this year. it would have to be such a quick turn around from that last jobs number. >> the jobs were positive. make sure you join us tomorrow i think this glow that we've been feeling, i think it's going to be -- >> love is in the air, folks happy valentine's day. ♪ stop i been thinking of you ♪ let love keep us together good morning we are live from the new york stock exchange let's take a look at the futures this morning because you saw it. you heart td the crew on squawk

talking about it, this retail sales number seemingly turned the market lower so we are looking for a lower open 30 minutes from now let's get to our road map. it does start with what had been a rally. ceo chuck robbins is going to join us a few minutes from now coca-cola ceo james quincy will be with us and china trade talks continues to be something on the mind of the market we'll give you the latest on what we are hearing. yesterday on the closing bell david solomon weighs in on the he sees a recession on the horizon. >> economic activity in the united states is still chugging

along pretty well. i think we're in a position at the moment where we should see reasonable growth, 2% growth, which is not bad i think we're in a place with a chance of recession in 2019 is actually quite small and the economic expansion should probably continue. >> that seems to be fairly widely held view >> yeah. >> from those who are selling stocks for a living and bonds. >> let's digest this we're going to have a selloff of an old number. you sat next to me as i just hammered dopowell for months. i feel bad this retail sales number, worst in ages, was really on powell. he made a misjudgment and the stock market went down he started getting vociferous on how strong the economy was doing just when it was rolling over.

that's what you have we're due. >> people were also trying to make a connection between the selloff and stocks and then the lack of spending >> it's an old number. markets come back. i do a lot of work here's what happened january's not an important month. no one knew it was decelerating because you have to call these guys i was in retail. my father and my mother was in retail, i got some pretty good info. >> it was a dramatic drop. >> i told you the economy was bad. nobody was listening we had people coming on air saying it was doing great, powell was good.

i'm like what are they talking about. >> impuzz'm puzzled by what hap. >> the headlines were bad. we had government shutdown we had anger but really what we had is a fed chief who made it so everybody felt like we're going to have a recession because he said he might have to overshoot. overshoot is burning down the village to save it >> you don't stop going to the olive garden -- you think they even though chairman powell? i'm trying to still understand, unless it was the market -- >> i sat next to you and told you this was happening. >> you did you talked about it more on a corporate level, i think you said he's not talking to ceos not necessarily about retail

sales. so the market turns around >> coca-cola is not as bad james is not giving you a great forecast i could even say the coca-cola call was as bad as the sis key call. >> you think the market will pass on it worst in nine years or something? >> there were so many people who came on our air including people who work for us saying it was really good. after black friday it was weak black friday was the peak. you had to speak to the suppliers and the retailers and you god it was not a good christmas except for amazon. we're seeing a lot of stores

closing. tanger factory outlets had truly horrendous numbers >> i'm trying to learn what it was in december that led to people spending less than anticipated. there was no government shutdown i don't believe people really are focused on the china trade issue. they're not aware of who chairman powell is, let alone what he's saying my point is i'm just trying to understand if this can be something that you want to take into account given how bad it was for december and unexpected it was given how strong the economy was with more than 3% gdp growth, a consumer who has been bolstered by a tax cut earlier in the year and not spending the money we expected. >> there was palpable gloom that started because we did get the idea that we were going to have three more rate likes. there was a woman who came on a friday and said, look, things are really barn burner

you can get numbers. it's not illegal you can get a pa-- these number i think in the end -- >> although apparently there was a 3.9% month over month decline. >> i don't have that number at all. >> restaurants, bars >> i have different numbers. i like their numbers they have an interesting view but they're not as accurate as the work that i do. >> something you have been talking about negatively, which is the growth in china this morning they put up a big export number, up 9.1% the street had been looking for a negative 3.3%. >> it's very surprising.

i thought immediately that's going to give them more of an upper hand. >> suddenly china's economy is weathering the storm in a way we hadn't expected. does that help stocks? does that give them leverage in the talks that are continuing to go on with the potential news that they've been extended by 60 days >> peter navarro and bob lighthizer do not look at that number as a serious number they think the numbers are not as accurate as some people think. >> no. >> china seeks to lure u.s. to boost chip purchases that's not what we're talking about. we know it's about the 2025 domination plan. i'm going to keep hammering on that you get anything good out of china, that's going to make

people think there's lesslikel a trade deal and what happens is the market goes down >> i want to look at oil by the way, china export growth that much, is that good for europe >> the european gdp numbers that came out today were really disappointing. just a consistent parade of disappointing numbers out there. germany was not so hot they have no growth there. other than cisco and a couple companies like sales force there's no business over here. i'm sorry to be so definitive but i came out here every day and said it and i was ridiculed. >> that's part of the job. >> the eagles were ridiculed and

they won the super bowl. >> exactly when we come back -- >> how are the knicks going? >> cisco's chuck robbins joins us after the break later james quincy one more look at futures as we set up for an open here on thursday 20 minutes from now obvious. sometimes, they just drop in. cme group can help you navigate risks and capture opportunities. we enable you to reach global markets and drive forward with broader possibilities. cme group - how the world advances. ♪

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click, call or visit a store today. wow. cisco, what a quarter. this was one of the great blowouts for a large dow company. also raised their buyback, boosted the dividend cisco's chairman chuck robbins joins us from headquarters it is always great to see you. >> thanks for having me. how are you guys >> real good but not as good as you. you say it certainly is one of the more complex environments we've seen in quite a while. to be honest from the first day of the quarter to the last day, we saw zero difference in steady demand how is that possible >> jim, it was an exceptional quarter for our teams. they're executing incredibly well

we saw tremendous balance around the world. our europe and middle east and africa orders grew europe was up 6. the u.s. grew as well. we saw phenomenal balance there and across the customer segments again, we were looking particularly in january, because we have the unique situation of having the third month of our quarter in january we were looking for any sort of shift in demand from our customers. we saw nothing we saw exact same performance in january that we saw in november and december as well really pleased with how the teams have executed particularly in light of all the complexity out there right now. >> you changed your model rather rapidly. i'm not sure people understand it 65% versus 54% of your software is now subscription. what does that mean for your margins and forecasting ability? >> what it really means is that

we have an opportunity to deliver continuous innovation during the life of the subscription from a business perspective, what you haven't seen yet is the opportunity for us in 2021 and 2022 when the bulk of this begins to come back up for renewal we're going to have an incredible base of software that we'll get to renew that's different than what we've done for last 25 years which is really where we've had to sell 80% of the revenue we achieve in any given quarter we had to sell during that quarter. this gives us an opportunity to remonetize the software assets that we have sold to our customers. >> there was a downgrade the other day. very ill-advised

but kel you gave one of the best forecasts for any of the technology stocks. it looks like margin is going up you have a lot of money. you obviously increased the buyback dramatically and yet you still have $40 billion in cash >> jim, we had balance growth across our security portfolio which was the fastest growth we've seen in our security business in roughly four years we saw tremendous growth in the applications business, up 20 plus percent and we saw strong growth in our core infrastructure systems, which was one of the big priorities we had a few years ago which is how do we deliver enough innovation back into our core so we can grow those big franchises in addition to growing the markets we expanded into i think we saw the results of that come through this quarter and obviously our commitment to capital returns are still there, raising the dividend, increasing the buyback.

