and "squawk box" begins right now ♪ i just want to celebrate another day of living ♪ >> live from new york where business never sleeps, this is "squawk box. >> good morning, everybody, welcome to "squawk box" here on cn cnbc we are live from the nasdaq market site in tom square. i'm becky quit, the u.s. futures are under pressure once again this morning take a look and you're going to see that the dow futures are nbtnb indicated down by 145 points dow closed down by 237 points yesterday. s&p is down another 16 points after it fell by 23 points yesterday, and then the nasdaq is off by 51 points this morning after the nasdaq was down by about 29 points yesterday. major averages have been down for three out of the last four sessions and you're looking at the lowest closes for the dow since may 13th the s&p yesterday closed at its lowest level since march 25th, and then the nasdaq at its

lowest level since march 12th. all kind of questions about what's been happening with interest rates, and that is certainly weighing on things this morning we'll take a look at where the interest rates are this morning in just a moment first let's take a look at what happened overnight in asia the nikkei was down by about 2 1.2% hang seng off by close to 6/10 of a percent stocks in shanghai did cloese higher if you're looking at things in europe where there is active trading takes place, red arrows across the board biggest decliner looks like it is tcac in france. let's take a look at treasury yields this really is the big story that's been moving things. yesterday you saw the ten-year treasury drop to a ten-month low. the yield at 2.64% the ten-year yield is even below that this morning at 2.231%. again, this kind of ratcheting down and questions about what this might mean, whether this is a sign of a recession, that's what morgan stanley was saying

yesterday is that there are flashing signs for a recession, and that has a lot of people worried. there's a chart that shows the inversion between the short-term, that's the three-month yield and then the ten-year that's the most inverted since 2007, and historically an inverted curve shows that there is some or tsort of a slowdown not a recession that's coming. you can check that again today, that inversion is showing up in a big way. >> kumar what was he talking about anyway it was almost like it was like -- he just felt like rates were -- he didn't really ever say it was going to be because of a slowdown or recession, but he was right. >> and watching some of the economic numbers that are coming, a lot of these are april numbers and those were showing signs of weakness before things ramped up with the trade war, and i think that has people concerned. >> you still ask that question, right? you're still on your china selling treasuries thing or probably not doing it yet, i guess right? >> i'm not over that yet. >> okay. >> all right >> looks like they have not done

it yet is there they may try to mess with our minerals we're going to talk about huawei. >> you never talked about about -- >> there's a lot of different things, there's a lot of different tools in the toolbox >> the treasury one, doesn't look like it's panning out for you. at least concede that. >> i would suggest to you that i think literally a week and a half ago we actually read a headline on this broadcast where the chinese, the chinese state government was actually -- there was an article about academics after talking about that possibility in china. >> academics. >> nonetheless. >> you heard cramer obviously can't do it. where are they going to go they can't buy german bond. >> i understand the rationale against it. >> one thing that china's top banking regulator is saying is that anybody who's shorting the yuan is going to get washed out. that is the top banking regulator. >> we've got to talk to ben affleck and send him up there,

if you're worried about metals. >> for mining metals. >> send him up to one of those asteroids. supposedly there's $17 trillion worth of rare metals. >> there's rare metals in other places china's the one that's actually mining it right now. >> i think they're both available. >> they're willing to put in and mine these things. it does cause pollution. they're selling them at cheaper prices than anyone else. >> neither one of them is working. >> let's talk about huawei this morning. huawei is stepping up its legal defense against the united states pushing for a swift conclusion to a court battle back in march the company filed a lawsuit against the united states alleging that a law that bans government agencies from buying huawei equipment is unconstitutional now huawei is filing a motion for summary judgment, a request that the court rule in huawei's favor as a matter of law because the facts of the case aren't disputed we're going to talk a lot more about this specific case and what's at stake here with huawei's chief security officer and outside legal counsel as

well we'll talk about all of it, everything, and this is coming up at 7:30 a.m. this morning right here on "squawk". the united states has decided not to label china or any other country a currency manipulator, including the united states. a manipulator label could result in harsh trade sanctions but the administration said no country met the criteria seeking to gain unfair trade advantages over the u.s. by manipulating its currency that's like a wink and a nod obviously china has in the past, but it's not a good time to bring that up. >> for a while they were propping up the currency, too. >> yeah, it's been 30 years of tieing it basically to, you know, the evidence of what's happened is all across the midwest. instead the treasury department said it's monitoring nine nations including china, germany, ireland, italy, japan, south korea, malaysia, singapore and vietnam. england and switzerland were

previously on the list, they weren't included this time. a potential new front opening in the raid war with china after an official comment is being viewed as a veiled threat over rare earth metals. let's get to eunice yoon in beijing. >> reporter: the state economic planner sent beijing's veiled threat through the national tv saying if anyone were to use products that are made with the rare earths that we export to curb the development of china, then the chinese people would be unhappy. president xi jinping had visited a rare earth facility last week and that first raised the speculation that china could use rare earths as a counter measure, and so rare earths as you guys were talking about are used in pretty much everything when it comes to consumer electronics or defense equipment, and china produces about 80% of it. so analysts have been telling me that china could potentially restrict the sales to the united states in the name of national security so the state media has been turning more explicit about this

threat today the most important one was the very authoritative communist party's people's daily posting a column saying don't say we didn't warn you. it's important because chai min people are talking about how this phrase was only used two other times by the people's daily in history one was in 1962 ahead of the chinese dispute with india when they went to war over a border, and then in 1978 right before china went to war with vietnam, so this phrasing is seen as really serious, and i think the question now is we are definitely seeing a surge in nationalism here, but then what can be done to try to claw things back so that we can get the two sides to the negotiating table and then have a hopefully constructive conversation. guys. >> eunice, i guess with china being the one that is producing 80% of these rare goods, that's certainly what has people on edge about this and watching so

closely, but rare earths are in other countries including the united states and australia, all over the place, they're just not mined in those places because china's doing it at a much cheaper rate than those other countries could do it. it wouldn't mean the rare earths would go away. it would mean they'd get much more expensive, right? >> it means this they would get much more expensive, but also there's a timing issue because currently china as you had pointed out, they dominate the industry, and i thought what was also interesting with this whole idea of china potentially using it, restricting the sales in the name of national security, the other thing that has been going around in the state press was that china is saying that they need to make sure that they have enough rare earths for themselves, that the domestic demand is handled first before china starts to sell it to other countries. that's starting to also raise speculation among people who watch the rare earth's industry that china could potentially use

this and say, well, this is a national security matter, so china needs to make sure that we have the rare earths first >> eunice, while we have you and since joe started up with me on treasuries today, i wanted to ask you about this >> 222. >> last week in the financial times headline, the story trade wars spark fear of china weaponizing u.s. treasuries. that was the headline. >> the ft eunice. >> in the financial times. >> it was in the ft. talking about how there were $20 billion of sales of u.s. debt that could not be explained by typical ebb and flow bo of beijing's holdings. >> i'm hearing the same stuff you guys have been hearing as well i was speaking to one person who closely tracks the trade talks ls week, and he was speaking to someone from the chinese side who said the idea that china would sell treasuries or purposely devalue currency were

the two potential tools in the toolbox that would be left to the very end just because they would be so detrimental to china's economy, to china's own financial assets that it would just be seen as shooting themselves in the foot there are people who do think that this potentially could happen and this environment when things are so sensitive. >> look at global yields, it's not happening. >> it's possible, but something you wouldn't necessarily want -- china wouldn't necessarily want to see. >> they can buy boom, or they can -- i don't know, they could buy -- let me think. that's it. i don't know it's not logical academics but you know, who knows. rare earths, this is -- you know, eunice for the millennials out there, we played a song called "i just want to celebrate. do you know that song that we played at the top of this show ♪ i just want to celebrate another day ♪ >> that is rare earth, and this is a very famous song from the

'70s, and just for anyone that wondered why we were going back, and there were people here, that's what this is. >> what? >> what's the most important -- if we want to ramp something up quickly, what do we need what do you think we would quickly need do you know? of all the rare earth metals what's the most strategic? would it be something probably for defense, i guess i mean, unless -- >> that the u.s. would have to hold back? >> what's that >> yeah, which one. >> are you talking about for young people well, you know it's interesting because just hours ago the state media had put out another editorial that was directed towards the united states about young people thanking america for this trade war because it's only emboldening all of coca-cola drinking iphone using millennials and young people of today. it actually starts saying thank

you for -- you know, thank you for this trade war and emboldening our young people, and it starts saying this is not sarcastic. like this is not sarcasm that's how the article started because, i mean, i don't know whether or not a lot of young people really believe it, i think that there's a lot of, you know, not many people are buying into all of the benefits of the trade war, but that's something that is being discussed here so you called it >> one of these was a final jeopardy question, europium is one of the five most important, the most important i guess used in permanent magnets these are hard to say. europium, disprosium and then neodimium is the most important rare earth. >> did you know this before you started reading? because you have a science background, right? >> no, i did not i'm reading it directly off a

screen. >> you're reading off a tell prom teleprompter >> it's not in the teleprompter. you can google it quickly. there are five that are crucial. in permanent magnets, those are used in all kinds of high-tech uses defense, all kinds of stuff. yeah so that would be a problem that would be a problem if we were to -- i'm just wondering do we have the kpafcapacity, the ability to mine these things >> apparently it's in places like india, russia, australia. there are rare earths in other places. >> hard to get at. i think the environment is going to be so difficult. >> china has done this before. they have used rare earths before against japan in a previous dispute it's not unprecedented for china to say that they're going to hold off and use rare earths with japan they had an issue in the past, and japan ended up

deciding they're going to make sure they have the ability to get access to rare earth minerals without having to go to china. >> eunice is right, it's a timing issue just like in the supply chain these are all issues that could create some problems in the short-term as people try and figure out where to source that from longer term, maybe there's a solution to it, but in the short-term it would create a big problem. eunice, thank you very much. it's great to see you, and we'll talk to you again soon. meanwhile, the co of an iconic american company weighing in on trade, and here's what mcdonald's chief executive, ste steve easterbrook said in a cnbc exclusive interview. >> all the recent tension has not altered mcdonald's strategi or tactical strategies in china. >> absolutely not, in terms of long-term swress it interests i very porpt markimportant market. >> you can watch that full exclusive interview with

mcdonald's ceo steve easterbrook with carl quintanilla at 9:00 a.m. eastern time. coming up, rate shock. we're going it talk about falling yields and what they could be signaling for the broader markets. as we head to break, goes all the way back to, yeah, that's -- i mean there's got to be some perks to that deal i want to cover taco bell. >> carl used to work for the wall street journal. >> even back then? >> i don't think it was one of his companies then they're based out of there he's got some hometown roots. >> he's not stupid here's a look at some premarket winners and losers in the dow. ♪ oh, wow. you two are going to have such a great trip. thanks to you, we will. this is why voya helps reach today's goals... ...all while helping you to and through retirement.

