paraphernalia stock like the bondmakers and stuff have you bought any of those >> pretty conservative. >> you are okay >> not there yet >> just wondering. >> larry bossy, thank you. we have a big day ahead. we'll be monitoring developments in vietnam and michael cohen, jerome powell, everything else join us tomorrow "squawk on the street" begins right now. good wednesday morning, welcome to "squawk on the street." i'm carl quintanilla with jim cramer, david faber at the new york stock exchange. the president and kim jong-un kick off their second summit in hanoi. both leaders finished what they're calling a social dinner. the president believes the nuclear talks will lead to a, quote, really wonderful situation long-term and a live report from hanoi in a few moments. along with the summit, more big hearings on the hill today powell day two, house financial services, u.s. trade represent lighthizer in ways and means and former trump attorney michael cohen at house oversight, set to

deliver some explosive claims about the president. we'll be on top of all of those events, jim. in addition to the slew of retail results some high profile misses on some medium sized companies today. >> well, i mean, it is a mixed bag, but i will point to the fact that we have companies that i think are emblematic of a strongconsumer, which is completes what jamie dimon said, strong consumer bought at best buy. strong consumer shopped at tjx i don't know whether a weak consumer shopped at macy's macy's was okay. i think macy's in the mall not as good. i like a lot of things i heard from companies, palo alto, very strong tandem really strong and then there is weight watchers >> weight watchers, pizza, mylan, it is a mixed bag as you say. >> mylan, theather fresh says,

listen, we did great, we did great, we did great. there is a problem in this quarter. and mindy grossman, the ceo of weight watchers, we did awful, we hit a speed bump, we didn't deliver, we're sorry the -- i got to tell you, the contrast is extraordinary. and i think mindy grossman gave you a clinic of what to do when you screw up, when you didn't deliver. heather fresh really has to start recognizing you can't keep missing without making some serious changes and they're not. they're not. >> yeah. >> they're a little oblivious. >> shares down 30% or so there is some footage of the chairman and the president at their summit earlier tonight i think we have seen the last of the president for the day. gone back to the hotel with residents, he'll remain overnight. we'll talk about what it may mean, in terms of potential milestones that they may deliver out of the summit, along with powell, of course, after

covering all kinds of topics yesterday, urban royal divide and cannabis banking with the economy and rates. >> exciting. exciting he's flat. >> don't you think, though, of everything this morning, lighthizer is the one that is probably most important to the markets? i wonder because the new york times has a story today talking about divergence potentially or gap between lighthizer and what he's pursuing and what trump may choose to do >> that's not -- >> and how he excoriated him about the memorandum of understanding. i wonder his testimony today, if there is anything we may learn from lighthizer, insight into the talks. >> that's a great point. i'm sitting here reading cohen's testimony, looking at the check, and i'm focused on powell, what powell is going to say there is a big overload of news focused on vietnam by the way everyone forgot --

>> pakistan and india. >> pakistan and india. and the world is kind of exploding but maybe what you're talking about is right in terms of keys to the market, maybe lighthizer -- >> the thing we lead virtually every one of our programs with is in the morning is china trade. >> weight watchers before that. >> we can talk weight watchers >> ww by the way. >> not looking good. >> wwe as far as i'm concerned. >> losing weight on market cap. >> you're right, david i was going to talk about how the american consumer is stronger than people think but there is -- these people do not buy less because of -- >> and certainly the case of say best buy, their guidance is contingent on tariffs staying at 10. >> and look, the weakness is cell phones, appliances are doing very well, gaming is doing very well. these are important issues that appliance doing well means good news for home depot coming up. i got to tell you, we are not talking enough about what marvin

ellison is doing this is a remarkable term. 12 years of home depot didn't hurt six years, he's taking charge, he's cleaning this thing up and not missing the quarter. people don't realize how hard that is. how do you clean up and not miss because you're focused he's focused >> focused, very important. >> mention that, along with downgrade of home depot, over at telsey and other things. >> pile on it is a pile on. throw in the flag there. >> first let's get a little more on the summit in hanoi eamon javers is there with more on the dinner tonight between the president and chairman kim >> reporter: -- a few minutes ago, the president trump's motorcade rolled down the street behind us. the two leaders just spent just over an hour together behind closed doors we didn't see all of it on camera, but in the piece we did see on camera, the president making an economic pitch to kim

jong-un, suggesting hanoi and the former capital of north vietnam is emblematic of what can happen to a communist country like north korea if it opens up to the outside world and begins denuclearization process that the president has been pushing for so hard since he became president two years ago. here is what the president said to kim jong-un just a short time ago in hanoi >> i think that your country has tremendous economic potential, unbelievable, unlimited. and i think that you will have a tremendous future, and i look forward to watching it happen and helping it to happen and we will help it to happen. >> reporter: the president there making an economic pitch, also making a very personal pitch to kim jong-un saying he thinks the relationship between the two countries and between the two leaders has been terrific. the president earlier called kim jong-un the dictator of north korea, a friend. this is a president who is very much engaged personally in the diplomacy here of trying to get

this leader, this recalcitrant leader to open up his country and end his nuclear program. we'll see whether that can bear any fruit tomorrow the president hinted that he might be seeing the press tomorrow, we might have a news conference here in which we get some sense of what happened between the two leaders behind closed doors here in hanoi. >> the times this morning leads with a piece about whether or not the white house is perhaps softening their stance as the president said over the weekend, i don't want to rush anybody when it comes to denuclearization is there that sense among those covering the summit? >> reporter: absolutely. you saw the president ratcheting down expectations last week, as we mentioned, said he didn't want to rush anybody he said he was happy with the fact that they have not -- the north koreans have not tested nuclear weapons. they haven't tested their missiles over the period of the past year since the last summit was held between these two leaders in singapore the president said he considers that a significant accomplishment if only that is

achieved so so far the white house tamping down expectations. some possible access for inspectors to get into some of the facilities, but with we don't have any guarantees what will be put on paper at the end of this process here in just about 24 hours time. >> interesting too we're just now lapping the one year anniversary of the olympics if you recall where a lot of this -- i don't know if you call it detente or not between the north and the south got rolling. remember that? >> i got to ask you, when you get the olympics and then you start talking about south korea talking to north korea, i felt this would be east germany, west germany, they get together, that seems to be over is it just talking about a country that could compete with vietnam and south korea, even though it has no infrastructure

to speak of and a workforce that i don't know is current, is that even realistic >> reporter: look, you see some analysts saying that once they're able to get rail and sea shipping into north korea, you could see some prosperity begin to take place there. they are a natural resource there, there are other elements that western companies might want to go in and do business with but ultimately the president is pitching this as the vietnamese example. what happened to north vietnam and the entire country of vietnam, once it opened up to the broader global economy there is an economic boom that you can feel here in the streets of hanoi, interesting juxtaposition yesterday of watching the vietnamese military and their formal uniforms which we have all seen for years and years standing guard in front of the prada store in downtown hanoi. that gives you a sense of the juxtaposition of the communist government and the products we see on streets of hanoi. the president is suggesting

something similar could happen in pyongyang it seems far fetched, but certainly seems far fetched you see it here in hanoi as recently as a decade or two ago >> eamon javers in hanoi, looking for developments in the morning, your time, evening here, covering the summit for us thank you. as we have been discussing, testimony from lighthizer will begin in under an hour in his prepared text, he says china poses severe challenges to the u.s. economy and he adds, quote, this administration is pressing for significant structural changes that would allow for a more level playing field, especially when it comes to issues of intellectual property rights and technology transfers. issues on the table are too serious to be resolved with promises of additional purchases. we need new rules. he calls china a market distorting system, gives pelosi a shoutout for being skeptical about giving them favored trade status. >> i think it is important there is this kind of left/right -- i thought the pelosi -- i spoke with the speaker, she is adamant that workers -- that's kind of

where navarro is workers have been hurt they have to come together doing work on huawei do you know in the prc it is the duty of companies to commit -- it is the duty research this. why are you smiling? you're supposed to commit espionage. my head writers researched this heavily. also my nephew, my only writer he's amazing he made the point, listen -- >> what i think is interesting here is the part that carl read that we need new rules, proponents of an aggressive posture with china do not want to see the administration settle for just dollars >> soybean. >> right they want more -- as he said promises of additional purchases, new rules, they want it to be about intellectual property and second paragraph here at the end, any agreement