overall it was a very good quarter for us. >> you do compete against huawei in some parts of the world, not in china you gave an answer i thought was a little circumstance spect. if a major outfit is trying to choose between huawei and cisco, have you notice add levd a levef discourse that said we ought to go to cisco because we need safety and security? >> we haven't seen any material impact from all of the noise in the system around this topic but what i've also said is that we don't need anything else to actually beat these guys or beat enough of our competition because we have been building tremendous innovation over the last few years i said yesterday that i think our portfolio right now is as good as it's been in years so i believe if you look at the numbers and you look at our service provider business in

both europe and asia where we compete with them, they were both positive. so we were able to compete we have new technologies coming out this year to support this 5g transition so we feel very good about our ability to win based on our innovation. >> i don't want to get an advertisement from you, but give people a sense as to what you're talking about here when you say innovation and you're able to effectively compete with huawei. what would be an example of a win where it was based on the innovation you're talking about? >> well, if you look at what's happening right now with 5g, we have several customers who are in trials with us around our pa packet core which is effectively where we terminate the mobile call and convert to i.p. we have new platforms coming out. think for a moment about the capacity and the core networks that is going to be required

when you start delivering one gig, 2 gig, 3 kwgig to every end point. the capacity and the core is going to have to increase significantly. we have been building next generation platforms for almost 4 1/2 years now that will allow our customers to build that next generation core network to support 5g these are examples, but we're also doing it in our enterprise campus switching portfolio our switching business last quarter was up double digits this is a business that three or four years ago people didn't believe could grow at all. i truly shows that innovation matters and that's what we're delivering to our customers. >> i'm glad you mentioned 5g of course we talk about it a lot here yesterday our viewers heard about it in the context of john alleger ta ledger can you give us any sense as to

a timeline given the different views we get from the telecom executives and what their plans are? >> what you see happening in the u.s. as well as around the world is you're seeing in proof of concept trials out there in major markets where they're delivering 5g to next generation mobile devices we'll be rolling out trials with certain providers here over the next month or so then what you'll see is the extension of that to branches, to small business environments and then i think you'll see the integration of 5g connectivity into the existing networks initially. because the volume won't require a separate dedicated network but then as they begin their broad based rollout over 2020 and beyond, they're going to build dedicated 5g backbones in order to support the capacity that's needed. we'll begin to see some uplift from that 2020 and beyond when they start to build out these 5g

next generation networks. >> i'd say that you're very close to the trade talks and we're always trying to figure out where we are in terms of positive, negative. i though you care about intellectual property. i know you think china is important. where do you think we are in terms of getting a deal say in the next five months >> well, i've said all along that i think it's leak that china needs this deal, the u.s. needs this deal. i think some of the news we've heard over the last few days would support the fact that we're trying to get to a resolution from both sides and that's good news the china market is important to us, intellectual property is important to us. some of the most recent intellectual property challenges we've had have been right here in the united states so we need to solve that globally i think as you look forward, i think it's clear that both sides are saying the right things,

both sides are negotiating in good faith i believe that at a minimum they'll make enough progress to where our president can hopefully extend the deadline and keep negotiating to get to deal in the next couple months and we can move forward and continue the expansion of this global economy we've seen for the last few years. >> i'll leave it there chuck, dcongratulations on a great quarter. >> thank you all right. up next, we're going to hear from jim again he's got his mad dash. we're counting down to the opening bell

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♪ terrible numbers on retail sales in december. markets looking down but we've got the king the winner of the westminster dog show

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to helping your company reach its goals. u.s. bank -- the power of possible. the guidance is very muted earnings per share growth of minus 1% she was looking for $2.24. this is coca-cola. i think james quincey is doing a

good job, but there were some misses here. when you look at the numbers that came out, they had very good growth. but there were missed items. diet coke good, coke zero good i'm trying to give you some hope here but i think people feel like, wow, freight cost is being integrated in a negative way, a lot of noise in accounting this stock will be down. i want to urge people at 46 -- it is going to cast a pall on a whole group that doesn't conservative that. i think pepsi is going to be better than coca-cola. pepsi spent a lot of money i'd like to know more about share. i expected that james will be more -- >> you thought the guidance will be better. >> we are going to be joined by

ma mr. quincey in the 10:00 hour. >> people are looking for 2.99 there's a lot of adjustments to the number >> okay. there it is, the opening bell for this thursday, of course we are going to have a down opening. that retail sales number for december just freaked a lot of people out i'm not overstating it there are some notes out from economists and i'll read some of them to you. >> a lot of people felt that president trump -- no. president trump was right because the data had decelerated. you don't raise rates into one of the worst retail environments you just don't do that

>> you say it every day. >> i like him personally he's raising rates at a time when the cpi was going down, the ppi was going down and we had a terrible black friday and christmas. it made no sense you have to pick up the phone and call guys who sell jeans and shirts you need dresses, luggage, furniture. i don't want to make these calls but it's what i do for a living. >> understood. >> i'm willing to take his job or work with him he's a nice guy. >> by the way, here at the big board the westminster kennel club celebrating the winner of the 2019 best in show. that is king, he's a wire fox terri terrier. we're going to speak with him, t or actually his handler in a few minutes. the one love foundation on this

valentine's day. no love letter here for the stock market >> it's the best market in years since the year began let it come in >> let me read one of many different takes on the retail sales number this is from i believe jeffreys this morning they say the bottom line on this is that it is truly dread full pretty much across the board this data release would indicate that the consumer sector collapsed in december. this release is such an outlier that it does raise concerns. >> you could do a pa-- amazon wy

down 22. this is an online christmas. >> i don't feel as though and maybe it's not something to be answered there was no government shutdown that occurred in january, not december there wasn't even an expectation. china trade war doesn't really impact people at home in term s of their spending. people are not listening to jerry powell they're not. i don't know what's going on a lot of resistance to spending in december and whether or not you could say it was unreliable data >> i think there's a bounceback. i do think there was a wealth effect i was in costa rica during that week that day before christmas was one of the ugliest days i've

ever seen. >> in the market. >> i was in costa rica and my wife was saying what are you doing. i said i'm on the 9:00 because this is just a disaster. >> maybe it was the market pullback that really did get people's attention. >> it did. i know we have a perception that only wealthy people own stocks there's been a remarkable redistribution of stocks when i look at what doug peterson said this week there was kind of an en masse decline. there was a tremendous pulling of debt. remember, it was one of the worst quarters for debt, it was

bad time those were days that shook a lot of people. just like you got shook in 2008. the market was not able to handle it. the machines broke down, the al gore algorithms go awry recognize that chuck robbins is less of an out llier >> we have data export from china where there has been generally a consensus that the economy is slowing dramatically to some extent, up 1.9% when

everybody was looking for down 3. >> the christmas season for the companies that do big box, i'm talking about home depot, lowe's it's good. stanley and black & decker doing well we're seeing some very good news in almost every single aisle lowe's doing some things that are very positive. it's hard to adjust to that. it will be fine. there's a downgrade of home builders today i do think people are reacting to older news. i think the china discussion you had married with what chuck robbins, who's very close to the trade talk people in the trenches things are going okay. but it's not as fast as we want.