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we like drip coffee, layovers- -and waiting on hold. what we don't like is relying on fancy technology for help.

snail mail! we were invited to a y2k party... uh, didn't that happen, like, 20 years ago? oh, look, karolyn, we've got a mathematician on our hands! check it out! now you can schedule a callback or reschedule an appointment, even on nights and weekends. today's xfinity service. simple. easy. awesome. i'd rather not. fresh concerns about the strength of the economy weighing on the markets joining us now, ellen haze in portfolio manager, and sam stovall. what's the date, stovall it's almost june, isn't it >> almost june, joe. >> so did you check with someone that may have seen a lot of previous junes that you might still be in contact with did you talk to your dad about this did he -- or is this you

>> oh, absolutely. he sends his regards to you as he always does. >> june, don't be surprised after a bad may whether june is a better -- >> exactly if you remember that this was the third best year-to-date performance through the end of april since world war ii, and in the subsequent may the market went down 60% of the time, yet -- >> he was there for all that stuff. that's the thing. >> exactly >> so he can remember. >> of course he was fighting in italy at the time. >> there is a possibility that this doesn't go that much further? we heard that from katie stockton yesterday, 2711 i think she said, it could go below on the s&p i'm talking about it. >> it's a possibility. you're got another week really in which to shake things out pretty dynamically right now we're testing the 2,800 level on the s&p 500 i think that's a very important support level. once you go below that, then you're dealing as katie said with the low 2,700 region. right now prices lead fundamentals, and right now the technicals are giving us a

signal that there's further weakness ahead. >> and i don't know whether you're ready to call the end to this cycle it is a little bit late stage. one of the things you look at are commercial nonperforming loans, but it's been how long that we've been seeing that sort of as a red flag >> so in terms of the nonperforming loans, it's really just the first quarter where that began to tick up, so if you look at nonperforming loans going back, they've been on a pretty steady decline since the beginning of 2010 with little fits and starts but generally a very significant decline long-term averages for nonperforming loans in banks is under1% of loans it had been hovering just below half a point, so a good 50% of average, and what we saw in the first quarter is if you add up the nonperforming loans of the u.s. banks, large, mid, small they ticked up from 50 basis points to somewhere over 55, close to 60 basis points so it's still very, very low

relative to history, but it's just something to watch. if we see this continue for the next couple of quarters, it certainly is what i would call a yellow flag that we're watching along with of course the yield curve. >> i mean, the morgan stanley comments, i read some of those as well. the gentleman there that i guess their chief market strategist was pretty bearish in 2018 he's been bearish for 2019 and wrong kind of so far, do you think we go to 2,700 and stay there or end the year based on a slowdown or even a recession, or recession fears? what are we doing at 220 on the ten-year >> certainly the curve looks like it may be beginning to invert the rest of it has begun to look increasingly problematic as we go forward we take a really big step back and we look at what's happening with the underlying conomy, unemployment still very good the pmis took a nose dive last week as we saw, but they're

still above 50, which is still expansionary, and we would argue that some portion of that was actually due to all the trade rhetoric being very loud at the time that those surveys were taken. >> one thing, though, some of the weakness that we've seen are from numbers that were from april, and that was before the trade rhetoric really ramped up, do you have any concern about the underlying economy even if you strip the trade war out? >> the underlying economy is late cycle and it is slowing so yes, i am concerned, but i'm not inordinately concerned for the rest of this year. you're looking at s&p earnings growth that are going to slow from over 20% last year to something more like mid-single-digits this year, maybe high single-digits, but the underlying market is not too expensive given where the ten-year now you're looking at pretty reasonable valuations, 17 times this year, 15.5 times next year, and the important thing is not to be out of the market late cycle. it matters where you are in the market so you want to be rotating into quality, and for us that means

by quality i mean growth, certainly growth at a reasonable price, but also high returns and invested capital. >> what do we do for the rest of the year, sam? >> well, the rest of the year i think what you do is you acknowledge the fact that we're going through a pretty challenging may through october period, normally it's best to rotate as ellen said going into the traditional defensive havens of consumer staples and health care, but i would tend to say that once this is behind us that we end up with a fairly positive end of year seasonal realally normally that's what we find to be the case following very strong openings. >> and then you would stay long next year or not >> yeah, i mean, a little too early to say right now i think a lot of investment strategists are like nighttime drivers who only use their low beams. i'm willing to forecast out about 12 months right now. erp earnings estimates are expected to be up 12% in 2020, so the

high bar that we had to deal with this year will obviously be lowered next >> that's saying something, obviously, you're not saying we're going to 2,200 on the s&p or something like that, right? you're positive. you think we're a sustained upward trend. >> bull markets don't die of old age. they die of fright, p what they're most afraid of is recession. we are not really looking -- >> not the fed. >> sorry >> not the fed anymore. >> the fed is part of it. >> did the fed cut >> what's interesting is we are in a flat to inverted yield curve environment now, and in the last 40 years a flat to inverted yield curve has -- we've had seven of those, have only led to four recessions but seven out of seven rate cutting cycles, so maybe what the market is hoping for is that we end up with a weaker than expected pce number tomorrow, which increases the likelihood that the fed does start to lower rates >> now, you had that fact, too, or bob gave you that one too

does he -- do you have an ifb -- okay is he talking to you right now he's not. >> telepathically. >> okay. is he 90 yet >> 93. >> god bless him, awesome. >> thank you >> that's a lot of wisdom. >> awful lot of wisdom that i've learned from, right. still waiting to learn something from you, though. >> that's okay i taught you everything you know but only 5% of what i know >> thank you >> you're welcome. coming up on "squawk" a lot more this morning. did you know -- well, different question to you get up in the middle of night to check your phone? i admit that i do. if so, you are not alone we have some shocking new numbers about what's keeping parents and teenagers up at night. you don't want to miss this. we're back in a moment ♪ [leaf blower]

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♪ all night long, all night >> i love this song. i do, i love lionel richie. >> if you wake up in the middle of the night and check your smartphone, you are not alone. a new survey found that roughly a quarter of parents woke up -- parents and checked their devices, and it was worse for the kids more than a third of teenagers check their phones overnight in fact, 29% of the teenagers said they kept the phones in bed with them at night the survey found that kids who were waking up to view

notifications or browse social media, the research by common sense media is part of a broader study on whether sleep deprivation is partly to blame for the screen use and depression in young people i don't think it's a good idea number one. >> to take to bed, no. >> mine is in an adjacent room and i'm up plenty. >> you don't even keep yours next to you. >> no, no, no. >> i don't check it in the middle of the night. i use it as an alarm. >> i've got three, four five opportunities to check it if i want i don't want to because i think -- >> i think it wakes you up it makes you not sleep. >> it gets your brain going. >> arianna huffington sent me years ago. >> i have the bed, yeah. >> bed for the phones. they charge in it. >> it literally is a bed, you tuck your phone into this little bed. >> close though, right >> you tuck it in a different room >> it's like a doll's bed. >> a doll's bed for your phone >> you're not allowed to wake it up you're not supposed to check it

overnight. >> i can't go back to sleep. >> the only thing i'll say is once you have one of your kids go away to school, you know, college, then you do check, and it's like because you don't know where the hell they are, and you can't believe what goes on these days i had to go to class the next day i thought. i had studying i don't know what goes on nowadays they can be out on a weeknight, it can be like 2:00 a.m. or something, you know, and it's like -- or there's times where i'm getting an e-mail, i'm coming to work, and i'm not sure this person's necessarily even been, you know what i mean >> this person >> so that makes -- >> this person >> that's what makes me really worried. >> i can understand that i don't want to check whether you're e-mailing me about huawei, i'll tell you that much in your dod reports or something like business. you're checking to see whether there's some merger happening right? >> i'm still programmed. >> for me, if i find out about the merger at 3:45, that's good

good when cramer finds out and i find -- you know, don't you think? you need to know at 2:00 or 1:30 >> i need to know. i need to know. >> do you actually check in the middle of the night? >> i sometimes do. i try not to. >> i have two phones next to the bed, but they're alarms because of my alarm situation. now eight years ago if you remember. >> i need to go back to an alarm clock. it's stupid to leave the phone there. >> i bought some cheapo alarm clocks on amazon, i was too nervous they weren't going to work. when we come back, much of the central part of the united states is dealing with severe flooding with more storms in the forecast, we are seeing the impact on crop prices as well, and we'll show you the biggest moves next right now as we head to a break, let's take look at yesterday's s&p 500 winners and losers

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>> announcer: welcome back, you're watching "squawk box" live from the nasdaq market site in times square. ♪ good morning, u.s. equity futures have improved a little bit, but still triple digits on the dow, down 127 after five straight weeks of tdeclines, bu five weeks of declines, 5% off an all-time high, so i quickly deduce we're averaging about a 1% loss per week, which would be about 250 points, right? so spread over five days, it's all kind of like -- it's either not getting us to worry so we're not noticing and that's usually -- see, that scares me sometimes. >> like a slow bleed. >> yes

instead of the quick shakeout where everybody notices it and they have it on the nightly news and then -- >> all of a sudden it can turn around. >> anyway, we'll see what happens. we're follow ago developing story in the midwest, catastrophic flooding continuing to hit the region. rivers overflowing flooding towns and farms in iowa, oklahoma, missouri, nebraska, kansas, and arkansas that severe weather is weighing on commodities like corn corn futures popping, those floods delaying the planting that worry also extending to wheat. wheat futures at their highest level since february, and soybeans, i don't think we have beans in the teensyet, but let's take a look, do we nope not quite, but $8.87, up $0.31 also by flooding as well as trade tensions with china. much more on commodity prices and how they could affect the price of food at restaurants and groceries. store shelves all that coming up. >> for soybeans i would think

the opposite impact, if you're worried about china trade talks that would be pressuring prices lower if we have a huge supply and can't ship them overseas this is watching soybeans being pushed higher despite the fact of all these china trade talks. >> when it's really cranking it's beans in the teens. >> look at the pressure on soybean prices leading up to that from the middle of april through may this is a counterproductive effect of that >> when we come back, we've got a guest who's going to give us his top three squawk picks, and they all share one theme, factory automation including in his pick for this stock that's been trying to withstand the recent stock downturn. later, don't miss our exclusive interview huawei's usa chief security officer and the company's outside counsel after the company's legal move against the united states overnight. stay tuned, you are watching "squawk box" right here on cnbc.

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welcome back to "squawk box. our next guest says the most direct route to higher profits is higher productivity that means replacing expensive humans sadly with hardware

here to discuss what stocks will rise on this thesis, i don't know if i like this thesis, charlie smith. charlie smith is a portfolio manager, the chart we just teased before the last commercial break was honeywell i like the thesis if i'm trying to make money. i don't know if i like it if i'm the employee who's going to lose their fwigig. walk us through the thesis we do have honeywell on the screen, so maybe we should start there. >> good morning, andrew. it's been playing out steadily for 25 years, and i think the more we regulate, the more we get government involved in business, the more business recognizes that the expenses are where the people are and particularly in manufacturing you've got to find a way to not only beat regulation but compete and with honeywell, for example, they're becoming a software company. one of their businesses

honeywell sbeg gaited which is a big supplier to amazon, building equipment to move goods with as little human touch as possible so to speak in and out of their distribution centers that's been their fastest growi growing segment now for a year and a half. >> in terms of where you think the stock will be 12 months out, what do you think the upside is still from here? >> honeywell has had a long record or track record the last six or seven years of boosting margins, particularly in their aerospace segment, so the stock has done very, very well, so we'd be patient with honeywell, it's a name that we could see the stock pull back 10, 15%, particularly if we do get continued trade concerns. >> that's what i was going to say, how does that factor into your thinking? >> well, we would expect that the stocks that have held up the best, particularly in the industrial group like honeywell have a potential to pull back 10

or 15% if we do get a further recession scare. each of the names that we're looking at, we're looking to buy at lower prices frankly because the odds of recession have ticked up here in the past month or so from what we believe is maybe one in ten to two in ten, and so we'd look to get each of the names that we're looking at today, you know, the rockwell and the honeywell at prices maybe 10 to 15% lower thn today on a recession scare we tend to hold -- we tend to hold names for 10 to 12 years so we'd be happy to buy these stocks lower. >> you mentioned rockwell automati automation i gather it's part of a larger thesis, but rockwell in particular. >> well, rockwell is really becoming a software company. they provide automation for both discreet and process, that is individually manufactured products and sort of steady line manufacturing whether it's steel or paper

very nice diverse customer list, significant exposure in china particularly in the automotive markets, which had been one of the fastest growing in the world, although it's pulled off here in the last 18 months but rockwell really is the leader in integrating software and hardware and as i say, they're really becoming a software company with generally much higher margins. that's where the margins are in automation is in the software. >> right, okay, charlie we appreciate it very much. we should say cog nix is another stock you like among that thesis in that group. appreciate your time this morning. >> thank you >> thanks. when we return, boeing's ceo dennis muilenburg set to speak this morning and give a tfgts int television interview later tonight. right now as we head to a break, let's take a quick check at what's happening in the european markets this morning. red arrows across the board, the cac the biggest loser down by

