a quick final check on the markets after we got that gdp number dow a bit higher nasdaq off about 20 points s&p 500 off about two points we'll be digesting the gdp number, north korean news and so much more. "squawk on the street" begins right now. ♪ good morning welcome to "squawk on the street." we are live from the new york stock exchange amazing how many people don't see to know that carl is on assignment. let's look at futures as we get started with trading 30 minutes from now our road map starts this morning with what is the strongest economic expansion since 2015?

annual growth hovering near 3% target top white house economic advisor larry kudlow joins us first on cnbc this hour to discuss. plus, no deal. the trump/kim summit cut short after north korea demanded an end to sanctions for whatever it was willing to give up didn't happen. tech under pressure this morning. we got weak guidance that's sending shares of box holdings, hp square, pobox, fitbit all sharply lower this morning the commerce department releasing its report on fourth quarter gdp. the economy grew at an annual rate of 2.6% in the fourth quarter. that was ahead of expectations it was down from the 3.4% growth in the third quarter due in part to a pullback in consumer spe d spending stocks are on track for the second positive month in a row

the nasdaq up almost 14%. >> how many people missed that rally? it was a nonfang rally. >> fang has sort of been hanging in there netflix has been pretty good, jim. >> yeah. i'm upbeat. >> we got a decent number. we know consumer spending had to be down even if that retail number for december was off. >> i thought they were going to turn it all into buybacks and dividends. there's good spending by tech. sometimes i think you really have to just step back and say this economy has some momentum and it didn't end even though december was so bad. i was talking to some bankers in preparation for the maxine waters -- january is good,

february is better december was terrible. i like that because i think that what you're going to get is another good gdp number. they're fretting about powell. go back over powell's testimony. he's saying we have slack in the economy. powell is very much in the camp that we can grow i read between the lines we can have gdp 3.5-4 and the sky is not going to tighten necessarily. >> 3.5 to 4 and he wouldn't tighten? >> one momentum by the way, you know which country has the least momentum i've seen other than anything in europe >> no. >> there's italy and china ten-year low for export. we have larry kudlow. >> i heard that. our former colleague larry will join us. >> i'm looking right at you now and you're not even tweeting. >> i'm not

i will not tweet when you are looking at me and talking about me or to me even >> that and the suit comments. >> you're still reeling from the suit comments. it needed to be burned >> go to trump in vietnam? >> no. economic momentum, you believe january, february, february ending now. >> yes. >> you think first quarter gdp is going to be a better number >> yeah. you're talking about what was weak this quarter, victoria's secret >> it has been mixed certainly on the consumer front it's been tough to get one positive tone. >> it absolutely is. you could go and look at best buy. but then i say wait a second that's fortnight cell phones were bad it's apple macy's was okay. >> better than we thought.

>> but not good enough. >> right. >> there is this element of, well, there's lowe's but then there's home depot it is more split i go to my lowe's. it's different they have the stock. they have salespeople who know what they're doing they don't send you to home depot anymore. i thought warren buffett's comments about costco was very important. costco is doing well we have some doing well, we have some not doing well. that's been the theme. >> conceivably that would point to a stock picker's market. >> that's my point. >> that's not coming back. >> you are just an anachronism

that's why you wear a suit from a 1940s show i'm sorry. i take it back. >> i was in guys and dolls i was a background player. >> back to this idea of stock picking, in all seriousness, it would seem to be that kind of a market. >> david, i'm going to give you a couple there's drop box which has come right back from what people thought there was a disappointment then there's box then there's square. square, box, drop. all different stories. square, by the way, was not there. those people who think square was bad, i big to differ the stock has flat lined for a long time. but there's just a tremendous disappointment in hewlett-packard. it was almost entirely ink supplies in europe >> it's getting hit hard today. >> we have a very mixed picture. so we have a day today that

looks very different from the tech day of yesterday. i just feel we have underlying weakness in health care because of the introduction of a bill by the democrats that would base c basically nationalize health care the house is now the enemy of the banks and the health care companies. >> but the senate has not changed, nor has the presidency. therefore, the house can do a lot of things, but most likely it goes nowhere at this point. >> it goes nowhere, but in the interim you get a thing like what happened to cigna cigna was crushed yesterday. unh crushed yesterday because people generally fear our country is a changed country with the democrats running the house. that's important goldman gets to testify. you think they're going to ask how good the wealth management division is doing at goldman

i bet you they talk about moby dick >> speaking of that part of the world, president trump heading back home from vietnam. >> what a segue. >> thank you after he and kim jong-un wrapped up their summit. they did not reach an agreement on curbing north korea's nuclear program. >> reporter: good morning. air force one took off several hours early today after the collapse of the talks with the north koreans. they scrapped a lunch between president trump and kim jong-un that was scheduled to happen this afternoon hanoi time. they actually left the table set and ready to go when the two leaders departed the arena here for negotiations they also scrapped what was billed as a joint signing ceremony between the two sides it wasnever clear what exactly they were going to sign, but it was officially on the schedule

that never happened either the president said ultimately he walked away from this deal because the north koreans wanted a total suspension of sanctions on them and they were only offering limited sites in north korea with which the united states would be able to verify denuclearization the president said that wasn't good enough even though he was willing to eliminate the sanctions and spur what he said would be enormous economic growth in north korea. >> i want to take off the sanctions so badly, because i want that country to grow. that country has such potential. but they have to give up more. we could have done that deal >> reporter: the president saying we would have done a deal ultimately he said this was a deal in writing that was ready to be signed here by both sides, but he walked away before that could happen because ultimately he felt it simply wasn't appropriate. now the question is, guys, where

does the nuclear process go from here ultimately the president said he's not committed to another meeting with kim jong-un there's no indication when that might happen, but he says he does value the good relationship he's developed over the course of the two summits with the north korean leader. >> thank you you know, it's interesting, jim, watching president trump say i could have but i chose not to. makes you think, okay, where are we on china which does seem to be in a very positive place. lighthizer's comments even after the hearing yesterday seemed to indicate they're on a good track. but trump was willing to walk away from something he said wasn't good enough. >> that's another reason why we have to speak to larry kudlow. if you go back 24 hours, it looked like to could be a deal if you look at the "new york times" when it came out, they're

still talking about optimism in the talks in today's paper and then this happens. i watched the futurers it didn't matter >> do you know how many people come up to me, so where do you do your show from? do you ever get that >> constantly. do they think this is all green screen where we put this stuff >> i don't know. it's amazing they're just not paying attention. >> one thing we're not talking about enough this is the old north vietnam. for those of us old enough to see what's happening, it wasn't talked about enough. vietnam is a great friend. for those of us who remember the bombing of the hospital, what an amazing reconciliation

that's a sign that every time you get really negative -- i mean, i remember during the period -- >> we haven't even talked about pakistan and india, speaking of hostilities. >> good point. >> although that will hopefully calm down. >> capitalism won in vietnam mao was deposed. he was president for life. >> until he wasn't still to come here, chief white house economic advisor larry kudlow is going to join us he's going to want to talk about today's gdp report we want to talk to him about trade. later on we're going to be speaking with steve mnuchin, get his thoughts on the latest trade developments the looming debt ceiling deadline is coming in the fall, i believe, and a lot more. we open for trading here 17 1/2 minutes from now from the new york stock exchange.