>> i don't think anybody really expected them to be able to ink a true deal with china prior to march 1st. those expecting you get an extension of the deadline and perhaps you can get something more significant done by may. >> yes, i think so when japan's doing well, why do people not care? japan's coming back. i mean, back online, so to speak. decent numbers out of brazil you have to put together a whole mosaic eurozone and china, i would urge people to look at the semiconductors we have that notion that the chinese are putting that olive branch out to buy semis. and vidi reports this evening. >> yes they do we got reduced expectations in

terms of revenue crypto and people not minding as much for bitcoin. >> gaming has a product, yeah. when you issue a new chip and their chip is so unbelievable that it is better than movie quality, you have to have all these gaming companies write for it and they're not doing it yet they had to cut the price to try to stimulate business. >> nvidia has hung in there. >> we know it's such a great company. if they say we think this is the last bad quarter, his

credibility is so great that that stock will soar machine learning is perfect. their autonomous driving is great. all the money they're putting into data centers. >> the amount of money that google is spending as a corporation is enormous. >> they are a very long-term thinking company. >> it's amazing how much money they spend in a year on those things. >> some of the tech companies are doing so many things right by the way, you want something right? how about boeing not to build an a-380 size plane that plane was too big and it was not fuel efficient and there was no piano in the bar in first class. it was just a bar. >> maybe that was it >> artesinal gin in the bar.

that plane is one of the monuments to intellectual arrogance on the part of airlines they really believed that the airlines would not care about fuel economy that was a mistake jim mcearny saw it >> haven't looked at the ten-year yield or oil. curious to see both to give us a feel for the broader market. >> it's all the usual suspects >> wti has had a decent week >> we are at the high for the year this morning coming in. >> yeah. >> a lot of export we have mixed data points. >> very much so. let's check in on what else is moving this morning.

>> nice gains across the board yesterday. in fact we saw the s&p 500 close above its 2000 day moving average seen as a bullish signal among technical traders. that clearly shows that we saw a drop after that weak retail sales came in. economists are now trying to figure out how this impacts fourth quarter gdp and retail earnings investors awaiting an update on the u.s./china trade discussions. germany's gdp getting some at tejs andthe attention and narro avoiding slips into recession. you saw the shanghai composite close flat overnight but it's had a nice run for this week on the earnings front, coke earnings fell in line with ant

lists' estimat analysts' estimates. canada goose profits jumping 64% over the same time a year ago. hyatt saw a beat in profits despite weakness at select service hotels shares are down about 2.6% after hilton reported better than expected numbers see hilton outperforming hyatt on the year. back to you. now time to get to the bond pits rick >> there was a lot of movement based on the perceived weakness of retail sales. i want to use that word perceived. ten years, they both dropped and rather substantially when

you consider how exacompact somo their ranges are if we start to close much lower, if we start to get closer to below 260, that's going to weigh on those if you look at bund, they were very responsive to the drop in retail sales as was the dollar index although to a much lesser extent let's look at the dollar index let's start in november of last year the high for the year and actually that high in november of last year goes all the way back to the summer of '17. it was 97.54 we're still hovering above 97 and that really is key traders tell me they're using 96 pivot, 97. they like that level back to perceive

we saw seasonally adjusted retail sales and ppi that adjustment process is complicated. but last year december in the end of the year was really distorted due to tax eform the seasonal adjustment process looks at the november december relationships in the rear-view mirror i think that explains the huge dript si betwe discrepancy between seasonally and non-seasonally adjusted. when we see how these numbers actually will be adjusted and plugged in and how they add or subtract from gdp there may be some surprises he has officially been crowned top dog. king is the newly chosen best in show at the 143rd westminster kennel club dog show king along with his handler gabriel with with us now after

ringing the opening bell nice to have you here. congratulations. how much time do you spend training king during the course of the day >> like an hour, 30 minutes every day. >> every day >> yes. >> he gets a routine walk and play time. >> what was it that won the competition for him in your. opinion? >> i think his performance he loves to grandstand very well you know, i think he's very charismatic. >> let's talk about tpets stocks up 4.5 because people feel like the pets have gone from the basement to the bedroom to your bed. how did this happen? it happened in record time >> i didn't hear you very well. >> he's asking about how pets

have become so important to us >> king, are you okay? >> we think of pets like we think of humans. we treat them better how did this happen? >> yeah. well, you know, i really don't know >> i have some theories. >> what happens so king now? is it like a prized racehorse? >> no. it's not like that >> if you want to hold him in your lap, you can. or does he continue to compete >> no. this was his biggest accomplishment so he's going to retire. >> it's like the pantheon. does he need a shave >> he retires. >> no. he's okay like that. >> he's very attractive. thank you for joining us thanks for bringing king >> what can we say about saving dogs will you say something please about the dogs that are -- about kill centers and adopting dogs and how important it is?

>> it is very important. we have a lot of organizations that support that. >> thank you. >> actually, he won best in show and there's this organization donate $10,000 for it. >> excellent that's what we want. >> congratulations again >> take care >> bye, king coming up, lael brainard is going to join us as we head to break, let's give you a look at the morning's top performing stocks on the s&p uh-oh!

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want more from your entejust say teach me more. into your xfinity voice remote to discover all sorts of tips and tricks in x1. can i find my wifi password? just ask. [ ding ] show me my wifi password. hey now! [ ding ] you can even troubleshoot, learn new voice commands and much more. clean my daughter's room. [ ding ] oh, it won't do that. welp, someone should. just say "teach me more" into your voice remote and see how you can have an even better x1 experience. simple. easy. awesome. all right. let's get to "stop trading" with jim. jpmorgan. >> today is a down day obviously, but the bailout with the piece that jamie dimon appreciates saying goliath is winning. doesn't mention the balance sheet but the investor date february 26 is going to be a catalyst and raises the price target from 13 1 to 130

i can't even look at the company's price multiple this is the best bank in the world. >> nine times. where is book these days, i don't know it's well over book as opposed to goldman which has typically traded closer to book these days. >> and citi at book. >> the book numbers scrubbed clean. literally from the residue of tim geithner. >> yeah. >> but i'm aghast that the bank group trades as poorly as it does. >> not just the bank group but broader finances, aig having a very dad day, too, which we did not get to when we rounded up some of the movers this morning. >> every time there's a stone uncovered, there's something bad underneath it. i am urging people to recognize that the reason why we had the rebound in january this year is because the fed switched, because the headlines got better, and we're in a much better time than the stock market indicates, but we've been up so much let it come in a little and then look at the semiconductors and look at tech but understand we

do have a wave, david, of ipos that's unprecedented. >> we do. >> we know many of them will be profitable. >> perhaps in the second quarter and maybe the third. >> and the funds don't have the money to buy them. they don't buy these, so the market won't be able to handle the movement from active to passive and all this equity. >> we'll be speaking a lot more about that, but for the near term what's coming up on your show tonight >> got a good show waste management they keep delivering my travel trust sold after a good gain. and jeff lawson and sameer bought this great company called sendgrid they taught me how to code it's the technology behind uber and lyft and by airbnb and so many companies anything you get by phone that you -- that you used to be able to call a cab, it's trulia i want you to have a good time today. i know you're here until 12:00. >> i am here until 12:00.

