal" says an indictment is expected soon check out shares of zte. down by about 3.5% in the meantime, a bipartisan group of senators introducing a new bill that would ban the sale of u.s. chips and other telecom components to huawei and zte china responding to that proposed legislation, calling it hysteria in a rare public appearance, huawei's founder said this week that his company does not and would not spy for the chinese government. >> all right, let's get thoughts from this morning's guest host, david wessell from the brooking institution. mike santoli is also here. you're from washington, you know what's happening in terms of the government shutdown but i think about those two things being related. talk about a crappy time to

raise rates. if every week you are shaviin shaving .1% off of gdp even what may be a specious notion in the first place, stronger growth means i need to raise rates, even if there's no inflation, i don't understand that. but if you're damping growth by a tenth of a percent every week, i would think it makes the fed even more dovish. >> i think you're right. the fed doesn't want to tighten into a slowing economy in the first place. there isn't very much inflation, as you said. i think it's confusing about what the shutdown does to the gdp. some of this will be recovered when people are paid back but it's no doubt it's a negative and the other thing is if you're looking at the economy trying to figure out are we more in danger of overheating or undershooting, having less information just makes it harder. >> from the lack of government numbers. >> lack of government numbers and how much is this uncertainty and anxiety about our government functioning undermining business investment so you look at the combination

of trade talks, who knows what's happening with them, market volatility and now the shutdown. it puts the fed on hold for a while. >> do you think looking back at some of powell's comments, do you think that he felt maybe he was as the successor to janet yellen and bernanke maybe he sort of saw himself as the person to reverse a lot of what went on following the financial crisis and therefore he just didn't understand that words matter and that you just can't assume that that's what i'm going to be doing? i'm going to be raising rates? i'm going to get back to 5%. >> i don't think that's what happened >> did he put his foot in his mouth? >> yes six months ago they looked at the economy, the economy seemed to be doing well, inflation was creeping up. >> was it? >> yeah. >> the economy is doing well -- >> they were expecting things to continue the market was very strong so they -- the forecast, whether you like it or not, led them to believe they should raise rates. the world changed and they changed. i think you put your finger on

something else it's really hard to become the chairman of the fed and appreciate how every time you change your words the market moves. and he's learning that as he goes and i think he made it a little hard for himself because he likes to think of himself as a plain spoken person. >> i was going to say just that. i listened to him and he sounds very different than any fed chief that i remember ever covering this in my professional life he speaks in a way that people can understand he actually says something when he speaks and most fed officials i think in the past have spent their time trying not to say anything when they're talking. >> absolutely. i like to say that -- well, alan greenspan had a sentence syntax unto his own but janet yellen and bernanke, economics was their first language and for powell it's the other way around and he's learned it's hard to be nuanced -- >> appreciate it as somebody listening. appreciate the way he speaks. >> there's an advantage to that. it makes people think like the guy in charge can speak their

language and it may build trust -- >> his timing is horrible. that's the worst time to become fed chair. volcker had a tough job but he ended up doing what needed to be done and he's a hero. >> and never spoke in declarative sentences ever. >> but we think of him as a giant. he took the punch bowl away but we knew we needed it but now it's a lose-lose for powell. >> the world won't tolerate a fed chairman who speaks the way alan greenspan did and nobody knows what he means so i think times have caught up with him. >> and volcker operated at a time when they didn't announce they changed rates it's a totally different era of transparency and communication. >> but he was taking the punch bowl away and i don't know if there's any way we can think back and say well, powell has a tough -- he's in a tough spot. >> most of what he's done is continuing what is in train. >> we'll see bernanke's first year was boring. >> boring is good. >> do people think volcker was such a hero at the time? i don't know, i don't remember, but my guess -- >> we had stagflation of like

25% -- misery index of 25%. >> my guess is people probably thought less kindly of him. >> yeah, there was a recession three years into his term, it was a bad one, it was a double dip. it didn't seem like a success at the time, probably. >> but i wonder whether -- i've heard this was the worst market reaction to a fed move since like 1994. >> if you go back to october 3 when he infamously talked about being a long way from neutral, the dow made a high that day, oil had not crashed yet, the rest of the world was kind of wobbly but not -- we look back and say -- >> traders were like what did he say? >> but to the plain-spoken point, it was a town hall forum and he was trying to say let's not even talk about getting above neutral, we're not even at neutral yet. that wasn't necessarily meant to be a hawkish thing. >> and i can listen to him and, again, understand the perspective he's coming from where he's trying to speak honestly and answer questions. >> you don't know with you went too far until the market tells

you so. >> i think it was the press conference where he seemed kind of tone deaf to what was going on in the markets and the balance sheet shrinkage is on aug autopilot. if he could take that back, he would. >> i never tire of whether growth causes the needs to raise rates. you think about it if we are in a period -- and you're a big thinker at brookings, you think all the time, don't you? >> the hutchins center at bookings. >> oh, yeah, he gets mad if i don't say that hi, glen the hutchins center. glen hutchins. hutchins, hutchins, hutchins we had someone come in here and say the disruption of technology in terms of price discovery, amazon, internet, whatever it is, how do we know we don't need to worry about inflation in a secular way so we can let it roll, let it -- let low rates stay, there's no inflation let's get as much growth and

prosperity as we can without worrying about a phillips curve. >> don't you think that's what they're doing? >> i think we are there. but how else could 2.35% be neutral? >> exactly the trouble is if you're sitting at the fed you have to decide are things different or is the inflation bus around the corner. >> what would you used a the fete if you don't use oil or copper or the stock market do you use flying by the seat of your pants models >> you're not going to use models models are the way you learn from the past. >> don't you think the markets might be -- >> and you learn from the markets. >> i think they look back. >> models for the market. >> the biggest mist i have -- to them is why inflation hasn't taken off and if you're in that situation you can afford to be, in their word, i keep looking for it in neon on the fed

building, patience. >> and you say there's no inflation. inflation is roughly where it was when rates were zero when short rates were zero now they're two. so you can say we don't need to raise rates to head off inflation. i don't think the fed thinks it's in this kind of tough fight against inflation right now. they're just in this normalization mode of saying look, let's get in the the zone. it doesn't seem to have a big impact on inflation at n oin ony or the other. >> there are plenty of people who say that the fed needs power. >> i remember us making that argument years ago i remember we would have these conversations. there might be a recession coming, we need to raise rates and cause recession. >> you don't want to cause recession but if you can get back higher -- >> i'm with you, joe. we'll press pause and continue this conversation we have morgan stanley results, we are awaiting them we'll bring you those numbers and instant reaction let's show you futures

