used to say. ♪ sun is shining in the sky ♪ live from new york where business never sleeps. this is "squawk box. we are live from the nasdaq market site in times square. i'm becky quick. let's take a look at the u.s. equity futures this morning. dow indicated up by 144 points after closing down yesterday by just over 80 points. yesterday it was apple that was really dragging things down for the dow and the nasdaq the nasdaq is indicated up by about 70 points. the nasdaq yesterday closed down by about 1.5%. if you're looking at where the markets stand right now by the s&p up by about 18 points. the markets stand for the months are down from their record highs. dow's down about 4.7% from its record high and the s&p 500 is down by 3.9% from that record high nasdaq is off by about 5.8%.

let's take a look at what happened overnight in asia the nikkei was down slightly, down by a tenth of a percent hang sang was down by a half a present. the shanghai composite up by 1.3% take a look at what's happening in the european markets right now. you're going to see that the kak is up by about half a percentage point. the dakotx up by 1% stocks are also higher in italy and spain. take a look at the treasury market, treasury yields for the ten-year 2.419%. that yield paz picked has picke little bit. we've been waiting only 66:00 in the morning, been waiting for home depot since about 5:00 just reporting the home improvement retailer earned $2.27 a share for the first quarter. that beat consensus estimates of $2.18 a share. revenue was also slightly above

at 26.4 versus 26.378, and then global comp store sales were up 2.5% while u.s. comp sales were up 3%. the stock's been hovering around 190. it had been as high as 215, and there was some angst, not really sure what you would attribute that to, overall market angst perhaps. maybe we can get some more color from our guest joining us for instant reaction in home depot's earnings is brian nagel, analyst at oppenheimer & company before you get into these numbers how would you characterize the recent weakness what would you attribute it to in the shares? >> i think you said it well, i think it was market angst. home depot got caught up in concerns over trade and the global economic conditions we've seen for a while now with home depot and i know we've talked about on this show is worries that the u.s. housing

market is slowing. i don't think that's the case, and i think this recent slide in mortgage rates is really helping to fuel -- further restrengthen the housing market but lately that has been the situation. >> how are those comp store numbers? we did see that fiscal year, the company's looking at 1003, the estimate right now is 1010 i don't know -- >> they say they're reaffirming their guidance for it. when you beat by this much. >> then you're not going to beat by that much what did they beat by $0.09 or so, they beat $0.09, and now they're 10.03. do you look at u.s. sales more important. >> i think the -- what i would say here, there's going to be some confusion over this that comp number i was just digging through this, whether you're looking at the 25 or the -- >> the calendar. >> the calendar. that's probably 50 basis points. >> you have a team >> i do. >> that's pretty cool. how many people?

>> got two people. they're back at the office feeding me all these numbers. >> that's three total. >> that's correct. >> that's almost like a two or three-man volleyball i don't know if i'd call that a team. >> we're a team. >> we're a team. >> there's three of us here. >> we have a lot of the supporting players. >> we do. >> we have a strong bench. >> as do we. >> what was your taking in the calendar, what was your estimate for same store sales >> i had actually modeled a 3. >> for u.s.? >> that was for the total company. >> oh, for total that's what they had. >> and they do the 2.5 if you take that 50 basis point -- there's noise in this i'm talking about the calendar shift. the other real big factor here is weather. >> 3 for u.s. or for global? >> for total. >> total company >> that's a little bit below that. >> the weather worries you

because? like i don't see the mention in the release. what i do see, they remain excited about momentum that they're seek strategic investment as a result of the initiatives and the current macroeconomic and housing backdrop again, if you're beating by $0.09 now and the view for the full year is a little below what the street was expecting are they being cautious? are they giving themselves room for potential moves that you might see with tariffs that come in down the road or anything that bubbles up or what do you think of this? i look at that and say okay, that doesn't sound great or do you think this is just caution >> i think it's just caution the real key for me here, home depot issued its initial fiscal year -- full-year guidance, they're reafifrming that 5 comp. home depot is basically saying

there is no ise. there's a paragraph in here somewhere in the release that says we're pleased with the underlying performance of the core business despite unfavorable weather in february. >> and the stock's up now. >> they beat by $0.09. revenue came in basically in line what happened? do you know why they were able to beat by so much on earnings per share erven though revenue wasn't that much more than anticipated. >> the theme of what home depot has done they've controlled costs very, very well. this is happening despite we're talking about the labor pressures or maybe some effects of tariffs they've continued to control costs very well. you've seen a very good flow through from sales down to the bottom line. i think that was the case again. again, i want to make this point because the weather is really key. weather was not favorable in the april quarter of q1, but what we're seeing out there, there's a lot of data my team and i watch. as weather is turning more spring like, sales in this category are picking up.

i suspect with home depot that's going to imply a pretty strong second quarter >> all right, brian, i mean, it hasn't changed it's been up a dollar. i figure that's pretty thin trading, but adding to the dow's gains this morning at this point up 155 cents. >> this will be a positive change after the market digests these results they'll look at it favorably. >> they will excellent, thanks for being here. >> thanks for being here. >> lowes is tomorrow >> if i were lowes, i'd -- >> space it out. >> i would have done it yesterday. >> last year because of the calendar shift lowes was a week later, which i think benefitted lowes. it helped them minimize the comparison between the two >> speaking of the comparison between the two, what do you expect for lowes tomorrow? >> look, i like lowes here i think under new management they're doing a better job of running those stores i think we will start to see some narrowing in the comp gap, which again, this is more of a

technical comment. we're talking about this calendar shift, you know, it's probably 50 basis points for home depot optically that in and of itself will help lowes tomorrow. >> analysts if you look at ibe or whatever it is, they were looking for 4.2 for same store sales but it's because of the weather that it's missing a little 2.5 versus 4.2. >> in wall street and this is a flaw in our business, we're very slow to change estimates that 4.2, i think was quite stale actually. >> not taking into account the weather probably. >> that's correct. >> okay. >> okay. we've got some other big news to tell you about this morning. the u.s. now officially rolling back some restrictions on chinese telecom giant huawei that move giving suppliers and customers a 90 day break from tough trade penlalties the company's founder dismissed the importance of the temporary reprieve saying the company has already made preparations for

that u.s. ban. as a result of this reprieve, google said this morning that it plans to work with huawei over the next 90 days, that's reversing a decision it made on sunday we talked a lot about monday morning to cut ties. a spokesperson for google told cnbc it's in everybody's best interests to keep phones up to date and secure. we talked about all the phones in europe that would have been affected by this >> it's still may. >> it's still may but also to some degree the brand of google, even though this clearly would have been framed as a huawei issue, there would be millions and millions of people with these huawei phones thinking that somehow they can't get an update to their google device. and it's not so simple as simply a branding issue for huawei, so much as it also is what do you do about all these google customers. i know that was another issue

weighing on both sides. >> although google really doesn't have much choice >> they don't have a choice in this. >> follow the rules. >> i think they're happy to have 90 days to potentially get somewhere. we'll see. and we talked yesterday how much of this is part of the trade war. i think clearly it's a lot a part of the trade war. president trump spoke at a rally last night in pennsylvania it was his first appearance in the battleground state this year and he spent part of the rally bashing the democratic party as radical socialists the president also addressed the trade war. >> and anyone who doesn't want to pay the tariffs has a simple solution build your product in america. bring your factories back to pennsylvania where you want to be anyway. you never wanted to leave in the first place. stupid policy and taxes forced you out. >> the president also spoke about the keystone state acknowledging that it's krucruc to win that state for re-electionment

re-election. he mentioned joe biden getting into the race and really said this is a state he knows is a crucial win. >> can i just make a comment about the tariffs? i mean, it's just a complete -- it's just a lie. it's just a lie that he's trying to bring these jobs back to pennsylvania because they may think that's when he's trying to do, but as we've talked about so much on this program, wrr the jobs going these manufacturing jobs aren't leaving china for pennsylvania they're leaving china for vietnam, for all sorts of other countries. >> we're making progress in manufacturing more than we have in years >> the tax bill is probably a big part of changes -- >> and the cost of the tariffs are clear because the cost of the tariffs are being borne by the customers. >> it's not all of them. >> but a lot. >> you've also heard it's the last tool we have to deal with china. you've seen more and more people say yeah, i know you'll be a dead ender on this, a lot of people are saying that's the only tool we have and we need to address china.

reasonable people. >> don't tell the workers that don't have jobs that they're somehow getting jobs because of it. >> there aren't that many workers left that don't have jobs there are many jobs than workers at this point. >> sure. you don't acknowledge that very often. >> it's thrilling. i think it's wonderful for the country. if you're going to lie to the american public like that, as boldfaced in such a boldfaced way it's kind of remarkable. >> the one thing i thought was interesting, that goldman sachs report said consumers have been paying the tariffs to this point. he did some research with it, asked around a little bit from other people who said part of what's happened is the exchange rate fluctuated. actually, that took care of a big part of the early tariffs. i don't know whether that will last for the upcoming tariffs. >> 25 more than 10 >> if you're talking about all five -- >> maybe, i mean, everybody, seizes on the washing machines, that's all they've got he's talking about socialism, the lead story on drugs this

morning is this latest poll, four in ten americans want sociali socialism. >> i don't think anybody wants socialism. >> it's four in ten. >> i don't think that's a winning argument. >> what do you think socialism is, do you think it's where the state takes over means of production. >> they're talking about a much larger all for government in the markets and people are much more -- 40% what are millennials. four out of ten is not hard to get to probably. 51% still say no, but 40% are more comfortable with socialism. you work on that every day you probably single handedly have gotten it from 35 to 40 >> i am not in favor of socialism at all maybe our viewership isn't large enough to have a 5% boost, you and your colleagues. >> are you talking about socialized medicine? >> they break it down what they're talking about.

>> i know you can parse it if you want, in terms of if you just look at the continuum of more government or more private sector, there are -- there's definitely a shift -- >> that's a pendulum swing. >> i agree with you. four out of ten, it doesn't get to bernie's level, obviously. >> i have to tell you, i don't think that the capitalism, socialism argument despite how much we talk about it, despite how much it will be a feature of the presidential election will be what wins it. i think it's going to be an economic argument, and i don't think the democrats can run on the economy, so we can talk about this until we're blue in the face, but i am not sure -- i think it's an interesting and important conversation to be had, but i'm not sure that that's what ultimately is going to turn the election. >> if you believe the economy that it would not perform the same way under the different system, then that's liking the way it's going right now as sort of a put you in the free market camp, the capitalist camp, the lower tax, less regulation.

>> just to put a fine point on it, the free market camp is not so free market when you're living in a world full of tariffs and everything else that the president's doing, which you could argue is about the antithesis of a free market. we're in a very complicated place. >> they would argue you're not in a free market anyway. >> the tariffs are not permanent, they're a one-off to try to deal with china, which a lot of people say they should be are you in favor of the tariffs right now or against the tariffs right now? just give me an answer so you can stop complaining. >> i'm going to be in the middle >> should we have taken on china like blankfine and others. are you in favor of taking on china with tariffs yes or no because i'm not running, i don't have to answer we're going to go to break. >> you can play both sides and criticize it. a startup announcing a big -- you know what, as a journalist i'm supposed to be the ultimate fair-weather fan.

we're going -- a state of the art greenhouse in kentucky, the company's founder and ceo is going to join us after the break. here's a look at the biggest premarket winners and losers in the dow ♪ start washing all our worries down the drain, rain is a good thing ♪ thanks for the ride-along, captain! i've never been in one of these before, even though geico has been- ohhh. ooh ohh here we go, here we go. you got cut off there, what were you saying? oooo. oh no no. maybe that geico has been proudly serving the military for over 75 years? is that what you wanted to say? mhmmm. i have to say, you seemed a lot chattier on tv. geico. proudly serving the military for over 75 years. you ok back there, buddy?