must be enforceable, says mr. lighthizer in his testimony as well because he says we're very aware of our trading relationship history with china and the disappointments that resulted from promises that haven't been kept so that's going to be where the key is the question is there daylight between lighthizer and trump >> i think that the president wants to do business they open a car company in detroit, he's all over it. >> if we have gone all this time now pushing this, putting the tariffs in, having the reaction and then we just settle for more soybeans. >> he'll say -- listen, my good friend -- >> real true changes in terms of intellectual property. >> my good friend, listen to this, i would love to go with you, but i just got lighthizer this is what he did with me and the apprentice i would love to go with him. >> you think he won't settle >> this is how he does it. it is his way of doing things. and, you know, i don't know, maybe he knows -- remember jerry

orbacher ever see the plague promises promises they're done with that broadway show promises promises, forget about it i would tell you the president -- >> if you believe that, jim, then the likelihood of a deal may be less than people think. >> i think that they're going to cave >> the chinese >> i think -- >> who is going to cave? >> no, the north koreans yes, the chinese will say, listen, 2025, we'll modify it. belton road initiative we're about to confiscate everything they put into venezuela. that's a plan. they backed the wrong guy. we are going to repudiate them around the world if they don't come to the table. >> they're at the table. the question is whether they -- >> this is not about green

giant. >> sounds like you're in the miles to go camp we have not seen peter navarro on our air -- >> i miss him so much. you say, like, fire in the hole, you can't just keep doing fire in the hole, what i would point out is that it is going to be long and that's good for the american businesses that are trying to move out of china and the more businesses that move out of china -- >> you're ready to have this hang over the market for months. >> the longer it hangs over, the better. >> it gives people time to adjust supply chain. >> exactly right >> you're getting more bellicose with time. >> i've been completely -- i used to have that show "kudlow and cramer ," i was saying, you can't trust them >> by the way, you're in the alone. but i think the fear among hawks on this is that trump will cave. not that china will cave. >> look what he did with north korea that was so brilliant. about denuclearization now it is about selling washing machines, right? whirlpool play >> north korea is not -- china

is not in the straits, economic straits that north korea is. >> no. did you ever go to east germany? i went to east germany after the wall fell, there wasn't anything cooking there. >> promises promises, very nice. >> rest in peace. >> remember law and order, when he was in it he was a song and dance man. >> disney animation voice, yeah. >> my wife says, listen, forget about everything he met sondheim. >> when we come back eric clo, r look at today's movers best buy up more than 11%. look at the premarket here as we come off first down day in about three days for the major indices. back in a minute have you ever worked with dr. francis? oh yeah, he's ok. umm... just ok? guess who just got reinstated! well, not officially.

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upbeat morning on the retail front. best buy up on a big earnings beat tjx beat estimates, boosting the dividend new buyback, lowe's beating on the bottom line with a slight miss on sales. that stock is higher as well we mentioned bby before the break. the fifth straight beat on the

top and bottom line. >> nobody believes, it is driving me crazy you see the online business was -- it was a quarter of their actual -- did about 3 billion as comps were up huge on that we're celebrating today companies that amazon was supposed to kill they were going to do auto parts and kill autozone. >> best buy was the first one. >> showcase -- >> showrooming. >> they're going, looking at amazon and going to best buy and saying, hey, give me a good deal, i want to try it gaming, hard to buy gaming got to see if it works especially the new games, wow. sony has a new one coming out soon i think best buy is a triumph. that manager is very good. >> is it execution by the retailers or did amazon find bigger fish to fry in cloud and advertising? >> i think there is just fruit everywhere best buy is doing a lot of stuff by having in-house consulting. i have a friend, pulitzer prize winning reporter writer jim

stewart used best buy to try to get the tv going you're tweeting, i'm talking to you. >> sorry, i apologize. >> what are you tweeting about >> people are annoying me. >> i'm talking to -- i'm on a show, a major national show with you. my wife, national show, you think you're so good best buy is a quintessential example of how you got to beat amazon amazon doesn't care. they're making so much money anyway >> how about the div hikes, 11% at best buy. 22 at dick's 18 at domino's 32 yesterday at home depot. >> funny, you mentioned, i just told my team, i want to have a list of dividend boost because they are extraordinary home depot, we don't even talk about it a company raises the dividend big, that matters to warren buffett. it should matter to us >> i agree. >> you do? >> yes, i do absolutely although germany's beersdorf did

not have a good quarter and unilever is down. >> i'm tweeting a picture of my dog. >> i stopped i stopped. i decided not to respond to people who said i looked spo eed about spying. >> we're about to doe t the sho. >> i'm not the one that did the documentary on espionage >> the great burt bacharach. >> sorry about that. >> cramer's mad dash, count down to the opening bell in a minute. keep your eye on the futures also mention this trading glitch at the cme halted trading for several hours. >> ruined my whole evening. >> "squawk on the street" back in a minute. so, servicenow put your workflows in the cloud, huh? mmhm. your employees must love you. [ chuckles ] thank you. you could say that. i love you. servicenow works for you. yeah, i thought doing some hibachi grilling would help take

my mind off it all. maybe you could relieve some stress by calling geico for help with our homeowners insurance. geico helps with homeowners insurance? they sure do. and they could save us a bundle of money too. i'm calling geico right now. cell phone? it's ringing. get to know geico and see how much you could save on homeowners and condo insurance.

we got a little less than -- more than six minutes before we get started with trading here. we mentioned briefly weight watchers, it is going to lose a lot of market cap today. just an unexpectedly poor quarter. >> yeah. minnie grossman said, there are bumps along the way, we acknowledge the results we saw in january were a hard bump. she tried to pivot she's trying to pivot this company to be ww, not weight watchers what she's trying to do is develop an ecosystem of wellness it is a brilliant plan what you have to do is say i lost x number of pounds. dj cleave lost 40 pounds and it didn't matter. >> that was the problem. >> what do you mean it didn't matter >> people weren't focused on -- they were busy talking about how you got to get the ecosystem -- trying to get away from the notion that january is all that matters, and it turned out, unfortunately -- >> that is go ing on here?

>> people aren't buying it they're in the buying it no they want, like, you can get -- you can -- she's so smart. made so much sense oprah is in there too. and everything is doing everything they can. but the fact is that a lot of the people who follow this stock are starting to doubt the idea that this wellness ecosystem is as good as lose 50 pounds. so if i had just done in retrospect, if i'm running, which i'm not, i would have had him flood the world of how he lost 43 pounds that's impressive. he's a cultural icon. >> another one, by the way, hostile bid from germany's merck. merck ag. >> did you see buyer had a good quarter? >> i did. hae?s that the cng >> buyer after this.

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very busy wednesday morning, whether you're looking at hanoi or the nation's capital because along with the trump/kim summit, wall street is focusing on big capitol hill hearings next hour. the fed chairman, the rep lighthiz lighthizer, michael cohen, all on the hill. we'll be on top of all of those events >> this is a tough one because there are people out there who say this is -- the cohen -- it is testimony so explosive that, you know, i heard pence's name today for one. first time so explosive, going to start talking. then say, that's not going to change anybody's mind. then lighthizer, reading through the letter and saying he's a hard-liner, that could -- everything we're saying is comes back to me, push me, pull me market lowe's, at 5. >> interesting, jpm's trading note talks about a shock and awe

scenario, in which we get tariffs with china, guidance goes up immediately for '19, the fed commits to 13 trillion in reserves and they say you make a run at 3k. >> i am in that camp i think buy the financials morgan stanley talked endlessly about the concept of the fourth quarter was a quarter where everyone pulled in their horns and money didn't go into the market, nobody did anything. it is probably too late to save this quarter, but in that atmosphere, you want to trade, you want to buy, you want to kook couple la cumulate, change the psychology. >> there is the opening bell s&p 500 at the cnbc real time exchange, big board, contract drilling, the fifth listing anniversary at the nasdaq, exact sciences and molecular diagnostics company kicking off colorectal cancer awareness month. >> a must buy, it is a major

short squeeze. i have the box sitting in my kitchen. i've not used it yet that's my bad, david >> it is your bad. yeah get on that. start using it are you making any soup in that kitchen of yours lately? >> no, just using the exact sciences box in my kitchen probably a different kind of food -- >> it is up a little less than -- actually 2%. >> it was okay >> it was okay >> they sold division, nobody cared about. >> you got the hope that this is the transition they need to reset things and then and then get another push to see if there is consolidation in its future but given what we heard from kraft and the shellacking campbell got in response to the kraft numbers, it is up. it is up. >> you're right. >> not where it was prior to the kraft -- >> don't you think there is a