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saw goldman sachs as the biggest advancer that helped the dow more than anything. >> it was the financial sector s&p financials up 2.5% it's about one-seventh of the index that accounts for whole s&p gain yesterday as we get to this level, people said okay, now we're back to early december stock prices in banks and the overall market, what can gather us up from there? it's been a headlong sprint up to this level. futures indicated down by 100 points wilfred frost is standing by, let's go over to him. >> okay, morgan stanley just hitting 80 cent. is that a clean number >> it's a miss 80 cents eps the expectation was for 89 cents and the revenue came in behind as well. $8.5 billion, the forecast is for $9.3 billion if we dive on to their wealth management business which would have been tough given the market

environment, the revenue there 4.1, the expectation was $4.45 billion and the pre-tax margin, which has been improving over the long term is something analyst watch a lot, disappointed the forecast 26.5% again, if that's a one off perhaps the market will look past it. it was a tough quarter for markets. that flows through to trading as well equities was decent. that was 1.9 billion in line with estimates fixed income as with the other big investment banks, that disappointed 564 million. the forecast was for 800 million, of course, for morgan stanley. fixed income is smaller than equities so less of a hit than perhaps it could have been investment banking solid overall on the front page of the press release. they do say firm wide net revenues were negatively impacted by the volatile global market environment that comes through both on the fixed income trading and wealth management performance so eps was a miss down 2.5%. remember, week to date coming into this it was up 6.5% at

yesterday's close, so giving back 2.5% this morning. >> they got a tax benefit. it says fourth quarter earnings per share was boosted seven cents by a net discrete tax benefit so i just wond is it re - wonder is it 73 cents? >> it's forecasted in. >> you never know, it is in this one. the con census was 89 cents. all the banks came down. so 80 cents the estimate for 89 so a little behind expectations. >> it's not bouncing yet almost 4% now, wilf. >> 4%, on monday and tuesday we saw banks beat on one line but not the other. citi beat on revenue

that dragged the sector higher including morgan stanley it was up 6.6% week to date coming into these numbers, up significantly since christmas eve. >> fourth quarter revenue hurt by the volatile global market environment. >> i thought they made money on volatility. >> that's what i mean. we were talking about that they like volatility until they don't like it. >> it was a huge drawdown. >> it was a different type of volatility. >> there was no upside. >> limited ability to capitalize on it. >> the thing they've grown a lot in recent years is wealth management so there's the trading, the execution part of the business in the investment bank which caused benefits from good volatility and the equity market did the fixed income did not thankfully for them that's a smaller portion of total trading. then there's wealth management part which i said total revenue now 4.1 which is sort of roughly 50% of that business, just behind 50% and wealth management, of course, gets hurt

when markets turn down. >> apparently the global environment remains uncertain. according to mr. gorman. >> as it has been since the beginning of the world. >> since time immemorial. >> the stock market was up 20% since the market low, morgan stanley, in line with most of the other banks. it's pitting together with a sense out there okay, maybe time for a rest in general. >> in terms of how far. >> that's right. >> other things we should look for in comparisons between morgan stanley and the other banks? >> i think the market has shown an ability saying we don't care about that quarter and the thing wolf mentioned, you want to investigate what is happened there whether it's an investment bulge but when you've built this entire wealth management business to be asset based and collect a fee off the value of

the portfolioins last quarter ws as bad as it gets. >> capital markets will always be tough goldman sachs performed well with low expectations despite a tough environment for pure investment banks morgan stanley given what is a tough quarter for their businesses haven't knocked the ball out of the park. >> what does the market look to next in terms of earnings that matter financial is the beginning of the season now what >> probably global cyclicals and the big tack those are the two areas where the industrials have been a little bit in the penalty box because of trade and other reasons and, you know, i think their guidance is probably going to matter and then tech in terms of risk appetites and exactly how the indexes are relying on them i think that will be the next thing netflix is a one off you can't look at netflix's business and extrapolate it into the consumer or other industries or anything else. >> although we had an interesting conversation about

netflix and the competitors with everybody launching their own over-the-top service or whatever you want to call these services. how much of an appetite is there for these multiplying services, consumers may have to choose if there is an economic downturn. >> right and netflix feels like they here in a positionover being the indispensable one and if there is a finite amount of monthly dollars to go to streaming they'll claim more of them up front so economics -- micro economics haven't been repealed. if you raise the price too much it will lower demand but we don't know what that level is. >> mike santoli, thank you for being with us. david wessell is our guest host. coming up, much more on the market movers of the morning morgan stanley will be one of them up next, why millionaires are flocking to florida. robert frank has a preview of

what's coming up >> home prices in miami jumping 10% in the quarter while new york just had its worst year since the financial crisis we'll look at how the new tax law may be causing that millionaire migration. and we'll show you a new condo tower in miami designed by armani right up after the break their questions. ring 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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welcome back to "squawk box. a new tax law is making it more rewarding to move to florida i thought it was supposed to be rewarding already but robert frank is here to tell us why there's a migration of millionaires heading to the sunshine state meanwhile, other parts of the country are lagging. >> you get the sunshine now, you get the increased tax benefit. it's a tale of two real estate markets. the northeast under pressure for over a year while florida is posting strong growth. the average sale price in miami jumping 7% in the quarter. single-family homes up 10% according to a new report from douglas and miller samuel. boca, ft. lauderdale, palm beach also posting solid sales with prices in boca up 20% meanwhile, manhattan just had its worst year since the financial crisis and in greenwich, connecticut, prices just fell 19% in the fourth

quarter. there's a 2.5 year supply of luxury homes in greenwich. joining us to break it down is the president of dezer development. they own 22 buildings in new york and it just completed the porsche design tower in sunny isles. you put your car in an elevator. and it's building its 11th building in florida, the armani casa nearby also in sunny isles. thanks for joining us. the tax changes. what are you hearing from buyers coming from the northeast to florida about the impact of these tax changes? >> well, we've met with several buyers today you don't have to live in florida the full six months but you have to be there more than four or five months and you get the benefit of serious savings compared to living here in manhattan. a person -- a business owner making a million dollars a year will actually be saving enough money in taxes to support a $2

million mortgage on a condo in miami. so that gives people an idea to maybe relocate the family, better life-style, better weather and that's really kind of what is driving sales right now. >> you have six trump buildings that you built in sunny isles. a lot of discussion here in new york where they took the trump signage off the buildings. how are sales in your trump buildings in florida right now >> well, we shouldn't forget florida was a swing state so there are a lot of trump supporters in florida as well as our market is a -- geared towards south americans and well and south americans are tremendous trump supporters. they love it so prices have sustained and continue to go up. >> and not to get into a russia thing, but russians were big buyers in sunny isles in those buildings. >> ah-ha >> are they still buying -- >> i'm not going there. >> why not >> as a market, as a market. >> he likes russian dressing, too. everything is pointing that way. >> everything's pointing that way. >> the russians, russians from russia are a market that's

quieted down because of the sanctions and what not but we still have the local new york russians, the brighton beach russians that are coming down and having their second homes. >> i want to ask you about armani tower you've done two really now famous branded buildings, the porsche tower, which is porsche designed, they helped design it. armani tower which now the total sales in that building could be close to a billion dollars how does that work do you pay armani? is he designing the building is he designing the furniture? how does that work >> when we got together with the armani team he gave us his design team that designs all of his stores and hotels and those kind of places and they're the ones designing all the common areas of the building. so the lobbies, spas, and the areas of the units that unit owner will enjoy are designed by gorgio armani and unit owners have an opportunity to by armani designed furniture pact. so flooring, walls. >> what does that call for a whole armani-designed unit.

