dropped pretty precipitously early this morning it was down about 6% anyway, thank you for being with us today, everybody. we look forward to seeing you back here tomorrow right now it's time for "squawk on the street. good morning and welcome to "squawk on the street. i'm david faber along with sara oo eisen and mike santoli we're live from the new york stock exchange let's give you a look at futures as we start trading here on a thursday as you can see, i don't know, i need santoli to explain what's going on there >> santoli >> that's what i said. >> i thought you said santelli

>> you're always here to correct my >> ademocratic showdown. candidates take aim at big business, spar over health care in their first 2020 presidential debate >> and boeing shares under pressure this morning, amid growing u growi growing uncertainty about when the 737 max is going to return to service let's talk markets this morning. trade continues to be the focus, as it has been for so long it does appear at least according to reporting from "the wall street journal" that we've gotten a series of potential points from xi as to what his expectations may be. the key one amongst them, certainly tying trade specifically to the treatment of washington w huawei, which has been such an important component overall. we want to get to kayla, who i think joins us now she's with president trump, who's arriving in japan for the g20 summit

amidst all of these questions about trade and the ask and what will be received, kayla. >> we're just a few miles away from president trump, who has turned in for the evening. apologies for the police boats and security helicopters that are doing laps around us here at our live shot in so -- osaka nothing is more important or as closely watched as that bilateral meeting with china's president xi, which will take place on saturday. president xi arrived here in osaka earlier today. president trump arrived several hours later, and his arrival, stepping off of air force one, was accompanied by those new headlines from "the wall street journal," sketching out what president xi wants the u.s. to commit to in order to get this trade deal president xi, according to chinese officials who spoke to "the wall street journal," plans to demand the u.s. lift off tariffs currently in place that's something the u.s. has not been willing to do so far. he also wants the u.s. to

reverse that ban on huawei business that's something that president trump has been willing to at least negotiate with the chinese leader we'll see how the conversation changes. here's who's accompanying president trump from the economic team here in osaka. you have ambassador robert lighthizer from the office of the u.s. trade representatives you have the commerce secretary and the treasury secretary then you have the late addition of noted china hawk peter navarro, who arrived with president trump on air force one. it's important to note that all of those people you see have been in touch with their own counterparts in china to try to hash out exactly what these leaders are going to be discussing earlier this week, ambassador lighthizer held a call with the chinese vice premier i'm told by a person with knowledge of that call that the chinese stressed that any deal needed to be balanced, to which the u.s. side said any deal will not be balanced because of how egregious the past issues with china have been. we don't know how china responded to that demand from the u.s., but perhaps we'll get

more color in the coming days. guys >> kayla, having done that trip to japan not that long ago, it's a fairly long one. navarro on the plane with trump that entire trip, you know, i just -- it makes you wonder what they talked about and whether or not navarro is talking to trump about all the things he's focused on given what a hawk he is just kind of curious as to trump's mind set after he gets off a flight like that >> yeah, well, and i think it's also important to note that when the president was in japan just a month ago, he was accompanied by steven miller, who's one of the more extreme voices in the trump administration on immigration. what we saw result from that was that threat to put those 5% tariffs on mexico. so that directly resulted from that time. i think, david, it's also important to consider what does president trump expect perhaps he's coming into this trip with his own preconceived

notions, what he wants to get out of it, what he wants to do, whether he wants to have a cease-fire or a deal or anything potentially more specific than that we don't know exactly what he expects, but a senior administration official told reporters that he's quite comfortable with any outcome >> kayla, thank you. in osaka tonight, joining us to discuss the market implications, invesco's chief chair and keith learner. we're coming off of four down days for the s&p 500 futures are looking up today, but we were here this time yesterday, and we lost all the gains. what is the latest thinking around trade >> so a few down days, but the month has been quite spectacular. let's not focus on the specifics that narrowly. at the end of the day, what this is about is policy support and on a global basis, we continue to get positive policy support

fed, ecb, every central bank in the world is on the verge of easing or easing already economic growth, in our opinion, in the second half of the year is probably going to improve, improve meaningfully from the second quarter for sure. as a result, i think the outlook is going to improve. finally, trade at the end of the day, the change in tone with respect to trade is absolutely critical the fact that they're presenting demands as opposed to talking about doctrine and honor and stuff like that, i think indicates to me they're willing to negotiate and find some sort of conclusion. >> you are relentlessly bullish on this stuff, aren't you? there are people who could point to that and say huawei, forget it, it's off the table that's a negative, not a positive >> i think huawei was always a negotiating tool all along i think there are some restrictions that go on huawei >> so if xi says, all right, lay hands off huawei, you think we're going to go along with

that >> i think in some form or another. without that, you can't reach a settlement finding a settlement benefits trump as much as it benefits xi and the global economy >> a lot of people think the opposite they believe the president benefits from the opposition and will use it as a support mechanism for the election. >> i think if he goes down that path too hard, we'll end up with a recession in 2020. and i don't think that sort of helps his re-election outlook meaningfully >> keith, what happens if the two leaders can't find any common ground and walk away and it's sort of status quo and then president trump moves to implement more tariffs then what? what do we see in the market >> yeah, that's going to be a downside risk. our best case is we're going to have some type of truce. there's incentive for both of them to do so. if you think about it, if you look back the last 50 years or so, the only two presidents who weren't re-elected had a rising unemployment rate. so there's incentive to have this done. i think from a market

perspective, just knowing the back of the table is a positive, it also keeps the fed rate cut in play, which is a positive lastly, we're at near record highs. we've seen the most equity fund outflows over the last 20 years. more than 2009, more than 2012, more than 2016 leading up to the election so we still think that the path of least resistance over the next 12 months is higher >> mike, i'm glad he brought up unemployment we did get some data today jobless claims, don't want to make too much of it, but the trend is going in the wrong direction now for the first time in a while 227,000 last week. 7,000 more than expected 10,000 more than we saw last week we're now at a seven-week high is this a sign that things are really worsening for the economy and for corporate america and for the employment picture, which was the brightest part of the economy? >> yeah, obviously coming off low levels now the unemployment claims charge starts to look like it

made a bottom and is starting to rise also, the final revision of the first quarter gdp, it was more or less as expected. consumer spending piece of it was revised lower. so yes, i do think that it all contributes to this idea of a domestic soft patch. the thing is, i don't know how the market is going to interpret that the market wants clearance for the fed to act in july and so at this point, if it's not at worrisome levels but it's going to keep the fed in play -- >> well, it does feel like the fed has ignored some of the deteriorating fundamentals >> things were slowing down coming into 2019 because of the inventory adjustment, things slow down meaningfully in second quarter with financial conditions easing substantially, i think in the second half things look meaningfully better from our perspective. at the end of the day, if the fed continues to talk softly, i think the economy overall will pick up. there's enough momentum in the

economy, employment level, even with the change in slight tone, it's still very, very good income growth is good. consumption probably remains stable where we have problem is capital expenditures that is going to remain a problem for the rest of the year as well. >> keith, one of the little bit of shifts we've seen in the last day or two is some of the cyclical stocks have started to work, and some of the more defensive quality ones backed off. that was yesterday's story is that a shift you see continuing i know you said the upside is the direction of least resistance overall where within the market? >> yeah, we would still be more on the cyclical side we like software, as an example. we saw a blockbuster number from soft ware. defense side of the overall market looks relatively strong it's curious that staples had selloffs yesterday the ten-year treasury is about 25% below its 200-day moving average.