dichotomy. smucker's, great quarter we have mondelez, snacking, good pepsi pepsico, snacking, great there is -- there are companies where the publicity for kraft is bad, but the stuff is bad. >> this journal piece about how they dealt with kroger and forced them to take price hikes on capri sun -- >> 25%. >> people bought it. shocking. >> i had some capri sun the other day on the set i washed down some velveeta. >> how does it compare to hawaiian punch in. >> not the same as cold pressed fresh juice. capri sun -- >> there is sun in it. >> the stuff they have is just extraordinary -- how could they not have chef boyardee in that group. >> don't go after chef boyardee, in my 20s, that's what i lived on. >> we all did. i slighted genos because they

use cheese whiz. what was it, senator carrey, ordered -- >> he ordered swiss, proef lvop. >> i think he was laughed out of south philly. >> ge pressed up against the 200 day again. they're sticking with 6 bucks. >> i know. >> curious to see what he says i want to get to this interesting cross border hostile bid that had been in or is currently in a deal, merger of equals for a company called integris 1.12 shares of integris for each versa material shares. this morning, very much unexpectedly, certainly, a weird move yesterday in the spread in the versa deal, integris went

up, spread widened out anybody that own eed versum, th proposed to acquire the company for $48 a share in cash, jim, they're talking about building an attractive platform for electronic materials and solutions. they go on to say that we're just the beginning of the era of semiconductors just started and merck and versum will have a podium position to capitalize on it this will be interesting to watch. >> if they think it would lead to a superior proposal, they can terminate the other deal. >> i have to hand it to ackman on this one. >> ackman? >> a spin off of air products. he said air products -- >> versum. >> yes he said there was a lot of value to be unlocked and this is a very good company. they had a semiconductor company. what was their product

what are they doing? i was -- >> materials materials. >> integris is a similar thing. >> makes sense it is an ecosystem >> ackman is having a good year. we know this. >> good for him. chipotle is -- one of the top ten performers of the year so far. >> merck ag's presentation, look at the colors, looks like an austin powers movie. >> blue and green and -- >> that's really good. also something like dr. strange love >> this weird thing going on here. >> should check this out he'll tweet it. >> 22 pages of this. >> how about the ge 10k. that's a war and peace, it is war and peace. got a good ending. battle of the board. >> the journal today reported on how many employees have left the company, although they did include companies that had been sold or moved -- not like the

employee meant overall went down as much as they said because the jobs are no longer with ge, they still exist. >> are you a skeptic like tusa >> am i a skeptic? >> make that point again tusa is -- tusa is a -- the prosecution's resting here. >> tusa -- >> even though indexes are down, boeing all time high 431. we should point out oil, jim the saudi oil minister did say in response to the president's tweet that we are taking it easy eagles reference >> i thought that was. i thought that was taking it easy running around the road trying to loosen his load how do you like the fact that boeing can get $12.7 billion in plane orders and we don't even care you think the chinese take one out of every four planes from boeing don't you think they're worried they could get behind -- they need to be in the q.

get in the q by the way, boeing, they're crushing airbus. i was in the airbus 380 and having a couple of martinis at the bar. the only one at the bar. i'm worried about that plan. that plan is done. >> it is done. it is the delorean of the skies. >> it is it is so luxurious i'm in the -- they had three different kinds of boutique gin. single malt scotch. >> alone at the bar. >> i thought it was strange. alone at bar at 380. the hotel it was, you know, the shining. >> how much drinking do you do on the air >> or on the ground? you want to bring in steve. >> is he here? holy cow we do have a guest joining us and i got to tell you, one of my -- my favorite analyst, frankly, it is, this guy is doing the best work, a reporter,

right to it, steve tusa of jpmorgan you're sticking by your $6 target for ge. do you think that when you sit down with larry culp on march 5th there will be any way that you can say maybe go it a $7 target this stock is taking over, my friend. >> it has been a while. >> too long. >> so, yeah, so, you know, i think back in december when the stock was at i think like 6.72, but who is counting, our view was that, you know, we never called this a liquidity crisis, never said the stock was going to go to zero. that was kind of a straw man bear case that the bulls put up there to say it is not as bad as tusa thinks or whatever. at that point in time, our view was, you know, we love larry i think larry is a phenomenal ceo. personal affection for him he's a fantastic guy

and, you know, i know he's a credible person and they weren't going to kind of sit there and do nothing so our view there was that they could come out and say some things and people would, you know, buy into it, believe it and the stock could move up from there based on the narrative and sentiment. i think where we are today has gone way too far on that front our price target remains 6 bucks. so clearly a decent amount of downside that is really based on the view that, yes, this is a company that can absolutely take care of its balance sheet over the long-term. again, our price target is not zero but the run rate of fundamentals for this company as we have been talking about really for the last, you know, 2 1/2 years, you know, earnings are too high estimatewise interest a consensus perspective, a little bit of a misleading valuation based on consensus and cash is way too low. and going lower.

>> first of all, you buried the lead your point number three about how they made a smart more effective move was terrific. let's talk about page eight of the ge 2018 report that came out. how can you not like the fact that he just -- in one page, has all the segments, using real profit and loss and not adju adjusted i don't know how to say the guy's name, but ernst crave wrote saying that he felt ge's attitude is reflected in the famous proverb the beginning of wisdom is to call things by their proper name. why don't you give him that benefit of the doubt you do have personal affection for him. when you start realizing the reality of the situation, come on, that's the bottom. you're -- why don't you go with that >> yeah, i mean, i think publishing a 10k and, you know, having -- putting in that 10k philosophy is about how you run

a business longer term is not necessarily grounds for higher market cap or a stock price. i mean, like, at this stage of the game the math is the math. and, you know, we can talk about narratives around how great strategically they're going to operate the business over the long-term, but fundamental realities en masse run counter to, you know, a narrative that says, hey, they're going to be honest, i mean, so the company is honest, and that means that they deserve $150 billion market cap instead of $100 billion market cap i just don't think that makes any sense whatsoever when it comes to, you know he, how we value stocks it is all good but it is not in a -- you don't get an entitlement for saying, you know, we're going to call it what it is and going to operate, you know, above board. i just don't -- i don't think that is any relevance to where stock is trading. >> and i understand that, and i think we do too in terms of looking at the fundamentals as

you say, steven. i do wonder, psychology plays an important role here too, one would think. it does appear that there at least for the first time is, i wouldn't call it necessarily momentum, but a sense from the investor base that he has his arms around some of the problems and is fixed -- is there a chance people look through this next year's earnings and look ahead to when power actually is on better footing, the optionality that they have given themselves as a result of this deal with danaher. the ability not to have to fire sale things, aren't those important elements that would lead the stock to never get anywhere near the $6 stock price? >> yeah, you are absolutely positively hitting on the right things 100% hitting on the right things right now, okay, this -- next year i believe, you know, kind of the free cash number that you're going to put up for this company will be somewhere between -- it was -- ipo health care, would have been problably below zero and next year it is probably going to be kind of in the

billion 5 to $2 billion range or roughly 15 to 20 cents i can tell you right now that $10 per share does not reflect where a fundamental currently stand. they are giving a massive amount of benefit to a significant swing at power from negative 3 billion in free cash to probably about a billion plus of free cash over the next three years and they are also assuming that ge capital is zero the average company in my group trades at about 18 times free cash flow. so you can do the math and back into what $11 or so reflects in future free cash flow and somehow you have to get from a billion in change up to a substantially higher number and then assume that ge capital is zero and by the way, they were going to raise $50 billion to take care of these issues, ge capital and debt, okay, you raise 20

this doesn't mean case closed. you got a good number for 2% of your revenue when you started this whole process, that does not change the dynamic and the big moving parts around these numbers. so number one, power will not flip quickly and we believe there are structural concerns there and, number two, ge capital is not a zero. ge capital is a substantial negative and if you redo the 10k from last night which nobody really does, there are a number of items including insurance that pop out as being significant drags over the next couple of years. so those are being very productive >> what are the structural concerns at power? >> you think renewables capacity and pricing on renewables in the levelized cost of energy in renewables is going to stabilize and go up in the future? then i think you can probably think about this business having