>> probably a million and a half of the $2 million as an upgrade for the finishing. >> this is armani not mani. >> this is the real gorgio armani. >> i had a mani suit once. andrew, tell me again if you're making a million dollars the tax savings allows you to buy a $2 million condo with just what you save in taxes? >> the tax savings is approximately 10%, like 9.8% so if you're making a million dollars 10,% is $100,000. >> i saw andrew twitch can you imagine, andrew, that your tax savings will pay for -- >> basically. >> i was down there this weekend trying to buy -- no. >> i got a place to sell you. >> but when you put it that way, that is -- i heard that, i heard you say that and thought wait a second. >> he wants to talk to you after the show. >> and a lot of new yorkers are thinking the same thing. why pay the tax man when you can have a free apartment in miami. >> but the question is, is there enough industry or do these people become flyers and calendar watchers in terms of

183 days about when they're coming back? >> definitely calendar watchers and flying back and forth but that's -- it's also at the same time a better life-style. >> you here in the warm weather. >> do you know there are apps that will count your days for you. there's a whole business behind that. >> he knows all this stuff. >> and if you want to work from home -- >> does anybody who buys a condo on the beach in miami ever ask you, like, is this a long-term investment am i going to be flooded out when the sea rises or what >> the good part about miami is we are physically -- we have a physical barrier, we're on the ocean. it's not like dubai where we're making more ocean front so people are buying there understanding this is the last available ocean front in all of miami and dade county and so, you know, sea level rise is not that much of a concern today, it might be in the next 50 to 100 years. >> 11 inches since grant was president. can i say that again >> you know what we haven't talked about and we won't now, but the fed chairman, yellen,

alan greenspan, did you see what they did yesterday with the carbon tax. >> yeah, i did austin gools by. faang stocks biting back in 2019 we will tell you how to play the biggest names in technology. also, check out futures under more pressure since we heard those disappointing results from morgan stanley. dow futures indicated down by 125 points down 99 points before we heard from morgan stanley. s&p down by 14 ahend t nasdaq indicated to open by 38 points "squawk box" will be right back.

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we are celebrating the life of vanguard founder jack bogle who died at the age of 89. bogle was best known for introducing the first index mutual funds designed to track the performance of benchmarks like the s&p 500. >> some of the biggest names in the investment world sharing their thoughts on jack bogle larry fink saying, his approach was a major influence on me. he will be missed but his legacy will be a better future for millions of people around the world. and david solomon saying he made

everyone who makes a living in the markets think seriously about what excellence in this business is all about. warren buffett telling me, jack did more for american investors as a whole than any individual i've ever known. pointed out how his thesis, his college thesis he later built vanguard on drove down fees astronomically buffett pointed out that for a trillion dollars -- and, by the way, vanguard now manages $5 trillion but on a trillion dollars, the management fees of a 1% management fee would add up to $10 billion a year that's money he drove down to almost zero, money that stays in american investors' pockets as a result. morgan stanley results dragging on the financials this morning. tewel break down the results afr take a quick break. "squawk box" will be right back. [knocking]

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is the true value of active investing. and around the world, you have a partner in that pursuit. pgim: the global investment management businesses of prudential. welcome back, everybody. let's get to dom which you he has a look at this morning's market movers. morgan stanley the big one today. >> morgan stanley is the big one and you have been covering that movement in the stocks butter all look at the regional banking

stocks if you look at shares of key corporation up just marginally right now after the company beat profit and sales estimates, so that's one of watch on the regional banking side of things. we'll watch shares of m & t bank, that bank moving a little more, slightly unchanged after it posted better-than-expected profits and one more to round out our regional bank look is what's happening with bb & t shares after it posted better profits on sales that narrowly missed some analyst expectations those shares a focus given morgan stanley and the big bank earnings season. one thing to watch as we talk about the reason why these regional banks are important they have been underperformers in the overall scheme of the markets. the financials have been regional specifically. as we watch the performance of these stocks it will be key to figure out whether regional banks can lead any kind of a comeback these stocks have had a huge run since those christmas eve lows >> nice to see you, dom.

we'll also look at one prominent group of stocks that has had a strong bounceback from the recent lows. that is the faang stocks joining us is the chief investment officer and chief economist at albion financial group. jason. >> good morning. >> i think you're there. nice to see you. there's a little bit of a lag there. it is nice to see you. talking about a little bit of a lag, there was a lag there in terms of what actually happened to the faang stocks and perhaps a lag in terms of where you think they are headed. >> yeah. so when we look out over the longer term, we like the businesses in the majority of these faang stocks and i think that will ultimately drive the day. fundamentals continue to improve. many stocks are trading at multiples that are much cheaper relative to those fundamentals so as we look out further down the road, i'm not sure what will happen on the short run. if the market continues to rally and the confidence continues to come back in, given the fact

that a number of these stocks, in fact, all of them are trading in correction or bear market territory, there's a case to be made that there's fundamental value here. >> you group them as one or do you separate them all? >> i separate them all i think for so long they traded in this acronym-wrapped basket and i think that was probably the wrong way to view these stocks they're all individual, unique companies that should be judged on their own merits and i think that's probably what we're starting to see this year. so in the rally, we've seen some light separating between these stocks we have netflix up 50% meanwhile apple is only up 5%. amazon's doing fairly well, up 26%. i think facebook is up around 20% but then we have google and microsoft and when we add microsoft to that basket, they're market perform so we're starting to see some recognition that these are individual companies that should trade on individual fundamentals. >> you mentioned netflix a lot of people will be focused on netflix when we get their earnings report.

that stock is up since christmas, a whopping 50%. does thatmake sense to you somewhat are you looking for >> that's one we don't own directly it's always been a bit of a valuation stretch for us it's obviously a great business. the best guess on why it's rallied so hard is one of the reasons, obviously, is good companies that get hit the hardest and they had a 45% retracement off their highs often see the strongest snapbacks in a rally and obviously raising prices as of recent they've shaken off a bad quarter in june and we're seeing positive news headlines on netflix and i have to imagine that's a good part of the reason why that thing has such a strong throwback. >> given the headline and headline risk of facebook, what do you think about that stock right now? >> we still own that stocks for clients and, you know, we're still -- we're optimistic on it. cautiously optimistic, perhaps there's certainly still a number of overhangs and unknown,

regulation being one of the largest ones for now we don't think that's likely to upend the company or hurt their earnings power just because we think if you look at the reason why regulators would come in and try to clamp down on a company like facebook, mostly antitrust reasons, we don't see that as being a big risk obviously public perception has changed on facebook but we haven't seen user engagement shift much advertisers still want to advertise with facebook and that habit changed so looking at it, sub 20 pe so we still like it. >> you mentioned regulators and antitrust, david wessell, our washington guru, is here i've been less worried, interested, in regulation or antitrust regulation when it relates to facebook so much as perhaps for the amazons or googles of the world how do you make that bet >> same. as we look at the foundation for why the department of justice would come in and look at these companies and say they need to

be broken up or spun out or we need to make changes here, we're talking about new markets and if you look at the overall share of what google and amazon are doing, so, for example, with amazon, they account for a very small portion of retail. yes, they dominate e-commerce but if you look at total retail spending, they're under 10% so it's hard to make a case that just because amazon is doing it better, faster, cheaper, and because customers prefer to go there, that that's a reason for them to be broken up we don't see that as logical. >> but you would agree the risks of regulation and antitrust regulation, privacy regulation that might squeeze their margins, they must be rising >> yeah, i think there's some truth to that and i think our take on that would be that that's probably discounted in a stock that's trading at a near market multiple that's growing revenues north of 30%. so if this was a 50 pe stock or a 40 pe stock i think there would be some asymmetric risk