1 1.6%

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boeing's ceo, dennis muilenburg, is going to be speaking at the bernstein strategic decisions conference today. phil lebeau has a preview of what to expect phil, a lot of people are going to be watching to see his comments on what's been happening. >> absolutely, becky and the big focus for a lot of people will be what he says about the projection for when the 737 max potentially could be back in service because we've seen a couple of wire reports over the last day or two where airlines in asia are saying they've been given indications by boeing that the plane could be back in service as early as

july so, for dennis muilenburg, when he speaks today, the big focus will be on boeing's path forward. he'll be speaking at the bernstein conference shortly after 8:00 a.m for the 737 max, remember, there are several key moments that are coming up within the next couple of weeks, several weeks? hard to know the exact time frame. you've got the faa certification play that may happen in the next week or two after that, boeing will likely file for recertification they've already been in conversations with the faa, so it's not like they're in the dark here. the faa knows, you know, what they're working on, and they know what the faa is expecting then the question becomes, do we see the grounding lifted, perhaps in late june, maybe by early july 737 max production is what analysts will be focused on in terms of any commentary from dennis muilenburg about, look, we think we can ramp up production relatively quickly after the groundings are lifted. it's going to take some time to clear out some of the planes that have been built but then need to be delivered what exactly does he say

does he say anything at all? as you take a look at shares of boeing, keep in mind that there have been zero 737 max orders since the grounding took place, and we have order reports for march and april, and we'll get the may one coming up early next month, but so far, guys, we have not seen any orders. remember, they've got a huge backlog on the 737 max, so the fact that you don't see a couple of months with orders is not a huge deal, but it is an indication of where the industry is right now >> probably not a surprise, phil, right? just if you're thinking of ordering one, you want to wait until kind of the dust settles -- >> exactly. >> -- until you find out what happens, and also from a business perspective, you want to get your best price. >> right, you want to get your best price and a lot of the airlines that are quote/unquote boeing customers -- remember, airlines tend to be boeing or airbus customers. some fly both, but that's because you'vegot all your parts, your training, simulators, everything locked in with that type of aircraft most of those who were

interested in the 737 max have placed their orders, or leasing companies have done that, so that's why you've got this huge backlog. a couple of months without orders does not mean that people are completely shunning this aircraft now let's see what happens over the next three or four months. >> phil, thank you very much phil lebeau. for more on what investors are hoping to hear from muilenburg, we bring in dean crutchfield, founder of crutchfield & partners, crisis management pr dean, this is a good time for it right now. >> absolutely. >> what would you say about what they've done so far? what do you want to hear >> i think it's been an extremely poor performance i think we've seen deny, delay, deflect, defend. that's been their strategy, certainly was a few months ago so where does it go from here? most companies, especially a stock like boeing, will survive this we know that it's got an order book of 4,700 737 max 7s that's incredible. it's got an order book that goes on for years and investors know that and if you look at its stock performance, apart from some blips, i would call them, basically, if you got the stock -- i'm not saying you don't care, but you're not really bothered by this

situation because you know the health of that company so, i think that that's something they have in their back pocket is that trajectory. >> so, what do you think they've done wrong what do you think they should do from here? >> well, i think that, again, they kind of dodged it, denied it, in some ways they might have lied about it, because they were aware of this a year before the first crash, so someone's not said something but let's be honest about muilenburg if he would have been in a room many times with public affairs, communications, legal teams, engineering teams, technology teams, advising him on what he should say and what's wrong, what went wrong for you not to know that, or did you know that? and that's the question we'd love to get to so, if dennis wants to clear -- >> look, i understand what you're saying, but i also feel like we don't have all the facts. these investigations take a long time >> right. >> what should they have said everly on if they didn't have all the facts yet? >> they should have responded boldly and tried not to hide off and tell in a sense, they defended, denied and defended their situation. what didn't come out was the fact that, look, two crashes --

again, i don't want to sound bad about this, but that didn't affect the trust of boeing what affected the decline of trust, it was muilenburg it was his indifference a few months ago that caused that trust to collide downwards. >> i would say the two crashes played a key role, the idea that it came a second time around, the idea that now we are questioning the faa and whether they have known any of these things i don't know that there's anything a ceo could have said or done at that point that would make me feel better about it. >> i think they could have been more empathetic. there was no empathy, no sympathy, nothing. it was indifferent i think we watched that. he showed that he had the charisma of a damp rag, and i think we recognized that and weren't impressed by it. >> what do you want to hear today from him >> i want him to respond boldly, hide nothing, tell all is he taking any questions from the floor today? i would love to see that there's no mention of his plans. what they did before was a prerecorded video, they subbed it on social -- >> is there anything he could say to win you over? you sound skeptical, if not

cynical, dare i say, i'm not sure he could win you over. >> it's going to be a hard job and i think it will be a hard job for a lot of ordinary people back to people who hold the stock, i think they're indifferent to the needbecause of the order book and it's a duopoly -- >> do you think he's playing for the shareholders -- >> absolutely. >> or do you think he needs to be playing for the consumer because the consumer's going to be the one that will go on kayak or expedia or whatever they're going to do, look at what flight it is, and say actually, i don't want to be on that plane >> i think people are already asking what's this aircraft. and i think he's tried to hold the line with investors and regulators but again, i don't think he has to worry so much about investors, but it depends what comes out of the honesty you're talking about -- litigation, scandal. this is going to bother boeing for years. >> dean, i want to thank you very much for joining us today. >> it's a pleasure pleasure to be here. >> dean crutchfield. all right, coming up, our guest host for the next hour is chief equity strategist bob doll we'll hear what he's doing with his portfolio. and while trade talks are continuing, the stall between the u.s. and china

plus later, an exclusive interview with huawei's chief security officer and outside counsel, after the company's legal action overnight you are watching "squawk box" on cnbc

the inverted yield curve monster returns. ♪ >> what the hell was that? >> oh! >> the bond market warning of a recession as economic growth and a trade deal remain uncertain. huawei's new warning why the company is asking a court to speed up its decision about the u.s. ban on its products and purdue pharma under pressure wall street firms and non-profits cutting ties with the maker of oxycontin, putting the sackler family in the crosshairs of what could be a major legal battle, as this second hour of "squawk box" begins right now >> announcer: live from the beating heart of business, new york, this is "squawk box.

good morning welcome back to "squawk box" here on cnbc i'm becky quick along with joe kernen and andrew ross sorkin. joining us in studio this morning, bob doll. he's chief equity strategist at nuveen, our guest this hour. good to see you. >> thanks, becky. >> great to have you here. we'll get to bob in a minute on the markets, but meantime, look at what we're facing this morning. dow futures indicated down by about 107 points, nasdaq off by 38, the s&p down by 11, and this comes after a decline of about 237 points for the dow yesterday. all of this happening as we are watching the yield curve, and we're going to talk more about that in just a moment. >> okay. a number of big headlines to bring you this hour. let's tell you what's going on right now. crude oil prices are down this morning as u.s. inventories continue to swell. that and growing fears of a global economic slowdown are pressuring oil prices this month. they are down nearly 9% so far for the month. wti crude, you can buy a barrel at $58.02.

also in the headlines, t-mobile and sprint could get up to $3 billion in a sale of the boost mobile prepaid wireless business, this according to bidders who spoke to reuters now, it's important, because the sale of the unit is among the concessions that the two have offered to win approval of their proposed merger. the fcc has given its okay, but the deal still needs the justice department to approve it boost mobile founder peter adderton is among those interested in buying the unit. he'll be on "squawk alley" at 11:00 a.m. eastern time. you might remember he was on with us about a year ago saying they should sell that unit to actually get that deal approved. separately, boeing 737 max jet may not return to service until late august, according to the international air transportation association the group planning to hold a summit with airlines and regulators in five to seven weeks to evaluate boeing's fix for the jet software an airline in india, by the way, saying they're going to have it in service in july, so now

there's a lot of confusion -- >> the american carriers i think have taken it off of their schedule through august or through august 9th or 19th, depending on the airlines. there are three major carriers that use it. slowing economic data and trade tensions once again reflected in the bond market, and the inverted yield curve, which is a classic cautionary sign for market watchers, looks to be raising its head once again. steve liesman is here and has an explanation of what he thinks is happening. >> good morning, becky a yield curve inversion is when short data treasurys yield longer than less, supposed to be the other way around pretty good recession indicator. take a look and you can see the line the grayed-out parts, those are recessions, and it goes negative before each of the past three, and this is the ten-year to fed funds. we are not quite there yet -- a ten-month to three-year, either way. a little bit left to go. ubs pointing out that inversions ahead of recessions come along with tightening of credit standards at banks that has not happened yet.

its credit recession model not flashing red, saying "the recent yield curve inversion has been short-lived and may prove a false signal as our recession model suggests." ubs says low policy rates around the world and global qe make the yield curve signal different this time. still, markets have boosted their call for the fed to cut rates. take a look at these probabilities. i go away on vacation, they're much lower i come back, take a day off -- 58%. that's, you know, pretty strong certainty about that happening in the fall. october 69%, and darn near certain december 85%, january a 95% probability of a rate cut. any move in the bond market -- i think this is important, first about inflation and the fed, before it's about growth bond traders get paid to get inflation right. they don't get paid to get growth right so it's interesting that with lots of concern about the trade war, investors have chosen to treat the raising of prices through tariffs as deflationary or disinflationary

that has been a fascinating development. >> there are all sorts of questions about what this means. steve's going to stay with us for this conversation, but joining us is bob doll, chief equity strategist at nuveen, and our cnbc senior markets commentator, mike santoli. mike, what do you think? we had someone earlier saying that the inverted yield curve has predicted seven of the last four recessions. >> right and it tells you something about the environment, not necessarily that it's a very reliable predictor of inflation it tells you that the economy's in a stall if you looked at the actual shape of the curve, in terms of where it's inverted, where it's not inverted, you could also argue the market's saying, fed will cut, probably engineer a soft landing because it doesn't seem as if the whole curve is inverted now, that's getting a little bit too cute and precise in terms of what the message is, but i think the back drop -- >> said seven out of seven -- >> that's what it's saying most

volunteer cyphe vociferously it's rate cuts in that window in two years. >> did you see the oil and the "journal" story? >> it's all about oil supply. >> but last week it was about copper means oil's next. and i mean, there's a lot happening simultaneously. >> but is oil a supply or demand picture right now? >> as always both, right >> a huge amount of supply has been building up in the united states. >> that's what we're seeing now, but it's been weak and remember when we were trying to figure out whether it was really supply? >> it doesn't actually matter to the bond market. the bond market treats the price as the signal for what inflation is going to do on a top-line level. >> bob, for a long time, the market i think has looked at things as saying interest rates are low and that's great news for stocks because interest rates relative to stocks means you should be putting your money in stocks. are we reaching a point where you think, okay, interest rates are low and that's a bad news for stocks because it means we're headed into an economic slowdown >> look, a flat or inverted yield curve is not necessarily bad news it's not good news and we all know the long lead

from an inversion to the actual recession, if, in fact, we're going to have one, is one to three years. so, it tells me i've got to look at later-cycle events. it tells me i need to be worried about earnings look it, the fed's going to cut rates some time the back half of this year. i'm going to have earnings disappointments all over the place. >> why >> because it would signal that the economy is not strong enough to sustain interest rates that are still pretty low. >> but is it causal or not i mean, if the fed's cutting rates, it's because the economy's weak, so we're going to have lousy earnings anyway because the economy's weak what really -- >> so, i think for the stock market, the lousy earnings will play hard on the market. >> do you think that's a real story, though? >> i do. i do the estimates are still -- double-digit earnings growth next year, i just can't find it. 2%, 3% this year, yeah, i'll buy that story, but back to 12% next year, i don't know where that comes from so, i think that's the concern and that's why the market's -- >> in terms of how the market has repriced

so, since september/october, when the stock market hit its peak back then, estimates for 2019 and 2020 are down about 6% each the s&p is down about 5% off its highs. so, the market hasn't become really any cheaper but you have made an adjustment to the stated earnings, but we are looking supposedly on paper for this second-half comeback, right? that's when the earnings are supposed to pick up again. the second half starts in a month. so, we're not necessarily seeing -- you know, it's not like there's hope for a thing, don't worry, it will get better soon down the road it's got to happen here and now. i think that's what the market's struggling with. >> sure. >> can i just point out, the market has not been the greatest gauge of growth over the past several months, at least remember back in december when everybody was sure there was going to be a recession, and then we printed a 3.2% gdp number >> right. >> we're running 1.5% to 2%, which is at or around what trend should be. so, i would just -- when you said predicted seven of the last