>> do you have survey moaning? >> yes, we do on the 11th. the cfo left recently. >> he left, but they can give you a sense of the relation to the office and whether people are down i think you might have a better read on christmas. >> i'll tell you, man, hard to use more dire language than being used by people to describe those december retail sales number. >> it's past, it's rear view, and people have to suffer through the idea they didn't listen to me about how bad retail was sorry, sorry i get a lot of things wrong but when i get it right it's pure accolades to say i got it the right. >> don't go changing. >> don't be the king >> happy valentine's day >> all right up next, coca-cola's ceo james quincey on his company's results. coca-cola shares down as much as they have been i think in ten years. federal reserve president lael brainard will weigh in on the

possible rate hikes ahead. >> finally. >> we're back after this

♪ good morning and welcome back to "squawk on the street. i'm sara eisen here with david faber and mike santoli live from the new york stock exchange at post nine. carl has the morning off take a look at where we stand in the market stocks lower across the board. s&p down half a percent. the dow is down a little more than that, down 165. coca-cola certainly not helping, and same with the economic data. weakest retail sales in nine years. let's get to rick santelli with some more breaking data. rick >> reporter: yes a november read on business inventories expecting a gain of 210. the number is down 1% of .1% do remember this is november, but it adds to a long list of numbers that are soft today and we'll be spending a good chunk of the day discussing some of the reasons why. think seasonal adjustments also a reason david faber, back to you. >> okay. thank you.

>> and i think that's going to be the conversation today which is are the weak numbers something to write off because of the shutdown and because of the weakness that we saw, for instance,in the stock market towards the end of the year last year, or does it signal some real red flags about the economy to come? >> that is the key question i think at this point given what is seemingly a number that is incongruous from any other number that we've gotten in some time, and people are pointing -- jim and i were talking about this china trade, not really. powell's comments not really government shutdown hadn't occurred yet. >> well, the government shutdown started the 22nd of december. >> we sort of knew it was coming, too. >> it was kind of building to that you had the final week of the year. >> could that real be a reason why people would cut back on their spending in a significant way? >> no. >> the stock market would seem to be of all of those the one that perhaps was affected. >> the ideathat the stock market wag meting down for two months was out there in a little more, in a bigger way than just the financial papers, for example, but also it's old data

right now. the stock market is up 17% in, you know, a month and a half, right, so it's -- you're kind of greeting the market at a moment where it's already been kind of stretched to the upside. the bond market though is not fully discounting these numbers. the yields are coming down, not dramatically, but they are definitely back down on the lower end of the recent range and the two-year yield. >> and the fed cuts also going up at the end of the year. >> in other words, the bond market is giving some credence to this. by the way, also, a little uptick in weekly jobless claims. not a major thing but something that sort of feeds the idea that, hey, maybe, the economy doesn't have a huge amount of momentum at moment. >> it was december, too, so january is not a big month for these kind of numbers. i mean -- >> especially during the shutdown. >> toys "r" us is basically lick dating what does that do to seasonal adjustments in december? >> let's send it now over to steve liesman in washington. has as special news-maker guest this morning steve, take it away. >> reporter: david, thanks very much i'm here inside the federal reserve, and we we are live with

federal reserve governor lael brainard thanks for joining us here the retail sales number, disappointed, turned the market around does it cause concern for you to see a number like that being negative with the lowest number in nine years? >> certainly caught my eye certainly caught my eye. it's a miss. it's one month of data, so, you know, don't want to take too much signal from it, but certainly adds to a story where we want to take on board that there's downside risks at the same time we're still getting pretty good numbers, more recent numbers on payrolls. >> how does it fit in with your general view of the economy? did you believe the economy is decelerating is that part of that framework that you have? >> so i think going into this year we would have expected a solid growth figure, but a slower growth figure than the very strong growth we were getting last year, but downside risks have definitely increased

relative to that modal outlook of continued solid growth. >> let's talk about some of those risks that are out there first overall question do you see an elevated risk of recession this year for next >> i would certainly say there are a variety of downside risks and, of course, i'm very attend i have to all the recession indicators that people look at, including the slope of the yield curve, but in terms of the other kinds of downside risks, foreign growth has slowed. it was first very apparent in china, but now we're seeing those numbers come in below expectations in europe policy uncertainty still high whether, you know, we look at trade conflict with china or whether we look at brexit, and financial conditions have tightened, so i want to take those on board as i think about the year ahead >> you have a lot of international experience at the treasury and also at the federal reserve. have you been concerned about the ability or the possibility

that global weakness will come and hurt the u.s.? what's the sort of level of concern with that? >> so we are a very international economy. our financial system in particular has shown itself to be very responsive to earnings abroad, to financial conditions, volatility abroad, so, yeah, i'm very attentive to the international outlook. now the truth is that our underlying domestic momentum has been pretty soiled and that's been the driver for the u.s. economy, but when we see financial conditions tightening abroad and a big downdraft on growth abroad, yeah, we need to take that on board here. >> these past several months have been one of the bigger shifts that i've noted following the federal reserve. you in september talked about rates going up over the next two years. in december the federal reserve raised rates and now you're in this patient mode, and the market is actually expecting a rate cut did you guys make a mistake or

miss something in the lead-up to where you are right now? >> yeah. so back in december hi already noted that cross currents were increasing and that tail winds were dying down, and i think that is even more true today because of those downside risks that are gathering i think we are in a good place today. i'm comfortable waiting and leverage we want to see the data as it comes in, but, you know, i think in terms of the let's be on hold for now while we learn about what's going on in the economy, i think it's the right place toss be. >> so if i'm a guy in the market, a woman in the market i have to put a number on hold for now. does that mean i should not expect any rate hoiks this year? >> well, so, let's go back to the outlook. the outlook is generally the modal -- the modal outlook is generally for solid growth and the labor market continues to serve of up numbers that have

supported that, but the risks to the downside have groerngs and so i think we'll have to wait and see what the right move, if any later in the year is, but right now i think we're in a very good place to watch and see that data it is a comes in. >> would you say there are equal odds it could go either way the next policy move. >> i wouldn't want to assign odds, but i would certainly say where i am today with the kind of hold and carefully monitor incoming data is a very appropriate place. >> let's talk about the balance sheets should the balance sheets be sensitive to the economic outlook. >> so i think on the balance sheet it's real important to distinguish between the overall technical factors and monetary policy with regard to just the general size of our balance sheet, ultimately, you know, we said last time that we're going to stay in an ample reserve system. my own view is that balance