there, but as we look at writ's currently trading, one has to think it's baked into the cake. >> throw alphabet into that soup. >> low 20s pe growing at 20%, north of 20% on the top line, dominating a business that is secular in nature and again as we look at potential regulation, it's not something that has us terribly concerned obviously across the atlantic europe has been more stringent with google but even that, the company and stock has been able to shake it off. we don't see that being any different in the united states for now. >> if you looked across those companies, which one do you think has the weakest management and which has the strongest management >> that is a great question and management is something we pay very close attention to and i think google obviously is very well run amazon is very well run. facebook was well run until about a year ago but the reality is was it well run a lot of the problems facebook

is facing were -- the seeds of that were being placed many years before so facebook i think has a target on its back and one has to say management is responsible for that target so at present they're the weakest hand of the group but we think they're trying to do the right thing, running a business, they have shareholders to answer to and at the end of the day they're walking a tightrope and we'll how that fleshes. >> jason ware, chief investment officer at albion financial. >> great to be with you. coming up, homeland security appropriations subcommittee shelley moore capito will be here to talk about the shutdown and the nation's border. here's a look at the pre-market movers, in this case in the dow jones industrial average.

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wilf >> i just spoke to the ceo and he described this as a, quote, messy quarter but great year overall. on the year point, record profit before tax, record revenues overall. he said it was the post-thanksgiving period that led to the various disappointments but the key thing we'll hear from the analyst call is they will risk rate their guidance and targets for the full year ahead and it was a particular five or six-week period and they hope it won't be repeated so on the fixed income trading performance that came in at $500 million despite the long-term target being $1 billion per quarter, saying that's been better going forward in january and indeed that they hope to reiterate that target going forward wealth management was a disappointment here and they said that clients' exposure to equities fell with that volatility they saw allocations to cash and cash-like securities go up to 3%

or 4% higher than usual and most of that cash is still sitting on the sidelines. people haven't reinvested it so it's still benefits to come in and when they do in terms of the environment for the year, ahead said that today versus january of last year there's a lot more uncertainty but suggested in the first three weeks of the year things have improved from that six-week period after thanksgiving which created the messy quarter. >> wilf, thank you for that. analyst jeff hart from sandler o'neil will be with us in the next hour. we'll talk about that. joe? we're on day 27 of the government shutdown and a bipartisan group of senators urging president trump to reopen the government for three weeks while negotiations continue. joining us now, senator shelley moore capito chair of the homeland security appropriations subcommittee did anything happen from the problem solvers? i like some of those guys. who did we have on i saw new jersey -- josh he's very reasonable, like that

opposite of the leadership in the house. >> well, there's a lot of reasonable people here and we need more of them to come to the table but nothing has happened overnight that i'm aware of and we're still in a difficult position. >> i'm sorry to tell you this. you were one of the four or five wavering republicans a week and a half ago, senator, as the ones that supposedly were going to abandon ship in terms of the solidarity that the president and mcconnell were calling for so is that -- was that view? should you have been on that list >> well, the reason i was on the list is because i really believe that governing by shutdown is a no-win proposition i predicted early on we wouldn't shut down. i feel it's a no win for the american people and each side is so dug in that opening the

government important me but i believe we need to have a big package that comes together rather than just picking off one or two different appropriations bills and reopening that and that's probably why i -- because i expressed my displeasure with the shutdown, calling it useless and other names that i ended up there. i'm behind the president in terms of his emphasis on the need for border security i've been to the border, i've seen it and i've talked with border agents. >> that's a weird thing. in the same poll where people were blaming republicans, the number of americans that wanted the wall were -- was sharply higher even though it was blamed on the -- the shutdown was blamed on republicans. so a crazy poll. i don't know why the two sides can't figure a way to. whatever language you want to use. where the fence needs repairing,

repair it. where you don't need a fence, use something else there's a way to write a bill that's about border security that should be able to satisfy nancy pelosi and chuck schumer and president trump. it's not coming because they both have political gains to be made by being in entrenched positions. >> >> if you look at what we did in my subcommittee and the senate appropriations committee, we wrote a bill that had 1.6 billion for fencing for wallings we had more detention equipment at points of entry for drug detection, we had more border agents ten democrats voted for that and now they're saying they can't support anything for the wall so when you've already made a commitment to support $1.6 billi

billion, i think mt. has to hold strong. >> do you think the president would accept $1.6 billion? >> we talked to him and he felt it fell short in terms of dollar numbers of dollars for wall and for the barriers at this point he's holding strong on his $5 billion figure but i think he'll willing to look at it that's what we keep trying to put forward. ideas to make it more inclusive, border security whether it's human karen care, whethhu humanitarian care, whether it's replacement, let's get over the semantics of this. >> how much longer are people going to have to read in the paper about government shutdowns, employees not getting paid until the republicans and democrats and the president can sit down and work this out

another week, two weeks, three weeks? >> it won't be this week it will reach a boiling point. we're not paying our coast guard. >> appropriate or inappropriate to delay the state of the union given the security costs issues and the fact the government is shut down? >> inappropriate political ploy. the homeland security says the safety issues are a non-issue for them and it's a diversionary tactic she's put into place to not focus on the fact that she's at zero for border security. >> i have seen a little bit on the other side i saw steny last night talking and the certain -- i don't know whether they're in purple states or whatever, maryland isn't really a purple state but there are some that are not going to run from -- they won't call it immoral. they're going to say -- they're starting to feel on the left they need to say, look, don't pigeon hole me for not being for border security. i'm wondering whether that finally creates some -- because

it's a peeweird position to mak >> the comment i made that said if a wall is immoral should remove the wall we had and then he makes a throwaway comment of well, i guess walls work well, no kidding. >> senator, we have to, go how many calls are you getting on this, though >> we're getting quite a few but they're strong on border security. >> senator capito, thank you very much. >> thank you all have a good morning. when we come back, morgan stanley weighing on markets after reporting quarterly results. stock is down by 4.5%. analyst jeff harte will join us in the next hour david wessell, thank you for being with us today. >> good to be with you [beep] you should be mad your neighbor always wants to hang out. and you should be mad your smart fridge is unnecessarily complicated. but you're not mad, because you have e*trade which isn't complicated. their tools make trading quicker and simpler. so you can take on the markets with confidence.