four recessions, i chuckled at that, which is sort of laughable, right because it's good to be beyond 50%, but it's certainly not 100% if you look at that chart, as bob said, there's a very long lead time, and you have to be negative for it to be an actual signal so, i'm not quite so pessimistic and quite so sure the market has either the fed or growth right here. >> well, i was going to say, the fed -- do you think the next move is a rate cut >> i can only take them at their unbelievably consistent word i was reading this morning, every single fed official who has said we're in a good place and we ought to wait and see, and it is remarkable how, like, i don't know, the mormon tabernacle choir, they're all singing from the same piece of music right now, and i really think that's where they are. and i don't think they know where to go. and i also don't think they understand this critical question -- are tariffs inflationary or deflationary

does it mean weaker growth you have very high consumer confidence now you have very strong jobs -- >> but it could be inflationary and weaker growth. i mean -- >> that would be your stagflationary well, i don't know what the opposite of stagflation is what would it be >> and we can't forget that 2.25% ten-year comes in part that rates elsewhere are zero. i'm in germany, i can get zero, or i can get 2.25% -- >> lesson's about a buck -- >> that's one of the up sides of what's happened is our spread with germany has narrowed, a little bit it's still like a historic 240 basis points, but it's a little tighter. >> bob, quickly, what stocks do you move into as a result, if you think this is late cycle >> i think you just need a little more caution, a little higher quality, a little better balance sheets, pay attention to free cash flow, be careful of companies that are overlevered that are using negative free cash flow. companies are investing in their future for growth, rather than giving all the money back in a buyback. i want those reinvestment for

organic growth kinds of companies. >> we'll talk about those specific names later bob's with us for the hour steve, mike, thank you great to see you guys. >> okay. coming up when we return, farms across the country struggling to plant crops due to severe weather and flooding, corn hitting a three-year high in recent days we will discuss the surge in prices and what it means for consumers and your money stay tuned you're watching "squawk box" right here on cnbc 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! at u.s. bank, we believe that hard work works. and for everyone working toward a goal, we're here to help. there's one thing you can be sure of. they're changing by the nanosecond.

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delaying the planting of crops. we've seen a number of commodities spiking in recent days we'll talk about the price surge and what it means for your money. and later, huawei taking new legal action against the united states we will tell you what it is and what it could mean for national security quk x"ilbeig bk.

catastrophic flooding in the midwest having a big impact on commodity prices corn hitting its highest level in nearly three years as heavy rains are delaying plantings soybean futures moving back at the highs that we saw in late april. and check out wheat. wheat prices are on track for their biggest monthly gain in

two years. joining us now to talk about these rising prices and the implications, peter boockvar, bleakley advisory group ceo. a lot of times it's kind of interesting, peter oh, we're going to go to bob first? why? peter's not ready? thanks for the heads-up. bob, what do you think >> these numbers are significant in terms of how much they're increasing the midwest flooding's only going to aggravate this. and look, you can only eat so much fish if you're not going to eat corn and wheat, so this is going to have impact on food prices, no question. the question is, is it temporary or is it going to last longer? >> don't we report a lot of these things ex-food and energy? >> we do, we do. >> because you need wage push inflation before you think it's real, correct? >> correct and to that point, wage -- >> boockvar magically appeared >> there he is. >> what the hell were you doing? >> waiting for the tap on the shoulder. >> in the boy's room were you nervous did you throw up inthere >> no, i'm good. >> so, what do you think

you just heard bob we already got the answer. you can leave, actually. >> so, well, in terms of pricing, so, the usda reported updated numbers last night in corn, only 58% of the intended plantings have been done, versus 90%, which is historical and soybeans, only about 30% has been planted versus about 65%. going back in usda data, since 1980, it's never been this delayed. and you have a situation where stocks-to-use, which is basically inventory numbers to crops, have been low for a while. we've seen rebust plantings over the years, but the demand has more than offset that. so, now that the market's in a situation where you're going to have very low inventory levels, very slim plantings, and by next spring, it could be a real issue. >> all right, what about the trade war and the retaliatory actions from the chinese saying that they don't want our soybeans or some of the other crops they used to buy will this offset that or will this more than make up for that? >> i think we've already seen that impact in soybeans, because

that's really pretty much what they've been importing so, soybeans that were over $10 a bushel got down to $8. now we're seeing it creep up again. most notable rise, though, has been in corn prices. and while china still imports corn, it's not as big a customer of ours as soybeans are. >> i don't really think we see it in grain prices we see it in meat, don't we? is that where we really see -- what would you buy -- i mean, if you were playing commodities, what would you buy, live cattle or -- >> certainly show up in that, yes. but corn, soybeans, the crop prices had been in a bear market since 2012 it's been a rough seven years for farmers. >> tough for farmers, but god, isn't it the abundance that we have, i think, with the entire farming industry's 1% of what it was 100 years ago in terms of manpower just so good at it. >> and the technology, too to allow us to farm 200 bushels of corn an acre versus what we were able to do 20, 30 years ago

is unbelievable. >> it's a wealth of -- it's too good, almost, for the farmers, because they can produce so much at this point. but when we see the fed worried about hitting 2%, can this be -- this can't be the answer, can it this is not something that they can hang their hat on and say, we were effective in getting it back to 2% this doesn't count, does it? >> no. like you said, they'll ex it out on the calculation and assume this is a cyclical rise, rather than something more than that. >> in the -- and i don't know, you know, there's flooding and things like that, so it's not really a proxy for growth or global economic growth, either what about oil what about that complex? what about the ten-year and some of the sovereigns around the world? what is that telling us, boockvar you work at bleakley you always think things are bleak. >> it's clear that, well, the yield curve is even speaking

louder than those commodities, but certainly, copper's recent drop, particularly since the may 3rd-may 5th tweet, then obviously oil prices, but even those have supply issues it's now the worries about demand has overwhelmed the worries about supply but to me, the yield curve is the one that speaks the loudest as to what the market's viewpoint is on growth. >> hmm. >> so, you're suggesting a little food price inflation's just fine, given the rest of the economic backdrop, is that fair? >> for the sake of farmers that have had a rough time, yes for the sake of that fast-food restaurant owner that's dealing with higher labor costs, their margins are tight as it is, so food prices are about 30% of a restaurant's cost base with labor making up pretty much most of the balance there's not much room to handle a rise in food prices. but it takes time to work its way through. this can just be a spike we have to see the sustainability i happen to think this could be sustainable until next year,

until we see spring planting next year. >> we did already get some warnings from chipotle and from hormel about corn prices because they've been up about 50% even before this. >> right, exactly. so, that adds to it. so, if you're mcdonald's, you're making the meat, you're using, you know, your soybean meal's going into your finished products again, on top of the labor costs, it's the combination that makes it tough when you've got a business that's already got thin margins to begin with. >> all right, peter, thank you >> nice to see you. >> same here. a lot more to come get ready for this oxycontin maker purdue pharma facing pressure, many cutting ties with them over the opioid epidemic a major trial is under way that could set the precedent for cases against big pharma we'll discuss that in a moment. later, don't miss an exclusive interview with huawei usa's chief security officer and the company's outside counsel after the company's legal move against the united states that

took place overnight as we head to a break, take a look at u.s. equity futures at this hour. we are in the red, dow off about 137 points, nasdaq off 45 tss&50of14ois.nt back in a moment it can be to find the right father's day gift. but you can't go wrong at dick's sporting goods. we have gifts for every dad. if he's into boats, bikes, or camping there's plenty to choose from, including yeti. and if he likes golf he'll love the latest drivers from callaway and taylormade. plus we've got a great new selection of footwear to fit any runner and every athlete. so make it a day he'll remember with the perfect father's day gift from dick's sporting goods. if you can't get to a store, shop us online

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still to come on "squawk box" this morning, huawei filing a new legal action as it tries for a swift end to its lawsuits against the united states. the latest on the battle between the chinese telecom giant and software suppliers is straight ahead. and then, the sackler family, which founded purdue pharma, under pressure from wall street to take action in the opioid epidemic. a number of big firms and non-profits cutting ties with the maker of oxycontin we'll discuss the prospect of holding big pharma responsible. and later in the show, when will the 737 max fly again according to the international air transportation association, it may be out of commission until august we'll have the details and talk about what is next for the aircraft maker "squawk x"acafr quk eak. bk tea ic ♪ plants capture co2. what if other kinds of plants captured it too?

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welcome back to "squawk box. huawei stepping up its legal defense against the united states, pushing for a swift conclusion argen croppel joins us this morning with more. good morning. >> good morning. well, it follows the lawsuit huawei filed against the u.s. government earlier this year in which it argued that the national defense authorization act and a provision in there which prevents government agencies from buying huawei gear is unconstitutional. now what they've done is taken the next step in that and filed what in legal terms is called a

motion for summary judgment, essentially asking the court to rule in favor of huawei as a matter of law. they're saying there's no facts up for dispute, but what is up for dispute is a law, i.e., the u.s. constitution, and this ndaa if huawei is successful in its pursuit of this, there could be no need for a full-blown trial the next hearing is scheduled for sometime in september when we'll get conclusion of this part of the trial. but of course, it comes at a time of mounting pressure for huawei the u.s. has put huawei on a black list known as the entity list now, i had a chance to catch up with the chief legal officer at huawei and asked whether the company's looking to pursue legal avenues against this blacklisting let's listen to what he had to say. >> translator: the addition of huawei to the entity list is a dangerous move because they have disregarded facts and evidence it is speculation and political reasons. based on speculation and political reasons, without facts and evidence, they have imposed most severe sanctions on a

company. right now, we are considering various remedies, including what you mentioned just now, legal actions. >> huawei looking there to go on the front foot and take legal actions. first time the company has ever mentioned legal action in regard to this entity list, so they're really trying to take the pressure over to the u.s i'm here at the huawei campus in shenzhen and i want to give you an idea of what it's like, walking through the halls earlier and saw a picture of a world war ii bomber that was badly shot up but still flying, reading "a hero is born through hardship and challenges. the message to huawei employees and to the wider world is that it's staying strong despite this mounting pressure from the u.s. government but of course, many questions still remain over the company's future, particularly as it's on this u.s. blacklist, which is making it very difficult to procure components, hardware, and software, from very key u.s. companies.

guys, back to you. >> okay. thank you for that report. meantime, joining us now in a very important interview, important conversation, andy purdue, chief security officer of huawei technologies u.s huawei's outside counsel is also here, glen nager, a partner at jones day. good morning to both of you. >> good morning. >> help us understand your position here, because i think there's a couple of things going on one is what took place overnight, which is a bit separate, i believe. i mean, they're all connected in some ways, but a bit separate from the full-on blacklist so, just explain where we are in what's happened the last 24 hours, then we can get into some of the details. >> right so, yesterday huawei filed a motion for summary judgment in its constitutional challenge to the 2019 national defense authorization act, alleging that under well-established united states supreme court precedent and federal court of appeals precedent, that statute violates the bill of attainder clause,

the due process clause and the investor clause of the united states constitution, because in that law, congress has acted not only as the legislature, making rules, but enforcing the rules against huawei, whereas under the united states constitution, the enforcement of the law is the prerogative of the executive branch, and everyone's entitled to their day in a duly constituted, independent article three court and this law deprives huawei of those rights. >> let me ask you a question if the executive branch, if the president or the department of defense were to decide that a company represented a national security threat, you don't believe that they have the authority to make that decision? >> we're not contesting that the united states government has authority consistent with the rule of law to protect the united states against security threats. what the lawsuit is about is saying that we have three separate branches of government, and each branch of government has to be allowed to play its role, and congress here has tried to play all of the roles all by itself, and that's what's unconstitutional about this statute. >> let me ask you separately the

sort of larger question here we had secretary of state pompeo sitting literally here last week, and we asked him the question, and we said, does this company really represent a security threat? is there something you can point to directly in terms of what the company has done with a back door or something else he couldn't point to something specific, but he said in no uncertain terms that this company represented an absolute national security threat to the united states. you're both americans. do you not believe him >> well, the united states government at the highest security levels had provided information to the united kingdom and germany that has convinced them that the u.s. government has no evidence of significant cybersecurity wrongdoing by huawei the u.s. is worried more about the country, china, than about the company, huawei. and the united states is not ready to address the most sophisticated cybersecurity risks generally, so they're bending over backwards to try to make sure america's safe, and we think we've got to ramp down the

rhetoric and address real cybersecurity risks. >> let me ask you a question as american citizens, both of you, which i believe you are -- and here's where the complicated part is -- let's say there has been no wrongdoing thus far. let's just presume that, even though i know that that unto itself may be a debate with some people the argument is that huawei, given how far ahead the company is in terms of its technology -- if it were implemented around the world -- even if it wasn't implemented in the united states but was implemented in all of asia, in all of europe and africa and south america and became the standard, right, and that if china as a government decided a year, two, three, four from now to somehow decide that they wanted to use either back doors or use that technology to spy or somehow look at other pieces of what we are doing, and by the way, our systems are going to have to interface with these systems in the future, that that potentially poses a national security threat