a future but management is already said that the market will be flat for gas turbines over the next few years, and they're going to be more selective in the projects that they choose which means that in a flat market, if you're more selective on projects, that your revenue will go down, will go down. >> steve, steve, steve they got 22,000 employees in renewable and what happens if colt just goes down there and he's a grim reaper and takes those people out the backlog is 16% on renewable energy it can happen. this is the type of thing -- i want you to be right you've been so dead right the whole way. >> i think you're wrong on this. i think you're wrong on this their current sales per employee at power is well above where sieman's is today. you have close to $10 billion in power services, which you have

to grow, how do you cut services, how do you cut employees when you're trying to drive transactional service business so they are already efficient, losing revenue, if you cut more, you'll lose more revenue i think you are a finance major, but, like, without revenues, you cannot have profits and without profits you cannot have cash so you're basically cutting costs and chasing revenues down at the same time price is going down that is is the structural problem. you are filling up a leaky pool. >> look, i'm playing devil's advocate and going up against the master i recognize that i'm a witness for the defense here and witness for the prosecution. david, carl, i got to compliment this guy we're having this guy on, steve -- close your ears, you'll have the biggest head in the world, he's the master, he's done more reporting, he unveiled so many things that people

didn't know, including long-term care, i want larry to win, don't think you're saying larry won't win, you're saying it is overvalued now i with a tonigant to compliment. >> i appreciate that we're trying to serve our clients here and give them the best advice and be honest about it that's what we try to do every day. >> you're a master so everybody knows, jpmorgan could have done a lot of banking business, but this guy is -- they -- this guy, i'll see you march 5th when he comes to see you. i bet you change your mind >> we'll see we'll be out with more before that stay tuned >> thank you, stephen. >> thank you >> off the early lows of the session, dow is down 39, to the bond pits at the cme where there has been some news overnight good morning, rick. >> i'll tell you, a u-turn treasury market today. look at intraday of ten-year notes, zoom, zoom. if i would have shown you 2s, 3s, 5s, 7s, they would look similar. but maybe the best one to show you is an intraday of ten-year

bunds in europe. an auction of bunds. a whopping 12 basis points we have traded under 10 basis points, now negative out to nine years. but there is some pressure on the long end look at a nine-day chart of bund yields, even though we spiked up, these levels at 13, 14 aren't really that high. but we still want to pay attention because it is kind of joining where it was at the top end of the rates, not that many sessions ago curve steepening, not really but there is a certain part that is steepening and a variety of reasons why. look at 30s minus 10s. it is closing in on 40 basis points 2017, since it has been this wide, one of the reasons is there is some investment grade issuance hitting the markets today. a lot of it includes long end securities so, if you're going to be doing issuance, that pit, a lot of the futures pits, the options pit

used the hedges. that's putting pressure along with issues in europe. if you look at two-day of the dollar index, wow, there is a ski slope for you. and it slid into what many traders consider their best area of support or at least a pivot and that would be right around 96, exactly where it is hovering now. if we open the chart up to early november, you can see we have been below it. once we do start closing below it, it gets fast and furious, doesn't seem to last long. carl, jim, david, back to you. >> all right, thank you very much as we await fed chair powell, u.s. trade rep late heiser and mi and cohen on the hill. best buy at the top followed by other consumer names, campbell's soup and under armour, down 3 i down 37. back in a minute this is loma linda,

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hour fed chair powell will begin day two of his testimony on the economy. trade rep lighthizer goes before house ways and means and will talk about u.s./china trade and former trump attorney michael cohen will be set to deliver explosive testimony about the president. dow is down a46nd we're at 2788 don't go away.

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no matter what you trade, at fidelity it's just $4.95 per online u.s. equity trade. very big morning on capitol hill we've got you covered every step of the way moments from now, federal reserve chairman jay powell will begin day two of his testimony and take questions on the hill, this time before house financial services house ways and means holding a hearing on u.s./china trade. u.s. trade rep ambassador robert lighthizer will testify, and then, of course, michael cohen, the former personal attorney to the president is testifying before house oversight and reform we'll have full team coverage for you, and we'll take those

hearings live, of course, on the hill good morning welcome back toes on the street. i'm carl quintanilla with david faber live at post nine of the new york stock exchange. saraize enhas the morning off. meantime, a bit of an up and down though mostly in the red for the dow and s&p. coming off the first down day in about three days for major indices, and now some new economic data crossing the tape. rick santelli. >> yes, let's look for the december read on factory orders. we're expecting up .6 and came up shy, up .1 and gained .1 and stayed negative. last month stands down half of a percent versus minus .6. if you take out transportation, factory orders deteriorate, it's now down .6. let's look at our final read on durable goods, shall we, which means all the current reads get wiped out there mid-month. 1.2 on durable goods that is a very, very nice number, up 1.2

as a matter of fact, it really is starting to -- it's nice to get anything over a solid 1%, but when you take transportation off, it does move to up .1 the money ball money also negative capital goods orders, non-defense aircraft down 1% last look was down .7. this really isn't a good series of data points the highest read that we've had over the last 12 months has been 2%, and that was earlier last year, so right now this number making many traders nervous, especially regarding and monitoring capital spending issues that we've talked b.shipments versus orders weren't nearly as pessimistic, they were unchanged. knot now, for our january read okay pending home sales, let's aim east and go to diana olick diana? >> reporter: pending home sales jumping 4.6% in january compared with december according to the national association of realtors street was expecting barely a 1%

gain this measure indicates signed contracts to buy homes contracts though still down 2.3% compared with a year ago, and that's the 13th straight month of annual declines the annual's chief economist points to lower mortgage interest rates and a boost in the supply of homes for sale now the average rate on the 30-year fixed jumped over 5% at the start of november but then fell in december and january when these contracts were signed it hit a low of 4.43%, that according to mortgage news daily. that likely helped buyers to afford a home but feel better about the investment regionally pending sales were strongest in the northeast and weakest in the west where home prices are i the highest if you want a bigger breakdown of the regional numbers they are on cnbc.com right now. back to you guys. >> okay. thank you, diana diana olick. as we mentioned, it's a big morning on the hill. steve liesman is monitoring fed chairman powel kayla tausche is watching representative lighthizer's comments very importantly on

china and our trade with that and yewy is following the michael cohen testimony and let's start with steve liesman and what is day two of chairman powell's testimony. >> the testimony could be more contentious as he takes some more testimony from new committee members, some that are more ideological you can see here from this chart that we have, i believe it's 16 new democratic members with 18 members returning with five new republican members, most of whom you can see right there. of those 16 new democrats, 12 are new in congress all together five new republicans on the commit, but all of these are returning congress folks whatever the questioning, powell can be expected, i think to stick to his main theme on monetary policy. >> the committee has decided that with our policy rate in the

range of neutral, with muted inflation pressures and some of the downside risks that we've talked about, this is a good time to be patient and watch and wait and see how the situation evolves. >> reporter: he'll face more questions about whether fed policy will be held for social causes and addressing inequality these are the sorts of areas fed leaders have tried to stay clear of powell keeps use the phrase that we like to stay in our lone. those are problems that congress ought to fix carl >> he did use that repeatedly, steve. thank you. steve liesman watching powell for us today meantime, the president's trade rep lighthizer will take questions from house ways and means today. for that kayla tausche will be monitoring in washington good morning, kayla. good morning, carl unlike the grilling that many white house and administration officials could expect from a democratic-led house, this is expected to be something more of a friendly fire from the house ways and means committee today, ambassador robert lighthizer has

challenged traditionally republican notion of free trade at all costs and is has also espoused many labor friendly policies i'm told the democratic chairman of this committee even plans to compliment lighthizer in husband opening remarks before today's hearing, but what the members of this committee, 25 democrats, 17 republicans, really want to be hear from the top trade official in the united states is what exactly is being discussed with china and what it will mean for the economy and their comments going forward. they tried to get at some of those answers in behind-the scenes briefings earlier this week those wanting to whip team and vote-counting on monday and tuesday, and he spoke with the democratic members and their staffs, but all the aides said the ambassador held his cards really close to the vest and they couldn't really get at exactly what is going on, so expect a lot of questions that are heavy in detail as it relates to china and also as it relates to the u.s.-mexico trade

agreement. as far as the testimony we got from lighthizer earlier today, a lot is stuff that we've already heard from him he said that china poses a severe challenge to the u.s. economy that it operates a market distorting system that any u.s. deal needs to have significant changes on structural issues and also be enforcible, that that part of the deal is key, but will listen into lighthizer as he begins momentarily. carl >> kayla, there have been some notes out today that a comment on the apparent frictions between the president and lighthizer and sort of are characterizing this hearing as an attempt by the trade rep to slow down the president's ambitions for a quick and easy deal you see it this way? >> reporter: that's certainly one of the -- one of the aspects of today's hearing because we have seen some tensions spell out into public view over the last week, but abs lighthizer has maintained a very clear message on that front where he's said i report to the president the buck stops with him.