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today's big bank report was a miss morgan stanley, the latest financial to report. we'll dig through the numbers and tell you why the company underperformed estimates. washington standstill. the partial government shutdown nearing one month. this hour we're joined by pennsylvania republican senator pat toomey who says he sees light at the end of the tunnel. and remembering an investing pioneer. vanguard founder jack bogle died at the age of 89 we'll talk about his contributions to the investing world as the final hour of "squawk box" begins right now. ♪ now i'm down in tribeca right next to the narrow but ♪ ♪ i'll be hood forever >> announcer: live from the most powerful city in the world, new york, this is "squawk box.

good morning, welcome back to "squawk box" on cnbc live from the nasdaq market site in times square, i'm joe kernen along with becky quick and andrew ross sorkin futures have worsened significantly since morgan stanley reported results that weren't up to you have as far as consensus estimates are concerned. treasury yield this is morning have been creeping higher in recent sessions but 271 on the ten year. our biggest earnings mover is morgan stanley. the bank missed on the top and bottom lines posting a profit of 80 cents a share compared to estimates of 89 cents. james gorman said the company's results were impacted by the volatile global market environment and the company's chief financial officer telling cnbc it was a messy quarter but a greatyear overall. >> jack bogle, the founder of vanguard and creator of the index fund passed away at 89

titans of wall street and the investing world are speaking out about bogle's legacy i spoke with warren buffett yesterday and he told me, jack did more for american investors as a whole than any individual i've known in a statement, blackrock ceo larry fink said his approach had a major influence on him he will be missed but liz legacy a better future for people around the world and david solomon adding jack bogle was a pioneer, he made everyone who makes a living in the market think seriously about what excellence in this business is about joining us is cnbc's tyler mathisen and yale school of business dean jeff sonnenfeld. tyler, you watched his career, you watched jack bogle make such a huge difference with the american public. what sticks with you most? >> i got to know him pretty well when i was in the magazine business and i wrote an editorial a long time ago in

which i basically conceded the point which is antithetical to us americans which is we never want to settle for average but i came around to the thinking that average in investing, i.e. matching the markets' return, was actually the best way to go so i conceded that point to him publicly and we became friends as a result of that if a person is judged by the friends and company they keep, your tributes that you just mentioned from warren buffett and others, larry fink included, tell you basically all you need to know about jack bogle if a man is also measured by the enemies he makes, jack bogle made good enemies in the mutual fund business because what he espoused was not universally popular. >> that's what i would pick up on he was the hero for the average american investors but fees to

wall street got slashed heavily and joe made that point earlier, too. what kind of difference did this make on wall street? >> i agree with all that's been said both by the great larry frank and the great warren buffett comments and even greater tyler mathisen recollections. but there were three pieces to his leg they are important to separate so far, everybody is talking about what he's invented in terms of the no-load fund, in terms of index investing and that was brilliant he brought capitals to the common person. it was a fantastic revolution, controversial when he brought it out but it's sort of a three part stand to this there's a trilogy of qualities because in addition to his contributions which were enormous, revolutionizing investing, his career was remarkable as an entrepreneur, what he created and then the idea of character is he understood resilience from adversity the way so few are candid with us you might remember about 12 years ago becky and joe, you were there, we brought them on

to "squawk box" to talk about for the first time publicly all the failure in his life and it was a moving time. he talk about his father having an alcohol problem after they lost family wealth in 1929, talked about being fired having just lost a pretty decisive vote when he was running an ill-formed merger when he was running wellington then to go off, to steal the client base of wellington but getting pushed out as he launched vanguard to come up with reinventing himself again and that resilience was remarkable joe introduced him by drawing on the great nitzche quote "what doesn't kill me makes me stronger" he said how simple life can be when you plan on not what could happen but what you have he's an unbelievable person. >> there's a delicious irony, jeff, that you here that in las vegas. he always referred to the

croupiers in the investment business, the people that raked off or skimmed off fees or chargesover sales commissions. another part of jack's conceptual brilliance, we focus on no load funds and that's what he'll be remembered for but it was the structure of fan vard that was so different. because vanguard is owned by the shareholders of the mutual funds, not by some separate management company that controls the investment adviser, the distribution, the marketing, the shareholders own it. >> that's a great point, tyler, that's so unusual and that shows how his character ties into the structure he created but also the idea of his contribution is by having this owned as like a mutual insurance company is that

the -- >> exactly, exactly. and this is the way he was able to drive down costs and keep them so low and becky, as you pointed out last evening, i heard you on "fast money," the point here was that when you take very small percentage numbers measured in basis points and you expand them out over the trillions of dollars that vanguard has under management, the savings that acrue ings thi directly to shareholders are billions and billions of dollars and he put that money in share hold holders' pocket. >> he said we have $30 trillion of trades taking place that do nothing to build wealth other than for a few individuals in terms of creating a great capital structure. he said it's waste he said we only have $180 billion of actual capital formation. all that is going into the hands of transactions that don't need to be done he's very critical of high frequency trading and that's a

hugely important point while he had an go about his legacy, he was a humble man. but he was only worth $80 million or so when he passed away what's larry fink? over a billion and ned johnson of fidelity is probably close to $8 billion he could have been wealthier than any of those people and almost any tech titan but he chose not to he chose to keep this humble he said pay for performance not peers. >> and jeff, talking about this -- the tributes being made, i wanted to show a video we talked about this in the 6:00 hour it was an emotional moment on his 88th birthday, a tribute and a surprise from warren buffett at the company's annual meeting and i think we should roll that clip oh, apparently we don't have that clip. >> we talked about it earlier. it was a tribute he made in front of the 20,000 people or so

in the audience watching the annual meeting for berkshire hathaway what was so interesting about that is they singled him out after a question was brought up, he asked him to stand up and today the crowd that jack bogle has done more for the american investor than any person on the planet. >> that was a wonderful tribute. it meant so much to him. he was confused by the way his legacy is sometimes presented. you remember 2013 when bob schiller, my colleague at yale won the nobel prize in economics at the same time gene fama of chicago won the nobel prize. each of them were claiming a legacy but he found the middle ground he believed in bubbles as bob schiller the irrational exuberance founder but he believed in the idea of buy and hold the way gene did except gene would argue it's an efficient market thesis but he said it's not emc we should

focus on cmt, the cost of market theory >> not that we need to button it off but i would button it off this way he was a guy whose investment career dated back to the 1950s but the modern word we used to describe people like jack bogle is disruptor and that is who he was he was the ultimate disruptor just like charles schwab became the ultimate disruptor. he was widely respected but not universally beloved for this and this fact alone. >> >> a disruptor with integrity. he was a big believer in the corporate governance reforms that have come out he thought we needed much more transparency he was a disruptor like elon musk but didn't have the character of elon musk he wasn't out to deceive anybody. there was no cuteness. he thought transparency was

fundamental and humility. >> he was found of saying that we ativan guard give investors a fair shake implicit that is that other companies were not giving investors a fair shake. he said my investment wisdom could be distilled on the a 3 x 5 card one is own the entire market you can't go wrongdoing that it makes you an inforvestor not speculator two, don't just do something, stand there, do nothing, don't trade, it will affect your overall returns. and, third, do it at low cost, you get what you don't pay for that was the wisdom of jack bogle. >> and his one frustration was that age 65 he had a heart transplant of 31-year-old and he was arguing they should start the clock over who cares how old your fingers are if you have the heart of a 31-year-old but unfortunately time ran out.