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fascinating development late yesterday afternoon on bristol myers continued plans to acquire celgene. wellington management, a typically quiet and giant health care focused money management firm chose to do something unexpected, which is put out a press release in which it essentially says we're not in favor of bristol myers' plans to acquire celgene, saying we don't think this makes sense we own or at least we have investment discretion, they say, for clients with respect to approximately 8% of the company. and we're the largest institutional holder of common and we don't think that the deal

as currently constructed makes sense. we believe that bristol's share price is being undervalued, they say, for the deal itself and that there are other ways to create value i'm paraphrasing here for the company. it's fascinating in a number of ways first of all, it's going to expand the spread between what bristol myers there is a strong chance there will be enough no votes that won't happen is it likely no it certainly seemed to have increased the possibility. iss, the firm that weighs in and advises all shareholders going to play an even more important role for that april 12th vote. we also think that's a secondary

story. it's all about the vote coming up wellington apparently has indicated and they have not returned calls and not wanted to discuss beyond their press release their thoughts wellington i am told has indicated they may begin to do this more often. specific to the numbers, it's important to note that while wellington does have 7.7% dispositive power. they actually only have voting power over about 28 million of the 126 million shares many of the rest of it seems to be shares they advise on for vanguard so vanguard has fund where wellington is the advisory company. but vanguard very well may have the voting power on those, jim

the other point here is that wellington may not own any celgene. if you own that, you want to vote in favor of this deal if you also own bristol myers because celgene would go down a lot more were the deal to break than bristol myers would go up if you get a deal price break, you get 74 bucks in celgene. it goes down a lot it brings to the fore this continued concern there will be mounting opposition to this transaction. >> when i read their filing, geez, talk about not having any

rigor in filing. >> there's no plan b that's what i continue to hear it's not going to be a string of pearls where they buy this company and that one >> there's an outfit called beijing which has the chinese celgoo celgene. sales were flat quarter over quarter. those numbers are bad. if you're watching this and you own celgene, this is bad ammo to have this deal close bristol myers are more dead set than ever. >> you've been a supporter of the deal >> i think that the five things that ccelgene's put forward --

>> if bristol myers remains without celgene, what happens then. >> some of these drug companies have really fallen on hard times and they have been really bad stocks they have a really hard time recovering. >> this has taken another turn >> this is the talk of everybody. >> and the idea that they may become more public in the future because typically they're courted to be your long-term investor if they're going to come out against you, it makes things even more difficult. >> the stewardship i thought was very big. up next we're going to get jim's mad dash we're going to have a live interview with larry kudlow coming up shortly after that one more look at futures alpha seems more elusive today.

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we're setting up for a slightly lower open, it would appear of course, been a good february, a good open to the year as our viewers know of course with all the major indexes in double digit gains thus far and a strong gdp print for the fourth quarter. mad dash coming up next.

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the opening bell is going to ring a few minutes from now. we're also going to hear from larry kudlow >> two reasons why i'm picking the stock box for a mad dash one is that box had a disappointing quarter because of europe and the inability to close seven figure deals aaron levy called it disappointing. >> i think the market agrees. >> the second one was without a doubt the most perfect chart in the book it looked like it was breaking out in a cup and handle formation. people were buying this thing just because it had a great chart. >> it looked terrific. >> that's why it's a cautionary tale what really mattered was execution, not the chart levy failed to execution which was brutal >> did they give any voice to exactly what happened? >> your weakness, same thing

with hpq, european weakness. let's watch this they've been able to dodge the european story for a long time this is the quarter where it's coming home to roost for all but the cloud stories. i know it's boring for other than will frost who's on the 3:00, but brexit is really starting to get people nervous in a way it's a sense of foreboding. >> they got a month, right >> yeah. >> unless they take another vote. >> i heard they're going to run out of food in four ays.

li jim stewart likes bombay sapphire he taught me to drink it. >> you hear the applause building here, of course there is it is, the opening bell from the new york stock exchange take a look at the s&p 500 realtime exchange. floor and decor celebrating its 100th store opening. over at the nasdaq, kaleido sciences celebrating an ipo. >> what is going on with wbc just tell me what the heck. >> with what >> with wbc. it's a takeover. what's going on there? >> i don't know. you've stumped me. >> all right something to watch because there's a takeover every day, it seems. >> there is. yesterday we had that kind of

weird offer for versome. typically you don't see cross border hostiles. that was interesting yesterday. >> you've got to keep in mind. why? this is really important there are a lot of people who are not paying attention to the fact that industrials are being taken over industrials. i keep thinking about him saying bad things about ge. >> he was not favorable. we're talking about the very influential analyst at jp morgan he did miss an incredible move, 70% up from the bottom. >> yes, he did >> our conversation with him yesterday is looking at what he

believes is the earnings power of the company and simply says the numbers are the numbers. >> there is a march 7th teach-in about long-term care i'm sending him a copy of her man melville's moby dick because it's getting to be an obsession. >> he did seem to favor me i don't know why >> let's talk pot for a second. >> cannabis. >> yes i know you have to call it cannabis cory booker came out for legalization and for expunged convictions which i think is the most important part. that's going to get these cannabis stocks going again. please be careful and be a little selective they've just had a very big run. >> stock is down over 15%. >> i think that's an

overreaction it was not a lot of percentage weiss ler spent a lot of time beating himself up when i speak to him next -- most of these ceos, he says look, everything was good but i want to talk at supplies and how badly we did in supplies if he hadn't said that, the stock would only be down 2 bucks. it was a brew tap conference cause because of the masochism that man demonstrated. he was too hard on himself mindy grossman, too hard on herself. >> from weight watchers which also got shellacked. >> they are going with the wellness initiative.

fitness had a dynamite quarter. >> did it? >> i have a friend who has a bunch of planet fitness franchises caching. >> aaron helped him build the golden kickofcalf >> a fabulous investor and a great art collector. he's a fabulous investor >> as for square -- >> he didn't deliver he didn't deliver. we're not going to give him a

pass on europe morgan stanley, fourth q 19 results, a swing and a miss. aaron levy, not bryce harper >> okay. say again. yes, yes, he does. >> what? i'm going to take the other side of square. one of my favorite analysts lisa talked about square. i thought jack dorsey did a great job on that call that company is firing on all cylinders. i know there's a deceleration that's nonsense. it's doing everything right. my hat is off to them. square is doing great. >> it's called geometry, david

>> there's a look at square and all of the losers this morning >> how about some winners? the hmos are coming back because people know the house can't pass socialized medicine. >> they can't. the drug pricing hearings are somewhat heated as well. chairman powell's commented not yesterday but in front of the senate about health care outcomes in our country and the fact that we spend a trillion dollars more than others for the same outcomes. >> he's thinking about everything right i was hard on him initially. that's over. >> detente or more than that >> i said yesterday that it was a triple-double in front of congress >> really? >> yeah. he's a little bit more -- >> like westbrook. >> shoot we play them tomorrow night.