>> the new standards require interoperability the most important networks in the world will require diversity of suppliers to help make sure we maintain resilience it has been proven that there are risk mitigation measures that are adequate to the united states government. take the case of nokia, which has their joint venture with shanghai bill, owned by the chinese government deep roots in china, deep connections with the chinese government despite that, the u.s. has found mechanisms that allow them to trust nokia in the united states we just want to have those conversations with the u.s. government about effective risk mitigation. >> you talk about how it's not necessarily huawei, it's about china. so, if huawei became something that enabled china to do something absolutely horrific in the future, looking back on your efforts, would you question? and what i'm referring to is, this is in "the new york times" -- how china uses high-tech surveillance to subdue minorities

there's an entire area with high-tech surveillance and the worry is that, eventually, they're going to use this technology to strengthen -- and this i'm quoting from the piece -- strengthen authoritarianism at home and abroad, and it would directly affect us. so, you guys could be enabling the eventual chinese regime to -- i would say that in a lot of ways, the united states wears a white hat in terms of human rights and everything else i'm not so sure about china. i mean, do you want to be in a position where you enable that technology to spread authoritarianism around the world? is that okay with you guys >> absolutely not, and that's not what we're talking about here we are talking about the fact that there are tremendous benefits that can flow from this technology to jobs of our customers and jobs of our suppliers, and there are mechanisms and the principled -- >> are you sure? how do we know that? >> the principal deputy of the director of national intelligence said the problem of back doors can be addressed by testing, and she incorrectly

stated that those who own the equipment can take all the data. if we don't have the data, china can't force us to turn it over so, there are mechanisms that can create assurance and transparency. >> right. >> and it's worth it for the benefits that are going to flow to the united states. >> we had a brigadier general, a former brigadier general here who served on the national security council and has written papers about this here yesterday. and he said, look, this is a significant threat because there are back-door options that have to be reated, that this is the situation with china, and the very way that china sees things is counter to the way western countries do this. we take -- >> you say counter to the way western countries are doing this, but the constitution, the way we create our liberty and protect our democracy is through our separation of powers when our congress ignores the separation of powers and acts unilaterally -- >> so you'd like to see the executive branch jump in on this. >> it's the one acting -- >> that's a technical argument i can see the point you're bringing let me bring up the idea of piracy and ip theft with huawei,

going back to this, which is a separate tack entirely, but it's brought huge concerns. there was just an article in the "wall street journal" that talked about a former huawei hr manager who said in court documents the piracy was so flagrant when it came to the cisco routers that the bugs were even copied in the huawei once and they couldn't release them even the typos in the manuals for using them were copied to that extent. there's user-specific tilt technology that was stolen and it applied for a patent using a document that still had the company that created it, quintel's names on that information, and a brazilian company that came to the united states government and said that huawei approached them and said that they would give them free equipment if they would turn over techelec gear so it could be reverse engineered. what do you say just about the theft of ip which goes to the heart of this trade debate >> i don't forgive acts that have happened in the past. >> some of these are very recent, in the last couple years. >> despite those, our allies have decided to push back on tremendous pressure from the

united states government because they believe the national security threats can be addressed transparently. >> but you don't argue with any of this ip theft, which is why huawei's in the position it is >> well, i think the geopolitical context between the u.s. and china is why we're in this situation, where the experts in government are not willing to talk with us about proven measures to mitigate the risks. >> let's talk about those measures what would have to be implemented? what do you think huawei would be willing -- we can negotiate it right here at the table what would huawei be willing to implement in terms of the hardware in its technology and the oversight of the manufacturing of that technology and the testing of that technology, such that you think that the department of defense and the united states government could be satisfied that it wouldn't be used nefariously >> in different countries in the world, we negotiate with respective governments on what kind of assurance framework they need, whether it's testing of the products, whether it's monitoring of compliance, so that's what we did in the united

kingdom. that's what we have operational in canada. that's what germany's working on the eu is working on very strong requirements we're not go to prejudge what the requirements will be to do business in the united states. it might include things like we can't sell to the government it might include things like we can't sell into critical infrastructure, and that there may be some kind of compliance monitoring, some kind of code evaluation, like we've opened up in brussels -- >> do you think that's acceptable to you, that you couldn't be allowed to sell into the government that you wouldn't be allowed to sell into critical infrastructure >> i can't prejudge because the people who pay my check have not told me, but i'd be astounded if we wouldn't be open to those kinds of risk mitigation measures. >> in terms of where we go from here and some of the things that huawei has said over the past two weeks in terms of what the limits of this blacklisting will do to the company, you've said thus far that you believe that if, for example, android were taken away from you that there would be a software, not patch, but another kind of operating system that you've developed,

that you have enough hardware, all of that. can you sort of explain? there's a lot of people who are skeptical that even 12 months out that you would have that software, that you'd have enough of even some of the hardware in place. >> we started our business continuity planning like 20 years ago with help from ibm a year or two ago, we ramped up our plan ballots to make sure we have components and supplies ready. whether or not at the one-year mark we're going to have an impact on certain components -- we're going to have some difficulty our revenues may slow. but one thing is certain, if numbers going to cut off our nose to spite our face and we're going to harm the suppliers who supply us, they are, in fact, going to be harmed with concrete results, and their customers who depend on us in serving rural america, they're going to really be hurt. we know those things are true. so we hope we can ramp down the rhetoric and we can have discussions about how we can address the real risks in cybersecurity in a transparent manner. >> is there a direct conversation that's happening right now at all at the company level with the u.s. government, or is it strictly chinese

government to government >> well, first of all, we aren't interested in being involved in the trade talks because the china government doesn't speak for us and we don't speak through the china government other than some preliminary conversations with the united states government, we are not yet having substantive conversations with them. we believe our suppliers and customers probably are >> pompeo did -- the secretary did cite an existing law that chinese companies are by law need to cooperate with the government are you familiar with that law is that a red herring? >> well, it's a red herring in several respects we don't think that's what the law says but we also have heard some u.s. government officials admit that they don't think the law has any relevance whatsoever, because they don't believe china's a rule-of-law nation and they believe we'd be forced to turn over whatever we have. but that's one of the things that people don't understand telecommunications the operators control the sensitive data we get written permission every time we access -- >> that's not a great selling point, that china's not a rule-of-law nation. >> i'm saying that's the government's position.

>> that's the government -- >> let me ask you a question. >> so, you know, we have -- this is a very -- you know the rhetoric and it is high, but this is i think -- it's a little rich that huawei's lawsuit is seeking protection under the u.s. constitution. should we even think about that, that an authoritarian country falling back on the laws we have, as far as the constitution, does that bother you at all >> no, actually, we should be proud of it. we should be proud that our legal system insists that our government comply with the laws -- >> even if we end up losing this long-term cold war with china. at least we upheld the constitution >> well, that's what our nation stands for. >> i know. >> but you're also assuming a conclusion that's never going to happen our government has plenty of authorities available to it to protect the people of this country consistent with the constitution. >> let me ask you a separate but related question do you object to the chinese cybersecurity law? the reason i ask is the chinese cybersecurity law effectively

requires all data that's created in china to be held in china by huawei and i ask because if you don't object to it, i think ultimately there's a problem here, because that's part of the issue >> the legal opinions we've gotten from outside firms, including in the uk, is that the cybersecurity law in china does not apply to equipment providers like us, that we are not required to turn over or retain data for them. >> okay. >> british telecom, by the way, did yank out a lot of huawei equipment back, as far back as december you said that the other governments weren't listening to this, that they didn't buy into the argument that there's a security risk, but there have been a lot of companies in other countries that have removed huawei >> i would disagree that there are a lot of countries that have had that situation >> there were five last week, five companies that did it >> well, we'll see how some of these things play out when the facts are fully explored >> okay. we want to thank both of you for joining us this morning.

really appreciate your perspective. it's an important one and a longer conversation and debate, and we hope to have you back as this plays out. >> i need your card, too i always like to needle the lawyers until i need one like, a really good lawyer is like, you know, worth every -- and we're not talking pennies, probably a lot more than that anyway thank you, gentlemen. coming up, backlash against purdue pharma and the sackler family we're going to discuss that after the break. 'lbeig back. "squawk box" will return after a quick minute could you hand me those files? yeah, of course. what is going on guys?

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welcome back, everyone the opioid crisis creating a backlash against the wealthy family behind the oxycontin producer, purdue pharma. robert frank has the story robert, good morning. >> good morning, becky well, from jpmorgan and mckinzie to the met and the tape, a growing number of institutions cutting ties with both the billionaire sackler family and purdue pharma. jpmorgan saying it's ended its relationship with purdue over its alleged role in the opioid crisis jpmorgan managed some of the company's cash and bill payment system mckinsey also announcing it will no longer work with purdue after this advised them how to boost oxy sales. hedge fund hildene capital ended their relationship with the sacklers and balter capital in boston plans to give back 90% of sackler investments as well. several of the museums and charities that have received tens of millions from the sacklers over the decades saying

they will no longer accept new sackler gifts. their net worth for the family estimated at around $13 billion, but they agreed to contribute $75 million toward a $270 million purdue settlement in oklahoma recently. and david sackler, one of eight family members who served on the purdue board, is listing his apartment on new york's upper east side for $6.5 million the sacklers saying in a statement, "the allegations against our family are false and unfair, but we understand that accepting gifts at this time would put certain organizations in a difficult position. purdue, the company, saying in a separate statement, it has multiple banking relationships and its banking and financial service needs will not be affected >> robert, thank you >> thank you. >> for more, let's bring in our guest this morning, ronnie gal, senior research analyst at bernstein. he put out a note on johnson & johnson and teva ahead of the opioid case. he has a market perform rating

on j&j also former attorney general of maryland, douglas gantsler is joining us douglas, let's start with you, because looking the at the cases that are lining up, oklahoma certainly leading the way, but there are lots of states attorneys generals looking at this, but also local municipalities that are looking at ways to come at this, too how do you think this shapes up? >> well, there's 46 states now involved, and i think every state attorney general needs to be involved in the opioid crisis it's clearly a health care crisis going on in the country and they all need to feel like they're doing something to help alleviate the situation. the difference, though, is there's almost 2,000 cases going on -- counties, cities, municipalities -- and how to sort that all out, ultimately, in some sort of settlement, were there to be one, is going to be much more difficult than, say, in the tobacco case that we had in the late '90s where the attorneys general were leading the way. ultimately, the state attorneys general are going to have to lead the way in resolving these

lawsuits >> why do you think the states attorney generals need to do this -- attorneys general? >> well, the federal government can do it, but they're not going to the states have an interest in this because the citizens of their states are dying the difficulty, though, of course, is there are so many different levels in the supply chain here there's manufacturers that actually make the product, then there's the distributors that take the products from the manufacturers to the pharmacy, and then the pharmacy hands out the drugs on legitimate, hopefully, predictioscriptions and the problem, of course, is if you're addicted to an opioid, you're not going to bang on the door of johnson & johnson and say please give me a prescription you're going to go to a bad doctor, but the bad doctors, unlike the sacklers, don't have the money. so the states ags are trying to wrap up these groups in some lawsuits and come to a resolution based on alleged claims of marketing these products and saying that they weren't addictive when the allegations are that the companies knew that they were.