>> we are remembering jack bogle today. it's now the 27th day of the government shutdown and while there's no solution in sight, our next guest sees the end coming soon. hopefully not in an ocypc apalti sense. stay tuned, you're watching "squawk box" on cnbc 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. ♪

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welcome back to "squawk box," futures from improved a little dow 104 on the dow the s&p is down 12 or so and the nasdaq giving back in free market trading 28 points so far. morgan stanley out with fourth quarter earnings this morning. the bank missing on the top and bottom lines in the fourth quarter, posting a profit of 80 cents a share compared to estimates of 89 cents. revenue is below what was expected morgan stanley ceo james gorman said the company's results were impacted by the global market environment. and the government shutdown nearing a month long we are at 27 days and joining us is pat toomey, republican of

pennsylvania good morning, senator. help us. help us. help us help you how are we going to solve this thing? >> thanks for having me but let me say a quick word about a real giant we lost yesterday, jack bogle did more than any other american to make it possible for ordinary americans to invest in america. made it affordable, made it possible just enormous service through his innovation and creativity and a great, great human being so i wanted to say that. >> amen to that. on the issue of the government shutdown, though, given that there clearly is a stalemate here, is there any -- is there a path you see >> i'm not sure but here's the reason i think there might be a glimmer of hope. if you ask me what's different about this shutdown than the others that caused this to go on so long? if you ask me, the complete intransigence of nancy pelosi. after democrats have voted for

$1.6 billion of wall construction in an appropriation bill in the senate just weeks ago, after they voted for $25 billion of border security a year ago, $44 billion some years before that, after the last four consecutive presidents have added a few miles at least to the 300 odd miles that we have now, suddenly donald trump is the only president who cannot build one inch of additional border security despite the fact that the customs and border patrol folks have asked for some segments of expansion of the wall so what's the way out? there are now some democrats who i have seen on national cable tv interviews suggesting they themselves could support some amount of money for border construction. >> senator, the question is whether the president is willing to -- the president has also walked out on a billion dollars, a billion and a half dollars, whatever it is, too. >> wait a minute nancy pelosi has never put one dime on the table. i don't think the president is

going to negotiate against himself. but i am confidence that republicans in the senate and the president are not stuck on one single absolute number and no ol ternive the. we're open to negotiating. i certainly am. >> senator, would there be any effort by yourself or other republicans to say let's open the government and then have this conversation? >> the president asked speaker pelosi according to him and she never refuted this account of the conversation he asked her if we reopen the government would you be open to considering some funding for the wall and she said no. >> senator -- >> how do you accomplish this? >> let's get in the real world if you were nancy pelosi and you knew the president had said you can call it the trump shutdown and if you didn't see any pr damage accruing to you, she has no motivation. now i don't want to be cynical because giving people paychecks

and the people that she cares about so much that are out of work i mean that might be motivation but politically she has no reason to come to the table and neither would you if you were here. >> joe, it's a fair point, no question there is a lot of that motivation but let's look at how previous situations like this have been resolved hey, mitch mcconnell was in the position that nancy pelosi is in today. this isn't the first time we've had a dispute and what do the parties usually do they seek to achieve something they couldn't get under ordinary circumstances. president trump wants some money for a wall is there nothing at all in the universe that nancy pelosi would like to achieve through these negotiations everybody knows there has to be some kind of compromise. >> she loves it. he's twisting in the wind. cut off your head before you know you're bleeding her daughter said. so the opportunity to have a humiliating capitulation by the president is more important to her than any of the things she could be negotiating for.

>> exactly so now we understand the real world. >> that speaks volumes about the real nature of this problem. >> now we understand the real world, though. >> but i think i see some democrats in the house starting to separate in from that unreasonable position. >> on the flip side, do you also see republicans who you think are willing to -- >> look, we talk everyday. we are willing -- we don't -- i'm not going to throw out a number and negotiate against the president's position but i know there is flexibility here. as for timing, as for dollar amounts, there's lots that could be negotiated if we had someone willing to negotiate. >> what do you think of the numbers that have been put out in terms of the economic damage this is doing? there will be a point at which the economic damage is bigger than the $5 billion figure that his wall would ever cost. >> i want to drill down on what that looks like. obviously all of the folks waiting for their pay -- and i'm supporting paying now the folks who are required to show up for work, some of those folks do

dangerous work like prison guards and secret service agents >> if you're prepared to do that, why wouldn't you just reopen the government, though? >> i don't think we get a solution and i would like to get this resolved now. and the resolution is obvious. as i say, some kind of compromise we settle somewhere in the middle and i think people are starting to get to the point where they'll consider that. >> i have to say, we keep waiting for it to get to the point where there's so much pressure on elected officials to not have these people showing up for jobs and not getting a paycheck i can't believe we haven't hit that point yet we spoke earlier with shelley moore capito and she said she doesn't see any agreement this week so you'll be reading about this through this weekend. isn't there a point where people say enough already you have to come to some solution, you better step down >> yeah, there is and there's some point at which the

intransigence of a single party won't continue to prevent this i don't know when we reach that moment, we don't appear to be there this morning but i think i'm seeing some willingness on the part of some democrats to at least negotiate. >> how concerned where r you about the economic impact? >> i doubt it's very large but i want to drill down into the numbers and analysis and understand what the mechanism is by which people are thinking that's a significant number. you know it's a small sliver of the government that's not functioning right now. that has repercussions, though, right? >> what do you tell those people who have decided to take jobs to work for the government, the commitment that the government has made to them and to their families >> it's maddeningly frustrating and painful for many of them obviously if you're living paycheck to paycheck and don't have a savings reserve, it's problematic. that's why i supported ron johnson's bill for those who are

required to show up and work for goodness sakes, we could take care of the problem for them but you need two sides willing to negotiate. >> on that point in terms of relief for the people showing up for work and not getting paid, i read a report this morning that more federal employees are tapping into their 401(k) plans, their retirement savings plans and being forced to take emergency withdrawals from that so that they can pay their bills. they're going take a tax hit for that becauseyou are stiffly penalized when you tap into your 401(k) would there be any thought on capital hill of trying to pass some legislation that would offer them relief if you were a federal employee who had to tap into your savings far? >> tax cut >> i get what you're saying. that's a thoughtful idea we ought to consider it. we should seriously consider it. >> senator pat toomey, good to see you. >> thanks for having me, guys. >> thank you. when we come back, morgan stanley, the latest big bank to report earnings missing on the

top and bottom lines stock down by 4.5% this morning. we'll talk about that when "squawk box" returns we'll dig into morgan's fourth quarter numbers and run them down against other big bank ayports from this week st tuned, you are watching "squawk box" right here on cnbc.

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nah. ♪ we don't bake. ♪ opportunity. what we deliver by delivering. welcome back to "squawk box. the futures right now, let's show you, we look like we're going to open in the red dow off 115 points, nasdaq off 30 points and the s&p 500 off about 13 points after -- well, the morgan stanley numbers didn't help. china is confirming high-level trade talks with the u.s. will pick back up at the end of the month china says its vice premier will travel to washington for two days of negotiations talks get under way january 30

and the u.s. is reportedly pursuing criminal charges against china's huawei and zte for alleged theft of trade secrets. the "wall street journal" says an indictment is expected soon shares of zte down about 3.5%. meantime, a bipartisan group of senators introduced a new bill that would ban the sale of u.s. chips and other telecom components to huawei and zte china responding to that proposed legislation calling it in their words hysteria. in a rare public appearance, huawei's founder said his company does not and would not spy for the chinese government when we come back, wear few minutes away from the latest numbers on initial jobless mems so breaking economic data. "squawk box" after a quick break.