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. welcome back to "squawk box. startup app harvest is looking to introduce a new more sustainable method of farming through the construction of a massive greenhouse in kentucky where it's going to be growing to produce and sell to top grocers across the nation. joining us right now is jonathan webb, founder and ceo of app harvest with a funding announcement you're raising a ton of money it sounds like from jeff ubin, the activist investor and also from steve case's fund. >> right, so andrew thank you all for having me. we've just secured 82 million all cash investment from equilibrium capital to be building our facilities, 60 acre under glass facility in

moorhead, kentucky, and then value x rain fund have also led our series a investment. >> this is the largest controlled environmental agricultural facility in the world. >> it rangs up therks up there. 60 acres under glass and some pack house area in the middle. >> and what are you going to be growing there? >> we're going to grow tomatoes and cucumbers, and really trying to bring regional production back to the eastern part of kentucky where we've seen, you know, frankly produce imports have tripled in the last 10 to 15 years south of our border where produce is being shipped five days on an 18-wheeler to the eastern part of the u.s., jeff bezos was actually in kentucky last week with our governor announcing their $1.5 billion prime hub we can get to 70% of the u.s. population in a one-day drive. this is kind of one step in the right direction for us on the

produce hub in the eastern part of our state. >> jonathan is this because consumers are now willing to pay more if they know it's somewhere close, if they know it's fresher? is it about that is that what tylenolfinally makt okay to be able to grow or profitable to believe able to grow >> i come from the wind and solar world, i've said that controlled environment agriculture right now is what wind and solar was 10 to 15 years ago. the price to build has come down to where you can compete with conventional, but then we're saving on the transportation, so instead of five days from california or the southwest to the u.s. or south of the border, we get the transportation onto a day drive. no, we don't want americans to pay more for fruits and vegetables we just want to get good healthy affordable fruits and vegetables on the table. >> it is much healthier if you're eating it quicker after it's picked. it's fresher food. >> absolutely.

so growing in a controlled environment, there's a lot of different benefits one, the nutrient density that you get versus you pick it in the same day it's on the shelf, the grocers get, you know, four extra days of shelf life so it's a much better product, but we're absolutely -- we're planning to compete with conventional we're not trying to raise prices for folks going to the grower. >> can you grow more efficiently under glass? >> absolutely. there's a lot of different players out there. some are growing in warehouses or containers. the glass greenhouse, we kind of looked at this just what's the best way to do this, and our wonderful planet gives us sunlight and water, and we didn't want to take those two elements out, which you would have to do in a warehouse typesetting, so we still capture that, but the sensors and lighting allow us to grow with maximum efficiency inside the

greenhouse, so i do -- we call it controlled environment agriculture because you're controlling the environment inside of the facility. >> we were just having a debate about jobs getting shipped overseas, getting shipped off other places, coming back to pennsylvania or other locations. i mean, is this a situation where jobs are going to be created in kentucky just because of new technology? >> it's not just kentucky. solar is one of the number one job creators in the u.s. during the peak of solar, and i had the benefit of working in that industry been talking to lawmakers in d.c., controlled environment agriculture in america needs to be a part of platforms in d.c. we need to talk about bringing food production home regionally, and absolutely the economic benefits of that, it's not just eastern kentucky it could be all across the country. we certainly the eastern part of our state is mobilizing and wants to lead the charge. >> quick labor question, you had

originally planned to construct this in pikeville. there's an opioid crisis there. >> right. >> was that the reason you decided to move? >> absolutely not. we were going to build on a reclaimed mine site, beautiful mountain top th, the challenge t we had to try to engineer around we've settled off. we're still in an appalachian county in eastern kentucky but we're excited to be in moorhead, kentucky. >> before you go public, you have to bring in the possibility of some really good bud underneath the glass, you know what i mean? just stick that in there as a possible future. what do you think? >> i think we're going to focus on fresh fruits and vej talls. >> up to you, i'm just saying before the ipo, stick that in there. even just in the name. >> or bitcoin. >> bit kocoinbitcoin. one in ten americans eat enough fruits and vegetables. if we get that number up to three in ten we can triple the market in the u.s. we're focused on getting fresh fruits and vegetables. >> does it improve the situation

with e. coli that you've seen in some places -- from places that you're importing some of this stuff? >> absolutely. food safety, we cannot build fast enough. paul masternardi has been a close partner of ours. app harvest cannot build fast enough to meet the demand. >> did he win that this year, produce person of the year >> it was i think two years ago. >> two years ago i was wondering. produce person of the year. >> actually, wendy's announced, there was a wall street journal article they're going to get all tomatoes from greenhouse production paul helped with that. he's been instrumental in driving this industry and been very helpful on the sales and distribution side for us jonathan webb, thank you, congratulations. it's very exciting come on back, tell us how it's going. when we come back, bad start to the week for tesla. that stock trading near two-year lows we're going to tell you about a new worst-case scenario call for a company on wall street

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we're watching shares of tesla today. this after the stock hit a two-year low during yesterday's session. just got another negative opinion from wall street morgan stanley this morning saying the automaker's stock would be worth just $10 per share under its now worst-case scenar scenario the previous worst case had the

stock falling to $97 analyst adam jonas pointing to tesla's growing debt and growing geopolitical exposure. yesterday's move coming after web bush security slashed its price target we're now below that on demand concerns for so long we talked about whether they'll make the supply work now we're on the demand issue. >> morgan stanley we should say, that's just their worst case price target their actual price target is $230 they've got an equal weight on it this is a long note. >> and generally been relatively bullish. >> that's a weird call if it -- i don't know how you can parse worst case, you know, if it was 97, and then you go to 10, why isn't the equity just worthless as you're headed down towards 10 with all the debt i mean, how do you go from 10 -- why wouldn't it be zero instead of 10? >> i don't know. >> once you get under 50 -- >> if it's going to be a debt

company instead of, you know, and that's the only people that get anything out of it, then i don't know why there would be any equity how do you parse it to know there's $10 worth of equity left in the worst-case scenario. stocks on the move, u.s. equity futures this morning are indicated up about 150 that's triple digits and then some you have the s&p indicating up 19, nasdaq up 71 we're talking market after the break. pack your patience, u.s. airlines are preparing to transport a record number of travelers this summer, but that might take a while as we head to break, here's a look at yesterday's s&p 500 winners and losers what do advisors look for in an etf? i tell clients, etfs can follow an index,

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"squawk box" live from the nasdaq market spot in times square. good morning to you, take a look at u.s. equity futures at this hour. we're going to show you what is going on a couple hours now ahead of the opening bell the dow would open higher, about 155 points nasdaq about 72 points higher and the s&p 500 up we'll call it 20 points for now. federal reserve chair jay powell spoke last night at an event in florida here's what he said about the u.s. economy >> despite cross currents, the economy is showing continued growth, strong job creation, and rising wages, all in a context of muted inflation pressures >> powell also said that the fed will continue to assess the impact of growing corporate debt, but seize tes the overalls as moderate. the ongoing trade war with china continues to weigh on stocks, but driven by fear and greed it's been a benefit to the bond market. that's according to our next guest, mark grant who is the

chief global market strategist at b riley fbr it's great to see you, explain what you mean? >> well, the chinese issue has caused every day for the last month, you know, the market's up because the china trade tensions have eased, the market's down because they've escalated. as a matter of fact, becky, i think the china issue is the second most important issue. i think the far bigger issue right now, which nobody's talking about, are the elections in europe because i see germany and france being outed by the populist nationalists of a number of countries, and i think the european union is going to be something very different in a week or so from now than it is today, and it's going to be a radical change in europe >> mark, you've been talking about your concerns with europe for a while. it hasn't bubbled up to the forefront. why do you think this will be

the changing mark? this is new leadership in both those countries that's going to radically change what we consider or what we've thought of as the e.u. >> no, it's the radical change in the populists, the nationalinationa nationalists coming out of the hungary, poland, italy and so forth. even britain's telegraph newspaper overnight suggested that the populists, the nationalists were going to win control of the european union parliament it's not just me, and i think that's going to be a radical change where germany and france become vastly minimized in terms of their influence in europe, so i think it's a huge issue, and you're right, nobody's talking about it because the european union, of course, doesn't put out anything about it because they don't want to admit what's going on. >> what happens as a result from the market's perspective and what do you think investors should be doing ahead of that? >> i've said for several months now in my commentary out of the box, the big institutions that

they should be pulling money out of europe as quickly as possible some of them, of course, have european mandates and there's nothing they can do, but i think having money in europe right now is hugely risky. the elections start on the 23rd right here, and they end on the 26th, and if the nationalists either gain a significant minority or the majority in the european parliament, it's going to be a very different construct than it's been for the last 20 years. >> what's most at risk if that happens? i just mean from a policy perspective and things that will really have an impact on the markets. this morning you're looking across the european marketsment they're all continuing to trade higher in the equity markets. >> that's correct. the big issues are going to be the banking system, the ecb and then countries in europe such as italy getting the laws changed in terms of raising their debt they're already at 132% to gdp. >> you mean allowing them to go ahead and raise it even further?

>> even further, which makes the construct even more shaky, if you will >> the front page of the journal, mark, i mean, negative rates designed to jolt europe become a crutch, just central banks just can't quit you, just can't quit the policy. it's luke tike the -- they're i and now they can't get out of it is that still a fear, do you think? talking about a big still potential credit event that would not be pretty for any of the global markets we're still in that risky area in your view >> yes, i think so, and especially in europe and in japan. look, there's $10.4 trillion worth of negative debt currently. that's something that any of us ten years ago, if i would have said, joe, on your show there's going to be negative yielding

debt, you would have thought i'd lost my mind or had an extra grand marnier or something, and here we are. that's exactly what we've got. we've got the ecb with assets almost about 42% of the entire gdp of europe. the bank of japan has assets that are equal to the entire gdp of japan the escape valve there is going to be the currency, and if things ever start going awash, you can just see huge problems with both the euro and with the japanese currency and, you know, you've got to think this through. >> for years now, you've been able to -- just seems like you've been able to see things that not everyone -- that not everyone is able to see. you know, sorkin, this is something that you might want to -- you know how you like to have people on >> yep. >> these supposedly -- and these could not have been in the movie

casino because it was founded in 1995, but these -- some of these are made out of titanium some are made out of gold. >> what are the ears made out of >> this is -- listen to this, this is called the 006, isn't it market the flight 006 is a tribute to the bravery of fighter pilots. it became an inspiration in the post-war years, but the title of this article is what is the obsession with dida. thauf been leaders of style now for years. >> you and your props. >> brad pitt, lady gaga, jamie foxx, mark grant, joe kernen now, so what do you think so i can try these? i want to see what they look like on you. >> i don't think these are my look >> of course he did. >> yes >> joe, i've known you more than 20 years

i've never seen you look so good >> yeah? >> you look fabulous. >> you know what, the lenses seem special >> i think ours are a little darker. >> do they change color, mark? >> andrew you're looking good. >> thank you, sir. thank you, mark. i'm feeling good feeling good >> they make you feel a little better. >> when you look good, you feel good there's a lot going on with those. that's all i'm going to say. >> anyway, thank you, mark, and thank you. >> you're welcome. we're not allowed to accept something. >> so that will make the -- >> coming up, you are able to see the future. >> thank you, mark. >> you're welcome. >> then we should wear them all the time. >> those are not rose tinted glasses by the way. >> i saw the future and i have bad news for you next year. threading the needle between the u.s. and china, we're going to tell you how one of the world's largest car makers is

trying to stay in both country's good graces later. art laffer is joining us on the debate about socialism and taxes d e paanthimct on business stay tuned you're watching "squawk box" on cnbc hurry into sam's club for serta's memorial day mattress hot buy for just $498 get a serta pillowtop queen mattress and free boxspring that's premium serta comfort without the premium price for a limited time only at your local sam's club

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toyota's investment strategy and how global politics played a role according to the minutes of internal meetings, toyota announced fresh investment in the united states before it announced two new deals in china as part of a strategy to avoid angering president trump the company's president was quoted as saying we need to strike a fine balance between china and the united states. it's imperative to avoid making enemies. obviously both those markets very important for toyota. separately, toyota's president said today that he is disappointed by president trump's recent comment that imported vehicles were a threat to u.s. national security. the toyota president said japanese automakers were dismayed to hear that message that suggests their long-time continue wuributions are not we. when we return, is now the time to buy goldman our next guest says its shift into the retail space could mean good things ahead for the stock. right now as we head to a break, a quick check of what's happening in the european markets this morning, biggest