>> i guess the difference between this and tobacco is that tobacco, even when it's used properly, can still kill you when you have a situation like opioids, there is a legitimate medical use, and people who were also helped by it along the way, so how do you sort that out from how this is going to shake out, too? >> that is exactly right this is not like tobacco in that sense. the fda approves the opioids opioids have a legitimate purpose in our health care arsenal. people -- if you've ever been in severe pain, you want to actually use the painkillers the problem -- another problem they had that is different than tobacco, you mentioned, of course, there is no legitimate use for smoking cigarettes if you smoke cigarettes, you will get addicted and you will ultimately die that's not the case for painkillers. if used appropriately and properly, you won't die. your pain will be alleviated so there's a difference there. the other difference, of course, is the marketing that was going on from the companies was to sophisticated professionals, that is, doctors and in the tobacco world, it was

going to seemingly less sophisticated folks. >> i think it's really complicated. you start hearing about the 2,000 or more cases that are out there. how do you as an analyst wrap your head around this and say this is what it means to johnson & johnson, when there are so many moving parts? >> yeah, so the big question is the exposure companies have. we know the tobacco litigation ran around $1,000 per person, every person in the united states involved in the litigation if you look at the -- if you sum up the purdue settlement, it's about $80. if you add to that some of the other litigants, it's around $250 per person in the united states and you can gross it up from there looking at the teva settlement, $85 million with oklahoma, oklahoma is 1.1% of the u.s. population you divide 85 by 1.1, you get to about $7.1 billion, and that's kind of a ballpark starting point for discussion about what the exposure might be for some of those companies so, that's the kind of analysis that we do obvious obviously, five years' issue, not today. >> so, how did it change your

outlook on the companies, if at all, or do you think it's something that's manageable because they're going to play a small role in a very large settlement overall >> yeah. so, for a company like johnson & johnson, obviously the issue is just cash flow that goes away. for the smaller companies that are levered, like teva, you know, you're talking about a company -- teva's generated about $2 to $2.5 billion of free cash flow a year, they've got $24 billion in debt, $11 billion in equity. throw on top of that any number between $4 billion and $10 billion in additional, call it liability, debt. yeah, i mean, you begin to ask the question does the company have storage equity, does the company have a risk of bankruptcy and so forth? that is not impossible to think about at this point. it makes some of the smaller companies really hard to invest in before you get some clarity on how much it's going to cost. >> ronny, thank you for being here today and douglas, good to see you robert, thanks for your time >> okay. coming up when we return, the futures under pressure this morning yet again. we'll break down what you should be doing with your money

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bond market warning. is the yield curve inversion signaling a recession's on the way? what the market phenomenon means for you and your money huawei versus america. the u.s. is looking to stem the chinese company's rise around the world. now the telecom giant fires back

in court and will the usmca survive vice president mike pence about to head to canada to push the new nafta forward. we'll talk to his chief of staff about what's at stake as 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. >> raise that. anyway, good morning welcome back to "squawk box" here on cnbc, live from the nasdaq market site in times square where is o'reilly? we don't know, do we remember that? live let's do it live yeah, i'm joe kernen along with becky quick and andrew ross sorkin the futures right now are indicated down 161 points. the nasdaq down almost 50. s&p down 50. that would put it, i believe,

below that 2,800 level treasury yields, i'm ready to see anything at this point i don't make any forecasts nothing surprises me anymore 2.22% now on the ten-year. just be ready for anything with that, right? >> following your mind is -- >> huh >> what? where are we >> would anything surprise you at this point? >> no. okay, a one handle would surprise me. >> you're only 22 basis points from a one handle. >> it would still surprise me. if you called that up and we had moved 22 basis points in the last half hour, i would be surprised. >> you're giving people money, getting back less all around the world right now. >> okay, so 1.9% or 3% sooner, which do you think happens which side -- >> i would say 1.9%, of course, wouldn't you even liesman would say that. >> would you, steve? >> i want to do a sitcom, called it "222. oh, wait -- >> already did that. meanwhile, let's get to the big headlines -- >> cotter was 222. but that's good.

you have no idea what we're talking about, do you? >> it's okay. the chart shows an inversion between short-term three-month and longer-term ten-month debt that means that three-month is yielding more than the ten-year. it's the most inverted it's been in about a dozen years historically, an inverted curve signals a slowdown, if not a recession. it is being predicted by the market in the last six months, the ten-year note has fallen by about 75 basis points. also, huawei stepping up its legal defense against the united states, pushing for a swift conclusion to a court battle the company filed a lawsuit against the united states in march alleging that a law that bans government agencies from buying their equipment is unconstitutional and now huawei is filing a summary for judgment, a request that they rule in their favor as a matter of law because the facts of the case aren't disputed. crude oil prices are down this morning as u.s. inventories continue to swell. wti crude $57.51, that's a barrel, amid growing fears of a global economic slowdown, which are pressuring oil prices down

this month, we should say down nearly 9% in the last 30 days. a few stocks on the move this morning as well take a look at shares of canada goose. the outerwear maker recorded adjusted quarterly profit of 9 cents a share, beating street exec tags of 5 cents however, revenue was below estimates and they gave a weaker than expected outlook. as a result, the stock is off 14.5%. dick's sporting goods beating estimates by 4 cents in its latest quarter with adjusted quarterly profit of 62 cents a share. revenue beat the street's expectations and comparable-store sales were flat, which was actually better than the forecast of a 1.3% decline. dick's also raised its full-year outlook, and that stock is up by 3.7% this morning. and as they look to merge t-mobile and sprint could sell the prepaid wireless brand boost mobile for up to $3 billion. that's according to interested bidders who spoke to reuters the sale of boost is among the concessions offered to win fcc approval of the deal

don't miss an interview with the founder of boost mobile, peter adderton, coming up later this morning on "squawk alley." and boeing's ceo, dennis muilenburg, is speaking this hour at a conference here in new york city. we're going to be keeping an eye out for any updates on the grounded 737 max jetliner. but in the meantime, want to look at boeing's impact on the dow jones industrial average, also how along with the trade changing fortunes can actually affect the u.s. economy. steve liesman joins us now with more on that >> yeah, boeing had a big effect, andrew, on the friday durable report, and it also did growth headline durable goods fell one-sixth in april with a 16% decline in aircraft shipments, much of which looks related to the 737 max. so, here's what happened to q-2 gdp, take off 0.2%, not just because of boeing, but largely in part because of it. so we're tracking 1.6% on the second quarter tracking 3% still unchanged. we'll get another revision to that this week on the first quarter. here's where folks are for the

second quarter ubs at the top i don't know why seth is so optimistic, but he is at 2.3%. then everybody else is kind of in the 1s. doit bank 1.7%, goldman, atlanta fed and moody's at 1.3%, and natixis, joe lavorgna, at 1% boeing not the only weakness companies could be holding back or holding off on investments due to tariff and growth uncertainty. evercore writes "the weakness in u.s. cap goods is a major reason q-2 real gdp estimates have been cut to 1%. it's not just boeing related it's cap goods survey which covers ten large businesses, edging lower for a year. and action economics says there's been an inventory build the last three quarters, in part due to tariffs it expects them to be worked off over the rest of this year, a negative for growth. guys, it is one of the ironies of economics -- nothing is more boring than talking about inventories, and yet, nothing is

more consequential for the economy. at its root, unwanted inventory builds are the cause of all recessions, right? >> because we keep producing -- >> too much stuff, companies get it wrornsion ang, so the proces recession is a process of right-sizing inventories and production working it off, you shut stuff down, you have too much capacity either in labor or more likely in manufacturing, and that's what causes recession. so, we can, you know, hopefully, people are having their coffee right now, we're talking about inventories, but it's important. >> and i think also probably not only inventories but also business expenditures, capital expenditures. >> exactly, then you have the capex -- >> and they're watching for the same. >> because you don't need more machinery to make stuff that you have on the shelves. >> right. >> so you don't necessarily do that we can do inventory work-offs, wha whatever you want to call it, and not have a recession that's entirely possible and doable, and it doesn't look like, especially in this more

just-in-time world, that inventories at the moment are that out of whack. the trouble is, we don't really have great data on it all. >> thanks, steve. all right, here to weigh in on the biggest issues facing growth in the u.s. economy, mark vitner, senior economist at wells fargo securities, and michael gapen, chief u.s. economist at barclays. what happened since our 3.2%, our lovely 3.2%, vitner? is it the trade? is it china? what happened? >> well, it's trade and it's also the uncertainty that the tariff war, tar battle, whatever you want to call it, has unleashed, and that a lot of folks are just holding back on making big investments and so, we've seen a lot of weakness in capital spending the global economy's feeling a lot more than the u.s., mainly because in china we've seen that car sales have fallen for the last 12 months and so, all of the economies that export a lot of auto technology to china are feeling it, japan and germany probably feeling it the most. >> what do you think

>> i agree with that i think there's just a lot of noise in the data injected by the trade and the uncertainty. and i think the best thing to do is kind of average between q-1 and q-2. so if we're right in the numbers, we're tracking high 1s or somewhere around 2% you're going to get a first half that's around 2.5% that's broadly in line with what everybody was thinking the economy's slowing from 3% towards something that looks like 2% in the second half of the year >> hmm and boeing's impact is minimal >> minimal, but it does show up in some of these inventory numbers. and we talked to david strauss, our u.s. aerospace analyst, and their view is that production's going to slow from about little over 50 737s a month down to about 42, and it may stay that way through the end of 2020. its shipments are really going to come down those virtually come down to zero through the end of the third quarter and don't recover -- >> of just the 737s, right >> of just the 737s. >> so, what happens if you have

a real negative in april what happened in may, does it continue to be bad >> at least from the 737 perspective, yes because as your previous segment pointed out, the review isn't until august so, a clean bill of health and when shipments and deliveries can proceed again probably won't be until before -- >> do you think people blame the fed for the last rate hike everybody blames china and trade. would you blame the fed? >> i think if they had to do that over, they'd probably take it back. >> mark? >> i was critical of it the day they did it. i thought that it was the wrong thing to do at that time and that they were really missing it, that the inflation numbers were already decelerating. and housing was just in free fall and since they pivoted and they've kind of backed off a little bit, we've seen that housing has stopped falling, but it hasn't started rising and i think that we're probably going to have to see a rate cut before we get housing back in growth mode. >> millennials don't they understand, to have an airbnb, you need to own it, somebody needs to own it doesn't at some point -- it's just so -- it's maddening. >> the greatest generation

>> yeah. think about that. >> i'm a huge millennial fan they work hard. >> you've got a couple, right? >> they work hard. >> he's joking. >> no, i'm not >> he's not. >> i'm not i think they got a bad rap >> interesting. >> i like them the ones i know are hard working and have a lot of adversity to overcome. >> you have very few non-consensus calls. that's one that's a big one are they going to cut? >> no, i think on balance they can stay on the sideline through the end of next year. >> what's happening with sovereigns mark, both of you, all you're talking about are domestic things why are sovereigns, why are yields plummeting everywhere, mark >> i think the trade uncertainty hits overseas economies much more than it hits the u.s. and i think that's particularly true in germany. certainly, the elections over the weekend didn't help things in europe. i mean, that clouds the picture even more. but i think that's a story there. it puts a real low ceiling as to how high our rates can go. and i really think that in the

next few days, we're going to see some numbers that are critical the ism number that comes out on monday, if that falls below 50, historically, the fed has cut when we've had the ism above 50. >> watch out on monday. >> so, expectations are for a small rise, because we had seen some improvement in the comparable ism numbers, although the market numbers that came out last week were just terrible. >> i just want to echo what mark said all of the factory inventory manufacturing data's going to be critical at this point because we need to know how the manufacturing sector's reacting to all of the stuff that's out there. again, it's a small part of the economy, but it's a big part of the variability in the economy >> right. >> the service sector's kind of like, you know, basically flat line, up a little bit, down a little bit, but the manufacturers is where you get all the action. >> don't we know, it's negative in ip, it's negative year on year. >> intellectual property >> yeah -- >> no, manufacturing production ip is negative year on year, so -- >> why don't you think they're going to cut we just heard that every time there's an inverted yield curve, it ushers in rate-cutting cycle.