i'm here to deliver his trade agenda and essentially at the end of the day that's what he will do. >> kayla is going to watch lighthizer for us. obviously one of the key hearings going on today amid multiple hearings. meantime, across the world, the president is in hanoi, as you know, for his second summit with north korean leader kim jong-un. eamon javers is live in vietnam and talk about what a lot of us are talking about this morning. >> that's right. the president is back at his hotel and the white house has given a full lid which means they don't expect any further news but a day of striking images in a noise, vietnam as the president met with kim jong-un for the second time in his presidency this time hoping to drive a denuclearization deal between the two countries and rid the korean peninsula of nuclear weapons once and for all the question is whether or not there's a small deal on the table. in addition to that possible big deal between the two countries,

could we see something short of complete denuclearization. perhaps an end officially to the end of the korean war which came to an armistice back in 1953 could we see an exchange of liaison offices in the country which would be a step towards normalizing relations. there's a series of elements that we see here that don't add up to a full denuclearization. the president was careful last week to ratchet down expectations for this week's summit saying he's pleased simply with the idea that the north koreans have not tested a nuclear weapon in a year and have not tested intercontinental ballistic missiles during that period of time as well we'll see tomorrow what the two leaders have had to say after they emerged after they spent about an hour or so together at a private social dinner here in a none this evening. >> eamon javers, thank you we'll be checking back with you. for more on what all of this means by markets we're joined by jimmy pethokoukis from the american enterprise institute

and tom lee, global strategy partners good to see you both jimmy, so many mornings you wake up a lot to process a lot will fall through the sieve but not so much as a day like today i thought today this was infrastructure week. so much stuff going on that's usually when the stuff happens. do i see connections between these two things the cohen testimony is the worst that testimony that is and the worser that the politics around that is i think it's better for the one sort of market event that people are thinking about which is this trade deal the worst things are at home the more likelihood that we'll get some sort of trade deal and i'm sure there's going to be a lot of questions for lighthizer about this trade deal and in particular what is the administration going to do to make -- to enforce any sort of restrictions on china or anything that china agrees to regarding intellectual property, tech transfer, subsidies, the business, because that's the key issue. if they strike a deal and it's

about a bunch of promises from china and then if there's disagreements they will have more talks neither democrats nor republicans will take well to that >> do you see lighthizer, tom, as the key amid all of this on a relative basis for the markets >> yeah, yeah, for the markets clearly the fed pivots is really the most important thing and really will good afternoon how the rest of the deal points out, but a trade deal is obviously critical because it will set corporate profitability on a new track and give us advisability and then sort of reensource fundamentals so it's important. >> jimmy, what do you think in terms of the daylight potentially that's between lighthizer and trump and whether or not the.may settle for a deal that many -- many of his support percent on the china issue would not be happy to see? >> well, i think that's a big concern. it's been a big concern among china hawks and the white house. it's been a big concern among china hawks in congress.

ultimately at the end of the day, trump is going to be for what trump is for for 30 or 40 years, he wants a smaller trade deficit. that's what he is focused on when he speaks extamp rainiously he focuses on a deal where china buys more stuff, not all the other stuff as for the economic model, the very thing that the china hawks are concerned about. the description that you gave how lighthizer talks about the u.s./china relationship, a deal that involves china buying sorghum does not at all get that deal and that really opens up critics on the president's trade policy, particularly on the right, particularly of people who might want to run for president and want to put day light between the president and marco rubio and tom cotton that could give them something to talk about. >> we did get a december trade deficit at a record, $79 billion. does that play at all here i mean, do we still believe the president's priorities are things like a trade deficit or a currency instead of ip and so

forth tech transfer? >> you know, i think that's kind of both, but clearly the most important things for the u.s. would be protection on intellectual property and, you know, ownership, so, you know, that's a lot more important, but, you know, at the end. day, i just think that trade has been a big overhang on markets so once we clear this, it's kind of hard to be bearish. >> unless we don't clear it or it goes south. >> yes. >> going south would be an adverse development, but, you know, we've got to cross our fingers and hope for theest. >> it seems unlikely. >> lighthizer said there's going to be all these tripwires so that if there's any problem that china is going back on this agreement, boom, the tariffs will snap back, so if there is a deal that eventually gets announced, look for what the tripwires are and what happens if china violates the agreement? will they have more negotiations or do some of the tariffs come back on if any get taken off or

do they increase that 10% to 25%? >> those are all key points. let's take a listen actually jimmy, stay with us, tom as well there is the trade represent lighthizer who is testifying, of course, before the house ways and means committee. >> in 2000 the speaker said it is incumbent upon all of us in the public and private sectors to work for free and open trade with china that is real. the u.s./china bilateral wto is insufficient in substance and enforcement. this issue is too important for our economy to be based on a pattern of broken promises, not proven performance china can become a member of the wto without congress having to surrender its right to u.s./china trade review annually there is no reason why we should permanently surrender that leverage at this time. i ask if her position had prevailed, how different would things be right now?

is it there are many other examples of bipartisan leadership including a lot of people on this committee, and i'm going to get into them and answer the questions if it's relevant let me close by saying that we have engaged in a very intense, extremely serious and very specific negotiation with china on crucial structural issues for several months now we are making real progress. if we can complete this effort, and again i say if, and can reach a satisfactory solution to all -- to the all-important outstanding issue of enforceability as well as some other concerns, we might be able to have an agreement that helps us turn the corner in our economic relationship with china. let me be clear. much still needs to be done both before an agreement is reached

and more importantly after it is reached if one is reached. i want to thank all members for your bipartisan approach on this seminal effort, and i look forward to continuing our work together i want to say that if we all -- if this was not a bipartisan view we would not be investigate success that we're having. thank you, mr. chairman. thank you. i look forward to your questions. >> thank you, mr. ambassador we will now move to questioning. without objection, members will have four minutes to question the witness today in order to ensure that all members have an opportunity to inquire before the ambassador's schedule requires him to depart i'll begin by recognizing myself members will be acknowledged in the order of what we call the gibbons rule, and that is when the member took their seat mr. ambassador, in my opening i referenced some of the earlier administration efforts to negotiate trade with china those efforts seemed to overlook the deep and complex structural problems underlying our trade

relationship my question is this. what will be different this time, and when can we expect next >> thank you, mr. chairman, that's the fundamental question. what the president wants is an agreement, number one, that's enforcible but that changes the pattern of practice of forced technology transfer, intellectual property protection, large industrial policy subsidies and then a whole variety of specific impediments to trade and unfair practices in the area of agriculture, in the area of services what we want is fair trade that requires structural change, and it has to be enforcible. we have had, and i can go through for the members, many, many examples of the chinese agreeing to specific, not this specific, but agreeing to take

steps, to forgo certain unfair trade practices and in very few cases have they actually kept their obligations. we have to in this case engage in -- approach this with the view that there are reformers in china who want to change these practices it, and we're working together with them that has to be our approach, and if that's the case, our hope is to have specific language on specific issues that is enforcible through a very clear process. >> so do you envision one negotiated package in the next few weeks that's going to resolve all of these structural issues >> so i'm not foolish enough to think there's going to be one

negotiation that changes all of our relationships with china i don't believe that i think we have to take on major issues, the ones that i just raised and we have to specifically preclude anti-market practices and practices that are unfair to our workers and ranchers and farmers, and there are lots of them at the end of this -- this negotiation, if we're successful, there will be a signing, and then there's going to be a long processch me working with the members of this committee and the finance committee in the senate and other members to ensure that we actually develop this, and i believe other problems will arise and they have to be dealt with i view this as a process, but this is the -- well, i use the word turning the corner. this is the first time i believe that it's been approached in this way, and it's -- and the result -- it's really the result of kreefgs an enormous amount of leverage by the president. >> mr. ambassador, as you reach

an accord, will you envision putting the tariff threat in abeyance >> so, this may not be the first time or the last time that i say this in this hearing, but actually specific provisions may be -- i want to kind of hold off. i'm -- as the chairman knows well, i'm happy to talk to him about whatever is on my mind i love it when you said that there would have to be some discretion here. i wrote that down because i'm thinking that's not my strongest suit, discretion but i'm trying, trying to do it. i will talk to you about that specifically certainly it is an objective of the chinese that tariffs go away, and i should just add a footnote that in my judgment does not mean any dumping of normal trade law that's a separate process. that esa separate enforcement problem. i'm dealing with section 301 in this agreement.