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does goldman sachs' move into retail mean the stock should be your radar as a possible buy joining us to discuss that and more, michelle mckinnon, senior wealth adviser at payne capital management that's the first thing we'll talk about we've got a couple others, but this is an interesting one so it smooths out some of the things that goldman is famous

for that they've done so well with in the past, but that can be feast or famine at times. you think it's a good move, even though it's lower margin and lower growth. >> yes, absolutely i think they recognize that their trading revenue is probably going to be down for a long time and probably permanently. so their move into the retail space i think is trying to copycat jpmorgan, which jpmorgan has about 20% of their revenue from the consumer bank, so that's a positive. also, i think they're trying to attract the millennial market. and with their product at 2.25% interest rate, that's a very, very high rate compared to my jpmorgan money market rate i took this morning at 0.01%. >> yeah, that's huge. >> that's huge and i think a positive is since goldman is so new to the space, they don't have the old infrastructure, right? they don't have all the big brick-and-mortar stores, and they don't have such high costs. so i think they can do this way more efficiently and cost effectively. >> so with millennials, there's no stigma left

there's no giant squid on the face of society that -- >> a little bit, but at 2.25%, that's 224 basis points higher -- >> millennials -- >> money talks, yeah. >> wait, they'll swallow their -- >> i think so. >> they won't be woke? they'll be woke to the interest rate -- >> i mean, i am. >> woke to the woke. >> i've recommended so many clients to their product already. >> 2.25% see, that's where -- >> what minimum do you have to have for that? >> i think it's less than 10,000 >> wow. >> yes. >> it's more than you can get, but it still doesn't excite me, compared to -- >> yeah, but the thing is, a lot of millennials hold a lot of cash so if you're holding $500 to $250,000 -- >> what they hold in cash is not a lot -- >> actually, it is millennials i meet have $200 to $500 to $1 million in cash. >> because they are also products of the great recession. >> exactly. >> they don't trust the market so much and they're keeping it in cash instead. >> they're your wall street friends and your new york friends. >> new york friends, but a lot

are in technology. >> a lot are in technology that makes sense, too. okay, maybe we'll come back to goldman and talk because it's not even selling at some of the same valuations as some -- >> as wells fargo. it's selling at a cheaper discount than wells fargo. i mean, come on. >> all right energy transfer? >> energy transfer love mlps in general really excited about the space coming off a harsh sell-off in 2015 they cleaned up their balance sheets they deleveraged also, any energy transfer has an 8% dividend, so even if i'm wrong about the growth story, right, an 8% dividend is massive compared to -- >> why an 8% dividend? >> the cash flow they have a lot of cash flow >> but there's also a risk to it, no >> not really. so, they are distributing about $800 million of distributable cash flow. they have about $1.6 billion. >> that's a crazy high dividend. >> yes yes. >> can it last forever >> i mean, i think so.

again, they're only distributing about half of the cash flow -- >> that's the problem with mlps, you just don't know, right >> i would say that if it wasn't from -- if it wasn't thinking about how far they've come since 2015, right? 2015 was a wake-up call. mlp sold off dramatically. they were all highly leveraged they deleveraged they've cleaned up and i think they're a lot healthier. and so, if, in fact, we do get a lower price on oil, i don't think they're going to be affected as much. >> finally, ten cent >> yes, so, china trade here so, i think you're assuming that you're going to get a deal on trade, which i'm pretty positive about. love tencent because of a couple things number one, their cloud business is growing, so their business service sector was up i think 44% year over year last quarter. gaming industry. i think the gaming industry is a massive opportunity. one of their new games theyjus released had $17 million of revenue in just 72 hours

so, massive opportunity. and lastly, wechat wechat has a billion users they're growing internationally, and they're finally increasing their revenue per user and on a billion users, that's pretty attractive. >> so, this is our other friend ryan's firm? is that ryan's firm? >> yes, that is ryan's firm, my friend. >> how many people in the shop now? >> about 20. >> 20 in the shop. >> mm-hmm. we have about $800 million under management. >> i don't want to be ageist, but who's the oldest person? >> bob payne, who is probably watching right now he's a partner and he's a little over 65 -- >> he's the father of ryan. >> yes. >> okay. not him. everybody else i mean -- >> ryan. >> it's millennial heaven, isn't it >> it's millennial heaven, yeah. >> it's millennial heaven at payne. all right, andrew, you ought to look into that, man. you know what i mean >> pretty fun firm, andrew good snacks. >> check it out. >> okay, opportunity. >> like-minded people. thank you, michelle. you don't like socialism, do you?

>> socialism no. >> okay. talk to andrew. coming up when we return, a lot more on "squawk box. two big hours. our guest host for the rest of the show is dynamics fund portfolio manager noah blackstein, never one to hold his tongue and we are watching shares of tesla after morgan stanley dropping its now, what it's calling its worst-case scenario price target, ready for this to just $10 a share. >> however, we should say they still have a $230 headline price target that they're looking for. that's just the worst-case scenario. >> we'll talk a lot more about it stay tuned to "squawk. i'm working to keep the fire going for another 150 years. ♪ to inspire confidence through style.

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warning, fed chair jay powell is worried about rising business debt, but should he be? famed economist art laffer will join us to weigh in. healthy returns. top health care investors and ceos are gathering in new york today for a special cnbc event we'll bring you a front-row seat with former fda commissioner dr. scott gottlieb. plus, taking flight -- >> roger >> request vector, over.

>> we have clearance, clearance. >> roger, roger. what's our vector, vector? >> new numbers on just how many people will travel by sky this summer as the second hour of "squawk box" begins right now. ♪ it was 1989, my thoughts were short, my hair was long ♪ ♪ caught somewhere between a bo and man ♪ >> announcer: live from the beating heart of business, new york, this is "squawk box. ♪ it was summertime in northern michigan ♪ good morning welcome back to "squawk box" right here on cnbc this morning. i'm andrew ross sorkin along with joe kernen and becky quick. our guest host is noah blackstein of dynamic funds. we have a lot to talk to him about and will do that in a moment. quickly looking at u.s. equity futures this hour we are now looking at a screen of green the dow about 167 points up, nasdaq looking to open higher as well call it 75 points right now higher and the s&p 500 up about 20 points let's tell you some of the

headlines that may be moving those numbers around this morning. the u.s. has temporarily eased restrictions that had been imposed last week on china's huawei they are still prohibited from buying american parts and components to make new products but will be allowed to buy what it needs to maintain existing networks and provide software updates to existing handsets that's important and of course, google revisiting that decision then just 24 hours ago that it was going to no longer provide its services to huawei on a temporary basis. separately, snap has completed an overhaul of its executive ranks, naming derek anderson chief financial officer and laura sweet as chief people officer. those were some slots, the last two slots that had been vacant on snap's executive team anderson was a financial executive at amazon before joining snap and sweet had been chief accounting officer at aol and was serving -- >> can't help it -- >> cfo what's going on? >> no, i just said snap.

>> oh, snap. and then separately -- >> snap! >> general motors is scaling down its car-sharing business known as maven the service will be shut down in eight of the 17 north american cities in which it operates, including chicago and boston gm says it is focusing maven on markets where it has the strongest demand and growth potential. >> he's so focused on just reading the teleprompter i mean, it just -- but you jumped right out of your chair. >> it did come out of nowhere! snap >> noah's laughing. >> i don't know what happened to you. >> me neither. a la la la la. >> teleprompter -- >> snap! >> i didn't understand we had the news to get to. >> i know. all right, speaking of the news, among this morning's other top stocks to watch, we are keeping an eye on shares of dow component home depot first-quarter profit came in at $227 a share, beating what the street expected by 9 cents revenue was essentially in line with the forecast. they talked about their same-store sales i think it was up 2.5% up

globally, up 3% in the u.s that was below what some analysts had been anticipating, but overall the company says it's looking at positive momentum both from the initiatives they've put in and what's happening with the housing market and as a result, they're up 75 cents, a gain of 0.4%. keytruda failed to meet the primary goal in a clinical trial. the study tested it as a stand-alone treatment for patients with an aggressive form of breast cancer separately, merck announced the acre zilts of pell tone therapeutics in a deal to boost its line of cancer drugs that's also a shift in strategy for pelatone therapeutics. merck shares are down. and laegg mason has reached a deal with nelson peltz peltz and tryon's coo will be

added to the board legg shares up 1%. we had home depot, now kohl's kohl's reporting quarterly profits of 61 cents a share. that looks like it's about 7 cents below expectations, which immediately is reflected in the trading, even though revenue was above consensus. same-store sales, though, fell a worse-than-expected 3.4%, and you're looking at a 10% loss in the shares of kohl's right now, and nobody wants to turn on the tv -- >> they're also cutting their full-year guidance they say they see $5.15 a share to $5.45 the street had been looking for $6.04. this is a big turnaround, because kohl's, i believe, they had just announced this partnership with amazon, where you could return things to amazon and i think their same-store sales were up really significantly in the stores where they had rolled that out something like 8% gains in comp-store sales in the stores where they had actually rolled that out they announced a plan to take that national, to go across the country. i thought it was really smart

when i heard it and ink a lot of people on the street did, too. you see the pop in the shares about a month ago. my guess is that's when that happened, just from what i remember but i remember thinking at the time what a smart strategy that was. they were getting rewarded for that but obviously, the number's not going to be what they had been anticipating kohl's ceo says that the year has started off slower than we'd like with first-quarter sales coming in below expectations ci still waiting to see the rest of what they had to say on that. jcpenney lost 46 cents per share, 8 cents more than analysts had anticipated revenue was in line. but as with kohl's, same-store sales slid more than expected. now to the broader markets and the biggest themes driving the action right now, and dom chu joins us you're doing themes, dom are these the biggest themes don't give us any medium-size themes. >> no, no, i only go big, right? i go big or i go home. so the biggest themes happening in the market right now from a sector or broad-based

perspective have a little bit to do with what you guys were just chatting about with regard to kohl's and jcpenney. at least in the s&p 500, jcpenney not a part of that, but kohl's is -- if you look at the best-performing year-to-date sectors, the reason why it's important is because technology, industrials, and consumer discretionary on a year-to-date basis represent the best performing they are the leadership in the stock market so far. the s&p is up about 13%. and you can see each one of these outperforming. discretionary a huge part of this week's theme because of all the companies reporting. if you take a look at some of the laggards so far on a year-to-date basis, the reason why that's important is because these cyclical economically sensitive sectors are being countered on the down side, at least on a year-to-date basis, by the sectors that are less economically sensitive, the ones that are a little bit more defensive in nature -- health care, utilities, consumer staples. remember, health care was the best-performing s&p 500 sector last year. so, these are the laggards they're still up but not doing quite as well as the broader

markets are. but take a look at this, because over the course of the past month-to-date, we're only in may. we talk about sell in may and go away every sector, by the way, in the s&p 500, is negative so far this month in the month of may, but take a look at these -- materials and technology, the two worst performing sectors on a month-to-date basis and utilities down 0.1%, the best performer on a relative basis. so as we talk about the big themes, andrew, discretionary has been a leadership role -- or had a leadership position. but it looks like with kohl's today, we could be surrendering a good portion of that and given the ripple effects we'll see later in the day because of kohl's as well, guys back to you. >> dom, i'm glad you went big instead of going home. we like seeing you. >> should i just go home right now or keep going big? >> no, stay! >> i'll see you in the 8:00 hour. >> just hang tight. >> what if they come to you and say we want some medium-sized themes, could you do that? >> i will do it because i get paid if one of my producers tells me i want some mediocre or

medium-sized themes, then i will do it because -- >> what? >> sometimes -- >> sellout. >> -- a small theme is a totally unnoticed theme and you're getting in before anyone else -- >> correct, because we want to highlight them when they're small or medium-sized and then become big things. >> they become big things. >> let's get you -- thank you, dom. we'll be back to you in the 8:00 hour. in the meantime, want to get to our guest host, blackstein's vice president and senior portfolio management you're up 10% since april, is that right >> that's right. >> wow. >> you should be happy and proud about that you should stay it a little louder you're sort of -- is this a humblebrag what are we talking about? >> not a humblebrag either you run money for long enough, you know what's coming around the corner. >> is this a dog year's return or is this honest? 29%? >> i made it up for national television, joe. >> so, no, help us with this. >> it's awesome. that's good.