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welcome back initial jobless claims those numbers are out. we're standing by at the cm next chicago. take it away. >> good morning. claims numbers came out, it was 213,000 which is lower than the expected 220 continuing claims, one million, seven hundred thirty seven which is higher than the expected. it was revised lower last month. the one i think is the most important is the philly fed business outlook came in at 17 that one kind of had a troubling trend where it's been going lower so this is nice.

the one thing the markets should like and the s&p ticked up, is that we've convinced ourselves that the fed is too worried about the china trade talks, the fed is a little worried about the government shutdown and these a-numbers improving are good for the market but not good enough to have the fed rethink to current position. the stock market is right above that 2600 level. the s&p 500. i know you sometimes think technicals are voodoo but if everybody is looking at that same number it becomes very important so these numbers are helping that out back to you, joe. >> i don't think we think it's view do. we try to use everything we can since nothing works so -- >> okay good amen steve liesman joins us now. >> nothing works, right? i'm trying to look at the federal workers. there's a separate track that

tracks the claims by federal workers for jobless claims you're not getting a big pop in claims you might get from private contractors who file and there may be a delay the philly fed is a good number coming up. i want to look and since we're not getting key economic data, look at alternative data i want to look at fed manufacturing survey which is when you put them together it's a scary look i saw the dallas and kansas city ones and i was like okay, those are oil-based, i get why that would come down. and the lower number is in september, 2016, with these numbers when oil was last low. but then i don't get empire state and richmond both of which slowed sharply. >> richmond could be federal well, it's manufacturing but is that anything tied to government

contractors? >> too early that's a december number if it was a january number i'd kind of get it so i like the idea that philly snapped back in september and one more alternative piece of data we counted up the use of the word "slow" "slowing" "slower" in the beige book and that's up 51%. >> that's the home work jim cramer was talking about hear directly from the companies saying these things. >> so it's up 65 from 43 and it crept up month after month i don't know if it's long term or slowing or maybe the cumulative concern about all the balls in the air for businesses are things where they said wait a second, things are slowing down. it seemed like a few short months ago the economy seemed to be cruising along, since then everything steve just talked about building on fears of a global slowdown have gotten

stronger joining us to talk about that is jay bryson, global economist at wells fargo securities since you're a global economist, let's take these u.s. factors. how does that rise to the level of global concerns out there what are you watching? >> well, the u.s. isn't the only one slowing down join had deceleration. germany just barely missed the technical recession at the end of last year italy is slow so not only the united states but everywhere and it looks and feels like to me late 2015, early 2016. you had the same sort of concerns about slowdowns in china and what effects that would have, big decline in oil prices and cut backs in the energy space here so it feels very much like that time period. >> we shook off a recession at that point do you think that happen this is time, too? >> if you look at the understood lying fundamentals, they remain strong interest expense among businesses, it's not a very high

level. the savings rate remains high but you could have a lot slower growth in the first part of the year if you go back to 2016, the fed was on hold for that entire year fast forward three years, potentially we could be looking at the same thing. >> all of the numbers steve pointed out, the weakness we've seen, that was numbers before we got to the concerns we're facing right now, before brexit hitting a wall and before we got closer to this countdown with the china trade talks. where does that put us >> it means growth in the first quarter will be weak. >> how weak? >> well, our official forecast at this point is 2.2%. >> what's your confidence level? >> the risk is skewed to the down side. are we talking a negative number i think things have to get a lot worse in terms of the government shutdown and big deceleration in china. >> one handle for sure >> i wouldn't say for sure

we'll have to crunch the numbers. we don't have those numbers right now because of the government shutdown but it seems like maybe the risk to that 2.2 is skewed to the downside. >> it is possible we end up just slowing but that growth doesn't end up that slow it's very hard to have this conversation because i don't know what the economy would have done without the government shutdown but it seemed like in the normal course of action you have this slowdown and the market freaked out and it was like wait a second, we're going to slowdown, that was what the economic forecasters said it would slow down. that's not a bad outcome if you do 2.5% as a slowdown from what happened in 2018 is it >> that's a, coat, soft landing. if you come in at 2.5%, yeah i don't think you would have

expected us to stay at 3% or 4%. the fed hiked rates 100 basis points some of thefiscal stimulus is waning in terms of government spending increases so to expect us to remain at that number forever i thought was unrealistic. >> how big of it is a problem to not get the numbers from the government >> well, we're flying blind. fortunately we're not completely out of numbers the labor department is still reporting numbers so we get payroll and soft numbers steve was talking about but if you're not getting numbers on retail sales or orders numbers -- >> or housing. >> it makes it more difficult to figure it out. >> the one silver lining is what jim pointed out, the fed is on hold until they can get their hands on this, too. >> i think they were on hold anyway i don't know if you saw esther george the other day she was like the hawkiest of the hawks and now she's in the pause

camp there's a circle, everybody is inside the circle but on different sides. some folks are on one side like i'm patient but i want a hike and other guys who are patient and want a cut and you put jay powell in the middle >> we had a market guest who said he thought that was the biggest news >> esther george on board. i think that esther george and some of her allies on the board pushed policy in a way i think they pushed in part the balance sheet into this autopilot idea that was sort of a hawk idea and i think some of the ideas of this guidance that we'll go higher and now serve on the same page and whatever you say about powell, he has not had a dissent yet and i don't think anybody is dissenting i think the committee is on the same page. and he talked about how he did that he gets everybody ahead of time.

so he's doing a good job leading the committee. we don't have i don't think a lot of disinnocence from the fed right now in terms of where policy is going. >> what do you think happens in 2019 any hikes? >> we think there will be a hike later this summer. assuming you get through this period of this slowdown and the economy isn't coming to its knees, we're looking for them to tap on the brakes but it's clearly to be determined and i thought esther george's comments were very important because not only is she a hawk's hawk but she's a voting member. >> without the government numbers to rely on, are you looking into what companies are saying more in terms of earnings numbers they're putting out? >> not a formal sense but when you do look at -- you know banks

have reported slower revenue growth and profits, that tells you something about that -- >> part of that have is trading in the fourth quarter. >> but it says what's going on in the underlying financials. >> i worry about that a little bit though sometimes a marquee company comes out with a miss and everybody freaks out and extrapolates that from the company to the whole economy. >> like apple. >> and a lot of times the economic day is a counterweight. sometimes that company leads the way and sometimes it leads you astray. >> but this goes back to the arguments you and i used to have 20 years ago at the "journal" when i was covering retail and you were doing economy the economy shows one thing, how the market reacts is another and you could be absolutely right. it doesn't show a big indication of what the overall economy is doing. >> and especially at that time when retail was shifting so much how do we know that macy's loss

is not a result of amazon's game >> that's what i thought immediately. any of the brick and mortar. somebody said sales were good. consumer was flush. >> consumer was flush and everybody got worried about retail because macy's came out. >> bed bath & beyond, huge huge right? great numbers. >> yes, they did did you ever go into the beyond part >> to infinity and beyond? >> i don't -- what is the beyond part >> is that near vaporizers >> i'm stealing a "family guy" joke. >> do you have a heavy duvet >> a what? do you not know what that is i don't vet? >> a blanket that's extra heavy. some people like the weight. it's warm but it -- even the -- in the summer you can get one that -- >> i need a heavy duvet this

weekend. >> big time. >> you know how you swaddle a baby >> okay. you talk about heavy duvets. >> i think they want to go to break. when we come back we'll talk about morgan stanley earnings. they missed estimates. when we come back we will dig through those numbers and financials that have been moving the market this is week. un, u' wchg atin "squawk box" on cnbc

