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welcome to "squawk alley." i'm carl quintanilla and morgan brennan at the new york stock exchange the index is up 13% so far this year, as citi now finds that the top 50 hedge funds did load up on tech stocks in the fourth quarter, led by facebook, microsoft, and alphabet. so where can investors find value in that sector joining us this morning, both on set, larry haverty, managing director at ljh investment advisers and mark may with citi. so people have been making some purchases. you have been shifting your preferences in your universe what'd you do? >> so every quarter, we learn more information stocks move around they have been moving around a lot the last few months. so we took an opportunity to step back, reassess our recommendations. mainly what i did is i've been a big bull on amazon for the last couple of years. they have been my top pick there have been some things coming up in the last couple of quarters that make me a bit nervous. still a buyer, but it's not my

top pick anymore preferring alphabet now. like what i'm seeing there, continued strong 20% plus growth driven by youtube, mobile search, but what i like there tactically is it looks like we could be seeing improvement in expense growth and margins and that's been an issue for the last year. so i think one of the reasons why alphabet stock is not performed all that well the last year is the pressure on margins. we see maybe that coming to an end. and that to us, tactically, is a better setup going forward >> larry, i'll put the same question to you, especially when you've seen double-digit gains since the start of the year in some of the biggest tech names >> i think, morgan, the market is is not cheap and you have to be reasonably cautious so at this period of time, i want to bet on the most certain horses and if you look at the area of tech, what's the most stable, predictable cash flow? i think the answer is really easy and mark highlighted it for one of the stocks, which is

google that, basically, the core business of google, no matter how you define it, is probably going to grow between 18 and 22%. and the management, if they're going to play with the margins, it's the management's decision to play with the margins and they now have decided they would like to see the margins a little higher. and that augers very well for the future performance the second one, where there's an enormously predictable stream of cash flow is the services business and apple and you look at the services business in apple, it's very, very hard in the next few years for you to conclude that it's going to be less than 15%. it's enormously high marginal profitability. so that means more than 20% growth in cash flow. it's growing as a percentage of stock flow the stock is way cheap versus the others and i think those are the two horses you have to bet on in the race >> on apple, larry, do you care about unit sales and second question, are you craving some sort of inorganic growth through m&a >> i don't think the inorganic growth is going to be there.

the thing that most terrifies me, carl, is people wanting to get into the movie business. i think, if you're not going to change money incessantly at a foreign exchange booth or visit a slot machine at a casino, the movie business is the fastest way to turn $10 into $80 and i noticed that amazon is etrenching in the movie business, having found that it's very, very hard, except if you're in the business of make big-budget cartoons to make any money. i think netflix is, you know, kind of fighting a rear guard action they're spending a lot of money to see if they can get roma academy awards i think this tells you they're a little bit worried soft i hope that there's no inorganic acquisition there. that would terrify me, especially if it's in the film production business. >> so mark, what about the names that aren't so big i look at shopify, square, stit stitchfix, all up big, more than 30% since the beginning of the

year given all of this talk about the big players and putting money there, have they run too far or do you think the smaller internet players don't have much gas left >> it is hard to be a stock picker in small cap internet you know, every 30% move on the upside is typically followed by a 30% move on the downside so over the years, we've typically favored the large cap names. if you look over a five-year, you know, ten-year track record, you're going to be better off focusing on the large-cap names. so i think the volatility there, i'm not surprised to see the stocks doing well. build a little nervous, that's typically a counterindicator of how to think about positioning going forward. >> larry, how about the chinese internet names i know you keep close tabs on the stocks that are poexexposed there. we have president trump essentially softening his stance on this march 1st deadline there seems to be a lot of cautious optimism in the market right now that we're going to get some sort of deal in the near term. are these stocks attractive

right now? >> well, i think the best situation in china is ten cent and the second biggest or best is alibaba and there, i think the trump/xi things were more or less a side show i think the real issue is the internal politics in china and i think when these people get on a moral high horse and decide to restrict content, and in the case of ten cent, the content being the -- some of the games didn't pass muster originally, there's reason for concern. that storm seems like it's died down i think it's clearly on this political stuff, and i find it very, very difficult to make money on political stuff i would rather do it on income statements and balance sheets and cash flow statements it's in everybody's interest to at least make what i would call a cosmetic agreement that all of these talks and all of the jet fare and all of the banquets are