>> you have been -- you have long talked about the stock story being one that you've always worried about the fed, that the fed -- >> correct. >> -- was sort of the central component to this. >> right. >> where does china fit into this because you think the fed piece, or at least the fed worry, at least temporarily, is behind us. >> look, literally, 20-plus, '94, '98, 2000, it's rare that it's not been a fed-caused market break by raising rates too much that october speech of we're going well above neutral, now we're pricing in cuts just little over six months later is insane the fed's off the table, though, and that was my biggest concern. so -- >> now off to china. >> but you wanted to see how the earnings came through for u.s. companies in the first quarter, and they weren't that bad, actually earnings came through fairly well the damage was limited now it comes down to china and you know, i don't see the impact -- i don't see the impact as being enormous in terms of the u.s. economy. >> right. >> the question is how far does this escalate?

and you know, it doesn't have an enormous impact, but rhetoricwise, it has an impact even if you look at the tape today, you can see people who are purchasing put options or purchasing protection, it's all near-term, dailies or weeklies ahead of june -- >> but you think there's the trade issue, but it almost seems like you're separately worried about the chinese economy on its own. >> well, i think that in 2000 -- i think a lot of last year, even with the stimulus, there was a lot of regulatory changes that i saw last year that i really -- i mean, i've been investing in china for a long period of time. restriction on video games, after-school education, issues on drug pricing -- there's a whole host of regulatory issues in the consumer lending market that i think had a much more significant impact on their economy than the whole trade issue. in fact, so, from my perspective, you know, the regulatory environment in china changed last year and that i think had a bigger impact on the stocks than the trade war had. the trade war for the most part as of now is sentiment. >> where are you putting your money given this thesis?

>> you know, i think that the u.s. remains probably the best house out there. i think the technology is becoming ubiquitous. i think even if the economy slows down, we're not going to go back to blockbuster we're not going back to eight-track tape players we're not going to go to our travel agency. so a lot of secular trends in terms of how we use the internet, whether it's for the consumer, whether it's for purchasing items, or whether it's for moving towards cloud or cloud-based applications, those trends are intact and will continue obviously, a recession can slow that down. i don't foresee a recession any time soon. >> you like the faangs we're looking at them right now. >> the only one i think has a lot of operating leverage. i think amazon and netflix have a tremendous amount of operating leverage you know, for me, i'm looking for usually the next facebook and i liked it for a long time, but you know. >> what is the next facebook >> it's not uber >> lyft. >> but joe recommends lyft.

>> no, i'm asking you. if it's not uber, what is it. >> i think this next shift, i think, as we look at -- you look at a product like amazon's outpost, for example, where they'll come into your enterprise, they'll run everything for you, right, so that there will be a seamlessness between the cloud and onpremise technology i think that moves the addressable market for cloud services to almost 100% of what's on premise in enterprises. that's still the biggest majority of i.t. budget. i think that enterprise-based technology companies who are moving towards a seamless transition and this new architecture, i think the runway's pretty long. >> noah's going to be here to continue this conversation in just a little bit. thank you, sir. when we come back, a new report finds that the s.e.c. does not collect nearly half of its fines. we have the details on that next. and then later, former fda commissioner scott gottlieb joins us from cnbc's healthy ay teds coverage stun you are watching "squawk box" on cnbc do any of you know captain snowball?

and here we go. [ "good to be alive" by andy grammer ] it's snowtime baby. [ screaming ] oh, snowball. uh, is he ok? not in any way no. take that ok. you were just beaten by a rabbit. you don't even know it. [ ding ] oh, my pizza rolls. all right, welcome back to "squawk box. we've had triple-digit gains in the dow this morning, up about 150 -- up 160 at one point -- up 140 right now. we've got the nasdaq indicated sharply higher, up 63. tech making a bit of a rebound

it'd be tough to get back everything that tech lost yesterday. s&p indicated up about 18. making headlines -- the s.e.c. only collected 55% of the $20 billion in fines that it levied in the years 2013-2018. that's down 60% during the prior five years the agency has long struggled to get defendants to pay fines because, in part, it doesn't have the right to seize property or assets. the "wall street journal" reports the s.e.c. has written off more than $10 billion in fines since 2009. okay, and a federal judge has now ruled against president trump in a battle over financial records. the judge says the president can't block a subpoena from a house committee. democratic congressional investigators want the president -- they want president trump's accounting firm to hand over financial statements and other records related to mr. trump. his real estate company, his foundation, and other entities. in media news, sunday's "game of thrones" finale set a

ratings record for hbo neilsen says that 19.3 million viewers saw the episode live millions more will beadded to that final tally once delayed viewing is factored in as well when we come back, former fda commissioner dr. scott gottlieb will join us to talk about drug prices and the income gap. first, though, as we head to break, let's take a look at oil prices this morning. wti up 50 cents to $63.60 a barrel stay tuned wahi "ua b" sqwkoxon cnbc c! but not when to use it. do i use aflac when the kids get slime in the plumbing? no. that's home owner's insurance. slime in my motorcycle. no. that's motorcycle insurance. slime everywhere? ughhh nooo, there's no insurance for that. do they help when i have bills health insurance doesn't cover? yeah! that's it! aflac! gross guys. get help with expenses health insurance doesn't cover. get to know us at aflac.com

cnbc's healthy returns summit is back today for its second year. the summit's going to be discussing what's shaping the future of health care innovation one of the featured executives is with us this morning. former fda commissioner dr. scott gottlieb in an op ed on cnbc.com, he writes about the new world of pricing troubles headed our way with cures to certain illnesses. he says science offers the chance to cure debilitating and once intractable disorders, but we need to make sure that the ability to access these therapies or the risk that someone could be locked out of them doesn't widen gaps between the rich and poor.

dr. gottlieb joins us now from the conference this morning. scott, it's great to see you thank you for joining us. >> thanks for having me. thanks. >> let's talk about the new cures that are out there there are some really exciting things that are happening in science right now. what are some of the most promising? >> yeah, i think we're at the cusp of being able to cure a lot of inherited diseases and pediatric diseases you look at things like hemophilia or sickle cell disease, even rare pediatric disorders like muscular dystrophy, sma we're really at the cusp of being able to cure these things with things like gene therapy and gene editing but what we need to do -- the challenge is that a lot of these diseases actually perpetuate poverty because they lead to disability that actually forces people into programs like medicaid and medicare disability because people aren't able to work, sometimes families aren't able to work because they're caring for a child and the risk is that the insurance pools, like medicaid, are going to be hard pressed to pay for these things so the very diseases that cause poverty in many cases, when we develop cures for them, we need to make sure they're accessible

to people in those problems so we don't exacerbate gaps between the rich and poor based on their ability to access cures for these debilitating diseases. >> what's the solution i mean, i know you're somebody who has looked at a lot of solutions, but is the answer to allow medicare to negotiate, or do you think there's something else that would do the trick >> well, i think the challenge is really with medicaid. you know, people's destiny shouldn't be determined by what insurance pool they're born into and right now if a child with an inherited pediatric disorder is born into a medicaid program, there's a chance that program might not be able to pay for rolling out these kinds of therapies in year one. so, if you have a cure that you know is safe and effective, you want to be able to try to distribute that as quickly as possible because with a lot of these diseases, disabilities are cured with time and you get irreversible damage, so you want to try to cure as many people up front as possible. think of a potential cure for example for sickle cell disease. if you could come up with

something safe and effective and largely non toxic, but the payments can't absorb that one-time charge. i think the solution is to work out arrangements where you effectively lease the access of the therapy to the state medicaid programs and you have a pay-over-time mechanism, where rather than pay all up front in year one as you roll it out, the state medicaid program is able to pay to get access to the treatment and able to amortize that payment over a number of years. and in a kind of leasing arrangement, they can even have an option on subsequent technology, because a lot of these companies that are developing these cures, they also have follow-on innovations, so you might be able to structure an arrangement where you get access to a treatment and if a better treatment comes along, you can also get access to that at some preferable, favorable rates. >> what's the industry's reaction to that plan, scott >> well, i think the industry's open to these kinds of things. there is obstacles, and a lot of them actually are federal obstacles because there is requirements on medicaid best price reporting and other kinds of conditions that the federal government sets on how sales to

state medicaid programs have to take place that sometimes inhibits companies from entering into these services type of agreements and obligate them to selling things on a per-drug basis. and i think we need to move away from the per-drug, the unit-of-sale-type transaction and move toward a service arrangement with the states where companies can make these things accessible to states. by and large, most of the companies aren't making their money on the medicaid programs they make money in the medicaid program -- i don't want to say they're not making money by selling it to the medicaid program, but it's not the most lucrative market and i think for the companies, at least, the biggest risk is that there is differential access in the marketplace, that people in employer pools, privately insured pools, get access to these cures. people who are less well off in medicaid insurance pools don't get access i don't think society's going to tolerate that kind of differential access. so, this is really, i think, a challenge that the companies need to solve when they come to market with these treatments to make sure everyone gets equitable access and the people who are poor

precisely because they have a disability that can now be cured shouldn't be locked out of the treatment that could cure that disability >> dr. gottlieb, it's noah blackstein i think whether you're looking at inhibitors or crisper technology, it's the companies that have been incredibly innovative in driving these forward, but as somebody who looks at health care companies and biotech and drug companies, the list price and the net price to the companies are two very, very different prices. and i know a lot of more generics, you know, tougher on the pharmaceutical companies and the biotechnology companies, but is that really where the problem in the system is, or is there too much margin going to the middle man in the system and why isn't that being addressed? >> i think there's a lot of problems i think, you know, in part, we don't have enough discounting in the market place because we don't have competition for some drugs, you know. there's not generic competition. we expect generic competition to happen then where there is competition in the marketplace, discounting comes in the form of rebates that create this artificial spread between the list and the net price because the rebates

are paid by the drug company back to the insurance company but not back to the consumer, this out-of-pocket for the cost of the medicine. >> correct. >> so the patient goes and pays the full list price and then their health insurer gets a rebate on that and they use that rebate to subsidize everyone else's premiums, rather than give it back to the patient who's out of pocket for the cost of that drug that's exactly backward. you're basically using money that the sick person is spending to subsidize the premiums for the healthy people, so we need to move away from that rebating system that rebating system is driven by a lot of things, in part, again, federal rules force companies, force drug companies to perpetuate discounts in the form of rebates. there is now action to try to do away with that or try to make it more difficult and move towards more of an up-front discounting model. there's also mandatory discounting in the marketplace, and so the companies have an incentive to come to the market with the highest list price possible because theyknow they're going to have to discount the programs like the dod or the state medicaid programs and so, there's a lot of price controls right now in the marketplace that create these

artificial pricing mechanisms and these artificially high list prices. >> scott, these are federal guidelines how do you change them i know we've spoken with the head of hhs, health and human services, talking about plans to do things like make them advertise, give a list price in the advertisement, to maybe embarrass them into changing some of these ways but what needs to happen to the federal guidelines can that happen through the administration, or is there congressional action that's necessary? >> yeah, you know, these different little rules that distort the market have grown up in successive pieces of legislation. it's hard to just start over i think one way to reconceive this is to come up with what you think is the optimal arrangement between -- for example, we're talking about medicaid -- between a drug company and a state. and say, look, if a drug company enters into this arrangement with a state where, for example, they're leasing access to a therapy over time, not at unit pricing, but at one contracted rate, if it meets these requirements, that we consider

to be public health goals, they're offensibviated for some these other programs and it distorts prices market place we can define what we think is the optimal arrangement and then say if you meet these conditions, you effectively have a safe harbor from the other rules that we know are impediments to entering into these contracts. i think we need to move more towards a services model for the delivery of what really is a public health solution to a population when it comes to curative therapies, especially when it comes to austere insurance pools like medicaid that are on fixed buckets and that have a hard time absorbing the one-time cost of curing a population. >> scott, thank you so much. we really appreciate your time it's always good to see you. and looking forward to the conference today, too. >> thanks a lot. coming up, taking flight new numbers this morning on just how many people are going to travel by sky this summer. first, as we head to break, look at u.s. equity futures, which are holding on to some pretty solid premarket gains. up 134 on the dow.

stay tuned to "squawk box. you never know what life is going to throw at you.

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doing ♪ still to come this morning on "squawk," the worst-case scenario why a prominent wall street analyst now warning that tesla shares could drop to $10 a share. that's only in the worst-case scenario, but we're going to explain in just a little bit. also, this morning's other big stock mover, including retail names capitol and jcpenney both under pressure after quarterly results fell short and later, fed chair jay powell is warning about rising business debt we'll talk to famed economist art laffer and ask if he's worried. stay tuned for all tt d haan more you're watching "squawk" on cnbc let's build a better world for investing. let's always put investors' needs above our own. as investment management professionals, let's measure up. cfa institute. what do advisors look for don't just track an index, help me meet a client's need. is the fund built to sell or built to last? etfs are only part of a portfolio.