sheet normalization process should probably come to an end later this year. we know that liquidity demand on the part of financial institutions is much higher than it was pre-crisis so we want to make sure that there's an ample supply of reserves to guard against volatility that's a separate question from what the committee clarified in our last statement which is the balance sheet will always be consistent with our dual mandate goals with the policy rate being the active policy instrument, but we wouldn't want those two instruments to be work at cross-purposes. >> sure. >> when you say come to the end sometime this year, do you have a place where you feel comfortable talking about going to with the size of the balance sheet. >> so, you know, my own view is that we want to have an ample supply of reserves we've taken some soundings of the market in terms of what that demand for reserves, is and i

would want to have a substantial buffer on top of that to avoid volatility, so in -- in my view that balance sheet normalization process probably should come to an end later this year but, you know, it's important to remember we've already seen a very large amount of normalization taking place reserves are down 40% from their peak they will be down more than 50% later in the year, so for me it seems that the balance sheet normalization process has -- has real done the work it was supposed to do. >> i don't think i do math in trillions live on television all that well, but if i'm not mistaken coming to an end sometime later this year would likely leave you north of $3.5 trillion. >> so i think really in terms of reserve demands and, you know, again, we did a survey back in august, and, you know, my own sense is we want to have a comfortable buffer on top that have. >> okay. >> i want to just ask you about overall monetary policy and the

changing world we live in right now. have you been surprised given the strength of the u.s. economy in 2018 by the absence of inflation, and are you now ready to maybe change your framework to let inflation -- let gdp run a little hotter and wait until the inflation comes up rather than anticipating it >> yeah, so i think for several years now i have been very sort of focused on the fact that we're in a new normal with a low neutral rate and with much less of a kind of phillips curve framework. we're just not seeing that transmission from the labor market to inflation. we are now seeing inflation coming in around target. our cpi read yesterday was encouraging in that respects, and i'm going to want to see, you know, a strong labor market and continue to support inflation coming in around target. >> does that mean you would

countenance i guess is the best try put it as a federal reserve policy-maker a lower inflation rate than -- i mean, would 3% make you real concerned when it came to the unemployment rate? >> so what i'll be looking at is both the labor market and labor force participation and the ability of the labor market to pull more people into productive work as well as that inflation trajectory and, you know, again, i think were -- we've had many years where we were below our target and sole right now the -- the real focus is making sure that we stay at target and make sure that we are at that 2% in a world where a lot of other countries are well below their target and have been for a long time. >> we set up all this equipment and i know have you a couple of extra minutes here, and you're so involved in the financial regulatory world, and it's very hard to have all the time to get into all the details, but when

it comes to lower the liquidity buffer for banks worth $$275 billion and when it comes to giving banks more information on the stress test. do you have concern that we're rolling back the regulations that came in the period too quickly and too much. >> yeah. i have been and remain strongly in favor of reducing burden on our community banks. they are such an important part of the banking landscape, and i don't think some of the post-crisis regulations are appropriate for them, but for the large banks, for the 250 plus banks or the large and complex banks that have trading operations, i think it's very important to make sure we safeguard those liquidity buffers they have built, safeguard the capital buffers they have built. the stress test is the an incredibly useful tool we don't want to give the test questions ahead of time. we want to retain that stress

test framework as a valuable tool for making sure capital buffers are resilient. >> lael brainard, federal reserve governor, thanks for joining us. >> back to you guys. >> thank you. >> great interview, and we'll talk a lot more about it fed policy, the market coming up, but, first, let's go to the ceo of one of america's most global companies and get his take on all of this. coca-cola out with earnings this morning. the stock having its worst day in a decade. organic sales growth sparking a beat on the top line, but guidance may be worrying some investors as coke faces currency headwinds. >> joining us first on cnbc is ceo jim quincey. >> good morning, sara. >> iwas going to start on the quarter but we need to start on the some move, down with its worst day in a decade. are you surprised with the outlook? >> i think the reaction started

to embed in the headwinds in 2019 we had a strong operation performance in 2018 and a strong plan for 2019, good top line growth and good margin expansion yet we face -- we face headwinds on the four "x" and on interest and tax. we're trying to be prudent in our outlook given the volatility and uncertainty for the year, but what we're focusing on is continuing to drive our strategy which is producing results, and we'll have to manage all the levers going through the years so we can turn that into the best possible results for the shareholders. >> so i just want to be clear on this because there's some discussion in the analyst notes. the weaker outlook, and i think weaker organic revenue than some were expecting as well is it all tied to macro economic weakness and strong dollar >> yeah. well, the organic revenue growth is not particularly related to the dollar that's the translation of the earnings, but the headline number is slightly softer than

2018 with 4% organic revenue growth that we think will still be at the high end of consumer products, organic revenue guidance for 2019, and it does represent perhaps a more prudent view on the macro economic growth available in 2019 which is going to be a little softer than 18. so it's still a strong number, although a little less than 18, but we'll be focused on executing our plan and really driving to the best number that we can go for. >> so where in the world are you seeing weakness when it comes to the outlook this year? >> as we look into 2019, clearly we see -- we see softness in some of the countries that stumbled a little towards the end of 2018, argentina went down strongly at the back end of last year turkey is now adjusting to some of their macro economic troubles some of the other countries in the middle east and, of course, europe has softened a little bit coming into -- into 2019, so i think it's not one country in

particular there's i think a few parts of the world that are softening, that clearly are represented in the imf economic outlooks, but, again, you know, the -- the good years and the bad years will come what we're focused on is really executing against that plan. we've got good brands, good marketing, good innovation and our bottling systems are executing. >> we got a down sales report and we're trying to figure out if it was seasonal or one-term factors like the stock market decline and the shutdown or is the u.s. consumer weakening in a meaningful way what are you seeing? >> we saw in the fourth quarter a slightly softer demand outlook in the ufrmts i think part of that was our industry, the beverage industry as the price increases from the summer fed their way fully to the consumer, but it was a little softer in the fourth quarter, but i think what we're encouraged by going into 2019 is we see a little bit of it coming back into terms of

the growth, both slightly growing in the u.s. and then growing globally such that we see volume and price mix at the start of 2019. it may be that the back end of the fourth quarter was a little softer than the first quarter will end up being, but we want to be prudent in our guidance for the outlook and focus on what we can execute against and really manage our way through 2019 which i think in the end will be more volatile and uncertain than 2018. >> do you think theu.s. corporate and individual tax cuts are still helping consumer spending in the overall economy here >> i think there's consumer spending still clearly there's some adjustments going on sentiment tends to be a little more volatile than perhaps it's been in the past, but we -- we see resilience in the consumer outlook, and we see resilience with our customers in terms of their plans to drive growth in the business. >> as far as the portfolio, i mean, you continue to see this

double-digit growth and coke zero sugar what else is working right now and what's not working >> well, the things that are working, i mean the sparkling business worldwide grew in revenue and grew in volume and revenue and helped a lot by coke zero sugar had its best year ever, the stabilization of diet coke in the u.s. and great growth in sparkling. some strong growth in the premium segments around the world, whether that be the premium juices, premium waters, taking control of ready-to-drink tea finally around the world the places where we've seen some softness are places where we've chosen to put less emphasis on some of the very low-priced water and juice drinks around the world, so we're happy with the focus of our portfolio it's expanding we've got innovation, and we're driving growth >> question on china you've told me before a few times, james, that you're not really feeling an effect of the u.s.-china trade fight when