reaching some kind of conclusion where both parties should benefit. and there's really no reason why both parties shouldn't benefit of the 20 biggest problems in this country, the trade deficit is not one i think it's just totally -- it never gets any discussion, morgan, but our biggest industry is education and you look at education and you really see it in a place like boston, where there's a tremendous number of quality institutions these institutions are packed with people from the rest of the world. we have an enormous comparative advantage in education and the services part of the balance of payments, which is not goods, it's services, and education is the principle service, is enormously weighted in this country's favor. so if you're looking at the trade deficit, you're getting a totally false picture of what's going on economically. and you look at these discussions and i think the president's guilty of this, they demonstrate for me an alarming,

alarming indication of economic illiteracy and we have to get more literate in this country. we have to look at the trade deficit and say, that's just one part of the puzzle let's look at the whole -- let's look at the whole frame. >> yeah, not sure we're going to walk the president back from that, but we'll find out i do have to -- before you go, ask you more specifically, what worried you about amazon was it india or something else >> we've been very bullish on the marketplace opportunity which you really see show up in advertising revenue. and that number actually showed pretty dramatically in q3. we have been seeing 60, 70% rates of growth. that slowed to 38% so that's really the primary issue there. i think we've been reporting on walmart and the growth of ecommerce at some of the other retailers and we've also seen some slowdown in their core retail business. so i think tactically, we're still very bullish on the long-term outlook for amazon, but when we look at revenue momentum and margin momentum, there are other companies like

alphabet, like facebook and netflix that we prefer right now over amazon. >> so not the economic literacy that arguably contributed to amazon pulling out of hq2 plans here in new york city? >> good point, yeah. >> okay. >> guys, thanks. good to see you both, larry and mark well, softbank's vision fund leading a new $200 billion funding round for storage on demand service, clutter. deirdre bosa joins us with more on this vision fund. >> this latest deem follows the mossa sun playbook pick a winner and inject so money that the start-up can outlast rivals and experiment as needed you saw this strategy with uber, doordash, many others, now we're seeing it with clutter the start-up's cofounder and ceo tells me the original plan was actually for a smaller financing round. >> ultimately, if you're as long-term focused as we are, you know, working with a partner

like the vision fund is an ideal match for us and whatever delusion that we may or may not have taken as part of this round is kind of nominal, as you look at our business over the next few decades. >> mir actually flew to tokyo to meet with masa son face to face and said he secured the deal after keeping him engaged for only about an hour the funding values clutter at more than $6 hurrica00 million,e than doubling its valuation. it also puts vision fund director justin wilson on the board and wilson tells me that clutter is a novel model that's taking on the $38 billion u.s. storage market, which he says is mostly just boxes. it is crowded, though, newer competitors include makespace, trove, and omni. traditional players, trove and extra space are worth almost $50 billion combined wilson also says with the vision fund, clutter will have not just capital, but council

connections, strategic guidance to it ahead of its competition, and he'll be as involved as the start-up wants him to be in recent months, though, guys, as you well know, that model has come under greater scrutiny, particularly those high valuations of investments and masa son's decision-making roll. >> yeah, deirdre, that is a ton of money $200 billion in storage. thank you. and when we return, netflix on a tear so far in 2019, up more than 20% since the start of the year that's amid a giant spending spree so who's leading that race that is next sta stay with us to bringing it to life. with financing solutions from american express. chat with us today and let's make it happen. american express. don't do business without it.

welcome back to "squawk alley. we want to call your attention right now to what's happening with shares of magellan health, which are up about 8% on roughly 350,000 shares of volume, this after a reuters report says that magellan health is going to look into the possibility of selling itself that's according to sources familiar this is after the activist hedge fund, starboard value, which is the company's third biggest shareholder, has exerted some pressure on the company to find ways to unlock value that has sent it up to session highs. we'll continue to watch those shares as trading progresses, john, back over to you guys. >> thanks, dom netflix, amazon go, hulu,

the battle between streaming services for control of your content is heating up, as amazon says it's going to ramp movie output to 30 films a year and netflix is spending big to win an oscar julia boorstin joins us now with why distributors this the real value in the streaming wars is becoming the base of the bundle. julia? >> well, john, the latest battle for your living room is the battle to become your entertainment hub. while you can sign up for services ala cart, media, tech, cable, and teleco companies all want to become the base for add-on streaming services. that's to lock you into their ecosystem. so who's in this battle? well, amazon channels offers access to the most amount of add-ones, over 200 services in all. everything from hbo and starz to sports illustrated and comedy central plus many more niche offerings. roku also enables users to subscribe to services, about 25 services in all including