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what we deliver by delivering. welcome back to "squawk box. the futures right now on the dow indicated up 132 points. the s&p up 16.82 nasdaq indicated up 55 and change. and u.s. airlines are set to fly a record number of passengers this summer, this according to a new survey from airlines for america u.s. carriers should be prepared for 257.4 million fliers between june 1st and august 31st that would be a 3.4% bump from last summer and the tenth year

straight that air traffic has increased. some major airlines are scrambling to accommodate passengers with the continued grounding of the boeing 737 max jets american airlines has canceled about 115 flights per day. southwest has canceled 160 flights per day until the planes can return to service. >> and you thought it was crowded in the airports last summer. >> oh, man. >> just wait. >> yep. meantime, tesla shares under pressure this morning following an analyst report from morgan stanley. phil lebeau joins us with the details on that. and tesla shares down another 3.33% this morning, phil. >> one reason why, becky, is because adam jonas, the analyst at morgan stanley who put out this note this morning, he's widely followed and considered by most people to be the most rational of analysts who are out there. he's optimistic about certain aspects of tesla, but he's also calling a spade a spade in terms of when the company has missed the mark and as you look at shares of tesla, going back over the last three years -- you can see we're now trading at 2017-2016 levels.

he says the worst-case scenario, in case things really get bad in terms of china demand, et cetera, this stock could be worth just $10 in his note, adam jonas writes "we believe as tesla's share price declines, the likelihood of the company potentially seeking alternatives from strategic-industrial-financial partners rises." he goes on to talk about a number of other situations that are impacting the company, including whether or not they've oversaturated the market when it comes to electric vehicles so, the challenges for tesla -- really, there's a lack of a catalyst over the next couple months we're in an area where we're waiting to see whether or not the sales increase or meet expectations cash burn. we've talked about this for some time they're going to be burning through cash at least well into the second half of this year and then there are questions about demand for the model 3 take a look at the deliveries of the model 3. remember, there was the big surge in order to meet the demand and to meet their targets in the fourth quarter.

came back substantially in the first quarter. now the question is whether or not we see at least a plateau and then, perhaps, a rise in deliveries of the model 3 through the remainder of this year and guys, one last chart i want to show you here remember when ferrari went public, people said, well, that's not bad, i'm sure it will do okay. it probably won't do as well as tesla's done over the last couple years boy, if you put your money into ferrari back when the ipo happened and you also put it in tesla, you would be happy that you were having shares of race in your portfolio. >> yes, you would. >> guys, tesla is going to be under pressure today. >> phil, thank you for that. meantime, an analyst who covers tesla, craig irwin from roth capital partners craig has a mutual rating on the stock. >> good morning. >> good morning to you what do you make of this sort of downside, worst-case scenario that one of your peers, if you will, has now offered up at $10 a share? >> so, the reason we weren't more bearish when we rolled

coverage back out several months back is the bid from apple around 2013, there was a serious bid from apple at around $240 a share. this is something we did multiple checks on i have complete confidence that this is accurate. >> that apple bid for tesla? >> apple bid for tesla i don't know if it got to a formal paperwork stage, but i knowfrom multiple different sources that this was very credible so, right now, apple is building multiple, very large dry rooms in california. what does that mean? they're doing something interesting and exciting on the battery side project titan is absolutely not dead if apple had interest then, they would probably have interest now at the right price, and i suspect there are other technology companies that would also step in -- >> like a crazy hail mary sort of -- well, even if it's worth not much, there's a buyer out there potentially? >> so, you know, if you look at a company that's selling 300,000 units and that's set the pace in the market, realistically, that's a fair price. these guys are years out ahead

of the competition on things like silicon carbide they were the first major contract for silicon carbide in the market, buying chips that pulled the silicon carbide market forward now today everybody knows that the converter in the model 3, the model s and the model x has silicon carbide mosfets in it. we learned in nuremberg two weeks ago that every single ev coming to market is going to have silicon carbide mosfets in it going forward tesla has set the pace on new technology adoption and really pushed the pedal on an industry that is very stodgy. >> you're talking about stripping it down and taking the intellectual property or are you talking about getting elon musk and getting his creative genius and taking it going forward? if everybody already has this technology that you're talking about, you want the next generation >> so, tesla is very much a technology company that looks like a car company, right? the culture is that of a technology company, moves much

faster, much less risk averse, maybe, than some of their competitors, but they do a decent job in mitigating that. so, that's the value the value is a company that moves fast -- >> so, what's your bottom line then in terms of a floor on this stock? >> you know, our target right now is $238. i think, you know, it's unlikely in the short term to go dramatically lower you know, is it going to pierce significantly below $200 i don't know it's difficult to call that. one of the things that's always difficult is the headline news and we've had nothing -- >> is it going to pierce $200? it's already pierced $200. >> but is it going to go to $170 or $150 or $120. i'm not making that call. >> what do you think the natural demand for model 3, and just the entire lineup is right now, because clearly, we went through the -- he called it -- elon musk called it the s-curve, just how difficult it was to manage the supply issue, but now we don't have a supply issue anymore.

now we have too many cars. >> that's absolutely right my entire thesis on tesla has been that they were misrepresenting their battery cost, that the cost was $240 per kilowatt hour. volkswagen, coming with 22 models in china, paying $22 per kilowatt hour at the cell level. i think it's 700 units addressable a year, but they're not the only one that's going to address this there are multiple other oems -- >> 700 in total for the market >> for the category that the model is chasing. >> andrew's question, which is a question i have as well, is what happened to demand it was the inability to meet demand, you know they just had so many orders now all of a sudden, you know, the tax credits went away, but now demand is like falling away. so what's happening to demand? >> the demand was theriotical based on the $30,000 price and we saw multiple adjustments to the price. now they're claiming to have a $30,000 car, but you've got to get it in black and you've got to pay for seats, and you know,

if you want dditional. it's really like a $45,000 car at the $30,000 price point, i think there is a lot more demand >> okay, so, worst-case scenario implies worst-case scenario. i mean, let's say there's ten things that can go wrong and you're 10 for 10 i mean, the whole financial structure of the company, everything goes away it's as bad as it gets is $10, like -- does that make sense to you, that it stops at $10 or does it go to zero? >> $10 is ridiculous either it's zero or it's something any higher than $10. >> if the worse, if everything happened and there's no equity left, as a bond holder you're hoping you get something at that point, right >> exactly so, if this ends up that distressed that it's at the $10 level, it's going under. >> do you know anything about the way margin calls might work for elon musk himself and how that relates to -- no, no, and how that relates to his own economics? it's an important question because he's borrowed somewhere between $800 million and more

from the company he obviously has a huge stake in spacex, which we believe is a profitable company and has true value, which he can pledge as collateral, i imagine. but sort of how that whole thing works? >> so, the big hedge funds are asking that question right now a lot of people think that started to kick in below $230. so maybe there's some adjustments that are made -- >> is that why you see pressure on the stock every day >> it's possible it's entirely possible but i think we would have to be notified if there was significant selling on the part of mr. musk. maybe there is some other structured mechanism being used as far as swaps or something like that with another position. >> all right is there a tipping point or something that you see out in the future that would be a positive sign for this company meaning, is there something that you're waiting for that would push the stock back? >> so, culturally, tesla's a very different company than the automotive guys they compete with, right? so, the automotive guys are about making money so, selling is very important, but the profitability and the

margins and the dollar margin is very, very important tesla is about growth and going after a massive new market if we see a ghost slow from the traditional automotive guys continue to be the status quo, that would end up being positive for tesla. >> okay. craig, we're going to leave the conversation there i'm sure there are a lot of investors that wish the company was taken private at $420 at this point and we appreciate your time this morning. >> thank you. when we come back, fed chairman jay powell is worried about rising business debt we're going to talk about the risks to the economy with art laffer stay tuned you are watching "squawk box" right here on cnbc dow futures indicated up by about 120 points s&p futures b15upy the nasdaq up by 50. ♪

you guys be good i'll see you later. [ barking ] it's snowtime baby. woo hoo! i'm doing super hero stuff. [ screaming ]

snowball i'm back. be the first to discover the secrets. at the fandango early access showing may 25th. business debt growth has moderated somewhat since early 2018, but this might be just a pause, another sharp increase in debt unless supported by strong fundamentals could increase vulnerabilities appreciately businesses, investors, and lenders need to focus on these vulnerabilities, as will the federal reserve. >> fed chairman jay powell speaking last night. joining us now, art laffer, founder and chairman of laffer associates he was a member of president reagan's economic policy board and was an economic adviser to president donald trump as well he is co-author of "trumpp no, ma'am -- "trumponomics" with

stephen moore. do you believe the dot charts that show the probability of a fed cut chart is higher than people think do you think that's in the cards next year? >> i do think it is in the cards. it should be in the cards, joe, because the fed has always followed interest rates, not led them and if the long bond were at 3.20 or 3.10%, that's be understandable, but now it's gone down substantially and i think the chance of a lowering is quite high. >> it's tethered to -- for good or bad -- it's tethered to some european rates, though, isn't it don't you think it would be higher if you didn't have negative yields in some parts of europe >> i think if that were the trade case, but what it follows is the 30-day t-wilbill and thee been following that and the t-bill has been coming down and

they should match it to mat rates. it's set by borrowers and lenders, not the fed they should set the discount rate so markets are cleared nicely and that means they should probably lower it this year. >> doesn't sound like a rip-roaring economy and with the unemployment rate where it is and all of these other metrics that we see -- it doesn't seem like an environment where you'd be easing or the idea that -- >> it -- >> go ahead. >> you're a young man, joe, and you don't remember back to the accord, but right after world war ii, we had a rip-roaring economy. everything was in place and interest rates were near zero. you can have a strong economy with very low interest rates, and i think that's basically where we're coming from. i mean, there is no inflation. gdp growth is great, employment growth is great, the stock market looks pretty good, housing prices are okay. i mean, with low interest rates, people borrow more than they do at high interest rates, and you know, i think the market looks

great and i don't see any pressure on inflation and i don't see any reason why interest rates would go up. >> it's not as related to growth as it is to inflation? >> yes, well, inflation is the monetary phenomena the faster gdp growth is, the lower inflation will be. simply, if you have a bumper crop in apples, the price of apples goes down, not up when we had the boom in reagan's era, inflation came way down when we're having the boom right now, inflation is coming down as well, which is exactly what i would expect to happen i know the other people on the philips curve side thinks it's the reverse, but they've been shown wrong almost all the time. >> you still talk to the president. what do you tell him about tariffs, art >> i'm a free trader all way, totally. i believe that the administration's policies on tariffs are really to get negotiations started and going i believe the president and this administration really wants free trade, total free trade, and the only way they can get them to the table is to threaten tariffs or put tariffs on. i'm not a master of strategies for negotiations i'm really not

i'm sort of a coward i curl up in the fetal position, start crying and going in my bed, but -- >> are you a person who's willing to take a stand and say you approve of the tariffs, then, or are you going to be wishy washy and sort of just, you know -- >> i'm going to tell you i am not a good strategist. i want tariffs to go to zero on every country everywhere at all times. >> so you're against the tariffs on china you're against the tariffs on china right now? >> long-term tariffs on china i'm against. as a short-term policy strategy, i'm not an expert on how to do that, joe, very honestly, and they've been doing a lot of things that aren't -- >> -- as well as a lot of other people i know. >> well, you know, ask me -- >> well, just say yes! say, yes, i'm for it near term to try and get something out of china. i approve -- >> that's right. okay, thank you. >> okay. >> i will allow that quote to be attributed to me 100%. >> thank you thank you. >> thank you. >> thank you just get -- >> we got over that. well, i want to make sure you understand, the only reason i want to do this is to get to

total free trade. >> wrong answer. try again! >> art, it's noah blackstein first of all, i want to congratulate you we did the tax cuts and revenues went up, proving the validity of the laffer curve, so once again, congratulations. >> thank you, thank you, thank you. >> but with you don't have a general theory of inflation. we don't know what causes inflation, right >> that's true. >> so the fed targets wages or growth so, how do you think we can get a laffer curve for inflation or figure out what the causes for inflation are, because now sometimes it's growth, sometimes it's wages there's no general theory of inflation. how would you fix what the fed's been doing >> well, let me just tell you, i wrote a piece in the "wall street journal" about 2009 or so, saying inflation was coming back with all the expansion of the monetary base and quantitative easing. i thought inflation was coming i was totally wrong. not only was i wrong on the numbers, but i was wrong on the model i used so, when you look at inflation, inflation is not a simple thing to understand. i think if you target prices, interest rates, i think you'll do a really good job on keeping

inflation low and stable for long periods of time but goodness knows this is an area of economics that really defies precise calculations. it really does and i've been wrong as much as anyone >> art, that's interesting what was the mistake in how you did it last time around? how would you advise people? like, what are the things you do look at, if we're trying to pick up on sense of inflation popping up what do you think are the best places to kind of watch? >> well, the thing you don't look at, the thing you don't look at is quantitative easing when you increase the monetary base dramatically, like bernanke and yellin did, you know, i would have thought that would have led to inflation. that doesn't correlate with inflation at all i think inflation basically stays low as long as we can target interest rates on monetary policy and keep those capital markets operating where lenders and borrowers can be matched and the world operates beautifully. you know, once we get out of that and once you start devaluing your currency, once you start doing that type of stuff, you're going to get inflation back, i believe.