we we >> let's get to the news this morning on gdp the commerce department reporting better than expected fourth quarter gdp that capped off the strongest economic expansion since 2015. annual growth hovering right here 3%. joining us top white house economic advisor, national economic council director larry kudlow good morning, larry. >> good morning, david how are you? >> i'm doing well. 2.6 was the number, strong year. some concern about december and sort of a lag toward the end of the year you kind of dismissed those retail sales numbers that jarred the market for about 20 minutes. what is your sense for this year for economic growth coming out of that fourth quarter gdp number that was better than expected. >> first of all, i think 2018

was a good year. 3.1% calendar year over calendar year 2.9. i would just call it a 3% year the policies are working i need to say that lower tax rates, deregulation, trade reform, the energy reform. it's working i think more of the same let's not forget, at the beginning of the year january employment was 300,000 plus. i think that boeds very well for the first quarter. you look at other things, s&p 500, spending is about 15 or 16% growth new business formations are strong consumer confidence snapped back after the shutdown maybe we'll get to the improved prospects for china trade.

i'm very optimistic. >> you mentioned china trade we heard from ambassador lighthizer yesterday there does seem to be a positive tone what is your sense as to the likelihood there is going to be an agreement reached in the not too distant future between the u.s. and china >> we're moving forward on it. the progress last week was fantastic. really looking at the pages, looking at the document s whethe it's all the structural issues i.p. left and forced tech nol transfers and ownership, we're making great hey way on tariffs. we have mechanism with respect to enforcement which is i think unparalleled to be honest. i think bob lighthizer has just

done a tremendous job. when we has the chinese over last week the first day of the deputies' meetings went very poorly and the second day was cancelled because of that. then the principles met at the plenary session. i was there. lighthizer read them the eye yacht act. the vice president was the leader of the chinese side responded. all of a sudden everything picked up. so we had line by line discussions on thursday and friday and then it was extended to saturday and sunday. so i have to tell you the progress has been terrific we have to hear from the chinese side i think we're heading toward a remarkable historic deal we still have to get their sign up that's important but i think we're heading for a historic deal. >> what about this idea that has

certainly been reported on that this is light between lighthizer and the president in terms of their view here and that the president might be willing to k accept a deal that mr. lighthizer would not necessarily favor because it would be more about removing tariffs and/or money coming back and forth, as opposed to the real structural changes that need to take place. >> the structural changes are there. the joint venture ownership is really the key to the transfers. the chinese have gone forward on this we're going to see an across the board, especially financial services but american companies will be able to own american companies for a change as far as daylight between president trump and mr. lighthizer, i think that's just untrue i just think that's athlecompley

untrue i was in the oval office when we decided that memoranda of understanding worked in trade but not for real estate so we don't use that term anymore. we're now using trade deals or the word contract. mr. lighthizer talks to the president every day. he wouldn't have made this deal if the president weren't signing off on it. i want to put these rumors to rest bob light horizhizer has done a terrific job again, the chinese side has to come back and agree. i believe they will and i believe there will be a meeting in late march down at mar-a-lago let me just say, mr. lighthizer for me money, has worked miracles on this chinese deal. we've never ever come this far with china trade the outlook for a deal is more

positive. >> that's much stronger than i've heard yet i think it's kind of monumental. does this mean that you introduced me to peter navarro we're friends, i admit that. i've been where he is for a very long time. is there anyway the chinese can back away from the 2025 initiative can those things really happen >> yes as part of the documents -- and i can't go too deep into that. but as part of the documents the de-emphasis of their 2025 and the significant reduction of china subsidies to those target industry is part of the documents, okay? that is so important because it gets to your point again, i'm sitting here talking

to you all this morning. we have to have a sign-off from president xi and the top brass but the documents are very clear. i mean, even things like a currency deal got no manipulation they've got to report any int interventions in the market. that's part of it. yesterday mr. lighthizer announced before congress that we were suspending the 25% tariff on the $200 billion of good and services, a suspension for now awaiting china's response we have never gone this far. we have never covered so much ground it's a question now of waiting for the other side to come back and sign on the dotted line. i've been a realist. i've been on the networks. sometimes i've been so realistic the market has fallen on this. right now we have just moved

further specifically across the board. i'm not sure people get that i mean, they should. that's part of my message. >> wow this is so much more hopeful in terms of for both countries. has it mattered that our country's numbers are getting stronger and stronger whereas china had export figures last night worse than ten years, manufacturing worse than three years. does it play a role that one country is ascending and that another country seems to have a harder time and really these us perhaps more than they thought six months ago. >> i think that's a fair assessment i heard you say that earlier i think that's a very accurate assessment there's two parts to it, jim one is, china has in the last 10 years moved away, maybe 15 years, moved away from that i

recall their market based reforms. this decade they've moved away from those reforms they've become more centralized, more dictatorial, more control, more central planning, more socialists the free enterprise reforms have been knocked out secondly, i think president trump, his tariffs really hurt chai china. it came at a bad time for china, but i think the tariffs really hurt i will say this, again, i'm the tree trader in tfree trader in e building one thing i learned from president trump is that tariffs can be a strong negotiating tool in this case i think it's a great illustration to be honest. mr. trump wants to see free,

fair and reciprocal trade deals. also he believes we should have zero tariffs but to get to there, everything's fair in love and war. i think the tariffs have had a bad effect on chinese economy. the vice president premier and his tom deputies worked very well with us, very well with us in those last three or four days and the extended weekend there seems to be good will and phenomenal progress. i just think it's the coolest thing imaginable. >> back to the u.s. economy, revenues into the irs seem to be running below some estimates people got their tax cut, so to speak. but now they're not getting as much of a refund as they hoped

are you concerned at all that perhaps the con ummer will suffer as a result of not getting as much back and/or the treasury is suffering because revenues are running below estimates? >> i just want to dispute that i guess the tax refunds are running slower that had something to do with the government shutdown, but i think in general some of the tax credits, some of the family tax credits were seen to be slow to come out let me make this important analytical point give me a moment, david. the key so understanding our tax plan is we reduced marginal tax rates. these are not rebates. they're incentive oriented rate reductions particularly on the business side but also on the individual side so people are saying, well, there's a sugar high one year. that's it.