>> i think we are less levered to global trade. to the previous comment, the rest of the world is feeling it a little more than we are. i think there's more virtuous seigel cycle to go, more employment and more consumption to get us through this i think -- >> i think we have to listen to fed guys they think it's different this time they think all of the global qe and the low rate to start with -- >> it's technology. >> -- means that a yield curve inversion is not -- it's not your father's yield curve inversion. >> maybe it's -- >> it's a millennial yield curve inversion. >> what is after millennials what are my kids >> generation z. >> i've got my money on "z." >> what's going to be after "z"? >> i don't know, but i've got my money on "z. they're capitalisted i realize why you like millennials, aoc they're right along your line. >> they just haven't seasoned yet, joe they're going to come around, like everybody comes around. >> i agree >> you know what i said about --

we say room 222, we say kotter and we know what we're talking about. that won't happen again. there's thousands of siris on. there's no more of "the munsters," no more "bewitched. >> and how was the world a worse place for that >> "game of thrones," you could name a bunch -- >> hear that, sorkin give her some money. >> it's the golden age of television >> you picked "billions" with "game of thrones"? >> yes >> that was totally -- that was a homer comment. >> give credit where credit is due. >> and you can take "the wire," there's a lot of great -- >> maybe. >> i don't watch "billions." i'd like to say that publicly. >> when i went to school -- >> i don't need to watch -- >> when i walked to school uphill, okay >> anyway, michael, mark, thank you. >> you still think of him as ben bernanke, don't you? >> it's just so weird! this attorney general used to be the fed chairman it doesn't work for me >> oh, wait, this is me. >> this is you. when we come back, the next

chapter in the cbs soap opera -- >> no. >> i wasn't paying attention -- >> broadcaster set to meet today. we'll have a top analyst if the company's management drama is finally over and find out why he's bullish on cbs stock. right now as we head to a break, take a look at the futures been under pressure this morning after the declines from yesterday, too down 237 yesterday for the dow right now the futures indicated down 171 "squawk box" will be right back. , let's talk. , we have a pretty good relationship. you've done a lot of good for the world. but i feel like you have the potential to do so much more. can we build ai without bias? how do we bake security into everything we do? we need tech that helps people understand each other. that understands my business. we've got some work to do. and we need your help. we need your support. let's expect more from technology. let's put smart to work. ♪ ♪

welcome back, everybody. cbs shareholders are scheduled to meet today p.m. officia officials hoping it's at the tail end of a storm related to negative headlines on workplace culture. for a look at what to expect today as well as what's working in the media world is tuna mobi. media analyst. this has been a long time coming we've been watching these headlines for, i can't even remember how long. you really think that this is a turning point? >> thanks, becky sure i think, you know, i think it's almost safe to say that a third

merger attempt between cbs and viacom is almost like a charm, right? so, we've had this news for some time, speculation on and off when you look at today's environment, all of the indicators point towards there's probably more than a 90% chance we'll see a merger announcement this year between cbs and viacom that's how i would handicap that. >> if that's the case, play the parlor game of who ends up leading it >> i would say, becky, that robert bakish is in a pole position to run the combined company. it's almost like his to lose at this point >> so, if you're someone who's been on the sidelines waiting to see what happens, what would you tell an investor to do at this point? cbs shares, $47.62 we'll take a look at viacom shares, too. but if you think that there's a 90% chance of a merger happening, is that a reason to buy either one of these stocks >> we have buy recommendations on both, granted that the outlook for both have been

clouded somewhat by the overhang of the merger announcement speculation. but i think when cbs extend ed joe animalo's control, they have had problems filling the prominent ceo position we think that gets resolved. but more importantly, i think both companies have made a very credible attempt to articulate the direct-to-consumer strategy, which at the end of the day, whether a merger happens or not, this is something that is very, very important for both companies to get a buy-in from wall street. >> do you think they have that right now? that's my question is this what shareholders want, too? >> i do. i think last quarter, i think last earnings, cbs came out and really made a very compelling, you know, showing in terms of the outlook for direct-to-consumer, the projections that they've put out for showtime and all access are quite impressive, and other cataly catalyst, viacom coming off the

revenue streams. our take that either independently or combined, you know, these companies are going to be just fine. >> the argument on the street exists that they can't stay independent because they're each too small, that if they don't get back together, then they're going to have to be bought by somebody else. would you agree with that? >> i think there's more likelihood that they get back together than being bought by someone else sure, the argument continues to persist. you could argue that both companies are subscale in this current environment where disney and at&t -- >> they keep getting bigger. >> that's right. that's one rationale we think motivates this potential combination. >> what are the synergies if they wind up back together where would you see them making advances what's the advantage of being together >> right you know, i think conservatively, $1 billion in cost synergies is quite achievable when you think about disney talking about $2 billion. there's no reason why we don't think $1 billion on the low end, potentially, is justifiable here >> okay. tuna, i want to thank you very

much for your time by the way, while you're here, other names in the media world that you also have buys on >> you know, sinclair might surprise you coming off of their acquisition of regional sports that deal was attractively, you know, surprising we know sports is quite compelling as the glue that can hold together the bundle in this kind of fragmented landscape we also like disney, of course, a strong buy on their direct-to-consumer shift and those are our top picks right now. >> all right tuna, thank you very much. it's good to see you. >> thank you. when we return, remember the new nafta, also known as usmca vice president mike pence heads north this week in hopes of nudging the long-simmering u.s./mexico/canada agreement forward. just ahead, we will speak with marc short, the vice president's chief of staff, on what stands in the way of getting a deal done stay tuned you are watching "squawk box" on cnbc ♪

welcome back to "squawk box. andrew the futures right now are indicated down 177 welcome back down 177 points. the nasdaq indicated down 52 s&p down 17. remember archie bunker

first time they ever made that sound on tv. remember "all in the family." i think john could probably make that good interview, by the way, becky, with tuna that was solid you were really prepared. coming up when we return, the other trade deal we were talking about -- >> play it, john >> u.s./mexico/canada, with china talks hitting new obstacles this month will the trump administration at least get a trade win with america's closest names? vice psintikrede me pence's chief of staff marc short will be joining us next stay tuned ♪

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you guys are such idiots welcome back to "squawk box. this is cnbc we are live from the nasdaq market site in times square. let's get to the stories that investors are going to be talking about. >> that was not in the teleprompter that was not in the teleprompter mortgage applications fell by 3.3% last week. according to new figures from

the mortgage bankers association. both new purchase applications and refinancing activity declined the average 30-year mortgage rate was unchanged at 4.33% during the week. earnings out this morning from apparel retailer abercrombie & fitch. revenue was slightly better than expected, but comp-store sales rose less than expected because of a slowed at their hollister brand. and that stock is off by 17% this morning. bed bath & beyond has added four new independent directors, part of a settlement with an investment group pushing for change the housewares retailer is still looking for a new ceo. stock off about 1.1%. vice president mike pence heads out of the country this week to push for a trade deal -- no, not a deal with china -- this is the still-pending united states/canada/mexico agreement kayla tausche joins us now with more. >> good morning, andrew. vice president mike pence will be meeting with canada's prime minister justin trudeau on

thursday in ottawa to discuss the ratification of this new nafta deal, or what the u.s. calls the usmca. canada's moving toward passage of the deal, posting an official notice that could mean a bill to ratify it is introduced as soon as wednesday before that meeting. trudeau telling reporters yesterday that canada's going "to be aligning ourselves very much with the pace of the american administration. the white house hoped to pass the deal by the august congressional recess but has not yet sent the deal up to congress removing steel and aluminum tariffs two weeks ago cleared a major hurdle for republicans, but democrats remain the wild card working groups studying issues like labor and enforcement could make progress, but rank and file members still say portions of the deal aren't workable as is president trump said last week he doesn't think top house democrat speaker nancy pelosi understands the deal >> the senate's ready to approve it the republican senate. but the democrat house is not. pelosi does not understand the bill she doesn't understand it.

even though unions are in favor of it, farmers, manufacturers -- everybody, just about is in favor of it. it's a replacement for, as i said, the worst trade deal ever made so, she's got to get up to snuff, learn the bill. >> reporter: president trump said pelosi wants two weeks to get to know it, so that's about a week and a half from now joe, we'll see where she comes down on it then. back to you. >> okay. we'll talk more about that, kayla. stay tuned for all of the details on vice president mike pence's trip to canada for negotiations on the usmca deal let's bring in marc short, chief of staff to the vice president marc, making any progress? i can't imagine that the tariff issue with mexico and canada wouldn't have earned some goodwill for the administration to get this moving are we closer, do you think? what are the chances now, and what's -- >> i think -- >> what's pence looking for in canada >> joe, thanks for having me i think kayla got it right, that

when the steel and aluminum tariffs were removed, it gained a lot of momentum. a lot of the business communities pledged to get fully behind the bill here in the united states. and in fact, we do expect canada to introduce in the house of commons today legislation to move it forward. there was a vote earlier this week about 250-40 in canada to move forward with the process. today the bill will be introduced we're looking for significant momentum there and in mexico recently, there were labor reforms passed that paved the way in mexico. here in the united states, i think the challenge remains a political one, less than a policy one i think that there is a lot of consensus that the policy changes here will actually benefit the economy. the international trade commission has estimated tens of thousands of new auto manufacturing jobs, additional exports for the united states. i think the challenge remains for democrats in the house -- and i don't think they want to give president trump a political victory heading into 2020. but the reality is, this is going to be good for their

members' districts, too. a lot of democrats represent manufacturing districts or agriculture districts for which trade with mexico and canada will be beneficial and so, this is going to be -- it's more of a political question, i think, joe, than it actually is a policy question. there's no doubt that this is a better bill for the united states, and it helps manufacturers in our country, it helps agriculture, it helps the overall american economy >> but that's the key point, it would be giving a win to the president. and given the events of the last week between the speaker and the president, i can certainly see how political issues would outweigh policy and that it's not going to -- that she's not going to give a win to the administration >> well, joe, that would be a sad commentary on the state of our affairs, if in reality there's a consensus that this actually benefits the american worker, benefits the american economy, but there's really just a decision that this would be a political win for the president is the only reason to prevent it as you heard, the president said recently, we've received a lot of support, in fact, from labor unions they're not traditionally aligned with republican administrations, but they think

this is a good deal for them, too. it's good for american businesses it's actually good, as i said, for a lot of individual democrat members' districts and so, we hear from them that they're anxious to move this forward as well. the reality is, is that speaker pelosi, under the trade authority has the keys here for when this is brought up and what the process is so we're encouraging members and businesses across the country to weigh in with her office to ask her to bring this forward for a vote in congress because we think we have the votes. it's just a matter of whether or not we get the opportunity to vote on it or not. >> right i mean, i just wonder whether -- you know, i've heard democrats say we can walk and chew gum at the same time. we can do investigations of the president, but we can also do legislation. it would seem to me that they could -- if they really want to live up to that claim, that they could move on this for the good of, you say as a country but do you really think her base, speaker pelosi's base that's pushing for whatever,

impeachment, investigations, do you really think they're going to give a win on a policy issue as well? i think she has to appease that element of the democrats as well, and i don't think that they can walk and chew gum at the same time. they're going to hold it back. >> well, i think we're going to find out, joe, but i think the challenge for us and for the american people is to put enough pressure on individual democrats who will be also on the ticket in 2020 running in districts for which if this is not passed, their members and their constituents will be harmed. so the reality is, if she wants to protect her members, she will bring this up for a vote because there's enough democrats living, residing in districts that are agriculture districts or manufacturing districts, or frankly, in districts that donald trump won in 2016 that they need to show that they're not strictly partisan, that they're willing to do what's good for the american people as well and if there's enough pressure applied there, we think she'll bring it up for a vote. >> so, hope springs eternal. do you really think there's a better than even chance that it goes or not? >> as i said, joe, i think the reality is there's a significant chance that this will certainly

pass if given a vote the question is will nancy pelosi bring it up we think there's a good chance by the end of the summer, she will once you get into the fall, you know that we're then focused on how do we fund the government. and so, really, we believe this should happen before the august recess >> hey, marc, on a different subject, i wanted to ask you about huawei last hour, the company's chief security officer for the united states joined us along with its outside legal counsel, and here's what security officer andy purdy said. >> the u.s. is worried more about the country, china, than about the company huawei and the united states is not ready to address the most sophisticated cybersecurity risks generally, so they're bending over backwards to try to make sure america's safe, and we think we've got to ramp down the rhetoric and address real cybersecurity risks. >> so, i know we're springing this on you, marc, but how do you see this playing out is it a bargaining chip in the eventual deal with china, or is this something that's not going to change, regardless of trade