>> so, art, you're talking about what happened after world war ii so, you admit you're a dinosaur. let's face the fact. so, you know -- >> i love being a dinosaur it's wonderful >> okay. let's just quickly say, and for people that want to talk about it, there's one is where total capitalism is. a ten is where venezuela or cuba is where should we be are we at a three now and we should go to a six according to some i mean, could we get a little socialism to help some people where the government controls -- what should -- is that okay? because that's what we're getting. or should we just, any amount is too slippery a slope to go down with socialism >> well, i think we're at a five probably right now >> headed to an eight? >> we've done a great job over the last 70 -- no, i don't think so i mean, over the last 70 years, we've dropped the highest tax rate on income from 92.5% to 37%. we've dropped the corporate rate from 90% to 21%. we've gotten, you know, right-to-work is now spreading everywhere if you look at -- >> but you think we're at a

five >> i think we're moving in a very good direction long term. and if these silly fuzzy wuzzies want to try socialism again, they'll learn the lesson again. >> yeah, but you know, if it takes 20 years to learn a lesson, that's not good for us, art. >> what can i tell you i wish i could make it faster, joe. >> we've got a lot of evil forces against us. anyway, thank you. coming up, big hour on "squawk. chip stocks have been getting slammed, caught in the u.s./china trade war what investors need to kw.no we'll tell you when "squawk box" returns right after this

a big morning for the retail sector dow component home depot beating top and bottom-line estimates. kohl's posting an earnings miss. and we are due to get earnings from the parent of t.j. maxx this hour. how far could tesla fall one of the biggest wall street banks says the worst-case scenario, shares of the electric carmaker could drop to just $10. and reveal the number hiding in plain sight that shows how profitable china could be for u.s. companies, despite all of the obstacles thrown in their way. the final hour of "squawk box" begins right now

>> announcer: live from the most powerful city in the world, new york, this is "squawk box. good morning, and welcome back to "squawk box" here on cnbc we are live from the nasdaq market site, right that's here? yes. i'm joe kernenalong with becky quick and andrew ross sorkin and our guest host this morning, from the great north, noah blackstein, senior portfolio manager at dynamic funds you're down. what about the raptors huh? >> well, kawhi is the new prime minister of the country, if you didn't know. but listen, it's all kawhi they've got to get some shots off the bench. gasol's got to hit something if they all click -- >> it's been fun to watch. i've got to admit. >> it's been unbelievable. >> and you've been enjoying it, too. >> loving it. >> drake's been enjoying it, i understand. >> who >> drake is a huge raptors fan you know that, right

>> i do. >> okay. you don't yank my chain. the futures right now are indicated up 140 what would you do if you didn't yank our chain 147 now. >> joe "yank my chain" kernen. >> the s&p up 18 i do yank a lot, don't i >> oh, boy. >> that sounds weird >> oh, boy. >> i yank chains a lot, you know, liesman? >> this segment brought to you by this squawkward moment -- >> announcer: this squawkward moment has been brought to you by joe kernen. >> noah blackstein no treasury yields are -- >> i thought it was like yanking the chain on a toilet. >> it is >> it's yanking a chain on a toilet. >> that's already a meme on 10,000 tweets. >> yanking a chain on a toilet. >> oh. >> anyway, treasury yields are around 2 -- >> 2.4% something. just above that. there it is, 2.433%. let's get to other stories investors will be talking about today. a big slate of retail earnings hitting the tape this morning. dow component home depot beating quarterly estimates on both the top and bottom lines global comp-store sales were up

by 2.5% for the quarter. the u.s. comp-store sales were up by 3% the company is giving guidance that's a little bit below where the street is expecting, although the company does say, home depot says that this is guidance that it is just reaffirming. it's also talking about a 5% comp that they're expecting. still, home depot shares have turned down. they're now down by close to $1, a decline of about 0.5%. $190 is the last trade. kohl's missed on profit expectations for its latest quarter. revenue came in above forecast, but comp-store sales were down by 3.4% compared to estimates of just a 0.2% drop kohl's also cut its full-year forecast and you can see kohl's shares have been under pressure this morning, down by about 9%. there was a lot of hope kind of built into this idea that they were getting behind a way to really bring up their same-store sales. they have an amazon returns program in some of their stores that they announced recently they'd be rolling out across the country. still, they said that traffic for the first quarter was below their expectations and sales for the quarter below expectations

same-store sales at jcpenneys were down 5.5 for its latest quarter, worst than analysts expected and that's down 10%, a decline of 12 cents. >> $1.03. >> $1.03 for the last tick >> it almost is jcpenney. shares of tesla are down by $7, a decline of more than 3%, to $198.50, so below $200 a share. morgan stanley cut its worst-case scenario for the automaker's shares to $10 from $97, citing tesla's rising debt levels and geopolitical exposure however, the firm's price target for the stock remains at $230 with an equal-rate rating. the u.s. temporarily eased restrictions imposed on huawei the telecom equipmentmaker is still prohibited from buying american parts and components to make new products but will be allowed to buy what it needs to maintain existing networks and provide software updates to existing handsets.

andrew. okay, a few stocks on the move to tell you about this morning. shares of dowdupont are higher the company says when its split-up is completed -- that's going to happen next month -- the unit that will be known as simply dupont will announce a $2 billion repurchase program dow inc. was spun out, of course, of dow kpont earlier this year. and merck's blockbuster drug kee pru keytruda failed to meet the goal in a trial it was for stand-alone patients with an aggressive form of breast cancer. separately, merck announced the acquisition of pelaton therapeutics for just over $1 billion in a deal that will boost its line of cancer drugs that's also a shift in strategy for -- is it pelaton >> peloton therapeutics. >> which has been planning an ipo. and you're seeing that stock up marginally. president trump often talks about the large u.s./china trade deficit, saying it shows china is stealing from america, but cnbc's steve liesman's taking a

look at a massive number that the president and almost no one else ever mentions, but it may be at least as important as the trade deficit. steve, what's the number >> well, buried deep inside the mass of government data is a huge number that tells a very different story about u.s./china trade than the one told by the trade deficit and that may help explain why markets aren't quite so sensitive about the issue it's called u.s. foreign affiliate sales, and it tallies the total sales of u.s. companies inside china, not part of the trade data. it's so big that two years ago, the latest data now available, it was almost double what u.s. companies export to china, but it's not part of the trade numbers because this is stuff in services u.s. companies make and provide over there but if it were, it would almost completely wipe out the trade deficit, which is $370 billion and two years ago, it was $343 billion. joe quinlan from bank of america says this number could be $380 billion. now, dan ikenson from the

american enterprises says of these sales -- "when we talk about u.s./china trade, it's a missing number lots of u.s. companies set up shop in china to be closer to customers and markets. these are the sales of companies like starbucks, general motors, and mcdonald's, who make stuff or sell it over there, and the $343 billion of u.s. companies' sales dwarfs the $35 billion chinese companies sell in the u.s. so, some of these companies could be in china because of government requirements, but trade experts say that's a small part in fact, u.s. companies do the same thing all over the world. they set up shop, rather than export total u.s. exports, $2.5 trillion total sales of u.s. affiliates, $5.7 trillion. it's the way that we do business abroad companies doing business in china are not affected by tariffs or retaliation, but the number also shows why markets care so much about these tariffs and the possibility china could retaliate against companies in china. u.s. companies earn $26 billion in china in 2016 that's a very small part of all u.s. earnings or foreign

earnings, but profits of the u.s. companies in china grew at an average rate of 11% from 2013 to 2016, and the rest of the world, ex-china profits actually fell >> you answered almost all of my questions in your report -- >> there's got to be another one, becky don't let me down. >> there is. you just say this is part of the reason we do business. how much of it is because of our tax code >> so, that's a great question, and i didn't include that. it may be that we get a little more balance, in other words, a little more in the way of exports versus production abroad because of the decline in u.s. taxes. that could be something that brings, that onshores some production abroad -- >> how will that change under the new tax code >> we don't know yet because the data's so old. first of all, this is good data because companies are required to report this to the u.s. government these are not estimates. these are actual company reports. so this is a number that we're pretty sure is right and we'll see over time if the

decline in the u.s. tax rate helps bring some of that stuff -- >> that would be my assumption, that we were motivating people to do this because i've talked to companies. i remember doug from caterpillar talked about the reason they would do things like that is because you don't have currency fluctuations or other issues, don't have the time that it takes to send things and export it overseas. >> i actually have been following this number for like 30 years and the reason is because, when i was in moscow, i watched the way american business, for lack of a better term, colonizes new markets. a couple entrepreneurs come in, and then some bigger companies follow when the bigger companies follows, the accountants set up shop and the lawyers set up shop and all of a sudden, there's this u.s. business infrastructure over there. and we tend to go there because we think it makes better business sense to make it over there, rather than make it over here we'll see. interestingly enough, by the way, the tariffs and the retaliatory tariffs, they hurt the companies in this country that are exporting over there,

and they advantage the ones that are over there another irony here -- and this may be what the president intends -- it may not be -- if they solve the ip theft problem, you may open the door for more companies to open up in china and do business over there that number may be smaller because of the ip theft problem. but look, let's be clear, what's the prize? the big prize is the chinese market and we're doing a fine job so far in getting that business, and it probably can and should be bigger, and that's where the prize is for profits. >> steve, thank you. >> pleasure. >> it's interesting. for more on trump trade and the agenda, let's welcome miriam sapiro she served as deputy and acting u.s. trade representative. she's managing director and vice chairman of svc public affairs at a consulting firm ambassador, thank you for being here great to have you. >> it's great to be back. >> let's talk a little bit about the situation with china trade we've had people from both sides of the aisle, democrats and

republicans, who have said they agree that the president should be taking a tougher stance right now. do you agree with that >> well, i think we do need to take a tough stand in order to get a deal, but what's critical right now is that we're at an impasse. both sides have dug in and at the moment, business leaders are truly worried that it's not clear whether and how this is going to end so, we do need to be tough, but we also have to be savvy in how we go about trying to reach a deal and making sure that at the end of the day, u.s. companies will be better off and not hurt by the tariffs and the retaliation that we're seeing now. >> how do we do that that's a pretty tall order >> well, there's a glimmer of hope in that the g-20 meeting is taking place next month, towards the end of next month in japan both leaders will be there so, if cooler heads prevail and both sides can start talking again, then there's a chance that we might be able to see some progress before that g-20 meeting.