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we've been watching the futures and we've been in the red all morning long but dow futures down by 82 points. we saw additional weakness that came on after morgan stanley the dow futures indicated down by 84, s&p down by 8 and the nasdaq off by 18. morgan stanley missing on the top and bottom lines let's get over to wilfred frost to join with us more he spent time on the phone with morgan stanley executives. >> the analyst call is on going. morgan stanley missed on their earnings they reported a messy quarter. both eps and revenue behind expectation. here's the ceo, james gorman. >> 2018 was a great year that finished on a disappointing note the last six weeks of the year in particular were difficult we don't believe the fourth quarter is a new normal. the first quarter started on a similar path to the start of the

first quarter of 2018. >> the main disappointment was wealth management which is around 50% of their business by revenue. the revenue was $4.1 billion and the much-watched pbt margin was 24.4%. analysts were looking for 26.5%. but gorman reiterated targets saying the 2018 high of 28% is not a limit and suggested there could be acquisitions in that area like peers, trading disappointed as well, particularly in fixed income, revenues $500 million versus forecast of $800 million. equity trading was solid, remain number-one ranked for the full year and investment banking beat thanks to advisory overall this quarter was always going to be you have to for morgan stanley but their share price performance in the free market highlights the relative underperformance compared to the group giving upmost of their

week-to-date gains down 4.25%. >> wilf, thanks. let's talk about morgan stanley's earnings and the other banks. joining us is jeff hart principal at sandler o'neil. they're in the business of risk and managing risk. i guess it's as simple as there will be varying results depending on who's managing risk at goldman sachs who's managing at morgan the last two months difficult to navigate >> that is the driver of the miss they had marks in investments but it's the trading revenues and for morgan stanley specifically trading is volatile you have good quarters and bad quarters i don't think you extrapolate fourth quarter results in 2019 management is talking about first quart other of the year only a few weeks in as being as good as it was last year so it seems like things have come back i think the bigger issue for morgan stanley is they have been

one of the better performers when it came to trading and it started to be viewed as a top performer. this puts them at the bottom and that may be a reputational thing. >> they're talking about that they had to hold on to something as the market went down. was there an ipo they that couldn't sell their allotment? do you have any more clarity on that do you know what it was? >> they haven't said and i haven't really specifically heard from the rumor mill what might have been happening but in a general sense of the world, it was up and it looks like they took risk at what turned out to be an inopportune time and not only in december are you marking down inventory you have but there's no bids so you're stuck riding it down so that seems like what happened

i'm not sure it was a position versus a number of positions >> it's interesting a goldman sachs report can driver the whole market higher based on good feelings about financials and this flies in the face of that it's not monolithic. are there some banks you like more than others at this point >> as i sit here today i like citigro citigroup and goldman is a good place to be as well. you have to be patient with them because it's hard to see the stock move much but the environment we're seeing suggests it will be a good year and that's a key positive take away from the fourth quarter result is the fundamental numbers from underlying businesses are good and management tone has been positive so it's making the fourth quarter look more and more like an aberration.

>> because gorman is saying what you're saying, you shouldn't judge it on every three months and whether you get stuck in a position that goes with the rig. we're going to move on, get kramer's view on a lot of this stuff. but we appreciate your time today. thanks. let's go to the new york stock exchange kramer joins us now. what's your take on morgan stanley after goldman yesterday? >> i thought that morgan stanley had a mosaic of business that would not allow it to go down as much if this one line item was bad. there are a couple of other line items that are disappointing too. i'm glad this one came last. without a doubt this was the most disappointing of all. i would say that wells was, but i didn't expect much from wells. i think the problem with morgan

stanley is the business isn't as non-cyclical as i thought. it may have been just an aberration december was bad december's bad for everybody and yet we still liked their stocks. so this was just a miss. it's an inexpensive stock, but it was a miss that's confusing and confounding and a shame. i thought these guys could deliver a far more almost fin tech like experience and it wasn't like that >> that's interesting. it could be a one-off. >> it should be. i mean, the year was a great year i can hear james gorman saying jim, the year was a great year it was a great year. i thought the fourth quarter might be among the best and it wasn't i look at goldman sachs.

goldman sachs was very good. i think goldman sachs ended up doing very well and the tangible book is so high. can i thank becky for acknowledging the kind of work i'm doing versus what the fed is doing? thank you, becky it's really kind. >> when they talk about the beige book, it's showing what you've been saying for a long time this was a reflection in the beige book from those companies too. maybe they should have been looking at that earlier. >> i'm most grateful it means a lot. >> talking about tributes to you but also wanted to get your thoughts on the life of mr. bogle. >> i loved him he changed everything. my dad used to go to bangor every day hoping to just see him. they were always so helpful. he created an institution that was pro customer tim cook is pro customer the only other executive i know

who wants to put out the best product at the best price, jack put it out he was fun to talk to. this guy is a character. he was a personality and one that always surprised you. he hated the way business was done in this country he hated wall street and we don't talk about it but there are a lot of people who were his enemies and a lot of them are praising him today and they are two-faced >> joe made the point earlier -- >> i did make that point. >> people tried to stop him and now they love him. what a bunch of hypocrites. >> for every time you save someone a fee, that was someone in the business who wasn't getting that fee. >> yes exactly. >> there are people on the other side of that were like, damn, this is getting hard two cents a share. >> he was wrecking everybody's margi margins, but he didn't care.

someone died and donated his heart. if they ever had to go to somebody this great, it did. jack bogle was an iconoclast and he was despised in the business. what a guy >> i'm sure you'll have more with the gang at 9:00. thanks we'll see you in a couple minutes. let's check the markets and get you ready for the trading day. [knocking]

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few stocks to watch this morning. taiwan semiconductors says that the slowdown in high end smart phones came a little bit sudden. that stock still up by about one-third percent. the tribune recently approached gannett about merger talks they received a $1.5 billion takeover from mng.

csx reporting better than expected fourth quarter profits. the railroad operator is forecasting slower revenue growth this year because of operational changes and not because of an expected slowdown in the u.s. economy. down 3%. alcoa beat forecasts on strength in its alumina business. the company expects supply will outpace demand this year and that shipment will be flat down by 1.6% they came out with the report after the bell yesterday they used to be the one that kicked off earnings season now the banks lead the way. a tokyo district court has upheld the earlier decision to deny carlos ghosn bail he has been charged with understating his income and other financial misconduct

under japanese law, defendants who aren't granted bail must stay in jail for at least two months after charges are filed that means ghosn will be in jail at least until march 10th. he got in there in november. after that the court will review his detention each month his attorney said it is likely he will remain jailed through trial which isn't likely to begin for another six months. >> a whole new outlook on davos. it's not that bad. compared to six monthsin jail. it's cold. it's a lot of snow got to walk to work. he loves it. i >> you can sit in your hotel room and watch law & order

>> i like it it's fine. after that story, i'm good. >> you can't complain. we're going to talk to some of the most interesting, influential people in the world. >> morgan stanley have come back a little make sure you join us tomorrow "squawk on the street" is next ♪ ♪ good thursday morning. welcome to "squawk on the street." stocks may take a breather at the open after rising for seven of the last nine sessions. weak results out of morgan stanley. europe is relatively mixed oil's down on that record u.s. production number 11.9 million barrels. a morgan stanley miss.