that's the most extended it has been since that low in 2016. >> finally, christian, to a bull, are you not worried that some of the groups and stocks that are taking us to these new highs are very defensive consumer staples, utilities making new highs off the back of lower bond yields. that's not a bullish confirmation >> no, not at all. i think that's going to change i think that is primarily driven by rates going to a totally new level, especially in the context of where the growth is today and i think our expectation, or at least my expectation, is by the end of the year we are probably closer to 250 on ten year as a posed to close to 2% and that's bauds growth is going to pick up, and we're going to move from defensives to cyclicals. >> we'll certainly see christian and keith, thank you for joining us well, the first presidential debate on the democratic party, of course, is in the books ten more candidates, by the way, set to hit the stage tonight

we have the highlights from last night's debate >> the candidates largely refrained from personal attacks and stayed pretty squarely focused on policy. the debate opened right up on the economy. that's one of president trump's biggest assets and with unemployment so low, the democrats were really pressed to explain what exactly needs fixing >> who is this economy really working for? it's doing great for a thinner and thinner slice at the top it's doing great for giant drug companies. it's just not doing great for people who are trying to get a prescription filled. it's doing great for people who want to invest in private prisons, just not for the african-americans whose families are torn apart, whose lives are destroyed, and whose communities are ruined >> for warren, part of the answer, at least, is a wealth tax. her other candidates and colleagues do believe that taxes should go up, but they've been

reluctant to say by how much and beto o'rourke repeatedly dodged this question >> would you support a 70% individual marginal tax rate, yes, no, or pass >> i would support a tax rate and a tax code that is fair to everyone tax capital -- >> 70% >> at the same rate you tax ordinary income, take that corporate tax rate up to 28%, you would generate the revenues you would need >> that's time >> so there's a lot of debate about who actually won last night's debate, but one thing we know for sure is who got tweeted about the most, and that person is elizabeth warren with cory booker in second place but also cracking the top five were bernie sanders and joe biden. they weren't even on stage last night. they're going to be taking part in round two tonight guys, one thing i'm going to be watching for it whether any candidates follow bernie sanders. as we saw last night, elizabeth warren and bill de blasio did in

supporting getting rid of private insurance. >> doesn't look like it's having much of a downside impact on the insurance companies this morning. they've been lagging all year. ylan, thank you. when we return, a setback for boeing and its 737 max jet news that is setting shares of the dow component lower this morning. also ahead, an exclusive interview with morgan stanley chairman and ceo james gorman. hear what he has to say about trade, the fed, and the markets. another look at futures at this hour things are looking up, just barely though. are we going to break this four-day losing streak with the s&p? futures up seven more "squawk on the street" live ba wn ce nineheweom ck of savings and service. whoa. travis in it made it. it's amazing. oh is that travis's app? it's pretty cool, isn't it? there's two of them. they're multiplying. no, guys, its me. see, i'm real. i'm real! he thinks he's real.

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boeing shares are moving lower this morning in the premarket. federal regulators say they have identified a new issue with the grounded 737 max jet let's get to phil lebeau in chicago and can bring us the latest this morning. >> and david, this issue is not with the m-cass flight control issue. this issue is separate from that, but it is significant enough that somebody at the faa leaked it out, and that forced boeing to issue an ak last night saying we're going to correct this it was discovered in simulator tests by faa test pilots the root cause, according to nbc it may be a microprocessor, which raises the question, do all of the microprocessors in all 500 or so 737 maxes around

the world, will they have to be replaced does that further delay these planes getting back in the air speaking of the airplanes being back in the air, united announced yesterday that it is joining american and southwest by pushing plans to fly the max again, if it's certified again, at least until september 3rd guys, we should point out, as you look at shares of boeing, it's going to take 30 to 45 days for any airline to get the max up and ready to go they're parked, but it's not like you can just go out there and say, okay, let's take off, we're ready to go. it's going to take some time there's also the question about wether or not people will want to get on the max as soon as they're given the okay to fly again. >> so phil, are you saying the best-case scenario is, what, that this plane goes back in the air in a few months? >> i would say increasingly, we're hearing from people in the industry that while it's not official, they are increasingly looking at october, november, and in some cases i've heard people say wouldn't be surprised if we don't see it until

december officially, nobody has said that, but we're increasingly hearing that chat. >> phil lebeau, thank you. >> you bet up next, art cashen is here with what you need to know ahead of today's trading session we're about 12 minutes away. taking a look at futures they're higher there's some optimism. there was a shift in sentiment overnight. things were looking a lot better earlier on some reports that the u.s. and china were moving toward a trace truce some of that was shot down dow futures up 23. s&p up 3 1/2 more "squawk on the street" straight ahead

eight minutes until the opening bell let's bring in art cashen, director of floor operations overnight we got this report out of the south china morning post in hong kong saying u.s. and china tentatively agreed to trade war truce, sparking some optimism then "the wall street journal" says china wants to include lifting the huawei ban, denting that optimism. it's so hard to follow all the speculation and reports. where are your expectations right now? >> i think you're going to have this kind of bouncing around until saturday when they actually get together. the difficulty is "the wall street journal" report that china has set out conditions not only the huawei thing, which is a little bit of a problem, but they also want the current tariffs removed from what i understand and that's a bit more of a problem. the president has said he wants

to keep the tariffs in so that he can exercise some discipline on the chinese i think it's going to be bumpier. we'll wait to hear when the president finishes his business din we are the australians i'm sure he'll be on twitter we'll get to find out a little more >> you made the point, art, that there might not be as much of an incentive to rush to a truce here if, in fact, the administration wants to see the fed get aggressive are we just going to be on hold for a while? >> again, what does the president believe the fed will do if he thinks they're going to cut twice in the next couple months, he's going to think that he can be a little tougher with china because he's got the fed at his back. so his economy will, in all likelihood, remain so much stronger if he didn't have the fed bhientd him, he'd have to worry about the global trade and what would be the effect on the economy. so perversely between him and

powell, it turns out he may have an ally in the trade talks we'll see where we go from there. i think it's going to be a bumpy couple of days we talked very early in the week about post exploration week being a consolidation. i think we've been seeing that i think it will continue i think you would have had a better bump this morning, but boeing is getting killed, and that's taken an awful lot out of the dow jones. >> so which group are you watching as the sort of market litmus test at this moment >> i would keep an eye on the semiconductors they bounced after the micron report yesterday they're going to be deeply involved in a lot of these trade talks. so i think that's something i'll be watching. >> talking about people looking ahead tomorrow to the russell index rebalancing, annual event. happens all the time aside from just surging volumes on an absolute basis, is there

anything to look for in terms of individual moves or rebalancing effects? >> no, i would watch -- you know, it's going to have an impact we've had these small caps trailing the market recently i want to see what the influence of the rebalancing is pretty much on the small caps as a whole and whether that will deepen the disparity between the multinationals and the small caps >> tomorrow's going to be fun. rebalancing, end of quarter, end of month, end of half year into g20. art cashin, thank you. opening bell just a few moments ago. stay with us so ...how are you feeling?