comes to consumer spending in china. is that still the case >> yeah. i mean, we're such a local business because all the drinks we sell generally speaking 59% of them are made in the country that we sell them in, so the -- the china-u.s. negotiations on trade don't directly flow through to us. it's more the general sentiment. i think we saw china a bit like the u.s., a little softer in the fourth quarter, but at beginning of this year the chinese new year has been very strong fours, and we see demand there at the beginning of the year in '19 in china and in the u.s >> just curious, i mean, the news is that president trump is inching very close to making a deal with china. as a ceo who operates there and so globalbly, would you be in favor of just seeing a deal and an end to the fight, or would you be in favor of holding out for a better deal that tackles some of the structural issues like intellectual property theft? >> look, i mean, of all the

trade deals around the world, there are none that are perfect. all can be improved, so our take on the world is, look, we think trade deals help global growth we think they help growth in each the countries that participate in a trade deal and they can all be improved so if there's an ability to improve the trade relationship between the u.s. and china, i think that will be a positive thing. >> wanted to talk to you back to products about the flavors, vanil vanilla orange is a new one, first new flavor in years and who is driving this trend? what are you seeing? >> i think around the world you're seeing consumers more interested in personalization, more interested in trying new flavors of brands they love, and so you see that in the u.s. with new flavors on coke, new flavors on diet coke clearly it's been part of helping stabilize the diet coke business along with packaging and some great marketing

so i think you'll see more from us in terms innovation, not just around new brands and new products but also on new flavors and, of course the other part of the equation which perhaps is not so sexy, pulling out those ones that aren't working so well and really helping the innovation machine being engaged for consumers, tends to be more millenials and young adults but everyone is interested in them >> james, it's mike santoli. i wonder if you could weigh in a bit on your thoughts on capital allocations sharing cash with shareholders, as you know. there's been a lot of critical attention on corporate stock buybacks, you're in a unique situation, mature company and lots of cash flow but you really utilized most of it in sharing investors in terms of dividends. do you buy back some stocks, but only a third as much as you did last year. how do you think about the issues, the use of cash and whether in fact it balances out with investment in the business. >> yeah, sure. look, our starting point is doing the right things to invest in the business for the

long-term growth, and we've been clear that we would prioritize our dividend and the growth of the dividend over share buybacks, we've moved to a position where we're just buying enough shares to avoid dilution by our employee stock programs, and that's a position we've taken, but as i say, our number one focus is using the cash to drive our business organically and returning dividends to the shareholders and then occasionally making some m & a plays world trade center less of an emphasis on share buybacks and that's working for us, and that's the approach we're going to take for the coming years. >> mr. quincy, david faber, if i could just come back to the broader issue here you know, i've listened to you on our interview here and read the conference call. using the words cautious to dedescribe the macro economic outlook, uncertainty, volatility is this reflective of what you saw in terms of a deterioration in the global economy, or is this more specific to coca-cola and the competition it's finding in each of these markets and in

north america? >> no. it's very much related to the macro environment. i mean, we're finding that there's growth in the beverage industry we're winning shares around the world. our plan of investing in the portfolio, expanding the portfolio, offering more choice, marketing our brands, the innovation and the great execution by our botlers is helping us win in the marketplace and drive growth the prudence is really center around the macro economics and some of the uncertainty that's been highlighted by a number of institutions out there, including the imf in terms of the reduction in the outlook for growth next year >> james quincey, thank you for joining us as always on the quarter and the outlook. james quincey is the ceo and incoming chairman of coca-cola. >> thank you >> well, coming up, another interview you're not going to want to miss virgin group founder sir richard branson sits down for a first on cnbc interview he's going to weigh in on the

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stocks turning lower after that weaker december sales number this morning. white house director larry kudlow was asked about it at a gaggle of press reporters. take a listen to what he said. >> retail sales, you know, there's glitches in that number, some of it because of the shutdown some of it because, you know, there's a message there, i'm very glad the federal reserve is putting their rates on hold. i think the president's warning on that was spot on, and now hope flip the fed will step aside. we don't want to risk anything like that. meanwhile, the overall economy is very strong >> kudlow at the white house's take on the numbers that the economy is still strong, and there were a lot of quirks that went into the december number. i mean, just listening to james quincey talked about it, he gave a cautious view on the global economy and said that the u.s. is actually -- they saw some weakness in december, but it's looking to pick up again early this year. david solomon yesterday of goldman sachs said there's very

little recession risk the u.s. economy is chugging along so we're not getting any warnings from companies. >> and got very strong export numbers from china, unexpectedly so given the broad consensus. >> they have been stimulating. >> 9.1 versus a down 3. >> their currency after falling 8% has finally turned around they have been doing a lot to fix that. >> you haven't had conference calls from 70% or soviet union s&p 500. there's caution. they are lowering guidance a little bit but there's nothing that suggests there's some kind of a hard stop, severe slow down in the last months of last year so i do think that the market is kind of taking this as a little bit of a cautious note but steal data that we don't necessarily want to extrapolate too far. >> israel the largest monthly drop in retail sales control groups since december 2001. >> 2001, yeah. >> and that what feeds into gdp,

of course. >> gtp numbers, fourth quarter real growth forecasts 2.7 to 2.9%. >> it was broad spending weakness, and we were look at some of the miscellaneous categories like musical instruments in book stores, maybe a toys "r" us effect, groceries. >> i wonder given its dominance in that category in december what the role s.year over year retail sales are up 2.3% december over december, still very slow given nominal growth. >> even online spending off retail was slow and that's usually a strong place. >> the etf spotlight this morning. if you look at the different retail-oriented etfs, xrt, the s&p 500 retail sector, about equal weight i think so that is certainly down significantly, but we're not really seeing that much underperformance. one of the reasons is this sector is still well below its highs, much more than the overall market is, the xrt down

today down 16% off its highs and the rth which is a slightly different market cap rate, down 10% and ibuy which is the amplify proxy, down and s&p down only 7%. right now the market is okay with the idea that we saw a slowdown and we'll price in a little bit more, but it's not as if the market was already pricing in had a huge acceleration in retail activity so maybe that's why this sector funds are not necessarily getting hit tremendously hard. >> by the way, we didn't recap lael brainard with steve liesman. i heard a lot of downside risk she wasn't willing to say downside risks to the economy. balance sheet normalization should wrap up this year, i'm not sure they ever articulate it had that way. >> trying to figure out how much they will have left as a result of what's on the balance sheet. >> a lot of estimates were saying if you take what they are saying about where we'll ultimately settle at, it got you to this forecast that probably