they're just plain wrong the 100% expensing have another four or five years that's going to go on. that's one of the reasons i'm very optimistic. the policies we putin place on these lower tax rates and deregulation and china trade,ist u.s. mca we haven't talked about mexico, canada and the u.s these policies are working so i'm going to say 3% 2018 and i'm going to say 3% 2019 and 3% as far as the eye can see i'm sure we'll revisit that at some point. >> wasn't to weigh in on this debate about the impact of corporate tax cuts and that people seem to be focused on the

large number of corporate buybacks i know there have been increases but perhaps not as much as many hoped given the significant tax cut that corporate america saw. >> well, you know, courtesy of my pal clifton of strategis, cap "x" has been terrific. i have the number here i was afraid you'd ask up 14% year on year so that's a pretty good number point number two share buybacks just transfer the money goes from the corporate lock box to the individual investor which i think is efficient if the businesses don't have use for it or enough of a rate of return, why not give it pack to their own investors who are the owners, and that money doesn't go under a mattress. that money from the investors and the shareholders will be recycled into the economy and they will start new companies, new businesses if you ever look at the new business formations and

applications which are soaring that's a tremendous sign of the healthy free enterprise economy, and i'll just say this as far as those who want to nationalize healthcare and everything else in the world, we're putting socialism on trial. we are not going socialist we are not attacking business. we are not getting rid of incentives we will not permit an end to free enterprise, nor will rereplicate fair government planning models in the future. trust me on this i'm putting socialist on trial not going to happen. that's why i'm optimistic. >> larry, one more thing you've got to put to rest there's a huge rap that says the tax cut, what happened with corporations, they just gave back buybacks and dividends. i'm looking at gdp numbers that's just not true they are spending like mad and bringing money back into the country. how do we end the narrative that money is being used for

dividends? >> again, we have to keep talking about it dividends to me are a good thing, not a bad thing the cost of capital has been sharply cut via lower tax rates and that gives tremendous incentives again, businesses are investing heavily. that's why i used the s&p 500 number there are good numbers for the entire economy. >> right. >> think of it this way. money is flowing into the usa like every before. we are the hottest economy in the world. >> sure. >> of the major economies, and i guess i'll throw china into that, of the major g-7 economies plus china, we are the hottest economy in the world money and capital is flowing into the usa at unprecedented rates. check out the repatriation numbers which are coming in way above budget, so what does that tell you we are the most hospitable free enterprise economy left, and this thing is playing out -- we are -- not only is 2018 going to be the peak in growth.

this growth spurt is going to continue for years to come as long as we hold the line on our policies, and trust me on that we will hold that line >> all right perfect place to end larry, thank you as always. >> appreciate it. >> china is big. >> larry kudlow. >> china, big. >> we've got chicago pmi released a few moments ago so let's get to rick santelli rick >> reporter: yeah. a very big surprise on the february read for chicago pmi. expecting a number around 57.5 zoom, zoom, zoom 64.7 64.7 is the best level since dec of '17 remember the 20-year high in this series is 67.7. only three points shy. quickly, look at year-to-date of 30-year bonds, getting ever closer to 3.10 ten-year bond notes are now over 2.70 look at a year-to-date at 30s minus 10s. that widening, most since

december 2017 and in many people's minds is giving a turn in the market. the long end in that spread widening is key to pay attention to one week of bunds at 17. they have doubled since '08, just two weeks ago and when we charted the dollar index, it continues to slip under 96 david, jim, back to you. >> okay. thank you, rick. coming up, treasury secretary steve mnuchin is going to be joining us "squawk on the street" will be right back

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>> good morning and welcome back to "squawk on the street." i'm david faber along with morgan brennan and mike santoli. we are live from post nine at the new york stock exchange. carl is on assignment this morning. sara, she's been off all week i think. let take a look at the markets this morning half hour into trading you can see that we are, well, kind of nowhere. a little bit down on the s&p positive comments certainly on trade from economic adviser larry kudlow moments ago here on "squawk on the street," but overall a down day for two of the major averages. >> well, our road map starts with the strongest economic expansion since 2015 annual growth hovering near president trump's 3% target. >> plus, u.s. treasury secretary steven mnuchin joins us to discuss trade, gdp and president trump's economic agenda. >> nuclear talks with north korea falling flat as president trump walks away from the summit with no deal we're going to bring you the latest from hanoi. >> the president's second summit

with north korean leader kim jong-un collapsing as the two men failed to agree on a path to denuclearization eamon javers is with us from hanoi with the very latest eamon? >> reporter: yeah. good morning, it was the collapse of those talks after weeks of buildup here to the negotiations with the north koreans here in hanoi, vietnam it came very suddenly. they actually had lunch left on the table. the president also cancelling what had been billed by the white house as a joint signing ceremony with the north koreans, and air force one taking off from here in hanoi the president on his way back several hours earlier than expected the president though said there were effectively no hard feelings he said he did walk away from negotiations, but it was done on friendly terms here's how he explained it in a press conference a few hours ago here in hanoi. >> this wasn't a walk-awake like you get up and walk out. no, this was very friendly we shook hands we -- you know, there's a warp that we have, and i hope that stays. i hope it will, but we are --

you know, we're positioned to do somethingy very special. this has been going on for many decades. this isn't me. >> reporter: the president there say this isn't me. ultimately, it's not his fault that the negotiations collapsed, that the situation between the united states and north korea has been extremely difficult for a long period of time. ultimately though the question is how long before we see these two men meeting together again in the president said that there's no expectation for another meeting or another summit between the two leaders, and it could be a very long time before they actually meet face to face again, guys. no indication here of how we're going to resolve this nuclear standoff with the north koreans. the president is asked if he's willing to just accept that north korea is now a nuclear power? he didn't answer that question ultimately holding out some hope here that there could be some negotiations at some point the question is when, guys >> eamon, any reason to think that -- and i know that there's a lot of stress on that talks will continue and the lines of

communication are open, but is there any reason to think that north korea could start doing something like say missile testing again? >> reporter: well, the president said that the north koreans have committed not to do the missile testing and the nuclear testing that they had been doing a year or more ago, that that concession that was made at the singapore summit still stands according to the president he also said that the american concession that was made last year at the singapore summit which was stopping the joint military exercises with the south korean side, that concession still stands as well, the president said, although he said it was simply because those exercises are too expensive. ultimately that seems to freeze in place both sides gave a little last year they are going to leave it there and not give any more this year. >> eamon, we've been talking all morning about the interplay between these talks and what's ongoing with china of course, initially there was i guess an idea of having both meetings with the north korean and chinese presidents at the same gathering, but that's not happening, and i guess the president said something overnight, at least offhandedly

about maybe i would walk away from china, too. i mean, can you discern whether there's any way to get insight into the state of the china negotiations from what's began on there >> reporter: well, the president said it explicitly i mean, when you look at the scheduling for this event. there was the possibility that we could see the president in hanoi, vietnam negotiating with the north koreans and then heading up to beijing to negotiate with the chinese that didn't happen they wanted to have a little bit of separation for that the white house put it to me at the time that they wanted to let the victory here in hanoi stand on its own for a few days before they go into the chinese negotiations that's obviously not going to happen, but the president said explicitly in his press conference that he is willing to walk away from the chinese trade negotiations he said you just have to being in any negotiation to be able to walk away from the table if the deal is not right. that seems to set some tension into those trade negotiations with the chinese because this is a president who has now demonstrating on the world stage he's not going to take a bad deal for the united states >> eamon, thank you.