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you are watching cnbc's "squawk on the street. we're live from the financial capital of the world opening bell will ring in about a minute and a half. keeping an eye on a lot of things china trade continues to be one of the key cruxes the market moves on difficult to read the situation right now. some seeing it as more positive. others not so much so, given at

least if you have a sense as to where the two sides stand. huawei is a big issue. seems hard to imagine the u.s. government is going to back off on everything it's done thus far. >> and the market, this week especially, has decided it's not going to overanticipate a result it's just backing off a little bit after a decent rally through most of june down four days in a row but very small. still about 1% off a record high for the s&p. within it, there's at least an attempt to say, you know, yesterday big selloffs in staples and utilities, even though bond yields didn't move very much. seems like there might be a routine reallocation away from the quality and safety into some cyclical stuff see if that continues. >> you've got to pay attention to the fundamentals and what they're showing. this morning we got the final read on q-1 gdp. consumer spending component did come down. jobless claims, people timing

for unemployment claims is going up you've just got to pay attention. . >> we'll watch norfolk southern, talk about that. that was the opening bell for this thursday. take a look at the s&p realtime exchange here at the big board, blackrock science and technology trust celebrating its recent product launch at the nasdaq, adapted bio technologies, focused on the immune system and the treatment of disease. sara mentioning the fundamentals as well. fedex, for example, which we spent a lot of time on earlier this week with the earn frgs that company what else has caught your eye this morning >> i think we have to hit walgreens. it is the dow component that reported earnings this morning things are looking up for a

stock that had been a pretty miserable outperformer, actually walgreens higher sales did beat estimates the story was that there were better prescription drug sales but this is a stock that's down 23% this year. the worst performer on the dow jones industrial average sales in the u.s. pharmacies, though, strong up 4.3% in the third quarter this is a company that's going through a transition it's been cutting costs. remember last quarter, the ceo came out i think in april and said this is one of our worst quarters in the history of doing business they're having trouble it's the amazon threat they get caught up in everything the brexit threat. they have a significant portion of business overseas in the uk, in europe with the boots pharmacy tariff potential threat because they sell a lot of products from china. so potentially some good news here from walgreens after what has been a very rough sledding for this stock and for shareholders >> gross profit was still down

3.6% compared to the same quarter a year ago i guess they're still citing as well reimbursement pressure in pharmacy and lower retail sales. >> and that's been the problem if you look at a cvs as well or a rite-aid, these companies are all kind of hurting because of the changing system within the health care industry actually, that was one of the other first places i was going to go, mike, which was health care companies after the debate last night turns out only two people raised their hands when it came to the question of whether they wanted to abolish private insurance companies altogether one of them was elizabeth warren, who's got some momentum. the other was our mayor, bill de blasio i'll be watching to see whether that question gets asked again tonight with biden, who's more of a front runner, sanders, buttigieg. that's what has shaken this group and why it is the worst performing sector of the year. not sure that analysts think it's realistic to get rid of the entire private insurance industry all of those jobs, all of those coverage plans

but it certainly is a talking point. >> i don't think the market would ever get to that point of placing it at a very high probability. but here's the problem it does mean tension is going to remain on this group, and the profit pool earned by the private insurers is going to be under attack whether you replace it or you just say they charge too much, it's too opaque how they make their money, and there's always rebates and side deals essentially, we could have a more efficient system. that's the overhang, not as much are they essentially going to be abolished. so it seems like, yeah, a little modest relief today in some of these stocks not selling off but yeah, to your point, it's going to remain a big question with walgreens and cvs, if there's ever going to be a rotation into value, that's the kind of poor fundamentals but maybe bottoming eight times earnings, higher than the markets, dividend yields nobody wants those stocks. they used to be considered stable, safer stocks in a low-yield environment.

right now they don't really have a ton of sponsorship >> another thname you follow toa certain extent is con agra the pinnacle deal has not gone particularly well. >> they were going great until that happened. >> the stock is down about 7%. had looked lower than that in the premarket. >> organic revenue decline of 0.7% analysts were looking for a gain it was not just the pinnacle deal it was the core business here. grocery and snacks, organic sales down 2.5%. that was a poor showing. for instance, the company blames unexpected merchandise changes jpmorgan translate, lost shelf space for hunts and chef boy-r-dee. so all sorts of issues with some

of their core brands they had a p.f. chang recall, lower than expected merchandise support for marie kecallendar's. even mccormick having a miss on the top line these company valuations, some of them, not all, are trading very high relatively speaking. they've been a safe spot in a defensive market with low yields yet the underlying business is not growing. at least if you look at some of these food companies certainly with these stocks today, like a conagra. >> conagra used to be a bright spot because they focused more on protein now animal protein out of favor. >> although, they have it brand called gardein, plant protein, plant-based meat

nine slides on the presentation on it. so they're trying to catch up here >> future spin-off for activist campaign maybe i was going to mention gm and ford, which got an initiation with positive ratings from credit suisse this morning if there was going to be any kind of rotation into cheap, cyclical stocks, these should be the beneficiaries. basically, analysts saying if you look at the auto industry, they're operating on these two clocks one is the cycle right now the regular old cycle and how they're navigating a mature auto cycle. then the longer term secular challenge to internal combustion engines, saying there's progress on both fronts ford, 6% dividend yield. dirt cheap, high yield nobody wants it until now. both of them getting relief. same report initiating tesla with an underperformer at $189 stock price target no effect today. >> a small deal this morning worth mentioning

it's kind of odd wage works, this stock has been up a lot this year up almost over 90% through yesterday. today it's not up, even though it's going to sell itself in a deal we use them for our hsa, at least i do health equities buying this company. all cash, 51.35 a share. that's what's interesting. stock trading now 50.60. down 2% on a deal. again, it has been a very strong performer over the last few months they say the acquisition expected to give health equity access to more of the fast-growing health savings account market by expanding its direct distribution to employers and benefits advisers as a singl single-source premier provider of those kinds of services >> how about nike, reporting after the bell big dow component. it's going to be a huge tell on

china, on the u.s. consumer. here's the line. it has underperformed so far this year. if you zoom out 12 months, it's doing better the reason of the underperformance has to do with ch china and trade. it is exposed both on the chinese consumer side of things and on the manufacturing side of things with imports. so far, nike has been totally unaffected however, if things do not go well this weekend at g20, then the next tranche of tariffs could go through that includes apparel. that includes equipment. that includes shoes. nike is going to have to answer on the conference call today just how exposed they are and how they're going to mitigate that higher cost that's one thing to watch out for. number two, china has been the growth driver of this stock and of these earnings. they have posted more than 20% revenue growth in china for the last few quarters, including last quarter when the trade war was going on

if this new nationalistic tone that the chinese are -- that we're hearing about, reading about, and we're seeing actually affects the attitude toward american business, we will watch for any slowing of that 20% plus revenue growth then of course north america, consumer confidence has been hit a little bit lately. so we'll see if they can keep up the growth here in this market as well. foot locker was not a great tell when they reported a few weeks ago. that could be more of a foot locker problem >> finally before we get to bob, i wanted to mention occidental petroleum. missed the on ideal meeting, but he is now filing for written consent to call a special meeting of the board that would require him to get at least 20% of the outstanding shares in favor of then you would have a special meeting. that could be set as long as five months from now

then at that meeting, he wants to potentially have four directors lekk directors elected to the board or place four directors on said board, which is in the midst of acquiring anna darko occy says, listen, we maintain an open dialogue with all shareholders, welcome constructive input, and we're focused on completing the transaction with anadarko in the second half of the year, which they believe will create significant value. there's a look at all three of those stocks it's not going to amount to much certainly keeps carl busy, active, in the news. i'm sure it's fun for him. distracting for them we'll see whether he gets the 20% to actually call that special meeting. if he does, we'll revisit this immaterial to get to bob now he's got more on what's moving this morning >> morning three to one advancing declining stocks a lot of hope on the trade negotiations over the weekend. at least some positive outcomes. positive for the market would be no new tariffs that's what everybody is wanting, even if negotiations

continue there's your semis, trade proxy. there's china shares here in the u.s. another trade proxy. banks have been a lot more stable recently in the last few weeks. industrials, this is flat. boeing is down 2.5%. it's really pushing the industrials down energy not doing too much, although it had a good start to the week yesterday we're finishing the first half of the year, and everybody after these negotiations is going to turn to the earnings situation in the second half of the year we've got a little bit of a problem here the good news is there's no earnings recession we're not dropping there's no negative earnings quarters that are happening. buybacks are continuing very strong, particularly for technology stocks. it's looking a lot like 2018 in terms of buybacks. earnings are flattish. we had a great year in 2018, folks. you might say flattish is not bad, but markets are at new highs. we need a little more justification for these kinds of prices with just earnings flattish here's the problem we're looking at here's your four quarters. 1.6, 0.3, 0.9. they're hoping for a big move up