>> i wonder if you could talk about this number of u.s. sales in china in context of the overall u.s./china trade relationship how do we think about that is that a good part of the relationship is it a bad part how do you put it into context >> well, it's a good part because it does help the bottom line of u.s. companies but the challenge -- and this was just said -- is that the number could be so much bigger if u.s. companies weren't facing restrictions in china. so, whether it's forced transfers of technology, whether it's theft of intellectual property, whether it's a whole range of restrictions that are still limiting the ability of u.s. companies to operate, and frankly, that have caused a lot of u.s. companies to pull out, those are the kinds of changes that the u.s. government wants to see china make. but we also have to be creative in how we get there. if it's a my way or the highway kind of approach, then that's not likely going to lead to a deal, and we'll just have a continued standoff, which would not be good for either side. >> that's my understanding,

though, is that that is the big sticking point right now so, how do you do it if you're -- i mean, from what i understand, those big sticking points were seriously a problem -- the idea of whether china's going to legislate those changes or say, yeah, we'll do it down the road do you trust them to just say we'll do it down the road at some point >> trust and verify, like we say in arms control. so, there's different ways when you're negotiating to get to the objectives that you want sometimes it's linear, and sometimes you have to zigzag a bit. and you can take certain deliverables up front and then you can have a clear process for things you want achieved on a timetable. so, i think if the u.s. shows a bit more flexibility and creativity and can get the chinese to come back to the table, which i think will happen because the chinese realize that a trade war is not in their interests either, then i think both sides might be able to rekindle that hope that we all had a few weeks ago that there really would be a deal, a deal in sight and it doesn't mean that all changes are going to happen right away, but there does have

to be a clear path towards the kinds of changes we want to see. >> some of the initial reporting that was done on that was that the chinese wanted to set a timetable of 2025, which would be after president trump is out of office, even if he wins a second term. do you think that's a coincidence? >> well, 2025 is also the chinese -- >> chinese 2025, brand-new 2025, right. >> so, they put other significance on that number as well there were a number of sticking issues but again, you know, as in any negotiation, if both sides really want to get to yes, it can take a while, but chances are, you will be able to get there and stick to the core objectives, but also realize that the other side has constraints and you try to figure out where your objectives align and where they don't, is there another way to try and get there. that's key and that's true with any negotiation, whether it's with china or another country, whether it's on trade or another subject. >> sapiro, thank you

for your time. and steve, happy birthday ♪ happy birthday to you >> i was hoping to get away without being recognized. >> so such chance. happy birthday. >> thank you very much. >> glad to spend the morning with you -- >> are we supposed to be -- ♪ how old are you now >> there should be a grateful dead version. >> there isn't >> thought that be up your alley. >> thought you'd sing it to me. coming up, stocks took a direct hit from the china/u.s. trade tensions and huawei, but are they bouncing back we'll talk with an analyst about thbe a wstas scenarios next hey dad! hello, betee! kaisi hain aap (how are you)? i'm good, how are you? good! so good to see you. it's late, where are you? i'm at work. oh gosh, so late. i know, but guess what? what? i've saved enough to come visit you. well, that's such great news!

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welcome back to "squawk box" right here chip stocks on the rebound this morning after steep declines yesterday. semiconductors are among the companies most directly affected by the china trade war joining us right now to talk about it is raj vijandra can i just call you raj? >> raji. >> i'm going with raji gill. managing director of semiconductor i-equity research at needham good morning to you. help us. we've been in we call it a tech wreck, a chip wreck.

what would you do? is this a buying opportunity >> yeah, i think it's a buying opportunity. this 90-day reprieve, essentially, with huawei is essentially going to allow -- huawei is going to aggressively build inventory over that 90-day period, and so, that's going to basically translate to more orders for semiconductor components whether that's memory, whether that's rf, whether that's processors -- >> huawei's going to buy a ton of it to stock up? >> yes and so, a lot of the demand in q-3 and q-4 is going to get pulled into q-2 and partial q-3, so you're going to see up side to estimates for q-2 and q-3 so, this is going to be a little bit of a relief rally. you're going to see in the chip stocks we actually think the huawei issue is more of a negotiating ploy, a negotiating tactic to an ultimate trade resolution in china. we think it's more of a temporary ban. we think it's similar to what happened with zte, where there was a ban in zte that lasted about three months. >> right. >> zte was affected materially,

but ultimately, it got resolved. >> do you believe huawei's ceo when he says, a, he's got an operating system, that he can build enough chips to replace the -- >> no. >> -- u.s. chips -- >> no, no. >> -- 12 months out from now >> no, don't believe that at all. approximately, they spend about $70 billion purr curing components about $11 billion to $12 billion is related to u.s. so the huawei u.s. supply chain is big, it's deep. it ranges from the handsets, it ranges from the infrastructure, and huawei's the number one handset vendor in china. it's 60% of the entire network in china and they're largely dependent on u.s. components, whether it's optical components, semiconductor components they have an internal chip for their phone. it's an application processor. but for a lot of the crucial components like memory or rf, they have to rely on the u.s so, any shutdown in huawei, that would be the worst-case scenario, would be massively

disruptive. >> there's some evidence that there was -- if you look at infire, a bunch of other companies, that huawei has been building inventory as if they were anticipating what just happened. >> they were >> is that true? >> oh, for sure. they were building probably for about six months' worth of inventory in anticipation. >> right. >> so, we had companies in our coverage universe on the foundry side even before huawei, this issue was announced that basically said they were building in anticipation of that >> so, you know, they've argued that they can't replace fpgas or other chips, but this morning we hear maybe they can, with japanese components, ship bay stations again like, can they survive without american technology or can't they -- >> they can't survive. >> they can't. >> yeah, it's very difficult, particularly, again, on the infrastructure so, they are the heart of the network at china mobile, about 60% of it. if you look at the components related to a 5g bay station, you're going to need power management, you're going to need rf, you're going to need processors, you're going to need the fbg&a. most of that is developed in the u.s. there's entrenched supply

chains, entrenched technologies that have existed for 5g on the handset side, they have their own application processor, but the memory, the other components, it's still in the u.s. >> can you speak to this in the larger sort of 5g battle that everyone talks about >> mm-hmm. >> is there a u.s. company that you believe is within any kind of shooting distance of what huawei is doing in terms of the back end meaning right now it's huawei and ericsson for 5g. >> right. >> is there a u.s. company that you think -- if huawei gets slowed down, which is sort of part of what's happening here, or at least may be part of what the government may be trying to do to them -- giving u.s. companies some kind of time to get their act together who is getting their act together >> so, you have to make a separation the bay station vendors, which are huawei, ericsson, nokia, alcatel-lucent, they're mostly

overseas the mobile operators, verizon, at&t and sprint, they're behind china and south korea with the rollout of 5g for a whole host of reasons there's technological issues -- >> spectrum is a big one. >> spectrum is a big one the last mile is also a big issue as well. so, if there's a slowdown with the rollout of china and 5g, it might allow the u.s. mobile operators to catch up. but 5g is going to be a massive upgrade in terms of the network, is going to allow machine to machine communications you're going to see a lot more iot devices. it's going to allow enhanced mobile broadband it's a significant leap from 4g to 5g. it's very, very important technology so, this huawei issue has to get resolved, because 5g infrastructure buildouts are happening, and they're going to continue to happen. >> go ahead. >> so, let me ask you, the question becomes, this is -- 5g is much more of an industrial application. i mean, wi-fi is garbage

but if you put 5g outside of a precision industrial factory in germany and you have robots talking to each other, i mean, 5g solves a tremendous amount of problems in automating the factory floor. if you're a high-end german industrial company, do you want your network to be huawei? from an industrial point of view do you not worry about perhaps industrial espionage do you want to go with ericsson? isn't this a big win for ericsson >> yeah, sure. >> even if this settles, do you think huawei will be a core part of european networks >> probably not, but they don't have to go to europe they're 60% of china mobile, china unicom, china telecom. and you're talking about a billion people they're going to cover. >> right. >> so they don't necessarily have to be exposed to europe >> do you believe that huawei's not going to be exposed to europe you don't believe huawei's basically running europe right now? >> no, i think the idea of this espionage i think is -- i'm skeptical of that type of claim. i think that ericsson is going to benefit as a result of this

conflict but ultimately, the rollout to 5g, whether it's in europe or in china and in the u.s. is going to benefit all of the bay station vendors, including huawei, including ericsson so i don't necessarily see, you know -- >> raj, your last name is gill you know, for people on the radio. i mean, your kids aren't even going to know you were on. >> raji gill. >> you actually have a last name it's gill. >> i do. >> okay, excellent i just want to get that in there so people will actually know you're on. thanks. when we return, how the u.s./china trade brawl is impacting a tech darling apple falling more than 3% to start the week on trade fears that hit the tech sector hard. we're going to speak to an apple shareholder about how to play the latest market volatility and whether there is more pain ahead. u e tcngsqwk yoarwahi "ua box" right here on cnbc

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coming up, finding some solid stocks in this year's volatile market. the trade war taking a toll on indexes that were only recently starting to see new highs, but our next guest says shares of some companies are dirt cheap. bank of america's savita subramanian tells us where she ghno nt.ng value in the markets rit w,ex stay tuned to "squawk box.

boeing shares are rising today. there's some speculation swirling around about boeing at least raising the possibility that the scenario may not be the

only answer and birds may have been involved in the crash of the ethiopian jet. >> so, here's what they're saying this is what the "wall street journal" is saying they're saying a high-ranking boeing executive first raised, then dismissed the possibility of a bird collision, triggering a series of events that could cause a second accident. u.s. aviation authorities increasingly believe that a version of that scenario described by boeing executive mike sinit, at a november meeting with american airlines pilots may have caused the ethiopian airlines crash nearly four months later, this according to officials familiar with the details the crash happened after a sensor sent faulty data possibly due to a bird strike, leading to automated commands that repeatedly pushed the nose of the plane down -- >> look, the bird strike -- what they're describing in this article would be the bird strike damaging the sensors that then led to the same problem of the nose pulling down and the pilots pulling up so you still get back to the problem being that there weren't two sensors, there wasn't a light indicating that there was a different reading coming from

the two sensors and helping the pilots determine what was really happening. even if it was a bird strike that caused the sensor to be damaged, i think you're still back at the same position of this being a situation where there were other controls that could have prevented a problem like this, if that is actually what happened. obviously, all of these investigations take months and months and months to come through. >> there were two bird strikes because -- >> this is suggesting only in the ethiopian situation. they're saying the pilots should have known at that point because the malaysian air situation had already occurred so a lot of complicating factors, but you do see the stock is up by about $5.40, a gain of about 1.5% >> okay, we're going to get you caught up on other big stories that investors are going to be talking about this morning big one, auto parts retailer autozone seeing shares rise in premarket trading. they earned $15.99 per share for its latest quarter that beat consensus estimate of $15.14 revenue also beating forecasts and comparable-store sales rose

3.9%. another retailer with upbeat numbers this morning is tjx, parent of t.j. maxx and marsh l marshall's reporting shares up 52 cents per share, better than estimates they rose 5% and tjx also raising its full-year guidance forecast as well and snap is still preparing to go public with one change to its ipo plans. the company is changing its ticker symbol to work, w-o-r-k it had previously applied to list its shares under the symbol sk kind of thing work is cooler all right, after setting some record highs just a few weeks ago, major indices are down roughly 4% to 6%. now, what about from here? could it spell opportunity for savvy investors or is it signaling something else joining us now with her latest ideas, savita subramanian, head of quantitative strategy at bank of america global research and

cnbc's senior markets commentator mike santoli also joins us so, i mean, just overall, do you think we're in the middle of something that's got more work to do or time to -- >> i think. >> because i know you think some things, but let's start with savita. >> i think the market tops out at 2,900 we're not that bullish on equities from here but i do think there's a lot of really interesting internal opportunities at a sector level. so, what i find totally fascinating is that utilities is trading at the highest multiple we've ever seen relative to financials when both sectors pay a reasonable dividend, both sectors are regulated, both sectors have lower earnings risk than the market. i mean, i feel like the market has just given up on cyclicals at this point and is playing the, you know, recession playbook, where you buy anything with high yield and low beta and i don't necessarily see things as that bad in the next 12 to 24 months. >> okay, so you're giving us a bottoms-up analysis here, but i

still want to go -- you don't sound like you want to talk tops-down -- >> i can talk tops-down. let's talk -- >> what do you mean 2,900 tops out? tops out when, in the next month, the next ten months, the next five years? >> this is our year-end forecast. >> 2,900. >> yeah. over the next 12 months, maybe the market hits new highs, but 2,900 i think is roughly fair value. and that's basically predicated on the idea that, you know, earnings are starting to slow down, we've got tax reform and share buybacks that juiced up a lot of earnings growth over the last few years, and both of those levers are arguably maxed out. and then you've got an environment where, you know, valuations across the board look relatively reasonable, although within certain pockets there are cheap stocks and expensive stocks. >> do you think 2,900 is an upward top of the range? i know you're a bottoms-up guy, too. >> i'm a stock guy, so i don't -- >> would you be surprised to see 3,300 by the end of the year >> i have no sense that the u.s. economy has slowed down or topped out in terms of what i've

heard from corporate earnings and other things. >> sentimentwise, do you think it makes sense for a pause >> sentiment can change on a dime. >> i think sentiment's moderated in the last couple weeks. >> it's negative now >> so, i think it's pretty subdued at this point. even when we were at the highs in early may, it seemed like, okay, the pain trade was no longer higher, and that had been the mantra for the first four months of the year, but i don't think that meant that the market was so overstretched to the up side what seems to me is it looks like a relatively, so far, normal pullback after a big run -- >> we're only 3% off the highs -- >> to this point, though, what is keeping us here >> right. >> what has been keeping us here and it's the huge growth stocks, all these defensive sectors, and then why is that working well, it's because treasury yields are very compressed and why are treasury yields very compressed it's because they're baking in some kind of a fed ease down the road. >> right. >> so, if you kind of follow that logic chain, it says the market is set up for low and slow, we don't really want the cyclicals, we don't want to bet on the economy reaccelerating.