premium networks like showtime and starz. hulu tv and at&t watch both offer four add-on services, hbo, showtime, scinemax and starz. and then there's comcast, apple, to facebook's watch, they all have different incentives and they're all working to make it easy to access more services and to pay for them through their platforms and to keep their customers hooked guys, back over to you >> all right thank you, julia stay with us for more on the winners and losers in streaming and bundling, let's bring ingerber cow sake. so this keeps getting more complicated. i guess the latest point of news, netflix canceling some marvel show, "jessica jones," "punisher. i guess in a way, we knew they weren't long for netflix given disney's launch. but these are titans starting to

fight more openly, leading up to a battle royale. >> oh, this is battle royale and the circle is getting smaller and people running to get into the circle, if i'm going to use some battle royale analogies here and netflix is in the middle of the circle, but they've got a lot of players with a lot of money and a lot of skills at making content coming after them and they're all going to pull their content from netflix and that's why netflix is doubling down and spending way more money than they're taking in on content right now, because there's going to be a huge hole in netflix over the next couple of years, and they've got to fill it. and this isn't going to be that easy and they're spending a lot of money doing it. >> so are they in prime position julia was just talking about that the battle to become the base of the bundle, the one who really controls, in a way, access to this content, the best deals, is netflix in prime position for that or are there others who are in position and netflix is just a default, have to have it part of that bundle >> yeah, i mean, i think like

netflix is the base of the bundle 100 out of 100 kids watch netflix, so, you know, that's not going to change. i think what it does is put pressure on netflix's ability to raise prices and they're going to have to look for revenue somewhere else, because they'll lose more incremental users the higher prices go, because there's other choices and they're going to be cheaper choices. and so that's where the base starts and then the next level is going to be disney the disney plus app and hulu and some sort of bundle that we think disney might do with espn, hulu, and disney plus together and then you've got all the other additional add-ones like cbs and showtime and everything else so essentially, people will build their own ala cart bundle, which is kind of like the big failure of cable companies not to just go ala cart five years ago. the big loser here is direct tv and comcast. >> julia, you've got netflix spending big on roma ahead of

the oscars this weekend. what would actually happen if netflix won best picture what would it do to all of these different industries that are tide to th tied to this >> look, i think netflix is investing so much in its oscar race for roma, because it really wants to show that it cannot only draw top talent to produce content for netflix, but it can also give that talent what they want, which is that kind of critical acclaim, that attention from the academy and so i think it would be really meaningful not just for helping netflix win -- help them win over top talent, but also helping them really show that you can release a movie in a non-traditional way with a shorter window between when a movie is in theaters and when a movie is available online and still have it really work. so i think that, you know, it's interesting netflix didn't reveal how many people have actually watched roma on the platform, where they did give some numbers for "bird box," this is really for them much more of a prestige play.

but it's interesting to go back to netflix netflix is not the base that other people are building their bundles on top of it it may be considered a default now, but netflix is trying to move away from having to give 15 or 30% of its subscription fees to the people, you know, to the other players here, to their frenemies. they would rather have people subscribe directly through netflix, so netflix doesn't have to share that revenue. but all these other players want to make sure they're getting a cut of these additional fees so if you're hulu and also selling access to hbo or showtime, you're going to get a percentage of that if you're the ones selling access. all of these folks want to be the gatekeepers. and it will be interesting to see what happens when all of these new services launch. if the fact that netflix has raised its prices starts to become a problem >> and that's what i want to know from the investor perspective. does netflix itself need to become a bundler even if it's not bundling amazon prime, maybe spotify some other music service do they need to leverage the fact that they have all of these

relationships, credit cards on file, intelligence through ai, what people want to consume, and get in that part of the game >> you know, you just said something that was music to my ears i would love the see netflix do something with spotify and podcasts i mean, they've got to get ad dollars. so netflix has an unsustainable valuation. so let's just start with that. they need other revenue sources and advertising would support their valuation and working with a company like spotify makes so much sense or even buying spotify, you know, would make so much sense for netflix i love that idea i don't think that's going to happen, but i love the idea. you know, netflix is in a great position and that's why the stock reflects that value, but i think they're the top of the hill and there are a lot of people that are trying to knock them off so i also think they have to change their movie strategy. they've got to put movies in the theaters and make revenue like disney