in the fourth quarter. that's a lot of hopium right there. we're talking about 2% for the year that's the optimistic scenario we've had all sorts of problems this year. tech has been the big issue because of trade and tariff and the global slowdown. the tech numbers have been terrible three quarters here. technology earnings have been declining. everyone has got the hopium going in the fourth quarter. that's why they seized on micron's comments yesterday that everything is going to suddenly turn around and get a little bit better so there's a scenario that the bulls have been pushingon the market that so far the market, frankly, is buying here's the scenario that people are expecting right now. this is the 2019 bull playbook, if you want. we get the tariff deals. no new tariffs are going to occur. talks will continue. maybe tariffs continue the market is fine with that kind of scenario number two, this is the essential critical component fed will backstop the market so you're going to get several consecutive cuts in the interest

rate scenario. what's going to happen is that is going to lift the earnings picture for the third and fourth quarter. so the flattish earnings that everyone is looking at right now will improve in the third and fourth quarter the bulls point to june. they said look what happened the minute the fed turned around and said we're thinking about cutting rates, the declines in the earnings estimates stopped immediately. everyone started saying, oh, maybe the numbers will be a little better. maybe we can lift it there's your scenario here the market is primed for this right now. finally, one thing about ipos, we had a rare miss today remember what a spectacular market this has been in the ipos people have been pricing at the high end and opening on the first day well above it. we did have this with change health care today. big health care billing software company. 16 to 19 was the price target. wait a minute. it's pricing over at the nasdaq at 13. this is a highly levered deal. it's a blackstone deal maybe we don't like the leverage and debt involved. but in an ipo market that's been nothing short of spectacular on

the year, this is a rare miss. this will be opening in the next hour or so guys, back to you. >> bob, thank you. well, the howard hughes corporation, owner, manager, and developer of gimpbt types of real estate through the u.s., has hired bankers to explore strategic alternatives that include a sale of the company, according to people familiar with the situation the company a spin-off from general growth properties has struggled of late to command a valuation that the board feels is appropriate for a company with a collection of assets and performance metrics of its type. people familiar with the board's thinking tell me it's unclear the company is well suited to the public markets because unlike many other real estate companies, it's a c-corp. and has a diverse collection of assets that does not lend itself to the cash flow investors may be looking for the company is an owner of land,

such as beachside real estate in honolu honolulu with vacant land, planned communities, shopping developments, substorage facilities, and more, the complexity of this corporation and the longer term nature of its ability to profit from those holdings may not be best for the public markets at least judging from the stock's performance over the last three years you can take a look. it's down more than 14% while both builders are far higher that's led management to explore a sale, although they're also exploring joint ventures or spin-offs as part of their mandate, according to people familiar with the situation. now, the bankers do hope to complete the review process by the end of this summer mr. ackman, who controls roughly 4% to 5% of the company when you include derivatives is said to be fully supportive of the plan to review alternatives

he did not return calls for comment, nor did representatives of howard hughes potential buyers for howard hughes, likely to include giant real estate holders such as blackstone or brookfield properties but may also include some of the largest family offices out there or even some sovereign wealth funds, some of whom are seen as willing to patiently try to harvest a net asset value that analysts who follow the company mark it between as high as 130 to 170 a share a bullish note out just this morning. analysts at citi, for example, note the stock's under >> they tie it in part to a slower than anticipated lease up of the space at the south street sea port but this is an interesting one, guys the stock now up about 10%, of course, on our story of this review of alternatives but it is this collection of assets that is not necessarily one thing that may not be attracting a shareholder base that is enough to sort of at least, they seem to think, reflect what has been success overall in terms of their

planned communities, their ability to deliver net operating income, and net asset value over time >> it definitely falls between the cracks it's been the favorite of a certain type of hedge fund manager all the time looks at special situations, some of the part values. it would make sense that, you know, before you said brookfield or something like that, it makes sense to have these large owners, not traditional leverage buyout, really, because it's not a cash cow type business >> exactly it's something you've got to be patient with 60 acres on the beach in honolulu you and i got to get to the south street sea port. i went over there. it's nice. >> this is the one that lights up rainbow if you go there at night. they have concerts there they've got new restaurants. i think espn has studios there >> but it has taken them some time to get that going it seems something of a drag perhaps. it's also the woodlands in houston, a very successful planned community. it's over time that they then

sell more land, lease more, or do other things. again, ackman has been in there. general growth, which is probably his best investment ever, this was a spin of it back in i think 2010. but it has sort of had a tough time in the markets. >> good job. not easy to get people excited about that >> it's a c-corp >> excuse me time for a closer look at oil prices dom chu with the moves >> all right so sara, u.s. based crude futures well off their lows of the session right now. hovering just about flat, $59.37 for wti. also brent crude futures, $66.35, off by about 0.25% wti, by the way, up over 15% since the recent lows in june due in part to the geoplit caoll tensions some inventory data shows supply drawdowns. that's been bullish for prices as well.

the trading action today, maybe some positioning as the g20 summit kicks off in osaka, japan. handicapping those prospects of moving forward with a trade done a between the u.s. and china after the g20, energy traders will be focusing squarely on opec, the global oil cartel, and its partners are slated to meet early next week to talk about whether or not to extend currently agreed upon production cuts and to propping up those prices if they do that, we could expect action there and maybe a tweeted from president trump on oil prices back over to you >> all right, dom. thank you. coming up, trade, banking, and ipos stay tuned for an exclusive interview with morgan stanley chairman and ceo james gorman. take a look at the move in treasuries this morning. ten-year yield yesterday ticked above 2% that was considered a decent sign for risk appetite treasury yields are lower today, but we remain above that critical 2% level. we'll be watching it all session long dow is up 19 points. if not for boeing, we'd be up a

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continues. the asset, the cryptocurrency down 10% right now after a $1,500 plunge if less than 4 hours after an outage at one of the trading system's point bases yesterday. it's up more than 200% so far this year. the do you is up about 14 points boeing is the biggest laggert. we'll be right back. we're the slowskys.

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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. some of the department store stocks ross stores and nordstrom two of the worst performers in the s&p 500. goldman sachs downgrading these stocks and they are going to rebuild into potential new tariffs. margin precious in general ross stores, the firm saying they are probably going to be unable to maintain ross has been a stronger performer after this decline of almost 20% nordstrom, on the other hand, has been struggling. this is more pressure. >> call that execution on both, stereo. morgan stanley's chairman

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♪ move good morning welcome back to squauk i'm sara eisen with david. carl quintanilla is on assignment let's look at the markets. things are looking better, actually, as we move through the trading session. s&p 500 is up 0.5% every sector higher ex is eexcet for consumer staples dow is higher, boeing is a drag, taking 60 points off the dow our roadmap for the hour starts with president trump and president xi both arriving in osaka as investors turn their attention to the g20 summit. >> and it may not be such a quick fix after all. boeing dealing with another potential problem that could change the timeline for the max 737 fleet's return to the skies. >> plus, the first of two democratic presidential debates kicking off last night we will tell you what presidential hopefuls took aim at and it's not what you might expect >> plus an interview you are not going to want to miss.