eamon javers in hanoi making that important connection, i think, to the china trade talks despite, again, what was very positive comments on the progress they have made from larry kudlow the congressional budget office, by the way, says the u.s. will run out of cash by early fall without a debt limit increase joining us now from d.c. is our steve liesman along with cbo director keith hall. steve, take it away. >> reporter: david, thanks very much yeah, i'm here at the nape conference with keith hall, director of the cbo. the most important government bean counter and forecaster. thanks for joining us. >> sure. happy to be here. >> what do you make of the number this morning? it was better than expected. does it tell you that the economy may have another gear in it, that it can run a little hotter than we previously thought? >> the number is about what we expected to be honest, and we still think things are going to slow down this year. upcoming we think things will be 2.7% growth instead of 2.9% this year, and after that we think the stimulus that we're getting from the tax cuts and spending

are going to start to fade. >> in that sense though, i know you don't like to be political, but you are at odds with the administration which believes the effects of the stimulus will keep going their story is you'll have the tax cuts that will create capital spending and will create a productivity boom. do you disagree with that >> i think we do i think it would be great to see that happen. we'd love to see that happen, but we see most of the effects as being stimulative and stimulus wears out after a while. >> what happens to productivity under your forecast which is so important to growth? >> productivity is picking up. it's been pretty low and still been a bit of a mystery. we do have productivity picking up and moving up into what one would think is a normal range over the next few years. >> keith, there's big a debate and economic community about how much deficits matter there was an important speech by the former imf economist and people in congress people are saying deficits don't matter what's your view >> deficits have an effect

we think deficits -- certainly deficits affect flexibility. one of the things that's really notable is we're having pretty strong growth right now. almost 3% last year. unemployment rate is low, yet we added about $780 billion to the deficit. that's very good times when things turn less good, we're going to seat deficit balloon after, that and i think it will affect the flexibility of things, and we're starting to spend more and more on interest costs. one of the startling things about the report we just released is over the next ten years we think just the cause of paying off interest on debt is going to pass all the defense spending over the next ten years. that's going to be a bigger part of the budget going forward. >> let's talk about how worried you are about the finances of the country, on a short-term and long-term basis. we're going to run out of cash sometime by summertime >> that's right, that's right. treasury can take their

extraordinary measures at some point and handle things. they seem to have been able to do that all the time. >> but long term, are you concerned about the finances of the country? >> oh, absolutely. absolutely it's one of the things where we're on a course that's very difficult. we think and we've been saying this for a long time that this is unsustainable deficits are growing debt is growing. at somepoint we're going to break a record, and it's going to get to a very, very high level that we've never experienced before. >> getting back to something we talked about a little earlier, you don't really agree with the administration's contention that you can change potential growth. your forecast has us, what, coming back down this year towards what you believe to be the growth speed of the economy. >> that's right. and the big constrain is going to be our aging population, that we won't have the growth and labor force that we've had in the past and productivity can get back up to somewhere like its normal range we think that will happen, but it's that drag from an aging population that's really going

to keep the potential growth down around 2% i think in the long run. >> if you have some recommendations for how we should be thinking about fixing this right now, what would be your top three >> well, fixing it is difficult, and one of the things that we've seen is the baby boomers have been really participants in the labor force, and other cohorts under cohorts have not been as big a participant in the labor force as the baby boomers were, and that's just been a pattern, and it continues going forward so there's some potential to get more people involved in the labor force going forward but, still, that can have only so much effect. >> you're blaming this all on millenials essentially. >> i'm blaming it on people not being baby boomers >> what about the issue of immigration? do you have immigration helping u.s. growth later or hurting u.s. growth? >> well, immigration has slowed down it's slowed down during the great recession, and normally what we expect and what we've seen in the past is during recessions immigration slows, but then it picks back up. just hasn't picked back up this time. >> a big part of your outlook is

what happens to interest rates. >> yes. >> we've had very low interest rates. where do you guys -- you plug in numbers for your forecast. what happens to interest rates >> well, we think interest rates will go back up to more normal levels we think it's going to happen. we've been off on the interest rates. in fact, we're off right now a little bit on the interest rates, but we look at history. we look at the past. we see where interest rates wind up being, and we think they are going to go up significantly over the next ten years. >> if we do another year of 3% growth, are you ready to go back and revisit your assumptions about the growth potential of the u.s. economy >> another 3% will help. one of our points that we make though is growth can only do so much, so growth would help it would help the deficits going forward, but, you know, the point i just made about growth last year. we had almost 3% growth and the deficit grew significantly. >> where are deficits going, keith, in terms of on an annual basis? >> by 2022 we think deficits are the going to hit $1 trillion

going forward, and we think it's going to hit after ten years almost pretty close to 100% of gdp so the debt is going to get very, very large, and something we're going to have to deal with, and the thing i'm concerned about is the longer you wait, the more draconian the measures you'll need to get things under control. >> under your forecast, how much of our budget every year are we spending say five years from now on interest? >> well, right now we're something around 3% of gdp. >> right. >> but we think it's heading towards something very much higher we think after ten years, it's going to be -- it's going to be exceeding. i think i've mentioned this just before all of defense spending. >> it's 7%, 8% of every dollar we bring in. >> that's right. >> will go to pay interest if -- and that's under modest forecasts for interest rates. >> that's right. what about other challenges that are out there for the u.s. economy, especially one of the things we try to figure out is the global economic weakness that's out there >> sure. >> how do you factor that into

your forecasts >> that does factor n. global economy makes a big difference it affects our exports and imports and certainly has an effect on interest rates right now we're able to borrow a significant amount of money internationally to keep interest rates low. that doesn't have to continue going forward, than could have an impact on interest rates. >> keith, i would like you to come back and visit us again when there's happier news or when there's any news i suppose. >> if we can wait that long. >> thanks so much. keith hall director of the cbo live from the nape conference. back for you. >> thanks, steve very interesting conversation, particularly about the deficit, something we did not talk to larry kudlow about this morning on our interview, though we have discussed it with him many times in the past. some staggering numbers there. when we come back, an exclusive interview with treasury secretary mnuchin, and as we head to break, a look at the top performing stocks in the s&p. "squawk on the street" is coming right back so don't go anywhere.

2018 was a good year, calendar year over calendar year 2.9. i would call it a 3% year. first half what is 3.2 and second half 3.0. the policies are working i need to say that lower tax rates, deregulation, trade rermfo, energy reform, it's working it's absolute confidence in 30,000 precision parts. or it isn't. it's inspected by mercedes-benz factory-trained technicians. or it isn't. it's backed by an unlimited mileage warranty, or it isn't. for those who never settle, it's either mercedes-benz certified pre-owned, or it isn't. the mercedes-benz certified pre-owned sales event. now through february 28th. only at your authorized mercedes-benz dealer.