it's unsustainable to spend $100 million on a movie and just drop it on your platform and not really make money in the theaters so if they put movies in the theaters and get ad dollars, i think netflix's valuation is right. but right now, you know, it's just super highly valued and secondly, "roma" is not going to win best picture, that's my prediction it's not the best picture of the year it will win maybe best foreign language or foreign film, but it's not going to win best picture this year, it's not their year there are much better pictures >> you like "black panther"? >> i don't think it's "black panther" either. >> we'll keep this baton movieing ross, stay with us some tesla headlines we also want to get to phil lebeau is in chicago with more on that phil >> and john, tesla shares have been under pressure as the company announced today it is yet again changing the general counsel at the auto maker. jonathan chang is the new general counsel for tesla.

he takes over for duane butsw butswinkis who is leaving after just two months. these are just the major executive position that we've been able to call up, just today, off the top of our heads saying, who's left in the last year got the general council today, last month, the cfo said he's going to be hiring in december the previous general council left in september. the chief accounting officer left and he had doug field leaving last july. here's is gene munster talking about the executive turnover and the concerns behind it for investor investors. >> this is more, elon is a difficult person to work with. he's a one in a billion type of person and this is further evidence, and that's the biggest problem the company has, is retaining top talent >> as you take a look at shares of tesla, keep in mind, this is one of those moves that, guys, people will sit here and say, is

there something more here? duane says, it's just a cultural fit, that's why he's leaving tesla. that has not stopped the skeptics and the bears out there saying, hmm, another top executive and the gc leaving the automaker? something doesn't smell right here but that's why duane says he is leaving tesla. guys, back to you. >> phil lebeau, thank you. ross, you're invested in tesla last i checked, you're very bullish on the company >> yeah, more blib than ever >> all of this executive and management turnover that continues to be something of a steady drumbeat, aren't you at all concerned about it >> i'm is not going to say i love it. it certainly isn't ideal, but boy, it reminds me of steve jobs like to the "t." this used to happen to bill gaetz a l gates a lot, too when you're as crazy, intense with the ridiculous goals of el elon, you've got to work on a pace that most people just haven't going to do. but i think what we're really seeing here is a shift away from the baby boomers to the gen-xers

at tesla i've had many lawyers not want to work with me because of twitter and the things i say and do, as well. so i certainly couldn't imagine being elon's lawyer. not to say it's not a concern, but, you know, look, there's a change going on at tesla a lot of people put a lot of effort in to get the company to where it is and they're burned out. and it was a nightmare last year and i see them moving on, now that the company is in a much better position. as far as this general counsel, it seems like he came in to deal with the s.e.c., he dealt with it, he doesn't want to deal with problems every day, which i'm sure he does, and he has goes back to his cushy job. so tesla is not a cushy company to work at you might as well go to apple if you want that. >> and of course, we're having this conversation on the heels of more tweets from elon musk last night about production and then a correction to the first tweet about production rossg gerber, thanks for joinin

us to talk about all these different stocks as we head to break, take a look at the worst-performing stocks so far in today's session, pfizer, walmt, aarnd walgreens we have a lot more "squawk alley" straight ahead. don't go anywhere. at emerson, when issues become inspiration, creating a better world isn't just a result, it's a responsibility. emerson. consider it solved. half of small businesses fail within 5 years.ne. and more people than ever struggle with debt. intuit is here to change this story... with giant solutions like turbotax, quickbooks and mint that give everyone the power to prosper. intuit. proud makers of turbotax, quickbooks and mint.

european markets are going to close any minute. dom chu joins us now with today's action dom? >> so european markets, john, set to close slightly higher as you can see behind me, a lot of green out there we're being boosted along by a slew of strong earnings reports, buyback increases at lloyd's banking group and mining giant, glencorp, as well as some encouraging signs in ongoing brexit negotiations. the pound did spike to a session high against the dollar last hour on reports that a null brexit agreement is already trying to be hammered out in brussels among the individual stock names also in focus today, you have air france jumping more than 66% after reporting its losses narrowed last quarter, boosted along by higher passenger traffic. on the flip side, you've got ubs shares dropping more than 3%