morgan stanley's ceo james gorman they will talk about the global economy, risks to the market and things involving morgan stanley as well. first, though, president trump landing in osaka, japan, earlier this morning he gets ready to meet g20 leaders. kayla is there and brings us the latest kayla. >> reporter: hey, david. this summit's themes are the usual ideas. stable growth, free trade, climate issues foreign leaders also want to stop president trump on the sidelines of the summit to get his plans regarding iran and north korea. but no economic issue is more closely watched than what happens when president trump and president xi sit down on saturday both sides are sort of staking out their positions as they go into this talk ambassador robert lighthizer had a phone call earlier this week with the chinese vice premiere i am told by two sources with knowledge of that call that

lighthizer told him that the deal could not be balanced as beijing wants because of past transgressions china is saying the u.s. must meet its preconditions for a deal, which include dialing back the huawei ban, removing all tariffs and accepting fewer purchases of u.s. goods. now, president trump is unlikely to accept all of those demands at this meeting. i am told by these sources that a truce is still possible if the two leaders decide to keep talking. but there is one detail that still hasn't been worked out, and that is how long a potential truce would last i am told that ambassador lig lighthizer does not like to be hamstrung by deadlines he thinks in some cases they can be arbitrary we know president trump likes deadlines to ramp up the pressure this china meeting is the crescendo of this visit. the official conference is just 24 hours in that time four group sessions the president will have nine bilaterals there will be a press conference on saturday and then the white house is expected to join in on

that communique. as we know, there is always some event risk of sorts built in when president trump is in attendance at these multilateral summits. david, sara. >> kayla, ways goii was going tu about the other leaders there and if anyone is stepping up to be a broker and peacemaker between the u.s. and chinese in these trade talks. obviously, the whole world's economy's best interest to get a deal done. christine lagarde is instagramming a lot of photos from the g20 she takes her role at the imf as sort of like that when warning about the damage that tariffs can do what is your sense of the rest of the leaders on this issue >> reporter: i know that trade was something that came up during president trump's working dinner with the australian prime minister this evening. but really no one wants to get in the middle of the issues that president trump and president xi have been going head to head over for the last year that being said, on other

issues, prime minister abe has been the bridge between the u.s. and other issues he has been going around and talking to prime minister true due, chancellor merkel and urging them not to push president trump away from the table. he has been trying to be a broker of peace to make this summit more harmonious, less contentious. we will see if that's how it plays out the next couple of days. >> thank you, kayla. joining us to break down the market impact ahead of tomorrow's kuz, jeff kline, strategist at charles schwab and director of global macro at fidelity investments jeff, how are you recommending clients play this one? >> the markets are pricing in just as high of a probability of a delay in the imposition of these tariffs this july as they are of the fed cutting rates in july i think, therefore, the risk is that the issues that divided these two sides six weeks ago are still in place today, and maybe we don't get a deal. i'm not saying that's the base case, but it's a risk to the

market's hypothesis. in that case, you have to look to defensive sectors. >> what about you? >> yeah, i mean i think this is an area where maybe expectations need to be lowered a little bit. i do think there is probably going to be some sort of ceasefire, if you will, and whether that includes not implementing tariffs that were threatened for a while, while negotiations take place. i think that's very plausible. meantime, of course, the fed is poised to ease maybe not by july that the market was sort of whispering around, but certainly 25 in july and maybe another 25 in september i think the fed will likely deliver on that front. but i keep going back to this example of brexit which, of course, for the referendum there, it started three years ago and nothing has happened i think this is also a very slow-moving process and whether there is a light at the end of the tum or not remains to be seen

in that environment, valuations get de-rated because that is the price of uncertainty i think that that's, you know, pretty likely for the markets going forward. even if earnings are up, you i n it's a valuation story here. >> china trade just stays in the background what if we get 10% on the other 300 billion, does that move the needle at all? >> i think incrementally it does profit margins for the s&p 500 peaked at 12% last year. they are down a little bit earnings growth has gone from 22% last year to probably 4% this year. so one of the changes in the story this year versus last year when this whole tariff stuff started to happen is that the u.s. has actually joined the rest of the world in slowing down that was not the case a year ago. so we are in a more, not precariou precarious situation, but certainly the global economy has now slowed in a more synchronized way, and that of

course is what has put the fed on notice here so we will get some relief, but i think this headwind of not getting any direct clear resolution is going to continue t to weigh on valuations. >> jeff, you have been cautious at least over the past few months are you surprised then that the dow is set to have its best june since 1938, i think? >> i think the market is putting way too much confidence that the fed can just paper over all of these potential shocks to th system not just from trade, but other issues geopolitical shocks. brexit so many other issues out there affecting a global economy which is slowing i think the idea that the fed can simply cut rates and make that go away flies in the face of history september of '07th fed cut rates. that didn't stop the recession in january of '0, that didn't stop the recession either. way too much confidence in the fed's act to wave the magic

wand, i think might be disappointed the second half of the year. >> are you saying break out the recession playbook if so, what does that look like? >> yeah. are we need to recognize there is a heightened look of recession. it looks a bit more defensive. i think it looks you are moving out of high yield into cash. you look at defensive sectors of the stock market again, health care has been a miserable performer this year. look what it did in the fourth quarter of last year it really outperformed, was the best performing sector a more defensive orientation to portfolios for the second half we think makes sense. >> jeff and jurrian, thanks for joining us. we want to check shares of the howard hughes corporation. a c-corp with different types of real estate we reported on 25 minutes or so ago. i reported that the company has hired center view, the investment bank, to explore strategic alternatives that could include and focused on a potential sale of the company. it's been an underperformer for

a number of years. frustration to a certain extent on the board, including amongst its chairman bill ackman with the valuation or the lack thereof in terms of at least reflecting what they believe is a net asset value far higher price targets from the analysts are far hire as well this process just getting underway expected to potentially conclude the echnd of the summer they have reached out a bit to get a sense for the market there. potential buyers, well, brookfield, blackstone, but also even you could imagine incredibly rich people jeff bezos, bill gates who might want something like this which has extensive holdings in real estate, both land, planned communities, commercial developments, and the like, but are willing to be patient in terms of harvesting the net asset value over time. we will see how it plays out, sara i did want to point out that the stock is up sharply. the company has had declined

comment. yet to hear anything in terms of confirmation again i can tell you they are exploring those alternatives. >> fun to explore their website. they have a sort of beautiful list of all their properties when we come back, the politics of attacking big business. democratic hopefuls targeting corporate america. what does that mean for stocks plus, quote, wouldn't make the problems better. hear what mark zuckerberg is saying about breaking up facebook and an interview you don't want to miss. morgan stanley's ceo james gorman joining us live this hour "squawk on the street" will be right back dow is down 23 points. man: stand up if you are a first generation college student. stand up if you're a mother. if you are actively deployed, a veteran, or you're in a military family, please stand. the world in which we live equally distributes talent. but it doesn't equally distribute opportunity, and paths are not always the same. i'm so proud of you, dad!