>> thank you let me recognize mr. brady >> thank you, mr. chairman and i think you raise -- both you and ambassador lighthizer raise an important point which is that this is the substantive attempt to change china's misbehavior and it's not just one issue that you're taking comprehensive approach by challenging had china at the world trade organization in cases, aligning with europe and china on the wto reform addresses and implementing the investment restrictions that congress put in place last year to address china and then the section 301 case that we got right now. it will take this is the first comprehensive approach that i've seen and one that i think hold the most likelihood for second. as people look at what is a successful win for america, you ought to really focus on section 301 area where you really pull

back the curtain on china's trade practices and predatory trade practices laid out the case i know at home in texas we have one of our best corporate citizens, huntsman corporation, nearly 1,000 employees in my district they are an indication of how american companies have no resource because provincial chinese courts don't uphold the rule law not only did the court hold out this patent intellectual property case based on the expiration date of the dye, they appointed a court panel to review the case that had an employee of the company that stole the intellectual property. it is that hard. >> obviously you see the market dipping here pretty much clearly on lighthizer's comments that chinese purchases will be enough to close a deal and he said i'm not foolish enough to think one negotiation will change all of the practices in china

we'll watch that jimmy pethokoukis, tom lee, thank you guys for your time we should mention fed chair's testimony is just getting rolling. we'll monitor, that given some of the questioning that we might hear from some freshman members of the house, but for a time being we'll take you back to the trade rep in front of ways and means. >> local court and community levels, and finally will thereby an avenue for kriskt action if china doesn't live up to its commitments in what we hope will be an agreement in the near future so measurable, enforceable by all levels of government. >> so thank you. mr. brady, i appreciate that first of all in, terms of what is successful, you know, i've been doing this a long time over the course of the last few

months i went to every statement that business groups have made, that agriculture groups have made and agriculture groups have made and most of them myself, some of them i have my immediate staff go through and tell me what that guy or that woman said is essential to a successful position i'm taking that as my guide and distilling that dawn it's one thing, and for others it's all right in a band, right, so that's what i'm measuring myself by and that's what i have as my objective. it's not just what i think it's what everybody -- i've distilled down what the people have spent time thinking about this think the huntsman example is like, unfortunate, one of many, many thousand and i could go on and on about that. so number one, yes, clearly it has to be specific, measurable,

and it has to be enforceable at all levels of government some things are not appropriate for that, but 99%, the core stuff is all in the agreement. it will say central, subcentral, local and control, so it's got to be across the board like that, and we have to have the ability to take proportional action, unilaterally to make sure that we have -- that we have a situation. >> thank you, mr. ambassador. >> mr. brady, the chair will now recognize the chairman from georgia, mr. lewis to inquire. >> thank you very much, mr. chairman. >> thank you for holding this hearing. thank you, mr. ambassador, for being here >> i've said it before and i've said it again. there's no way to compete an race to the bottom like our friend and colleague

miss sewall, i grew up in rural alabama, and i've watched american jobs disappear throughout my life and career. and in my home state of gentleman many manufacturers, workers continue to struggle and find good livable wage jobs. over the years many of those businesses move overseas in search of cheap labor and lower environment protection what i witnessed in our community inspired me to oppose the normal trade relationship almost 20 years ago. at the same time, my congressional district is also home to a large number of manufacturers, both large and small works rely on aluminum i do not need to tell you, mr. ambassador, that china plays by its own rules and focuses on

the long game. while we may different on the tactics, everyone in this room will agree that we need a level playing field and we don't have it we can do better we can do much better. as you note, mr. ambassador, this is not an easy matter we must be thoughtful and we must be mindful and we must get it right now, mr. a i want to thank you again for being here and thank you for your service the current negotiation focused on a number of issues. i want to know whether label and environment protection on -- are a part of the discussion >> so i would say, first of all, the principal reason why i'm spending my time doing this now is for the same reason that you just stated.

that is to say, we have lost not all just to china, but since china joined the wto, we've lost 5 million manufacturing jobs and millions of additional jobs, and -- and it -- it would distress me if that was the result of economic forces, but it's not the result of economic forces it's the result of state capitalism, so i am motivated by the same thing that you are, and i want to be judged by, that right? i want to ultimately be judged by that. on the aluminum question you're completely right we have a problem, a global problem in aluminum precisely because china doesn't operate on an economic system they have created through controlling their market access and subsidies and other practices an extraordinary amount of excess capacity that is basically wiped out the aluminum industry across the

world. the issues that we are focusing on in this negotiation are not -- i mean, they are labor and environment to the extent those are unfair trade practices, but it's not the same as we are, as you know well, in the usmca where those are specific objectsives that we are requiring change in, so to the extent they are unfair trade practices, i would say also we're constrained by the limits of 301 and by the statute that we have to work, but -- but those are also, as you know, high priorities for me >> i thank the gentleman mr. nunez. >> thank you, mr. chairman. >> thank you >> ambassador, thanks for being here, and i want to congratulate you for real being the first -- being part of the first administration in 20 years of complaining about china to actually do something.

i associate myself with a lot of the comments that mr. lewis made, and i know it's -- i know it's tough because i know the chinese are trying to be very targeted in the -- in how the tariffs are being implemented on our side, but i can tell you that from the intelligence angle that we've been studying here in the congress for several years, you know, the chinese have moved in to taking over the communications. >> ambassador lighthizer, house ways and means, facing some q&a, david, talking about state capitalism being the culprit for our lost manufacturing jobs, a big reason we're down 158, you could argue. meantime, we'll check in on the fed chair now in front of house financial services >> proposing to merge and become the sixth largest bank furthermore, even though banks made record profits of $237 billion last year, you said yesterday implementing s-2155

was your highest priority and that the fed has made several proposals that would reduce bank capital and liquidity reserves for our largest banks. board governor brainard voted against these proposals noting that the fed's proposal would reduce high quality liquid assets held by large banks about $70 billion. the fdic originally opposed the fed's leverage proposal as it would reduce bank capital by more than 120 billion. the fed is also looking at making stress testing more transparent which could undermine the purpose of the test and former fed chair fisher has called these regulatory efforts, quote, something i find extremely worse, quote, unquote. so, chairman powell, please explain. will easing big bank capital and

liquidity requirements as the treasury department has proposed and your agency appears to be following through with not undermine safeguards that are carefully built up the last decade to protect the economy and which made the u.s. framework the gold standard that others around the world follow should we expect to see further industry consolidation if deregulating big banks is a top priority by the federal reserve? it was discussed in the senate banking committee yesterday how the fed has accelerated its merger reviews and appears to be rubber stamping them sun trust, bb&t claim their proposed merger will be approved by september, but can you assure us that the fed will not rush the process? consult with all affected parties, hold field hearings and focus on the public's interest even if it means rejecting the

application? the occ unilaterally released an advance notice of proposed rule-making to modernize the community reinvestment act or cra. the fed and the fdic did not join that release. i was troubled to see the comp troller who recently said if he could not reach agrees with your agencies, the occ would go on its own with cra reform. could that be a good outcome could that lead to regulatory arbitrage by our banks and lastly a minute on diversity. i believe diversity in the federal reserve's leadership including at the reserve banks is crucial because it is hard to stay committed to all communities in the country when the leadership lacks an understanding of those communities that comes from experience that is why i and so many on

this side of the aisle have encouraged you to continually push to diversify in order to more closely represent the american public. the center for popular democracy recently found that the current board of directors are 76% banking or birks 74% white and 62% male they also cite that in 2013 12 of the 105 board directors were african-american that number has increased to 22 out of 108 today this is an improvement, but it still does not look good federal reserve governor brainard recently spoke about increasing diversity efforts through a better pipeline at the inaugural that is sadie tm alexandra conference in economics over the weekend of the right now even before a search is under way for new