after a french quarter found switzerland's biggest bank guilty of money laundering and ordered it to pay a fine of more than $4.5 billion euros. that figure is the largest penalty ever doled out to a swiss bank ubs has denied any wrongdoing and said it would appeal that decision out in france and finally, you have uk grocer sainsbury was far and away the biggest laggard in uk trading after the regulator expressed some concerns over the $9 billion takeover of walmart owned a-asda shares of sainsbury on pace for their worst trading day since november of 2007, carl i will send it back over to you. >> a lot of tough names in retail today let's get over to courtney reagan today and get a news update >> here's what's happening at this hour. california governor gracavin neo is promising a fight after the trump administration said it

plans to cancel or claw back $3.5 billion awarded to the state's high-speed rail project. newsom called the move political retribution. saudi crowned prince mohammad bin salman offering terrorism cooperation with india as tensions rise with pakistan over a suicide bombing in cash m kashmir. he and prime minister mody attending a signing. and moroccan police protesting with teachers prthing low wages. they charged the protesters, beating several to the ground. the teachers came to the capital from across the country. and a new study suggests cervical cancer may soon no longer be a public health issue in the u.s., citing the impact of widespread hpv vaccination coverage and expansion of cervical screenings. researchers say it could be eliminated in the u.s. within 25 years. that's good news that's your cnbc news update for

this hour. let's back over to "squawk alley" >> thank you very much, courtney raing reagan still to come, a preview of january's fed minutes. coming up in about two and a half hours, what was behind the fed's sharp turnaround in policy last month and did politics play any factor dow's up about 19 points cal: we saved our money and now, we get to spend it - our way.

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welcome back to "squawk alley. this afternoon's release of january's fed minutes only hours away now, as investors look to gain some insight on the fed's sharp turnaround in policy, just earlier last month steve liesman is in washington ahead of the release with more on what to expect. hey, steve >> hey, morgan yeah, we're waiting for the minutes in the january meeting, where the fed pivoted to a policy of paustience, from gradl rate increases and also revised its policy for running down its bleat, making it more sensitive to changes in economic data. but what we know is the fed debated several key policy questions and investors are looking for some answers here. maybe some of the minute questions, what was behind the pivot? were there politics in there what about global ricfts in trae tensions and how long as a result of that are hikes on hold will the fed reduce the pace of the balance sheet runoff sometime soon and how big will

the balance sheet be when it's all done in a reuters interview, john williams said it would take a changed outlook to resume those hikes. he also said he thought the runoff should run into next year, while fed governor lyle brainerd said she wants to it end this year. evercore isi says the fed will likely go big and slow and mostly short, as in short-term duration rather than long-term and here's what fed chairman jerome powell said about the balance sheet at the press conference that followed the january meeting. >> what we're looking to do is create a whole plan that will bring us to our goal, our longer run goal, which is that balance sheet no larger than it needs to be for us to efficiently conduct -- to efficiently conduct monetary policy. but to do so in a way that doesn't put our goals at risk or result in unnecessary market turmoils >> so these minutes are going to be about a meeting where the fed

talked a lot about but hadn't decided on big issues like what comes next on policy, only that it wouldn't be hiking. the best investors might get is more detail surrounding the debate and they'll have to wait until at least march to see how the debate concluded and guys, maybe we'll get even more answers tomorrow when we sit down with st. louis fed president, jim bullard >> that's going to be one to watch. thank you, steve >> sure. >> and stay warm we see the snow falling behind you there. >> oh, it's only -- it's only a television camera, so, it's all right. >> well. cnbc has launched a financial education initiative called invest in you, ready, set, grow. it's all part of a new partnership we have with acorns, the savings and investing app. with the fed set to release its minutes later today, we're taking a look pat what investor should be doing in an ununcertain rate environment joining us with lisa shellat with morgan stanley wealth management good morning to you. thanks for joining us. what should investor be doing in

this uncertain rate environment? >> well, you know, our key advice here is that we're looking an environment where we're likely to have an earnings recession over the next couple of quarters. and by that mean, we mean that many companies are going to see year over year negative comparisons in terms of their ability to grow their profits. of course, remember, that 2018, we were coming off the benefits of, you know, the tax cuts and fiscal stimulus. so earnings growth was in many cases up 20 to 25% and so, you know, we think that earnings are going to be tough to come by and so our key advice to clients has been to focus on those companies that have stable growth trajectories, not high growth trajectories. so that would include things like health care and consumer staples. but also companies that have valuation support, like financials and like industrials. you know, one of the things that we're observing is that, you know, the u.s. economy, you