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welcome back to "squawk on the street." we are following a developing story on boeing that could keep its 737 max fleet grounded longer than anticipated. although, phil lebeau, hard to know what was anticipated. i know you have a lot more for us. >> and david, we have some news that came out within the last ten minutes. southwest, the largest operator of 737 max planes, or was when they were flying, they are revising their plan for putting the max in the air, pushing back to october 1st we will talk about that in a little bit this soinvolves a potential software issue it could be the microprocessor that has to do with handling runaway stabilizer trim with 737

max planes this is slightly different than what we're talking about in the past with regard to the mcas flight control system. the new issue may delay recertification plans. the recertification flight many thought would happen the first two weeks of july. that might be pushed back. boeing is saying we don't expect anything at least through july 8th. they haven't set a date for a recertification flight here is the new plan in terms of what the airlines are thinking for flying this plane. as i mentioned, southwest now pulling it from its schedule through october #st. yesterday united moved it to september 3 september 3rd. it will take 30 to 45 days to get software, fixes that need to be made. maintenance, because you just can't jump in there and turn them on. then get them back in the schedule, it takes 30 to 45 days with are getting close to that point where, if they do not go through with certification in

the relatively near future and the faa doesn't sign off on it, you are looking at more airlines doing what southwest has said and pulling it from the schedule until at least october >> where did this report come from, phil is this out of the faa >> sorry what's your question again, sara >> the new issues, where did the reporting come from? is it the faa? that makes me wonder about the faa and the boeing relationship. >> well, you're right to wonder about that this all started with a leak that the faa flight test engineers in a simulator for the 737 max pointed out this issue, and clearly there had to be pushback from boeing because this story was leaked out. if this was not a case of the two sides not getting the same things in the same way, it wouldn't have been handle this way. this is the first leak we have seen with regard to the faa handling we are looking into the 737 max.

after that happened, then you have boeing issue an s.e.c. filing saying, yes, we have been asked to address this issue by the faa. that's what we're looking into right now. but you're right, sara this brings up that question about whether or not these two entities, boeing and the faa, are they on the same page? because up until now, you know, we talked to the acting administrator for the faa. he said, look, we are working closely with them. we want to help boeing get the plane back in the air when it's safe to fly. then you have this report leaked out yesterday. >> phil, thank you i know you will be following it closely. phil lebeau in chicago. trade tensions continue to be very high, rising as well as president trump meets with world leaders at the g20 in japan. the summit beginning amid claims from trump that china is ripe for new tariffs and vietnam is almost the single worst abuser of anybody the president saying, quote, a lot of companies are moving to

vietnam, but vietnam takes advantage of us worse than china. the u.s. trade deficit with vietnam is $39.5 billion last year of course, that's much smaller than the trade deficit with china, about $420 billion in 2018 trump says the tariffs imposed on china are pushing companies to move out of that country and back to the u.s. booming business though in vietnam seems to paint a somewhat different picture on that earlier this week, our carl quintanilla brought us a fascinating look at what is actually happening on the ground in vietnam take a listen. >> we talk about it at the desk all the time and then you get here on the ground and see what is happening in real life because this is not something that companies address directly or specifically. you and i know, we've read the transcripts from the conference calls, they say they are looking at it. there are reports that others may or may not be studying expatriating supply chains out of china to various countries like vietnam you get here, talk to suppliers,

talk to brokers, talk to lawyers, talk to government officials to see what exactly is happening. i would say net-net in certain categories, and specifically apparel, it is happening you look at q1, for example. exports out of vietnam to the united states up 40% exports from china to the united states, down 13% so they are stealing some market share. it's pretty fascinating. >> vietnam's gdp grew 7.1% last year that's pretty darn healthy. >> i think they have two things to watch if you want to monitor the tensions between the u.s. and vietnam. the size of that trade deficit, yes, much smaller than china, but it is growing 40% a quarter. that's a big growth area the president hates trade deficits he thinks other people are stealing our business. and the u.s. dollar versus the vooe vietnamese dong. it has been under pressure and they have intervened they could go after the

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let's take a look at oil etfs oil producers look it the g20 talks for clarity on global tensions, of course. that focused on trade. president trump, president xi meet on saturday opec leaders meet next week to discuss an extension of potential supply cuts. helene from vienna from that meeting will held. and john capital partners. helena, any expectations in terms of what will happen at the end of next week >> yeah, my expectation, i mean the one thing that binds all these opec members together is a need for higher revenue. he expect them to roll it over i expect the saudis to say they will be nimble they'll swing both ways on

production they'll basically meet a supply shortfall because of geopolitics and respond to the demand situation. i expect it to be rolled over. i think everybody wants higher prices i could see the saudis taking more barrels off the market over the summer if needed >> are you surprised at the recent move up, or is it sort of what you might expect given particularly, of course, this week at least started -- we haven't talked about it in a couple of days, significant tensions between the u.s. and iran >> i mean, these are very serious tensions between the u.s. and iran. we have had six tankers hit in the past month major infrastructure targeted like east/west pipeline in saudi arabia iraqi energy infrastructure am i mean, i'm not surprised by the move up. it would be higher if we didn't have trade war fears, the u.s. supply story if we have an appearance of an off-ramp at the g20, i expect the geopolitical issues to push prices higher. >> john, do you agree with that?

>> yeah, i think that's absolutely correct although now with president trump seeming to threaten vietnam with potentially some sanctions, there is, once again, another key asian economy key to the energy demand calculation that could get hurt or harmed and could fall out across the region again. >> it might be a little while. that was a quick comment from him. you never know. >> well, do industry who are starting to relocate to vietnam think twice about that again we have already had japan, south korea, china all hurt by these, the fallout from the u.s./china trade war vietnam the only beneficiary because companies seem to be flocking there for now that would be one bright spot for energy demand, heads a bit seethe south also rolling over the production cuts you will see them work the rope line, the press rope line, in the run up to the meeting and at the meeting, particularly today was interesting with iraq calling for maybe deeper cuts even though iraq only complies with about 40% of their

production cut quota. >> the strait of hormuz, should we protecting shipments through there even though we are almost energy independent as the president said >> i mean, we can ask for other countries to financially contribute but if we want to ensure the free flow of, you know, oil through these critical chokepoints, we are going to have to do it. we are not insulated from the price effect of problems in the middle east. so, unfortunately, it's going to be the u.s. that has to do it. >> john, what about the inventory data yesterday dig drawdown, caused a spike up in oil what's the supply picture in the u.s. looking like between inventories and production >> we move into a serious mode of crude oil inventory declines. we had a significant decrease last week as well. refiners have picked up the activity the demand for crude oil has risen, imports plummeted and

exports at a record. you will see more of that. the crude oil picture in the u.s. could start to be the little challenge here as we get deeper into the peak summer driving season last week, two weeks ago we saw record gasoline demands. there is a witch's brew right now of supportive factors for the oil complex when you look at demand figures -- >> you are both bullish, yet wti hasn't broken 60. >> correct we are waiting this is when you get in, sara, potentially. >> although you are also closely watching any reverberations in terms of back and forth between iran and the u.s.? >> no question about that. >> you indicated earlier this week how important it is. >> that's the game breaker something goes down serious there, you are looking at 80 to $100 a barrel. >> thanks to you both. >> thank you. one debate down. one to go. democratic hopefuls kicking off the first debate of the 2020 presidential primary taking aim directly at big business >> right now we have a system that favors those who can pay

for access and outcomes. that's how you explain an economy that is rigged to corporations and the very wealthy. i see halliburton or amazon that pay nothing in taxes >> i want to return government to the people, and that means calling out the names of the monopolists and saying i have the courage to go after them. >> they think they own washington they don't own me. >> another ten democratic candidates set to take the stage tonight. our john harwood with us from the debates in miami john, was this all just bluster using corporations as a political punching bacg, or should executives in the c suite be worried with what they heard? >> some of it was bluster. even if the bites that you you played, cory booker called out ha halliburton and amazon he will not call for the breakup of facebook or google as elizabeth warren has beto o'rourke jumped on the pile

with the anti-corporate rhetoric when he was asked about tax increases last night, he said i'd take the corporate rate to 28%. that is not nearly as radical as elizabeth warren she is the pace setter on the left in democratic policy making others are echoing the rhetoric, but not going there on policy. and you can bet that joe biden, who is going to be the star of the show tonight, is not going to follow her on policy. so we are getting to see the two poles of the democratic debate and how people define themselves in particular. something like pete buttigieg tonight is going to be fascinating because bernie sanders is going to be there staking out the left-hand side of the equation. joe biden on the right then you have got people like kamala harris and pete buttigieg in the middle. where do they come down on some of these specific issues is going to be interesting to watch. >> john, what stood out to you last night anything in particular >> reporter: well, the thing that democratic strategists are mostly talking about today is elizabeth warren joining bill de