looking at the documents, structural issues, ip theft and forced technology transfer and ownership and we're making great headway on non-tariff barriers and tariffs regarding, you know, various commodities such as soybeans and energy and beef and what not we have mechanism with respect to enforcement which is i think unparaled to be honest i think bob lighthizer has just ton a tremendous job >> larry kudlow earlier this morning speaking very positively about the path for the negotiations with the chinese for a trade agreement, and i thought also importantly addressing these reports that there's daylight between president trump and ambassador lighthizer in terms of what they want saying that's simply not true. >> yeah. >> said mr. kudlow having been in the oval office, seen the two of them and effusively praising ambassador lighthizer for the leadership that he says -- larry says he's

shown so far in his talks. >> between the comments he made today, some of the reports we've seen in the last 24 hours about details around this enforcement mechanism, this idea that there's a 140-page report in the works right now which i know politico has been reporting, it sounds much more upbeat, much more bullish than i think the initial reaction to some of those first comments from lighthizer yesterday on the hill had been taken by investors. >> and the missing piece being how the chinese side is going to view those things, right >> he. >> the story that we're seeing now in terms of the makings of a deal from the american side and then it's a question of whether there can be an agreement from president xi. >> yeah. i don't think we talk about that enough is that we could get -- we could have a deal, a proposal in place that the u.s. is happy with and that china is maybe not and there's also concessions that the chinese have really arguably been looking for in all of this discussion as well. >> yeah. mr. kudlow did make the point

that while it is all going well, we still have to wait and see. >> exactly. >> exactly what it is we do get back from the chinese. i think though the importance of having a mechanism by which you can at least address whether they are meeting their obligations is very important. >> and presumably use the existing 10% tariffs, you know, as a bit of leverage i mean, maybe that's the conditions on which those go away or something like that because that's a big question i think for investors. sure, we can come to an agreement but is that going to take the 25% step off the table entirely, and what does it mean for the existing 10% tariffs. >> when it comes to the markets, and it comes to the movers, mostly to the downside as least. those that catch our eye, whether it's hp, ink or box or square, though that's not down much, all on earnings. some focused concern on europe's economy as well. >> it's interesting because in almost every case the stocks that participated in this big rebound, right, so they went into the earnings print with a little bit of upside momentum

and maybe a vulnerable spot. yeah, it's still the same store to where guidance, this quarter has just not been great, not really willing to promise that much out of the first half of this year. broadly speaking, the market for the third day in a row is just of just holding ground and sort of sitting there at these levels a lot of people have said maybe it's where it makes sense to take some kind of a rest. >> yeah, you saw some huge moves to the upside in the last couple of months in the names like box, and i believe it was box's ceo that said to cnbc yesterday that, you know, part of the reason for some of the weakness is that they had some major deals that either got pushed out or put on hold which is, again, one of those things that i think everybody has been keeping a close eye on with all of the major macro uncertainties, slowing global growth, et cetera you know, how are ceos making decisions to invest? are they making decisions to invest i know that came up in your conversation with kudlow today as well. >> that's a key point we keep coming back to in terms of the ramifications or the effects of the tax cuts

finally, i wanted to mention celgene, down 9% this is not an earnings story. this is a concern that bristol-myers' vote to andrews square will vote no. a trillion dollar money management firm often focused on healthcare and almost always quiet chose to very unusually come out and oppose the deal, and then this morning we got starboard putting out one of its long letters though frankly starboard toss not own a significant amount of stock in any way, but its opinion can also be important. >> one to watch. when we come back, an exclusive interview with treasury secretary steve mnuchin. we've got "squawk on the street" back after this break.

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welcome back as president trump travels back from vietnam, his treasury second steve mnuchin is on a trip of his own in europe. he joins us live now from london along with our own hadley gamble hadley >> reporter: hey, morgan that's right i'm joined by u.s. treasury secretary steven mnuchin

welcome. it's great to see you. >> thank you great to be here with you. >> i wanted to kick off by asking you about the fourth-quarter gdp numbers not as bad as some are expected but many are worried, concerned, that the geopolitics, the government shutdown are really going to weigh on first-quarter numbers as well. are they right to be concerned >> i don't think they should be concerned. the fourth quarter was dragged down slightly by the government shuttown i think we still had very healthy numbers, year overyear we've been talking about sustained 3% growth and the outlook in the united states still looks strong. >> inters of the u.s./china talks, so much concern about the geopolitics here there's been a lot of noise surrounding around whether or not president trump has the patience to see this through "the financial times" wrote a big article on this, a lot of concern of whether or not we would try too quickly to get a deal signed. can you give us a timeline on what we're going to see. >> let me put this in context. these discussions had have been

going on for two years since the first summit that president trump had with president x xi where he made clear that trade was at the top of the agenda made a lot of progress over the last few months. last week i sat in meetings with ambassador lighthizer and the vice premier he. we've had a lot of comment and we're working on a 150-page document uncertain, very detailed agreement for very significant commitments, and these are supreme court actual commitments, but we still have more work to do, and we hope to -- to make progress this month, and if we do there would be a summit between the two presidents. >> in terms lighthizer versus larry kudlow, we heard from him earlier on the day on cnbc, very, very positive about making sure we got the china trade talk just right and lighthizer have concerned that the details -- the devil is in the details, as they say who is right >> well, let me just comment that there's been a lot of chatter about different parts of the administration let me just emphasize. we're completely united on these

discussions, whether it's myself or ambassador lighthizer or secretary ross or larry kudlow or peter navarro we're all working very closely together, and we have -- we have a common vision in executing and getting a real agreement. >> walk me through some of the details in terms of the mechanism to make sure that the chinese will continue to comply on the outcome of this deal because at the end of the day one of the things, as you know, so many have commented on president trump's withdrawal from the iran nuclear agreement. he said again and again that the reasons behind that was it was not a comprehensive agreement, that real they was no way to make sure that the iranians are complying. how are you going to make sure that the chinese continue to comply >> the president thought that the iran agreement was a bad agreement. that was the real problem. it didn't encompass many issues such as ballistic missiles it had iran in terms of exporting of terrorism and our iran sanctions have worked they have had a real impact and we couldn't be more black eyed peas pleased with that strategy. now the president has insisted all along on our china

discussions, and he's been actively involved. we meet with him several times a week this will be a real agreement. this has to be real structural changes. we're dealing with everything from intellectual property protection to technology transfer to financial services, non-financial services, currency, and we spent a lot of time on a real enforcement provision, so let me just say the deal is not done yet, but we've made a lot of progress. >> walk me through what is going to happen in terms of tariff financing on the u.s. side you met yesterday in paris with emacon that was the subject of your talks. what is something that the united states is moving forward with on france, we've seen a tool watch list. where is the u.s. there? >> the real purpose of my trip was coming to london today and really focusing on the growth opportunities in jordan and the strategic commitment we have to jordan and to the region as long as i was coming to london, i wanted to stop in paris on the way i had the opportunity to meet

with the french finance minister bruno lamar as well as president ma macron we had very significant conversations on a whole range of issues. one of the things we did talk about is our joint support for terrorist financing, combating terrorist financing. itch think, as you know, we've sipt the tfct in the region, very focused on the middle east in particular, but this is something we're working globally on one. issues is the eu has talked about putting out a watch list we really support the work right now the united states is the president of the ftif work, the work goes on around the world in terms of combating terrorism fighting. >> you mentioned how much the uk is behind the supporting of jordan not enough the in economic growth but in terms of the refugee crisis i have to ask you in spite of the fact that all this progress