it will be done by this year, but i don't think it's ever been that specific by a fed official saying that, that it would likely settle out. >> meanwhile, mike, the market itself has come back from the lows, certainly the s&p down about a third of a percent right now. >> it's been the rule. >> i mean, there's a little bit of a bid in the market each day, and i think that, again, steal numbers, the first quarter shutdown will affect the numbers for now. the lower numbers, but they didn't keep crashing which would have been more of a concern but for now it seems like this sort of resilient tone to the market is staying. >> also the dollar weakened sharply on the back that have news, on the idea that the u.s. economy is slowing it's actually now climbed a little bit back. maybe there's a view that retail sales was a little bit of an anomaly and things aren't as bad. >> risk number one, if the dollar sheet is higher, then the stock market will probably stop it in its tracks, that's not happened. >> those correlations are a little thrown off. >> all right let's change it up and get a news update back at hq from sue

herera sue? >> good morning, david, good morning, everyone. here's what's happening at this hour former deputy fbi director andrew mccabe says top justice department officials were so alarmed by president trump's decision to fire james comey that they discussed whether to recruit cabinet members to invoke the 25th amendment to remove trump from office those remarks were made in an interview on "60 minutes" which is scheduled to air on sunday. following a photo-op with secretary of state mike pompio, vice president mike pence calling for america's european allies to join the u.s. in withdrawing from the 2015 iran nuclear agreement this, at the middle east international conference in poland >> the time has come for our european part in other words stand with us and the iranian people, to stand with our allies and friends in the region. the time has come for our european partners to withdraw from the iran nuclear deal. >> back in this country, denver

public schools and teachers have reached a deal to end their three-day strike it includes raising sal raise by up to 11% with built-in cost of living increases the deal must still be ratified by the full union membership you are up to date that's the news update for this hour i'll send it back downtown to you. mike >> sue, thank you very much. when we come back, the u.s. trade team is in beijing, but will they reach a deal with china before that march deadline we'll bring you the latest plus, shares of survey monkey getting hammered this morning. we'll speak with the ceo that's also later today on "squawk alley. want more from your entertainment experience?

just say teach me more. into your xfinity voice remote to discover all sorts of tips and tricks in x1. can i find my wifi password? just ask. [ ding ] show me my wifi password. hey now! [ ding ] you can even troubleshoot, learn new voice commands and much more. clean my daughter's room. [ ding ] oh, it won't do that. welp, someone should. just say "teach me more" into your voice remote and see how you can have an even better x1 experience. simple. easy. awesome. welcome back to "squawk on the street." i'm sara eisen with michael santoli and david faber live at post nine at the new york stock exchange things looking better than where we started

the nasdaq has gone positive names like cisco after a strong earnings report, interview that you guys had with the ceo last hour, apple, intel, all leading technology up, and the dough well off the lows. down about 235 at session lows and now down 71 points steve liesman spoke to fed governor lael brainard, perhaps a little dovish as we continue to digest the retail sales numbers in december, the weakest in march 1st and in trade, the march 1st deadline drawing closer, talks taking on a new sense of urgency secretary mnuchin and trade rep lighthizer both in china to talk with their counterparts. kayla tausche joins us now. >> reporter: larry kudlow was in the white house briefing room and gave reporters an assessment of how those talks are going after touching base with those negotiators. >> and i talked to the group they are covering all the ground they are hard at it. they are going to meet with --

with president xi so that's a very good sign, and they are just soldiering on, so, you know, i like that story, and i will stay with the phrase that the vibe is good but i can't give you the details. >> the vibe is good. the team met with the vice premier and held a photo-op and had an expanded bilateral meeting in beijing we're still awaiting with what happens with the march 1st deadline kudlow says there's been no decision made on extending the deadline, but sources say it's actively being discussed and while the flexibility signals positive movement in talks, the existing tariffs, 25% on $50 billion in chinese imports and 10% on an digital 20 billion will stay in place in the last year u.s. companies paid more than $11 billion in tariffs on chinese goods coming into the u.s., $2.5 billion in november alone that's the most recent month for which we have data available,

and then we have the forthcoming executive order on technology used in 5g internet buildout once thought to target chinese's huawei it will be country agnostic and company agnostic and direct the department of commerce to write a rule to safeguard the u.s. supply chain so a bit broader than perhaps has originally been reported now that huawei, that executive order in the huawei discussions are said to be a separate track from trade, but president trump said that when he and president xi meet, huawei will be discussed. i'm told it's not likely to come up when president xi meets the u.s. delegation this week. that meeting, guys, happens tomorrow >> kayla, so many big issues, so little time. what would a good deal for the u.s. look like at this point >> reporter: well, there's the good deal that the u.s. would talk about pubically and that is getting china to commit to these permanent changes to its economy, to stop subsidizing state-owned ent prize, to give up the forced technology transfer practice that has been going on in china for decades

and to provide some sort of strict enforcement mechanism for violations of intellectual property that's what the administration says pubically behind the scenes the discussion is expected to be a little bit more candid about what china actually can do and is willing to do and what the u.s. group would be willing to accept the expectation from watchers of these talks is that the deal that we will get will have some sort of strong enforcement mechanism because china wants its economy to be taken seriously, too, but that the commitments will be more purchases, perhaps looser rules around jvs, opening of financial services and maybe some agricultural industry stuff, but that it won't be as tough as the administration has said pubically, but we'll see >> kayla, you know, is the market just took a little bit of a leg lower just in the last couple of minutes as we've been talking here, an some are attributing it to a headline which basically says u.s.-china trade teams said to be far apart on reform demands.

we've kind of heard this pendulum swing back and forth for a while now and it can characterized in different ways. any reason to think that it's at some kind of a critical point or we're getting a snapshot in time of where things stand? >> reporter: well, i think they have been far apart all along, mike, and china i was told when the delegation came to the u.s. at the end of january that essentially the chinese delegation brought the soybean purchase, the 5 million tons of soybeans, and it came with the invitation for president xi to accept a meeting with president trump if president trump would accept one, but beyond, that there wasn't much that china had signaled it was willing to commit to on the structural side, and it's unclear whether the u.s. team has been unable to change that course of action in the last several weeks they certainly hoped to this week, but as of monday, when the first part of the delegation arrived in beijing, they were still very far apart on the structural reforms, and the question is just what will the president accept

if china says it's not willing to make some of these permanent changes, is that okay with the president at this moment in time, or will he continue using a leverage that the u.s. team currently has to keep the fire under china to get a better deal >> yeah, or if china commits to say, you know, in the future trying to open up some of these reforms and its economy and making it more accessible, whether that kind of commitment would be good enough versus the enforcement and the action there's so much. by the way, kayla, that headline coming from bloomberg. when are we going to know something? when will we know how the week shaped up with the high-level delegation and whether the next step is a trump/xi meeting >> reporter: in the past when there's been a group that's gone to beijing, there's been a statement that's been released at the end or the conclusion of talks and that happened last may. that happened last summer and then that happened at the g-20 and happened again just last month so that's certainly what we expect to happen at the end of this week, and who knows when

we'll get news on a trump/xi meeting. that was something that the president said just a couple of weeks ago i said i'm going to do this in the near future and a week later he said i'm not going to do it, it's too soon, so certainly the facts of this situation change dramatically from week to week, and it just really depends on what these two sides can agree on, whether they feel like there's a framework for the presidents to sign and then whether they agree on location do they do this in the u.s. at mar-a-lago as the u.s. team has suggested, or do they do this in a neutral location or on chinese soil mean, that's still one of the major questions here. >> all right among many, a lot of steps in this process kayla, thank you very much for bringing us up to date coming up, virgin group looking to disrupt the travel industry founder richard branson joins us for a first on cnbc interview to talk about his newest venture virgin joijs and so much more. that's coming up on "squawk alley. we'll be right back. actively