blasio, the mayor of new york city, as one of the two of the ten who said they would be for abolishing private health insurance as part of a medicare for all. that is something that is a very politically risky stance to take many democrats are worried that will haunt her in the general election because even if people don't like aspects of our health insurance system, don't like aspects of their private health insurance, that level of change, the idea of turning that industry upside down or wiping it off the map, is politically a very, very tough sell as the barack obama administration discovered so the question is going to be is that smart? because she is taking support from bernie sanders and rising as the progressive champion in the race, or is it not smart because if she wins the nomination that's something that donald trump and republicans can hammer on next november. >> i wonder about the strategy, john, of using big business, corporations, consolidations as

the boogeyman instead of going after joe biden, who is leading in the polls from the party, or donald trump, whether that's a winning strategy with the american people. what are the favorability ratings towards business >> reporter: they are not great. if you poll attitudes towards wall street, towards big business, the numbers are pretty negative but thereason for that strategic choice right now will certainly be somewhat different when you get to a general election in 2020, is that people are loathe to be too internally divisive right now they are introducing themselves to fellow democrats. they are focused on that audience right now as opposed to the general election audience. they have to worry about fundraising and there are a lot of people, including joe biden who are raising money from corporate america, corporate executives, and they will have to worry about the broader economic message when we get to the general election.

>> i like it when they go after each other john, thanks john harwood. let's go to contessa for a cbs news update. >> here's what's happening president trump is in japan for the g20 summit chinese president xi is meeting with south korean president moon ahead of the summit. xi told moon kim jong un is committed to denuclearization. but the issue can be resolved through dialogue. a suicide bomber targeting a police patrol struck a busy commercial street in tunis, injuring nine people, including six officers at the same time a second bomber struck the entrance of the government's anti-terrorism brigade. audi is recalling 265,000 vehicles in the united states to fix two issues there is a problem with airbags and then there is this wheel trim piece that can fall off and become a hazard on the rose. these recalls cover 2015 through 2019 models, including the a 3

sedans and q 5 suvs. vanderbilt sits on top of the college baseball world after winning its world series, beating michigan vanderbilt also won the college world series in 2014, beat michigan twice after losing the first game that's our cnbc news update for this hour. sara. >> thank you. up next, the ceo of morgan stanley james gorman on everything from the economy, markets, banking regulation and more financials are having a good day today you won't want to miss that interview. it's coming up next when "squawk on the street" returns is where people first gathered to form the stock exchangeee, which brought people together to invest in all the things that move us forward. every day, invesco combines ideas with technology, data with inspiration, investors with solutions.

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time for us to get to the interview we have been discussing chairman and ceo james gorman is with wilfred frost at the morgan

stanley multi cultural conference. >> thank you very much and james, thank you for having us. >> great to be here. thank you for joining us. >> we are here at your fourth annual multicultural conference. tell us about what the day is and what you hope to achieve. >> kala harris brought this up four years ago it's to bring together multicultural leaders, very senior c-suite, to talk about ideas, network, create opportunities. we bring a bunch of morgan stanley's research markets-based people together with a lot of outside executives it's been a home run she has done an unbelievable job. >> she was on "squawk box" this morning. she said this is the fourth year and every year has been sold out with a big waiting list. to what extent does that show how keen people are to find better opportunities to address some of the headwinds that some minorities face, and the lack of opportunities they have to address it >> it's endless right now.

there is tremendous, tremendous demand unfortunately, there just aren't many opportunities to showcase this is one of them. i don't know if carla mentioned it, but she set up a venture lab where multicultural firms, startups can come and be part of morgan stanley for a summit period we provide them with resources, a little bit of financing and we present them to the marketplace. we have ten firms coming through this summer. they had 30 op occasions for it >> are you content with the level of diversity at the top of morgan stanley >> when you are content, you are content when your organization reflects the society you are in. it doesn't yet we have made strides we have a really diverse team relative to ten years ago when we started we have got this year i think 28% of our managing directors were women we have now got over 20% of the whole firm managing directors are women. when we started a few years ago it was around 15%.

we have made strides there is more to do. what the team is doing is a great initiative to say morgan stanley is really serious about this. >> i want to talk about the macroeconomic outlook. g20 has kicked off how important is it that the u.s. and china don't escalate tensions over the weekend? >> i thought you were going to ask me why australia beat england in the world cup. >> i would be happy to talk about that, but i know i would be fired. >> we should talk about u.s. and china instead? >> exactly. >> listen, i was just in china couple of weeks ago, and i was in a meeting lighthizer in d.c. there have been trade disparities between the countries. the u.s. and china account for over 40% of global gdp the u.s. and china combined

$30 trillion we can't have a trade war. it will have a devastating effect to the global economy that doesn't mean there can't be changes to the way the trade agreements are being written i think that's what the negotiators are figuring out. >> what did you learn from ambassador lighthizer? are we back to square one? are we close >> let's see this was probably five or six weeks ago. it's a process there is not going to be an arrival like the kid in the back seat of the car, are we there yet, are we there yet, we're here it doesn't work that way this is going to go on, these discussions, for a decade. this is a resetting of a relationship with what is the second largest economy in the world. china is a $12 trillion company with all of its trading partners this is not going to be solved by a beating with president xi and president trump at the g20 meeting. it's a resetting there will be many steps i think everybody understands that. >> is it fair to say the u.s. economy has been resilient in the face of that, and do you expect that to continue?

>> the economy has been resilient. the markets have been much more fragile. the markets don't do well with uncertainty. this is a croloud of uncertaint. the economy is resilient for a reason maybe i am an outlier on this, but the u.s. economy is actually in pretty good shape unemployment under 4%. you have had increasing worker participation in the work force. there is very modest inflation all of the states and municipalities that were supposed to be in financial trouble a decade ago, it doesn't turn out that way. the u.s. economy is doing fine this could derail it, but it hasn't yet. >> given the relative strength of the u.s. economy are you surprised at the level of the pivot that we have seen from the federal reserve in its rhetoric over the last six months hikes in december and the rhetoric we have had sips then. >> the fed is in a tough place the fed's job, obviously, is safety and soundness and overall monetary stability you know, when uncertainties

rise a big enough level it affects how consumers behave, how corporate ceos invest behind their companies. when that is going on with this level uncertainty, if it slows the question for the fed is when do you preempt my personal view is you be very aggressive on the way up in raising rates so that, you know, you are stopping what could be an asset bubble at some point. i personally would be more conservative in cutting rates because i don't think you want to use your firepower too early. the fed is in a difficult position they know they have to use some. it looks like the market is pricing a rate cut next month. but they have got to be careful here the economy is not weak yet. the unternities covering over the economy are profound, and that's the tension. >> so the president is wrong to be calling for 50 basis points cuts right away? >> i would never call the president wrong. what i would say is everybody has an opinion as to when you

intervene. right now if you read the fed language interest the last meeting, it is suggest i haive y are prepared to move it's 25 or 50, i'm not smart enough to know what the right answer is. >> i want to talk about morgan stanley specific stuff a slew of ipos over the course of the last quarter. can this continue, the pace we have seen in q2. >> there are a great companies lined up a lot of them are late cycle they have had multi-fundraisings so that's more challenging because investors are getting their current round and getting in relatively late but, yeah, there are a lot of tech deals still in the cycle, a lot of biotech deals. >> did your bankers get the pricing wrong on the ipo >> we had the same issue with facebook i think on your show, i said give it time this is a great company. we are focused on how we trade in the market on that given day versus what the actual company is it was a tough week. i mean, the china trade stuff