>> well, as the president said, it's possible that it gets included in a trade deal, but i think it is more than that, joe. the reality is that huawei is not a private company as americans are familiar with here in the united states it is more or less a wholly owned subsidiary of the communist party of china and the reality is, what huawei has been doing, the reason there are sanctions on it now, is because they've been facilitating, aiding the government in iran with technology that's why the recent sanctions were applied to huawei so, they need to stop those actions, stop cooperating with iran at this time if they want to actually work with the united states. >> hey, mark marcus, though, just to put a fine point on that, marc, is it doing business with iran that we think is the problem, or is the national security threat the problem? and if it's the national security threat, how do you get around that via a trade deal >> to answer your question, i think it's both. i think the most recent problem was their cooperation with iran when we were applying sanctions to iran. but i think the way you get around it is, the reality is

china needs a trade deal, too. their economy is hurting because of the pressure donald trump has applied to them. and so, if they want to change their ways, we are more than open to a trade deal the united states wants to make a trade deal, but china has to change its actions they have to change their forced transfer of technology they have to change their stealing of intellectual property, and they have to change some of the actions of companies like huawei. >> marc, one of huawei's points, the point of the outside counsel who was talking to us said that, look, the reason that we're against this action from the united states is because it doesn't follow the constitutionality of the united states, that it's simply congress that is doing this, that the executive branch hasn't stepped in and taken these actions. their entire case could probably be undermined if the executive branch did step up and say that they are banning them. what do you say to that? >> yeah, so, he's actually incorrect in his facts there is the national defense authorization act, which is legislation, which is what they are challenging in court to say that congress can't target an individual company but separately, the

administration has acted and most recently sanctions were applied by the executive branch. so, their case is against the legislative branch and actions that congress put forward, but in fact, this administration has acted as well in sanctioning huawei >> marc, we've got -- i don't know how close -- i'm sure you watch "squawk box" every morning, so you probably have seen the ten-year. i mean, it's very odd what we're seeing in sovereigns and our own treasurys in this country, in terms of the growth outlook for the united states. there are some things that are different, obviously inflation is low but there are some warning signals that maybe the trade initiatives are starting to slow the global economy is there a concern is the vice president concerned? what are you hearing >> well, joe, because i'm a loyal follower of "squawk box," you'll know that i was listening to you on the way in this morning and deal wholeheartedly with the commentary. i think it was becky who said that the inverted yield curve

has predicted seven of the last four recessions. and so, yes, we remember that in the first quarter there was an inverted yield curve and everybody was expecting that growth would be diminishing, that employment would be down. and in fact, we had a 3.2% gdp in the first quarter, which blew way past expectations. and you actually saw employment numbers had reached the lowest unemployment in 50 years for our country. so, while there is an inverted yield curve at the moment, there's probably a lot of factors that are part of that. and i think that as well you see, as you were commenting, that interest rates in europe are basically negative at this point. and so, there's a question about monetary policy in the united states and how that impacts it as well. >> so, were you just listening this morning, marc, or, because you were coming on >> i told you, joe, i'm a loyal listener i'm regularly listening. >> you missed all of the steele dossier and stormy daniels stuff over on cnn. are you sure you're -- >> that's another reason why i'm a loyal follower here at cnbc. >> okay, good. all right. you dvr everything else. andrew watches later anyway, marc, thank you for

joining us today and we'd love to, you know -- must be a big deal for you getting on this show if you want to come on, we'd love to have you on again sometime. >> i'll come on any day. we look forward to having you on with the vice president tomorrow from ottawa. >> awesome. >> thank you very much. >> thanks, guys. when we come back, latest on boeing's 737 max from the company's ceo. he is speaking this morning right here in new york city. details are straight ahead and after markets limped to the finish line yesterday, we will tell you what to expect when the bell rings in under an hour market strategist jeff saut will join u stay tuned to "squawk box" here on cnbc. it has to keep up with sales, supply chain, inventory - ♪ ♪ it needs to track it all, from cincinnati to singapore. ooo! ♪ ♪ and protect it all. customer records, our financials, they better be secured. but i also need easy access, to manage data across my clouds - no matter where it lives. ♪ ♪ so if an auditor shows up, i can be a step ahead. that's the cloud i want.

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welcome back to "squawk box. the futures right now have worsened, but we're down 190 got a little better. down 172 on the dow right now, s&p down 17 and the nasdaq indicated off 51 okay, boeing's ceo dennis muilenburg speaking this morning at an event here in new york city we want to get an update from phil lebeau. >> reporter: andrew, just a few minutes ago, dennis muilenburg was asked when the company might resume giving financial guidance remember, they suspended that after the first quarter because the 737 max is grounded. dennis muilenburg just told an analyst, look, we're not in the position yet to say when we will resume guidance, but on the issue of the 737 max and when it returns to the air and production increases, he's still bullish about increasing production from where it is now to where it's expected to be and then beyond. listen to what he had to say

>> once we get the airplane back up and flying, we get the grounded fleet back up and flying for our customers, then we will in a very disciplined way get back into our rate increase plan. i'm not going to put a specific timeline on that because we want to very much focus on getting the max back up and flying safely first but we do have a long-term standpoint still expect to ramp back up to our 57-a-month rate, and our long-term demand profile still says that rates above 57 a month could make sense. >> let me refresh your memories in terms of where they are in terms of their production schedules. they are at 42 a month right now. was at 25, brought it down to 42 we have a chart that shows where it's been and where it's headed to supposed to go up to 57 later this year. may not be this year, guys i've talked to people who say they'd be surprised if they get back up to 57 this year, but that is the expectation, that at some point they not only get back to 52, but then to 57 and

going beyond there as you take a look at shares of boeing, keep in mind that you have the international air transport association saying they don't expect the max back until august, although there are some individual airlines, andrew, who are out overnight in asia saying, yeah, we've gotten the indication from boeing that the max could be back up and flying, perhaps as soon as july. >> okay. thank you, phil. our next guest says that investors are preparing for the next market menace by looking in the wrong place. joining us right now is jeff saut, market strategist and advisory board member at capital wealth planning. we're looking for things to happen just like they did the last time, right right, jeff? >> yeah, i think we're still in a secular bull market. our short-term proprietary model called this downturn, targeted the peak at the beginning of may. quite frankly, i didn't think we'd break 2,800, but looks like we're at 2,750 as a support level now. earnings estimates have come down, but the sales revenues continue to tag new all-time

highs. and unless the economy is disconnected with sales continuing to travel higher, earnings, i think estimates have come down too far and i think will be revised upward. >> what do you mean when you say we're always looking for the next downturn to look just like the last we're still looking back towards the great recession, we're still looking back at what caused it last time around >> yeah. you know, i'm out in the world seeing portfolio managers and doing gigs for financial advisers and clients, and the investing public is scared to death. they're not just cautious, they're scared to death. and that's because they don't know how to manage risk. if you manage risk -- i was on your show in september of '99 talking about the dow theory sales signal i was on here in june of 2003 talking about the dow theory buy signal there was another buy theory sell signal on november 21st of '07. the only people that talked about it were me and a guy named dick russell that used to write

dow theory letters so, we've managed risk we've avoided the down side. the folks i'm working with at capital wealth planning are risk-adjusted investors. they look to provide risk-adjusted returns. >> what are the signals telling you now, because you don't think that we're necessarily headed into rough waters from here. >> no, i do not. i think between now and the next few weeks, the market's a buy and i think we'll go up and make new all-time highs by the end of the year. >> why do you think that, when we talk about all of the bad headlin headlines? is this noise getting in the way of what's happening with corporate earnings >> yeah, i think that's exactly right. the news media -- except for y'all -- you know, they emphasize the volatility they emphasize the bad news. when in actuality, there's actually a lot of good news. i think there's going to be a trade deal with china. you saw what happened with canada overnight i think that things are going to work out pretty well, and i think the earnings are going to

get revised back upward. >> you know, there are expectations that the fed's next move is going to be a rate cut and that that could happen, i think more than 50% chance of that happening by september. would you agree with that? if the news is mostly good, do you think the fed should cut rates here >> i don't think the fed should cut rates. i think they probably will, but i don't think the economy's in a nose-dive here i mean, look out the windows here we were in restaurants last night here in new york city that were packed. and i travel all over the world. and the economy looks just fine to me. >> so, how do you tell somebody to have a balanced portfolio, one that is riskproof from all of these situations? what do they need to do? >> i don't think there's a riskproof portfolio, unless you're in cash. >> i think cash is pretty risky because you're losing money every year because of inflation. >> i agree i agree. >> so, what would be the best portfolio you'd recommend? >> what we're doing is buying high-quality, named stocks that you would know, dividends that

are being increased every year, and then we're selling short-term out-of-the-money calls against them and trying to target a 6% to 7% distribution return and in the stocks go up and get called away, that's fine you've got capital gain. and it's zp gand get called right away, that's fine they got the track record to prove it. >> what would concern you and the thing that would change your mind on any of those >> a dow series cell signal. geo political with north korea on those lines crude oil going for $150 a barrel a policy mistake out of d.c. i don't see any of that is happening. 80% chance of a solution coming out that china got a lot more to lose

than the u.s china's economy is slowing the power is going to negotiate a deal whether it is next month or six months from now >> what do you think of the ten year yield of 2.2% >> i think it is capital flow. i talked to jeremy lagermany la and they go where else can they put money? we got negative returns here so they are buying treasures. it is a good time to do it and get to do less >> one of the best yields around >> what about some of the worse economic news we have seen in the last couple of weeks there is been a few reports that's a little bit concerning and capital expenditures from corporation here in measuring. when you look at pmi, what do you think of those numbers do you see?

>> i think you will get better figure going forward i don't see the slow down in country. you had some stronger than expected economic data in the past couple of weeks as well >> the job report is coming up next on friday jeff, it is nice to see you in the studio >> yeah, let's get down to the new york stock exchange, sorry, the insomnia has returned in your life. i was rubbing sleep out of my eyes and when i woke up and you were saying is the fed partly to blame for the slow down. you think they eventually have to take back that hike >> oh, i think they have their fair share i do believe they created a shock in the economy. i think people look at the yield curve and say you no what, i am

scared it does become self full-filling the comment about jaime dimon is about trade. it is a mixture. they have to take back the hike. >> you do? >> jeff, i look at the tape, you know it is grooming. look at apple. we were talking about apple this morning. apple is a great company is china going to tax them next year when huawei dies. everybody hates everybody. >> rarer you just everyday you come in and it is just a new thing and feeling beat down. these averages reflect the beat down they really do >> i think i am more worried of it than some of the other threats though >> climate control makes i iit it -- electric cars.

if everybody is weaponizing everything, it is going to be something that everybody needs it is unfortunate. we get lost every single day but they did have some things we need i don't know, you and i both feel it. we don't want to be pessimistic because it is too good >> the media the least story in the journal today, you go back to commodities, oil rose. everyone wants to be negative and you and i don't want to be negative because employment is so good. >> my thoughts exactly right on huawei, too. we had the security officer in one of the lawyers on huawei on it it really is about worried abou china in the future and they are

a different system than we are and human rights and all the things then i realize we have been dealing with that regime since ping-pong so i guess i am okay with it all along. we need to -- >> you were okay when we were looking to get into a market looking at 6 million people or putting up a lot of things we should not >> yeah. >> do we definitely -- this is going to be when we say all right i am drawing the line. this is huawei and now no more no mas it seems arbitrary it is scary five years from now everything huawei and little trojan hourrse. we don't want that i am taking a lot of heat about it i think the president's right on this stuff the hard liners are right. >> jim -- >> the freedman/bannon show, i

wish we could play it. >> do you think huawei or the chinese government could do that dissuade your concerns of the security front >> i think if they said listen we'll let companies come into our -- samsung is even pathetic. huawei won >> well, they won because they stole a lot of intellectual property along the way, too. >> yes, thank you. that's what they did that's what they did they are thieves >> yeah. >> we dignify them.

>> they borrow stuff and may not return it. >> the sad part is they were thieves. the new technology stuff, they build themselves >> we got to go. we'll see you in a couple of minutes. at the top of the hour, steve easterbrook on "squawk on the street." stay tuned

that's a wrap for us, make sure you join us tomorrow. right now it is time for "squawk on the street" ♪ >> good wednesday morning, i am carl quintanilla with david faber and jim cramer coming up, steve easterbrook's interview. we got fallen yields from weak data out of europe and german's unemployment rises for nearly two years. our road map begins with global growth and trade war the yields are down, stocks are set to open sharp