has been made, the fact that these mayees government is under pressure, many wonder if this will continue if she isn't at the helm of the government how worried about you the brexit negotiations >> the things we're talking about everyone in the room is committed to it's timely that i'm here in london i had a bilat with philip hammond. i'll have a meeting tomorrow morning. i'll have the opportunity to speak to the prime minister shortly after our session, so i look forward to talking to her, and the united states is supportive that there is a solution between the eu and the uk so that we don't end up with a hard brexit. >> in terms of the irs, we have to ask you about that because at the end. day there's been a lot of criticism around the administration about whether or not the returns are really going to really be what they wish it to be. you've got some news on that for us today. >> i'll give you a little surprise breaking news here. so people have been very focused on tax refunds i think we've been putting out releases saying these are early

numbers. we encourage you to look at the numbers as they go further down. 17% up week over week. those are tax refunds are up 17% week over week that basically gets us to the same level as last year, and i would just emphasize, even if people had perfectly done their withholding, and i think you know withholding is complicated. we encourage people to go to the withholding calculator, people really should be focused on they are paying lower taxes, and those lower taxes is money back into the economy and that's why we have the economic growth we do >> and for president trump, who has just been to the second summit in the south korea with kim jong-un, the question, of course, going forward. not that much it would seem. are you disappointed by the outcome of these talks >> well, let me say talks are very important you can't reach agreement without talks and the president says sometimes have you to walk away from an agreement and take a step backwards to go forward and the real answer here is the sanctions are working, and north

korea wanted release of the sanctions, and we said we're not releasing those sanctions until they deliver on the commitment, so very much support the president's trip and i very much support. i'm sure there's opportunities going forward. >> do you think we'll see a third summit >> i can't comment on that we'll see how it plays out. >> i have to walk you through things that we've been discussing here obviously with the london initiative. a lot of support for jordan coming from the eu, coming from the french, coming from the germans in particular, the uk, of course, as well what kind of level of support will we see forward going forward from the united states because this isn't just about economic growth, this is also about regional stability >> i think the united states has been the largest supporter of jordan we will continue to do that. we have very significant contributions. we've have loan guarantees so looking forward to speaking to the prime minister and his highness directly later on, but we're very supportive of what's going on here. we thank the uk government for hosting it. >> finally, want to bring it back to the u.s. at this point there's been a lot of conversation about initiatives by some of the progressives in

congress we're speaking about alexandria ocasio-cortez among others a lot of questions about whether or not they really have a handle on the economics because we heard the fed chair jerome powell coming over over the last couple of days and has said their vision of the economy is not one that's actually based in reality. what's your take on that >> i would completely agree with chair powell, and, you know, we'll continue to work with congress to make sure that they understand the fundamental economic issues and what's driving this economy and how the administration's economic plans, whether they are tax cuts, tax reform, trade negotiations or regulatory relief are really working for the american people. >> treasury secretary steven mnuchin, thanks so much for joining us. >> thank you. >> guys, i'll hand it back to you. >> thank you thanks to the treasury second steve mnuchin. wide-ranging interview there handled and covered a lot of stuff including china and the u.s. which investors continue to closely watch. >> yeah, yeah, and followed on

you know, it's funny larry kudlow kind of hinted at this answer in an earlier question during our interview but saying, the treasury secretary, tax refunds were up 17% week over week. >> yeah. >> which basically gets us to the same level as last year because there has been like some concern that refunds were running quite low and that, therefore, it might impact people's willingness to go out and buy stuff. >> the initial rush was the sort of public alarm and dissatisfaction that refunds were disappointing, and i think it was becoming a little bit of a talking point in terms of first-quarter retail expectations, but obviously the season was delayed somewhat. >> yeah. >> both by new tax law and the shutdown so it seems like we have to figure out, you know, how the next several weeks look because the first section of returns almost always are refund heavy. it will give us a better idea in the next month or so. >> talking about sanctions in terms of iran saying sanctions there have worked. in terms of north korea with that deal, those talks scuttled early today, again, there, that

sanctions are working, that they do see opportunities going forward though declining to comment on whether they could see a third summit >> and on china, i mean, once again, kind of being very assertive in saying there's a unified front. we have very specific strictures of what we want from the chinese side we'll get to sue herera for a cnbc news update hey, sue. >> good morning, mike. good morning, everyone as you know, talks between president trump and north korea's kim jong-un collapsed this morning the president blamed the breakdown on north korea's insistence that u.s. sanctions be lifted without committing to eliminating its nuclear arsenal. their lunch was cancelled and a signing ceremony scuttled. secretary of state mike pompeo arriving in the philippines for a meeting with president rodrigue duterte he said that there could be more meetings between the u.s. and north korea, but there was no plan to do so immediately. pakistan's prime minister says his country will release a captured indian fighter pilot

shot down yesterday over kashmir. pakistan also shot down another inldian plane. the indian government said it is happy with this latest move. and back here at home, a slow moving storm that soaked already saturated soil causing rivers to overflow in northern california the california national guard carrying out rescues into the night in sonoma county officials declaring a local emergency. unfortunately, more rain is headed their way that is the news update this hour guys, i'll send it back downtown to you. >> all right sue, thank you very much. now for our etf spotlights, markets didn't really make a huge move this morning on stronger than expected fourth-quarter gdp numbers, but within the data the upside largely came from a surge in business, some of the wear spending, r & d spending and tax spending in general. you can see that play out to some degree in the big software stocks this is ivg, expanded tech software, names like salesforce, adobe, oracle, microsoft it is up 30% since the christmas

heave low, and i think very unusual for almost any sector and any sector of technology is that it's basically at a new high, so you -- you know, even the stocks that have been strong off the low, a lot of the sectors are still well below the october or september highs suggesting investors had kind of sniffed out strength in software in particular. has been one of the very strongest portions of the market, so obviously one of those questions, can this continue is it really just a momentum move but this clearly is one of the areas that everyone else was talking slowdown, it was not really evident in the big software providers. >> always like to ask you, who the biggest component is of these -- is there one in particular. >> this is not equal weighted. >> it's not? >> it's actually adobe and salesforce are kind of neck and neck and then oracle and microsoft. the quirks in the waiting are whenever they rebalance has something to do with that. some of them start out equal weighted and two stocks have a huge run and become a big piece

of it. so it is a broad etf in the sense of many stocks, but it is somewhat concentrated at the top. >> at the top, and sales force considered a software company. >> yes. >> enterprise software, i suppose. >> yes. >> and i think it also speaks to what has been somewhat of a secular growth story and that's conversion to the cloud, the digitalization and internet of everything the need forever increasing security cyber security options, and we were talking about a lot of these companies talking about these types of services and, of course, it gets back to this idea of the market rallying and the big tech names being in the leadership position. >> being right there. >> i should say from an economic perspective, a lot of folks are saying this bulge in spending in r & d and intellectual property probably some giveback because maybe there was front loading there, but longer term it's good for productivity and things like that not a bad story. a was head to break, a quick check on the broader markets the dow was just green now toggling down less than a point. s&p similar story right now.