know, grew much faster than the rest of the world. in 2018, we expect the u.s. economy to be slowing this year. but actually, for the rest of the world, to see better growth. and so those companies like some of the industrials that have exposure to global growth and a rebound in that growth, particularly coming out of china, to do well. >> okay. so that's the equity piece of this in terms of bonds, how should investors be positioning themselves there, especially because i think bonds can be a little bit daunting and we're in a period where the fed is certainly more cautious in terms of its policy, but a lot of question marks ahead >> yeah, there are a lot of questions marks. and you know, the fed certainly has gone on pause, and that has helped contribute to a -- what we call a very flat field curve or the difference between, you know, rates that you can get in cash and rates that you can get for owning, you know, longer

term bonds that spread today is very, very narrow and so what we have encouraged clients to do is to not take long bond risk and prefer to stay at the shorter end of the curve and even increase their cash balances and just be aggressive at getting, you know, 2, 2 1/2% yields, in even things like certificates of deposit >> lisa, is it time bring back those classic ideas like rebalancing and diversification? i mean, it seems like investors did okay over the past several quarters, if they were mainly in domestic stocks, but maybe haven't shifted things around because of that. >> yeah, no, look, i think that that's a fantastic observation you know, we believe deeply in the benefits for long-term investors of annual rebalancing and broad diversification.

as you noted, you know, really, over the last decade, you haven't had to be particularly diversified. this has been a market where, you know, massive index investing in u.s. stocks has pretty much, quote/unquote, done the job. we think that now we've entered a new regime with regard to both fiscal and monetary policy, you know, with government spending now producing deficits and the federal reserve, you know, normalizing policy, that, you know, moving back towards those good health and hygiene type practices and building portfolios, where you are very diversified, and that means including international stocks, emerging markets in your allocations, and rebalancing those allocations annually, is absolutely critical. >> hey, lisa, we pay a lot of attention to your call, especially the earnings recession call from mike wilson.

he's been on the air quite a few times, as you know when you think about upside risk to the market, though, where are you focus, if, in fact, your thesis is not quite correct, where could it be wrong on the upside >> yeah, well, look, with you know, we are, you know, somewhat bearish about the outlook for corporate earnings certainly, if we get better than expected growth in the u.s. and, quite frankly, a rebound internationally, we could see earnings growth, you know, move back into the, you know, 5 to 7 range. i think one of the things we want to be careful about is how does the fed respond to that if, in fact, growth is much better in the second half of the year, would they be forced to raise rates. i think, you know, from where we sit, it's all going to depend on the data i think the upside is going to require a very patient fed and better than expected growth, just not clear that that's a combination that we're going to

get. >> lisa shalett, thank you for joining us today and your insights on where investors should be considering putting their money right now. we should note that nbc universal and comcastinvested i. for more information, head to the website, cnbc.com/invest cnbc.com/investinyou and later, don't miss an exclusive interview with the ceo of kimberly-clark. you can catch that live on "closing bell" beginning at 3:00 p.m. eastehirn ts afternoon. our own morgan brennan will be there. we're back after quick break

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i'm scott wapner here's a look at what we're looking at for the halftime report we'll debate whether something's going to give in the weeks ahead. several strategists are out today with several views onning that that argument and we'll tell you whether southwest shares are worth a look in our call of the day today. both john and pete are here as well we'll tell you where they found unusual activity and where stocks could move as a result. we'll do it on the half. see you in 15. >> see you then. and mark zuckerberg taking to, what else, facebook, posting the first in a series of videos discussing the future of technology in society. he sat down with harvard law professor jonathan zitrain take a listen to what he said about regulation >> i think clearly we're in a position now where people rightly have a lot of questions about big internet companies, facebook in particular, and i do

think getting to a point where there's like the right regulation and rules in place just provides a kind of societal guardrail framework where people can have confidence that, okay, these companies are operating within a framework that we've all agreed that's better than them just doing whatever they want and i think that that would give people confidence figuring out what that framework is a really important thing. >> this conversation is more than an hour and a half long, as we dig through we're joined by our own julia boorstin julia, this conversation is framed as one of zuckerberg's kind of yearly personal challenges, which first of all, i think is weird because fixing facebook was a challenge, but before that, he was doing things like learning mandarin and only eating meat that he killed himself these have turned into pr exercises, haven't they? >> it's interesting. you remember these various pledges he did, these various