director, how is the federal reserve trying to build the pipeline for more diverse candidates when you meet reserve bank leaderships, how are you encouraging a focus on increasing diversity and why do you believe increasing diversity is a challenge? in your testimony, again, you state that had current economic conditions were healthy and that the economic outlook favorable but noted that over the past few months, quote, uncertainty is elevated around several unresolved government policy issues, end quote. i won't put it as delicate as you v.president trump's policies are damaging our economy and challenging growth this is why you've had to pause rate hikes this lack of an economic agenda that changes with the wind is presenting market volatility and incredible consumer and business uncertainty. you've said just yesterday that uncertainty is the enemy of

business that is why former federal reserve chair janet yellen says the president doesn't understand macro economic policy. if he did, he'd understand that only a stable inclusive economic agenda will support an even economic outcome the president is engaged in a trade war that seeks a new outcome every week how are his actions affecting the u.s. economy in your estimation how can you continue to achieve full employment and stable prices if this erratic economic agenda persists? lastly, on monetary policy in the minutes released for the january 29-30 policy meeting, discussions moved forward on

monetary policy having a large balance sheet. what can be seen as a course change from the gradual balance sheet reduction in october 2017, the fomac noted that it's likely to stop reduce the balance sheet which now stands at approximately $3.9 trillion. i believe in correct -- correct me if i'm wrong. the thought is to allow the gradual reduction to continue until fomac is comfortable with the size of the still elevated balance sheet later in the year. in an interest rate environment where the fed funds rate is still low, between 2.25 and 2.50%, how is the fomac likely to use the large balance sheet as a monetary policy tool in the case of an unexpected downturn for instance in the federal reserve bank, president mary dale suggested could use the balance sheet as a regular

monetary policy tool does that mean that question could become routine in this low interest rate environment? if so, does then tail buying securities as the fed did during the financial cries and at a similar size and pace, or could you consider smaller scale purchases and types of securities with that, i will not recognize the distinguished ranking member, mr. mchenry for five minutes for questions. >> good morning. chairman powell, i have a sires of questions for you, and would i love to have your answers on these questions. you testified yesterday regarding the bank's balance sheet which stands at roughly $4 trillion and you gave an answer about sort of normalizing the balance sheet, and what your view of that normalization looks

like, and you referenced the demand for reserves as a reference point for that can you elaborate on that? >> sure. i'd be glad to so before the financial crisis, the size of the fed's balance sheet was a function of demand for our liabilities, principally currency and to a far less extent reserves. quantitative easing comes along. we hit the zero lower balance. the fed buys a lot of assets that was about buying asets, and the size of the balance sheet as a percent of gdp went from 6% to 26% and that was driven by a desire to buy longer-term federal government debt and drive down long-term interest rates and now we're normalizing the balance sheet and normalizing it means going back to a situation where the size of the balance sheet is driven by demand for our liabilities which has evolved so currency and reserves mainly so what's happened is demand for currency

has grown -- outstanding has grown much faster than the economy and demand for reserves is much higher than it was because -- because really we require banks to hold very high levels of high quality liquid assets, and they choose to hold reserves so we can't go back to that very small balance sheet so what we think is that, you know, the committee has been working on this carefully for the last three fomc meetings and devising a plan we're close to agreeing on a plan that would light the way to the end of the proses. >> do you plan to communicate that >> very much so. >> that plan >> yes, we do. when it's agreed we've found it's good to be very careful with the balance sheet. >> but your reference point was about $1 trillion in bank reserves at the fed would be the reference point for when you sort of end the reduction of the balance sheet? >> so we -- there's. >> do you have a time frame on that >> there's a lot of uncertainty around the actual level. what i did was i cited public

estimates and said those appear reasonable we actually don't know what the eke libbim demand will be. we'll have to find it over time. >> okay. >> and my guess is we'll announce something pretty soon >> in light of yesterday's figures in which housing starts fell the lowest number in more than two years, what impact do those housing figures from yesterday have in your timing on holding rates steady or do they have any impact >> so in terms of what we've said is we're going to be patient and watch as the economy evolves and also as the evolving risk picture changes and how that affects the -- will affect the outlook, and we'll be looking at a full range of data. it will include housing starts and will include anything that can affect our achievement dual management, principally growth and then, of course, the labor markets and inflation so we'll looking at a wide range of data, that's one piece of it, but it's one of many pieces.

>> so related to, that housing finance reform, you know, fanny and freddy are more than a decade into nationalization. you are a major holder the fed is a major holder of these assets do you think that it's important for congress to prioritize housing finance reform for the american economy >> i do. i very much do this is a big unfinished piece of business for some of the post-crisis era, and i think it would be good for the economy to move to a system where a lot of private capital is there supporting housing risk again, and it's not just all winked up on the federal ball sheet. >> the okay. pivoting to the result of some recent statements. you know, there are a lot of cross-currents, conflicting signals in the terminology that the fed has used in the u.s. economy and the global economy how do you respond to those who say you're making financial

market stability an unofficial mandate to the fed's decision-making? >> you know, i wouldn't say that's what we're doing. first, i think financial stability has been part of the fed's role in fact, it was really our original role. central banks generally evolved out of a desire to support the stability of the financial system it's always been something that we've done our mandate from you is maximum employment and stable prize. that is the man day. we also look after financial stability and particularly as it supports the dual -- >> financial stability but not necessarily stock market ability. >> no. by financial stability we're real talking about the capacity of the financial system, particularly banks but other aspects of the financial system, to perform their role and intermediate between savers and borrowers and support economic activity. >> what do you say to those folks who say there's now a powell put on the market or in the market >> anything that matters for the dual mandate matters for us, and financial conditions are -- are

tools -- our tools work through financial conditions so would i say when there are major changes in broader financial conditions, as you point out, not any one market or set of markets, but when there's a sustained period important changes in broader financial conditions, that matters for the macro economy. it matters for achievement of the dual mandate and we'll, of course, take that into account. >> so you mentioned the head winds internationally, the softening of the eu, the softening in the chinese economy and the risk of brexit we see what's happening internationally for global terror and things of that and i want to talk specifically about china and ask you about this how does china's use of a -- of state-run banks to allocate credit affect financial stability for the rest of the worldle? >> i don't know that there are important implications for global financial stability

it is part of their system i mean, i know they are trying to move to a more market-based system over time and that's a challenging transition. >> so more to this point it's an opaque market, so getting numbers and getting a solid understanding of that allocation of capital is much more difficult in china than it is in the rest of the first world, is it not >> that's right. that's right so in addition, you know, so much of their economic activity in effect has the backing of the central government so let me just wrap up with a broader question you mentioned our national debt. the debt and deficit challenge is a real one. i firmly believe we've got to right size our spending, commensurate with long run obligations that we have to the american people, but fundamentally our deficit does

have an impact on your dual mandate, does it not >> i would say in the longer run. >> in the longer run. >> and our national debt, too, in the longer run has an impact in federal policy-making as -- as it results in stability and full employment, does it not >> you know, i would say the unsustainable path of the federal government is for a longer run problem that doesn't really affect most of our thinking is about business cycle frequencies and -- and, you know, supporting the economy when it's week and holding it back when it's overeating, but that's -- that's just in general and not so much about fiscal up sustainability in the longer run we'll spend our money on interest payments than things we really need. >> i yield back. >> thank you very much, mr. chairman us a answer the questions, they will be overlapping. feel free to expound on some of

the questions that i put before you. i took up all the time and didn't give you an opportunity to answer those questions, but us a answer questions from the others, feel free to include in those answers some of those concerns now, the gentle lady from new york miss velazquez is recognized for five minutes. >> thank you, madam chair. chairman powell, thanks for being here today i've heard from several constituencies who is have expressed concern the impact the current credit -- >> multiple pots boiling today in the markets you've been listening to the fed chair talk to financial services on the house side. and u.s. trade rep lighthizer is continuing to answer his questions for ways and means and for that we'll check in once again with kayla tausche. >> reporter: the top frayed official for the trump administration pulling back the curtain just slightly in goings on in talks with china

he says of a deal it will will not just be a purchase agreement, he hopes it will be a structural agreement as well, that it's expected to be enforceable at all levels of government, central government, subcentral government and local government levels. he also said it's china's objective for any deal to have the result of all tariffs being rolled back, though he did not say that the u.s. was willing to grant that request of china, and perhaps most telling was this line from ambassador lighthizer where he said that even if a deal is signed at the end of this month, it will be the beginning, not the end. >> i'm not foolish enough to think that there's going to be one negotiation that's going to change all of the practices of china or our relationship with that now i don't believe that i believe other problems will arise and they will have to be dealt with i view this as a process, but this is the -- well, i use the term turning the corner. this is the first time i believe that it's been approached in this way, and the result -- it's really the result of the creation of an enormous amount