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welcome back to "squawk on the street." i'm morgan brennan along with david faber and mike santoli live from post 9 at the new york stock exchange carl is on assignment. sara has the morning off we're an hour into the trading session, and let's get a check on where we stand with the major averages right now it's red arrows but modest moves lower as the dow is down about 18 points right now. 25,970 the s&p down about .1% and the nasdaq composite is down about .3%. keep in mind, this is the last day of the month, and we are on pace for, again, a second straight month of strong gains for all of these averages. for a closer look at the markets

in general though we are joined by btig managing director julian emanuel and chief economist lindsey pizega break it down for me. >> the last 24 hours tells you a lot about the markets being down today. you've had by all accounts an unsuccessful summit in hanoi you have tension between india and pakistan you had mueller -- pardon me, michael cohen testimony yesterday, and here we are the market is barely -- barely moving to the downside because in the final analysis the economy is still good and that's a positive for stocks. >> so what is your read through then in terms of the q4 gdp number and what do you expect that to be coming in 2019? >> that was excellent, better

than expect pedestrian, but in fact what it actually does is cushions the psychology for what is likely going to be a weak first quarter. but we know that, and, you know, markets don't fear that which we know you know, you have the government shutdown. you had the plunge in consumer confidence which is reversing itself, and you had there polar vortex that will hopefully end soon all of that is going to cause gdp to be, you know, 1%, maybe even lower, but the important thing is full-year economists aren't taking their numbers down, and that's the kind of strength that we saw in that fourth quarter number which, again, to us given the fact that psychology is very defensive still despite the rally we've had the last couple of months. we think stocks end up moving higher. >> lindsey, do you agree with that do you think stocks are going high, and when you look at some of the data we've gotten here in the u.s. just this week, it's been largely stronger than expected and then, of course,

we've got that data point just a little while ago from the treasury secretary that irs refunds are actually up and tracking what they have in years past. >> well, i think to your point, the data has been better than expected but the bar of expectations seems to be continuously lowered at this point. specifically focusing on the fourth-quarter gdp number that we got this morning. absolutely it beat expectations but we're still talking about a three-quarter low so very closely we were losing momentum in the domestic economy over the last nine months and there's a number of anomalies in this number that still have to be reconciled going forward fourth-quarter consumption, very strong, up near 3% of course, we did see very disappointing retail sales figures, so, again, we're going to have to see some revisions and reconciliation to get those numbers to really paint a clear picture of what's happening on the consumer side. even in terms of business investment, we saw investment near 5%. that's just about a third of

what we saw in the prior quarter, and when we look on the monthly data, we see for you of the last five months trending negative, so, again, something has to be reconciled there as well as we move forward. but i think the takeaway is for the fed, we're still on steady ground, but this raises even more question marks, raises more uncertainty about the direction for the domestic economy as we move further into 2019 >> julian, just to pick up on lindsey's point about the fed. when we got the gdp number and the chicago pmi came much stronger than expected, treasury yields new england higher. two-year note kind of popped a little bit maybe we've lost a little bit of that at some point though if we see continued strength, will we have to have the conversation again about how out of the game the fedded is for this year? >> no. i don't think we're going to because you look at core pce came in at 1.7 this morning, a little better than expected, but you're still very far away from that 2% number and so from our point of view,

what the bond market is telling you now is that actually inflation is not dead but it is recognizing the fed is on hold and so it's -- it's natural. it's actually healthy, particularly given european yields as low as they are to see the ten-year yield tick up, and if you look, you know, the response in the stock market is that financials are having a reasonably decent day relative to the rest markets so far, and that's all positive. >> >> inflation at 1.7%, that's not actually that far from 2%. i think that's very much in line with the fed's assessment of inflation being near their longer term objective. you couple that with growth coming in stronger than expected, well above 2%. these are the very conditions that warranted a more aggressive rate path in 2018, and so there are going to be the members -- the mar hawkish members on the fed come that march meeting that will make the case for at least another 25 basis points, but as we move further into the year

and domestic weakness becomes more prevalent and that becomes the primary catalyst for keeping the fed on the sideline. the next rate move, if we don't see one in the near term, is likely to be to the downside meaning a possible rate cut. >> lindsey, do you think we could actually see a rate cut, especially when you just laid out a case that arguably suggests that the fed shouldn't be waiting, that they should continue to tighten, at least for now. >> all this data is backward looking. it's all looking in the rear view mirror, so for the more hawkish fed members they will make the case that we should see a move, particularly at the upcoming march meeting, by think more broad lit fed is going to maintain a more patient stance as they are looking to the future, and the expectations of weakness should not only keep the fed on hold but we could be talking about, as you mentioned, that rate cut sooner than later. >> julian, were you shaking your head no before why? >> the bottom line for us is the fed is on hold, well and truly our view is that, you know, the people that are expecting a rate

cut, that's not going to happen. clearly the data says that that's not going to happen but actually if you're the fed, you're in the sweet spot now less talk, more inaction, let the data speak for itself, and we can decide later in june, september, whatever which way things need to go. >> if that's the -- >> you can't remain in the sweet spot forever. >> yeah, lindsey, go ahead >> you can't remain in the sweet spot forever at some point. fed hasto make a decision on the directional momentum of the economy, and it can't continue to pander along apt this 2% pace so the fled have to say, look, in the near term future by the end of the year we're either going to have to continue to support the economy or the economy has maintained enough momentum that we need to take action to the upside so they will have to make a decision at some point >> i was just going to say, julian, if we use that as a premise that the fed for now looks like it's essential lip

sidelined, how much farther can that take the market you mention that had investors remain kind of defensively positionsed, but we've rebuilt valuations back towards a better level. >> no question about it. if you look amount where valuations are based often consensus earnings, they definitely look expensive. >> our view is that the combination of a stronger than expected u.s. economy after this first quarter soft patch and importantly china reflating, there's stimulus in the pipeline look, we don't know if we're going to get a deal or not seems like we're going to, but there's stimulus in the pipeline that's a second half story that. boosts growth globally europe and the u.s. and, you know, they can -- they can continue to just let it evolve that's how stocks get to 3000 in our view. >> all right thank you both for joining us for this debate. julian emanuel and lindsey

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>> key questions i have been getting on twitter based on our conversation earlier with larry kudlow as well is how much of this is simply deficit spending triggering economic growth that will not last, that so-called sugar high we hear about. >> last year was probably the peak for the help you were going to get from the tax package, at least in terms of immediate dollars you could identify that is the question, although it is to you his point, first quarter will get a pass for data it will be something for later in the year will have to decide what the longer term trend remains. when we come back, more on how markets are reacting to today's fourth quarter gdp number a check of the markets, dow down close to 50 points now, just about lows of the morning. be right back.

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china trade. you can see now down a little over .1% when we come back, we have more on this morning's gdp number, what it means for the u.s. economy as well "squawk alley" is up next. don't go away. ♪ tear up ticket. find the cat. [ meowing ] mittens! make it rain. [ cheering ] [ singing opera ]

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