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one top strategist sounding is the alarm on the fed. find out what the has him so concerned on "tradingnation.cnbc.com. more "squawk on the street" is coming up. when did sleep become something that requires effort? with tempur-pedic, it doesn't. enjoy our most advanced pressure-relieving material for the deepest sleep you've ever had. this presidents day, save up to $500

on select adjustable mattress sets. find a retailer at tempurpedic.com. we're watching the market this morning that's a look at the -- >> that's the dow. >> off the lows this morning we heard from federal reserve governor lael brainard earlier this hour on balance sheet normalization. >> ultimately, you know, we said last time that we're going to stay in an ample reserve system. my own view is that balance sheet normalization process should probably come to an end later this year. we know that liquidity demand on the part of financial institutions is much higher than it was pre-crisis, so we want to make sure there's an ample supply of reserves to guard against volatility >> steve liesman conducted the

interview, trying to figure out if that's maybe as much as 3.3 trillion let's get to another guy who makes a lot of guesses as well rick santelli with the santelli exchange rick >> reporter: good morning, david. i would like to welcome jim grant. jim, before we get into the meat of negative interest rates, governor brainard was speaking, just heard the clip with regard to balance sheet all would i like to say and maybe like to weigh in on the interview is that all the fed people governors, voting members, when they raised in december of last year, all sounded so much different than they sound now, and i'm not saying that's wrong, but the problem is, if we just look to the notion of governors and members of the federal reserve and count on their track record for telling us what's around the next corner versus what they are doing now, telling us what's in the rear view mirror, i think we'll off the scent if we're investors. your thoughts? >> well, i think that the fed is just as god as the rest of us at

seeing around corners. the difference is that they pretend to be able to do it. i guess that's part of their job description. when you listen to governor brainard she said the fed means to guard against volatility. does that mean guard against price discovery? does it mean guard against bear markets? what does volatility mean in this context so i think that the trouble with the fed and the trouble with its balance sheet is that it is set up to do something that was not in the minds of the founders of this institution, and what the governor failed to mention as well is the admittedly cosmetic fact that this institution is leveraged 100-1, that on a mark in september it would have been technically insolvent if that mattered and the treasury indemfies the fed against losses, but balance sheet is more than the sum total of this massive pile of securities it is also an expression of the way the fed does its business and the way it does its business

is to run a fiat current we an eye on the stock market. >> i understand. one of her comments i agree with the balance sheet has always been a tool, it has, but scale, scale means so much. now, let get to the matters at hand, whether we're looking at switzerland, germany, denmark, netherlands, belgium, sweden, austria, i can name 17 countries, what do they sharing, negative interest rates? i see research from san francisco fed telling us negative rates aren't so bad from the eurozone and mario draghi, they are working jim grant, what do you think about negative interest rates? >> well, rick, you failed to mention bulgaria which has outstanding pieces offero denominated paper of minus 30 odd basis points to maturity next year, and i think even as the fed's technical insolvency

is symbolic of the fiat currency regime, bulgaria, a bbb credit, not impugning the credit, but you pay bulgaria the prif level lending to its government thanks to the massive almost $3 dollar market manipulation conducted by the ecb. the bond markets in europe is as dead as the opportunity vehicle on martian sands it is to discover price and rates and help calibrate our feelings and our calculations about financial risk, it's dead. and i wish somebody would say it more frequently than you and i i think it would be wholesome to hear it more often. >> no, and i'm glad we're discussing it. we don't have a lot of time left here's the key what did you tell investors with the cross currents

information, talking about bad things going good and doing more should investors continue to invest in equity markets and what feedback loop should they pay attention to >> there's an expression that comes out of the way earlier part of the 20th century, time of the depression, that saying is there's always something to do it was said by value investors in the '30s looking for things to go up there's a ge piece of paper, priced at certainly cheap rate a couple months ago. there are securities that are mispriced and offer the value seeking investment and that margin of safety so i think it is not helpful to generalize across the entire world collection of securities to say it is a no go but i think to generalize,

central banks have done us no favors by snuffing out the lights that had guided us to sensible investment decisions. those lights being the difference >> jim, thank you for your thoughts i'm sure this is the end of the negative interest rate conversation mike santoli, back to you. >> rick, thank you very much thanks, jim. let's send it to jon fortt with a look at what's coming up on "squawk alley." hey, jon. >> how is it going, mike >> survey money ceo joins us in a few minutes. that stock having a rough morning, now 14% it might not have to do with the results. we'll give you more on "squawk alley. what do you see? we see breakthrough medicines getting to patients in record time. we see harnessing natural gas unleashing the promise of clean energy. we see engineers simulating the future to improve today. at emerson, when issues become inspiration, focusing core strengths to create a better world

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the street." i am dominic chu markets are down but recovered much of the early losses the biggest laggard in the s&p 500 today is the financial sector, down 1.5% here nearly every component in the index is lower on the day. you have shares of aig, posting the biggest drop after they reported a loss last quarter on better than expected revenues. other laggards, charles schwab,

state street bank and blackrock. kre on pace for the worst day since december 24th. for now, those shares moving to the down side. now back downtown to you at the new york stock exchange, david >> okay. i will take it thank you, dom. time to turn to sara, ask what's coming up on the all important two hours, that last trading hour. >> last trading hour, the most important. we dive into the retail sales mess i think that's the question of the day, how it will impact the market which seems undecided to the signal on the u.s. economy plus, two big earnings reports after the bell cbs and nvidia the latest numbers and instant analysis the cbs call, going to be interesting today? >> unclear, we'll see what the numbers look like. i don't think you'll get any comment on viacom or the ceo search i doubt it not for the ceo to talk about the search for his replacement

>> we'll be covering it anyway. >> and nvidia. that's big >> yes first on interview with richard branson, coming up on "squawk alley. don't go away. nway, which met a burst pipe. so grant met his insurance: you are caller number 12. which didn't quite cover the steinway. but what if he'd met pure insurance? owned by members. he'd have met: lisa, your member advocate. who'd introduce him to gustav: leave it to me. a temporary address, temporary ivory, and help him get tickets to the mozart festival. excuse me, grant likes beethoven! uh, the beethoven festival. pure. love your insurance.

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good thursday morning, welcome to "squawk alley." i'm jon fortt with morgan brennan and david faber. live at post 9 of the new york stock exchange we begin this morning with the markets. we have seen big swings in stocks major averages red across the board, a drop in december retail sales, largest in more than nine years, spooking investors in today's trade. steve liesman is in washington with more. steve? >> reporter: jon, thanks very much a lousy retail sales report. we got to ask the fed governor lael brainard in that in an interview an hour or so ago, and what she said was that it is part of a lot of other risks out there, including global weakness, trade tensions, and other economic issues that are