personal challenges he had every year were usually unrelated to facebook one of them was to visit every state that he hadn't been to, that was expanding himself personally, learning mandarin, challenging himself. and last year, last january he said that his challenge was to fix facebook but since then, facebook shares are down by double digit percentages. so it has been a challenging year for facebook, to say the least. anesthesia personal challenges, it's sort of interesting how the personal has become the professional he can't really have a personal challenge beyond just fixing facebook and so this year, his challenge is to have tough conversations about what facebook needs to do right now. and this conversation, as we go through it, that he had with his harvard professor, are really about what's next for facebook in terms of regulation, which zuckerberg has said many times is inevitable in this conversation, really saying that he thinkses it would be good for facebook and also what's next in terms of facebook's users and also, things like authentication and block chain and preventing fake and negative content from spreading on the

platform >> and julia, as we're talking with you, there's a blog on the facebook post saying that they are adding new location controls for facebook for android, where if users do not want the company to collect location information about them when they're not using the core app, they can do that this has been talked about for some time. >> yeah, there's a lot of question about how much facebook knows about its users. and there was an interesting conversation, actually, that zuckerberg had with professor zitrain about block chain and authentication, the idea of how much behavior will be tracked on facebook also, whether their investment in block chain is laying the groundwork for more transactions on facebook. and i think there are really big questions out there, whether people want to have their location tracked, whether people are going to feel safe making financial transactions or meaningful financial transactions through facebook. so a lot ofthese things are interconnected, your location, your authentication, and then what zuckerberg would say is the

more they can sort of know that you're a real person, who is not, you know, trafficking in fake news, the more they're going to do a better job in cracking down on that negative viral content that can be to mas or consumers >> to that point, it looks like he's also, once again, doubling down on this idea that facebook should remain a free service continuing to make that data to important to its business model. >> i'm looking at his quote here he says we want everyone to connect with who they care about. if you're trying to build a service for every one, it has to be free. there's a lot of companies that have been ad supported if people want them to see ads, they want them to be relevant. they don't want to be junk that's defending their model of using information you provide to facebook to bring you targeted advertising but this comes against the backdrop of people being concerned about being targeted too narrowly.

something we have talked about on your show, this idea of creep ad factor if you're talking about something or sending an e-mail about a certain product and see an ad for it moments later. that can be alienating >> back to that creep out issue. this issue of facebook for android saying we're no longer going to automatically track you when you're not using the core app. i'm not sure a lot of facebook for android users thought about the fact that facebook was tracking their location when they weren't using the core app. runs into this gug l issoogle ih the nest with the microphone in it that they forgot to tell people >> i think that's the new normal you and i had conversations about whether or not people care about proivacy and whether or nt

people understand what privacy means and are aware of how much information they are giving away so freely. a lot of privacy issues on facebook are trying to reset what the default is. the default was not just sharing just with your friends facebook had to change that over the years. it's going to be very common these days for companies to reveal, by the way, we have been tracking you in these scenarios. it's all in your best interest for serving ads. maybe consumers will start to take note. >> thank you we're keeping you busy this hour we appreciate it shares of facebook are up and so is the dow we have more squawk alley after this break ull blown production. ull blown production. with financing solutions from american express. chat with us today and let's make it happen. american express. don't do business without it.

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with the irs chopped, robert frank is taking a look at why taxpayer, especially the wealthier ones are less likely to test irs and catch cheating >> this year the chances of being challenged or audited by the irs is in lowest in 15 years. the rate has fallen by half since 2011 six in every 1,000 returns for audited in 2017. if irs did 63,00,000 fewer thani

2011 among those making a million or more about one in six used to be audited. now it's less than 1 in 20 the main reason is budget cuts the agency's total budget is down 16% since 2011. the number of auditors has fallen from 14,000 to under 10,000 that's the lowest number since 1953 many democrats say the agency is being starved for funds and can't do its job of collecting revenue to fund the government republicans say it's a blow to b bureaucracy and should be cut further. you have an agency that may be stretched during the biggest rewrite of the tax code in more than 30 years. back to you. if you go on their website, it's not that easy to make a

payment. can't wait till the i.t. reforms happen there too thanks for joining us today. >> obviously, things have been a bit quiet. we'll see what happens when that's announced it's nice to have the judge back i'm scott wapnerks it is possible that stocks could hit new mhighs in the months ahead. it's 12:00 noon. this is the halftime report. >> the next leg of the rally the s&p is at its highest level of 2019 and more than 90% of stocks are trading above a key level. the fed is in focus. key commentary coming up this am afternoon. southwest airlines grounded