so, i wonder if that story changes, if that upends a little bit of how the market is arranged. >> although that plays back into what you said earlier today, noah, just the idea that when the fed kind of took its game off the table in december, that changed the entire scenario for you. >> yeah, and i think with them out of the way, we can start to move higher. i think, you know, sentiment headlines are being driven by china and a few other things, but there's no evidence the economy is dramatically slowing down. >> no evidence the economy is slowing down even if you look at the companies with significant china exposure, in first-quarter earnings, they've actually been guiding up on expectations they've been crushing it in terms of the numbers so, this is all kind of headline risk, in my view and i think what's interesting is that now you have corporates coming in and saying trade war is bad so, we had this open letter from, you know, 200 retailers yesterday. and this reminds me of the border adjustment tax. so, the border adjustment tax was a big deal everyone was freaking out about it then corporates started agitating against it, and guess what, we didn't get a border

adjustment tax so, i think there's something to be said here -- >> now we've got tariffs -- >> we've got tariffs but i think the fact that corporations are getting involved is a good sign that, you know, maybe things get settled in a much more amicable way than what the market might be pricing in. >> sell faang. you say sell faang >> yeah, i think you should sell faang. >> sell faang. but you say sell. >> two syllables, sell faang. >> all right, no questions there. >> here's the reason i mean, they're super crowded. these companies are about to be smacked down from a regulatory perspective. so, look at the fact that mark zuckerberg was testifying in front of congress a year ago that's exactly what all the financial ceos were doing ten years ago. i think what we see for tech companies over the next ten years is going to be similar, not as bad, but similar to what we've seen in other sectors, where you know, tech companies have had essentially a free ride, and they're now about to start to see the costs and the pain associated with regulation. >> well, that could keep us to 2,900 right there, but buy

europe >> i think europe looks a lot more interesting than the u.s. so, assuming we avoid some kind of, like, full-blown trade war, recession, global growth collapse, i think europe looks cheap. it's got commodity exposure. it's got cyclical exposure and it's -- our european quant team's model actually flashed for the first time from recession to recovery a month ago. so i think that's something to watch. there are signs that there are other regions of the world that actually look kind of interesting relative to the expensive, fairly crowded u.s. market >> what were you going to say, noah >> you wrote something very interesting in one of your recent notes, which is stock picking has finally come back for the first time since the global financial crisis. now, i think if you look at market commentary ll cool j, don't call it a comeback, i've been here for years. but that's the first time we've seen stock picking less correlated. >> absolutely. >> what's going on there >> i think what's happening right now is messy and thanks for reading our

research, by the way. >> i'll vote for you >> but i think what's happening right now, even if you look at tariffs, there are some retail companies that are going to be able to handle this a lot better than others. so, this is all very stock-specific, what's happening right now, whereas for the last few years, it's been all about whether the fed's going to cut rates or tighten or do another round of qe. i think what's happening now is we're getting into a more normal market environment where the differentiation is happening at a fundamental level. so your job becomes a lot more important than us macro folks. >> okay, savita subramanian, thank you. >> thanks. when we come back, just how exposed is apple to the u.s./china trade war the tech giant lost more than 3% in trading to start the week shares are up today, though. we're going to talk to an apple shareholder and ask him whether he is buying or selling on this news. right now, though, as we head to break, check out shares of some of the big retail names that reported earnings earlier this morning home depot shares have turned lower, down by about 0.6%.

they came in with better-than-expected earnings per share. revenue was in line but same-store sales were a little below expectations kohl's missing by a wide margin, and as a result, its shares are down by about 10%. then you see tjx trading a little bit higher, jcpenney shares down by 10% "squawk box" will be right back. everyone's favorite. there's just one thing hurting us more than student loans: credit card debt. sure, dad, call us irresponsible. we're only dealing with insane living costs and housing costs. it's just not right. but with a personal loan from sofi, you can consolidate your credit card debt into one monthly payment. and get your future right. get your money right with sofi.

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right now. s&p 500 up about close to 20 points and some of this is off of the boeing news this morning that seems to be moving that stock. under an hour until the opening bell on wall street. dom chu joins us right now with a look at some of the morning's biggest movers and dom, you said go big or go home, so impress us. >> i'm going to try to here, because it's a lot of the big retail names, becky, that are the theme of the day and the week we're going to start with shares of tjx, which are just up about 0.5%, we'll call it at this point, roughly 95,000 shares of premarket volume the off-price retailer behind brands like t.j. maxx, marsha marshall's and home goods, posted topping sales growth and existing store locations better than expected. it also boosted its forecast thanks in large part to better traffic at its stores and stronger performance in apparel and its home categories. now, shares of kohl's, meanwhile, not so good, down by around 10%, roughly 675,000 shares of premarket trading volume the department store chain

posted profits that fell short of expectations, even though sales came in better, but sales growth at existing store locations fell by more than expected and kohl's cut its full-year profit forecast, so shares taking a big hit. we're going to cap things off with the biggest home improvement retailer in america, home depot they're down around 0.5% or so on roughly 100,000 shares of premarket volume that chain again topped wall street forecasts for profits and sales and its sales growth at existing store locations it was actually higher, but it was the lowest growth in over three years. bad weather took its toll on customer traffic and demand for spring gardening products. i know, becky, i cut back on some of my household gardening stuff because of the bad weather this time around, so we'll see if that sticks with home depot and lowe's coming up later this week. >> shocking! i would think bad weather would mean you spend more because you're not on the golf course. >> well, i can't go outside. the mulch i buy i don't want to just get wet all the time and then it's mud and the dogs track

it through the house. >> that's the same thing we heard from an analyst this morning who saw these numbers when they came out and said february was a little weak, maybe april has been a little weak in some areas, but he said the weather's turned and that's probably going to be a very good second quarter. >> so, that's what i would say if the rest of america is like me, when the weather did get better in the last month, i did go out there so maybe there was kind of a pushback effect on this. i did do a lot more of that gardening stuff in the last three or four weeks. >> dom, would you have broken 100 at beth page >> i have broken 100 at bethpage. >> when it's in that -- >> but i have not played it from the championship tees like they were as a par 7. >> i think they narrow -- is that the normal width of the fairways >> that is just about the normal width of the fairways, but the rough was much higher than it normally was i've played the black maybe three or four times -- >> lived to tell. >> the last time i played it, it was like tilg house on troidz. >> tillinghouse on steroids. i love the sign, extremely dangerous! >> yes. >> it's like you're wondering whether you're actually going to

walk off the course when it's all said and done, you know? >> i would also say this, joe, it is probably one of the most intimidating first holes that you will ever play on a golf course the way it sets up. >> i love how brooks would hit that drive on the first hole. >> some of those guys were driving the green, right they took such aggressive lines, pretty much firing at the green. >> they're not us. we're not them. >> no, i'm not them. >> i'm sure i wouldn't break 100, but i really wonder because sometimes i'm in my pocket if i had to get it and actually put it, finish each hole -- >> break below 100 >> no, i wouldn't break -- yeah, right. >> over. >> we should do it, joe. since you play a tillinghouse course all the time, next time we should just take a trip to bethpage and see how you do. >> i predicted i would shoot about an 81 at bethpage, but it'd be after 11 holes that's the only problem. >> i know that feeling, for sure shares of apple taking a hit to start the week as trade fears weighed on the tech giant. this morning, though, you check things out apple shares are back up another

1.1% that's happening with the broader market gains, too. joining us right now to take a look at the fallout that apple's facing from the ongoing trade skirmish is tim lesko. you are concerned over the short term about what the trade talks will mean for apple. what's your biggest concern? >> well, certainly, the street seems to be really concerned about what the tariffs are going to mean to the cost of iphones and the cost of the parts that go into making an iphone whether the iphone itself is going to face a tariff coming into the u.s i think i'm more concerned about what's going on in the chinese economy, how the tariffs might affect the chinese economy, and a little bit of chinese nationalism that i think in the fourth quarter of last year hurt iphone sales as chinese customers seemed to move to chinese manufacturers. so, less than just the cost of tariffs, which a company with the balance sheet that apple has, they can handle increased costs -- it's much more about demand. >> having said that, you are optimistic over the longer term for apple. you like the stock so, if there's a pullback in any

shares, would you be telling people to buy here >> absolutely. you're still talking about a company trading at 14 1/2 times earnings in a market that's up at 17 1/2 times forward earnings on the cusp of a 5g secular change in cellular operating 1. on the cusp of a 5g change and seal yor operating system. it is hard to get out of apple right before the party is going to start we are still bullish long-term >> how much of that because of what you see in technology changes or potential of hand set sales, how much of that is how the company itself is changing and services becoming a bigger part of thing. >> what we are witnessing, perhaps or first ever successful switch from being a hardware manufacture to a software manufacture which a lot of companies tried before and had a bumpy road doing so. the street expects some day apple is going to end up like the blackberry and maybe the

argument will be more like microsoft where they move into software and service and cloud base services, more than just a hardware company do you have a price target >> you know as a manager we don't set price targets, because they are moving all the time we look at valuation and cash flow, that's the secret to everything we don't know where this tariff thing is going to go we can look at projection and future earnings and making reasonable investment based on that at the end of the day, it is earnings that matters. >> tim, thank you. it is great to see you >> let's head over to healthy return conference, jim cramer, is there and joining us now, did you get a chance to look at all the things around boeing today you look at the take, some are saying it was more involved or nobody knows at this point but it could be. what's your take on that

>> well, look the stock is reacting to the retrieve for huawei i think what boeing did or did not do is hard to figure out people going nuts about the retrieve i think you and i recognize that a retrieve is short term and the reward means it is going to come right back if the chinese don't start doing something. i see nothing that the chinese are doing. i think the chinese are playing a game and boeing is ping-pobei ping-ponged around it is all china and i find it -- i am skeptical you the chinese have to show something. they have to give us something they have nothing to give in.a93 you and i both know they better cave on something. they better just come to peace with something and they have not. we all need to know that's the

case >> yeah, i mean i hear people say some people are shy talking about, i am surprised with this. navarro and others, that's a true hawk that may have this that the president sees. this is going to last for a while and it is going to go until the end of june most likely, i don't know how the market is going to holdup under that >> well, i think the president knows it is a key issue for reelection to convince people that china is our enemy for more than just trade. i think he's one people over when you hear tom freidman we don't have anything in our tool kit, there is been a consensus switch, joe, initially it was just you and me and peter

navarro. now it is a lot of people. i think it is time to recognize it is a popular issue in this country and the chinese are playing with fire. >> jim, when we look at the market, so much of the sell-off have been laid over night. we are down 6.5% on the futures and we rally during market hours. i can't figure what's going on between the over night futures and actual day trading, what insights do you got? >> it is great to see you. you know i totally agree with you. people who are trading, i call them pajamas trading completely uninformed, don't know about the research and the cost and what's going on in retail they just trade and just being fools. but their money is easily

parted >> i can't hear pajamas trader without seeing -- obamacare, remember that? that's why it is a bad thought for me it is always what i think of >> jim, who do you have today for healthy returns? >> i mean i would love to be fast and sure. he's the only guy in the whole pharmaceutical business that goes by first name he's famous and legendary and a doctor and he's exciting he comes to play in terms of how to be able to solve serious illnesses. >> awesome all right, jim, thanks, we'll see you in just a couple of minutes. >> i wish you were here, joe >> a little late i may have something else i got to do today, thank you, jim, thank you.

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welcome back to "squawk box. it ain't over yet. >> we got the year to go real quick before we go, you made an interesting point to jim about the way you see the futures and the way things have been opened, what do you think happen here. >> i don't know why the sell-office occurring in the over night session and the u.s. market rally is back i don't know why it is happening. i think earnings have come through. difficult for jc penney and kohl's and other companies are not so bad >> when you get off the set this morning, what are you going to go do? >> probably get coffee,

breakfast? >> what do you think of the markets? >> i think this market is going to be higher in three years than it is today. this trade stuff and tariff stuff will work itself ut, i don't know if it is june or december but it will work itself out. >> noah, great to see you. make sure you skrojoin us tomorw "squawk on the street" begins right now. ♪ >> good tuesday morning, welcome to "squawk on the street," i am carl quintanilla with david faber. cramer is at cnbc conference in new york city. dow futures is up 190. we may win back of some of monday's losses despite mixed results of kohl's and home depot.