was going on no, uber's, i think uber was priced fine and uber is going to be fine. it's a great company. >> on the lyft ipo, it's reported that you created some synthetic short to help certain shareholders get around the lock-up period they were in. has that reporting made it harder for your ecm business to win further business >> we didn't have any problem with -- and the allegations were ridiculous, frankly. >> there was no synthetic shorts >> we weren't creating shorts. we weren't trying to help people who shouldn't have been in a position where they could sell the stock. >> and a round off on the markets for the first portion of the interview, you mentioned that they had been quite scared by the trade talk. when you look at all of the challenges out there, are you surprised to see markets at or near all-time highs? >> i have said this before, wilfred. if you think about a growing

economy, increasing demographic population growth, by definition the market should finish at a high every single day. it should be a surprise when they don't logically of course, they don't because there are things that -- you stand far back from an s&p over time, it's a straight line you get very, very close and it's doing this. some i surprised no the u.s. economy has been in phenomenal shape let's just say it. it's been in phenomenal shape. am i surprised there is uncertainty about the future of that no, i'm not surprised either. >> james, always a pleasure to talk with you. we are going to hit the pause button and head it back to sara. sara, more to come on closing bell later in the show. >> safe the juicy stuff for closing bell thank you very much. see you a bit late sneer dow is down 14 points "squawk on the street" will be right back when it comes to your customers' expectations,

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welcome back a story we have been watching this morning we reported howard hughes real estate company has hired center value, the investment bank, to explore strategic alternatives including a sale stocks halted news pending, expect they will confirm our report we will bring that to bring tho you. it was up as much as almost 30% after our report this morning. also, some very important rulings from the supreme court of the united states to tell you about. moments ago, in fact, in a 5-4 vote, in which chief justice roberts joined the typically liberal contingent of the court or more liberal contingent of the court, they struck down the question in the census that had been introduced by the commerce department, asking people about their citizenship. saying that will not or should not be a part of it. it has no, they said, in terms of whether or not it crossed the

constitutional lines, scotus says 5-4 -- sorry, that's gerrymandering, this is census, citizenship, not going to be on the census also, gerrymander welcome sar, s another key in favor of saying, it's up to the states, it's not a constitutional question. >> conservatives led that one. >> in a 5-4 vote, where the conservatives joined by chief justice roberts on that side said partisan politics can play out as they see fit and should not be something the court rules on let's move on to tech. mark zuckerberg on the offense at the aspen ideas festival when questioned about calls to break up facebook, here's what he said >> the question that i think we have to grapple with is that breaking up these companies wouldn't make any of those problems better. right? so the ability to work on election integrity or content

systems, you know, we have an ability now because we're a successful company and we're large, the amount that we're investing in safety and security is greater than the whole revenue of our company was earlier this decade when we went public so it just would not have been possible to do the things that are we're doing at a smaller scale. >> joining us now to discuss, wedbush securities, head of tech training, and medrona venture's matt mcelwain. so we got a taste there of what the defense will be against a facebook breaking up, that they just spend too much on security and it wouldn't accomplish anything is he right? >> i think we've been down this road before. anytime any sort of issue arises, going back to the analytica data scandal, or obviously, now, congress is starting to make a lot more noise. facebook's foray into the cryptomarket, as well.

this is what zuckerberg does he'll throw safety and security spending out there, double digit amount of times in a matter of minutes and try to kind of focus the attention that facebook is doing the right thing. but their history and track record, whether it's managing people's data, cleaning up the platform, whatever type of videos, whether political or non, his track record is just horrific and right now in congress, they want to clean this up, it's a bipartisan issue and i think this is obviously going to be a regulatory overhang for a little bit longer here >> yeah, i mean, we expect this to continue for some time. matt, i'm curious from your vantage point, particularly as somebody who does venture investing, one of the arguments is that these giants, these incredibly powerful companies prevent money in a sense from going to those companies that would compete with them. on a venture level, so if you're going to be in business in some fashion and compete with facebook, guys like you are not going to actually be willing to invest is that true >> that's just not the case at

all. i don't often agree with mark zuckerberg, but i do on this one. scale and scope is not the issue, per se here the real issue is data privacy and data responsibility. you know, and every business in the future that's a successful business, whether it's in the biotech, like you're seeing adaptive go public today or it's these next generation companies that we're funding, like emberty and customer data management, it's all about responsible data management we have to have good national policies, because it would be crazy to do this on a state-by state level. the real focus is on around data privacy and data responsibility, not bigness is bad >> joel, you have a good stocks of how these stocks are traded facebook's up 44% so far this year so investors are just betting that nothing is actually going to come about in terms of an existential threat >> yeah, essentially i think for most of the tech data indicated hedge fund community. guys have been in the weeds in facebook for years

they see a pullback on a regulatory-related headline, they're buying the dip at the end of the day, it's still a two-horse race at the top between google and facebook. advertisers really still have nowhere else to go are we seeing that shift a little bit more money going to snapchat, some of their new products twitter as well? but right now, you know, facebook is just an absolute beast. instagram announced some new updates last night i think the risk to instagram just becoming a little bit too oversaturated with advertisements, but that's kind of a wait and see story. but right now the numbers don't lie. there has been some acceleration or destabilization in terms of metrics for facebook but right now advertisers don't have too many more choices numbers are good and investors are overlooking that fact. >> matt, google, some people say, if you're not on google, you're not on the internet, basically. do you think these companies represent any kind of competitive threat >> well, there's always that risk sometimes those companies behave badly and those consequences

should be addressed. but again, what we're talking about here is, let's go talk to the consumers. and consumers love free search, they love free social networks they love better recommendations when they're on spotify and netflix or amazon. and on amazon, you not only have low prices and incredible convenience, but you have all of these ways that other small businesses, whether it's through the amazon marketplace or aws itself, you know, are building small and rapidly growing businesses a lot of these companies are enabeling the type of growth for next generation businesses that we want to see a lot of our companies build on top of those platforms, as well. i go back to this being more a question, and i absolutely think it's a risk, but data responsibility, data privacy, national policies. that should be the focus of congress >> joel and matt, good discussion thank you both very much coming up on "closing bell" later today, two big events taking place after the bell. nike's out with fourth quarter earnings after the close

plus, more from wilfried's interview with james gorman as we get those new stress test results. "squawk on the street" -- actually, "squawk alley" is up next >> goes by so fast >> time flies when you're having fun. man: stand up if you are a first generation college student. stand up if you're a mother. if you are actively deployed, a veteran, or you're in a military family, please stand. the world in which we live equally distributes talent. but it doesn't equally distribute opportunity, and paths are not always the same. i'm so proud of you, dad! man: i will tell you this, southern new hampshire university

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good morning it's 8:00 a.m. at facebook headquarters in menlo park, california, 11:00 a.m. here on wall street and "squawk alley" is live. ♪ you can't touch this ♪ can't touch this ♪ can't touch this

♪ my, my, my music hits me so hard ♪ ♪ makes me say, oh, my lord ♪ thank you for blessing me ♪ it feels good when you know you're down ♪ ♪ and you can't touch this >> good thursday morning welcome to "squawk alley." i am jon fortt here with morgan brennan and david faber live at post nine of the new york stock exchange carl has the morning off well, tech stocks are in rally mode the sector leading 9 of 11 s&p sectors higher for the quarter, up more than 5%. for the year, the sector surging 26%. in the meantime, big tech is facing growing headwinds in washington from anti-trust and regulatory scrutiny for calls for social media breakups, an issue facebook ceo mark zuckerberg addressed last night.