of leverage by the president >> after that he was asked about the divergence of views between the president and himself on the format of any such deal. he said that it is the president's constitutional authority to enter into an executive agreement. he didn't say the word memorandum of understanding. he didn't say it would be a trade agreement. they said it would be an executive agreement and he said that fog a moment of levity where his microphone went silent when he tried to answer that question leading to some laughs in the room. >> at least there's something to laugh about today, kay. [ laughter ] thank you. our kayla touchy watching lighthizer chairman powell continuing to make answers to the questions of house financial services let's get back to that >> we're aware of those concerns, and we'll be watching to see whether there's any such effect we don't expect there will be such an effect but we'll be watching carefully to see. >> chairman powell, you recently

gave a speech at mississippi valley state university that addressed economic development challenges in rural areas. while new york city is not rural, i believe that many of the challenges that you talked about could also apply to urban centers, particularly those of color. in that speech you noted the importance of workforce training due to the loss of key industries and the result of mismatch between the skill of local workers and those demanded by new employers as fellow banking regulators contemplate evading regulations, should banks receive cra credit for supporting or participating in such workforce development programs >> that's a good question, and i don't know how -- i don't know whether that would get cra credit or not. i was speaking at a conference

that was looking at basically broad measures to alleviate poverty. i'll check into that and come back to you. >> thank you recently, and the chair already alluded to this, recently the comptroller said that he was sa hopeful that all three bank regulators will join the proposed cra reforms by the summer but he also indicated that if you were not all able to agree, the occ would be will to propose the reforms on its own this is counter to statements made recently by governor brainerd, when she stated that federal regulators should speak with one voice on cra. what is your view? >> i think, ideally, we would like to have a unified view. it would be better to have one agreed upon framework for cra. that's obviously the best outcome and we're going to be working toward that, but i would to add, though, that we're very

committed to the mission of cra, and you know, we're looking to make it more effective >> should there be a joint rule making and do you believe the fed will ultimately sign on to the occ's proposal >> we'll have to see i think it would be ideal for the three regulators to get together and we're working, you know, with the other two agencies on that i think the goal is to get to a joint answer >> i yield back. >> the gentlemen from oklahoma is recognized for five minutes, mr. lucas. >> thank you, chairwoman chairman powell, thank you for being here today and i believe that my colleagues will do an outstanding job of covering the broader issues and with the number of inquiries so as has been my custom in recent years, i would like to focus in on some particular issues and if we could, once again, converse about the joys of

derivatives, so to speak my questions will deal with those issues within the fed's role first, turning to an issue i've talked about number of times, do not expose counterparts to each other's risk itch pushed with my colleagues on the ag committees to exempt those interaffiliate transactions from marginal requirements the ctfc and european regulators agree with me and yet the fed hasn't changed its policy to be consistent with those regulations when it comes to bank swap dealers. i understand these issues predate your tenure, but mr. chairman, i would like to know if you administratively pursue a more risk-reflective approach for margin on swaps? >> we are looking at the interaffiliate margin question and we'll come back to you on that >> and perhaps that's something in the near view perhaps to the longer view?

i think that's a leading question, so to speak. >> hathat's a yes >> thank you, sir. speaking frankly, i hear a lot of good things from both you and mr. quarles on this issue and i appreciate that very much. but the lack of formal action still concerns me and i think it's time to quickly move on to this these rules capture a whopping $38.8 billion in capital for transactions that are not inherently risky and i would certainly ask you and your staff to move forward soon on this, please now, moving to something else i raised with mr. quarles last year in this space you are currently engaged in a joint comment period with the fdoc about the sacr proposal that framework asked to hear from other industry stakeholders about the need for an offset for client margin in the supplemental leverage ratio. if i may, i would like to offer you a few thoughts here. the number of firms providing clearing service have declined

from 88 to 55. this affects farmers and ranchers and other end users in derivative markets they are steadily losing options for clearing activity. this part of the slr contributes to the closing of the markets to folks i mentioned. for what it's worth, the cftc commissioners agree with me and have submitted a joint comment, raising the same concerns. now, mr. chairman, i know i can't ask you to comment on any action now considering the recent extension of the comment period, but as you proceed through this comment period, i would like to make sure you know about those concerns and that you would be able to take my concerns into consideration, as you move through that joint comment process. >> so we are in the process of reviewing the comments, as you point out. >> thank you i have one more note, mr. chairman, on the sacr proposal i understand that the framework would significantly raise the capital requirements for over-the-counter un-margin swaps. as you know, congress was very

explicit in allowing non-financial end users to continue trading in the otc market we were this explicit is making hedging affordable to the entities i'm concerned that a significant increase in capital requirements associated with these swaps will make them far more expensive and this would, of course, frustrate congressional intent in particular, it's my understanding that the capital requirements will essentially be high for commodity derivatives, such as those used to hedge oil and natural gas costs. where i'm from, access to risk management products for energy and ag sectors are critical and i want to make sure that i don't come under pressure by way of excessive requirements imposed on those bank counterparties mr. chairman, i have spent a lot of time on these issues, as you know, and i very much appreciate it if you would be willing to bear these concerns in mind, which are shared by the end user community, as wez move forward i've always found you to be a practical person and i like to

think that i use my time and efforts to address practical issues that impact not only my economy back home in oklahoma, but the whole country. and with that, unless you have a thought, mr. chairman, i'll yield back the balance of miff time >> thanks. >> i yield back, madame chair. >> thank you very much mr. chairman, the gentlemen from california is recognized for five minutes >> first, in responding to the ranking member, i think it's important that fannie and freddie continue to be what they have become, perhaps accidentally, and that is federal government agencies. we need a federal backstop in terms of credit risk, but never again should we have a semi-public, semi-private agency where taxpayers take the risk and shareholders try to reap the profit mr. chairman, i appreciate your patience on not raising rates. you have a twin mandate, but i'm

going to ask you to also consider an additional factor, not as important as your twin mandate. and that is the profit that you create as a by-product of your efforts, at times turning over to the treasury, as much as 100 billion or nearly $100 billion in a single year and i want you, in your decisions, to reflect on the fact that that's not just a dry accounting entry it's life and death. we have limited amounts of money that we can spend here in congress, on cancer research, on body armor for our troops and research to make it better, on opioid programs, so people will live or die based upon whether you are able, as you have in the past, to turn over nearly $100 billion of unintended profit and i realize that's not your mandate, but it is life and death. we talked at another meeting

about wire transfer fraud and i'll get you some background material on that but i do want to talk about -- to just focus the committee on the fact that people are being tricked through the internet to wire their funds into a particular numbered account, thinking they're sending the money to, say, the person they're buying a house from, and instead, it's going somewhere else so if we have a confirmation of payee system, like the british, we can avoid much of that. as to your balance sheet shrinkage, that diminishes your profit that you can turn over. it also, as you sell off or allow to run off your mortgage-backed securities, you're raising mortgage costs for people your testimony said we have a good job market. it's not good until there's a labor shortage that drives wages up to make up for the 20 years of stagnant wages that we've had over the last two decades.

so i hope you would aspire for more than just a 4% unemployment rate i do have a question for you here, and that is, in your statement, you comment on the federal debt you say the federal government debt is on an unsustainable path of course, fiscal policy is outside your purview, but it affects what you do. we also have a trade deficit, about $500 billion a year, kind of similar in size to the budget deficit. and so every year, we borrow another $500 billion to finance that as a country borrowing from abroad i wonder if you could say that the u.s. trade deficit of over $500 billion a year is on an unsustainable path >> yeah, i mean, i don't think i would say that i mean, the current account deficit is really set by the difference between savings and investment and i mean, the reason the

federal budget is on an unsustainable path is that the debt, as a percentage of gdp, is at a high level, but much more important than that, it's growing faster than gdp. so debt cannot grow faster than gdp forever, whereas i don't know that i would say that about the -- >> the accumulated trade deficit, where every year we borrow over $500 billion just adds to our foreign debt but i want to go on -- you know, some of my colleagues find this hearing kind of dry, so they've urged me to spice things up by asking an accounting principles question we have cecil, the proposed -- >> we'll continue to monitor the hearing of michael cohen and ambassador lighthizer, chairman powell talking about the balance sheet, housing finance reform, rates and some other