stories that matter most to your money straight ahead it's tuesday, august 6, 2019 "squawk box" begins right now. live from new york where business never sleeps, this is "squawk box. good morning welcome to "squawk box" on cnbc. we're live at the nasdaq market site i'm melissa lee along with andrew ross sorkin joe and becky are off. we have two guest hosts sitting in tom farley current chairman and ceo of fire point and we have shark tank's kevin o'leary the dow coming off a 767 point drop yesterday it was the seventh worth point drop of all time last night president trump's administration responded with the treasury department labeling china a currency manipulator

thatdominated yesterday's action, that along with china's currency move. overnight china's central bank setting the yuan mid point firmer than many expected. that happened at 9:00. we saw a turnaround in u.s. equity futures which were down overnight as much as 600 points at the lows. right now a positive open across the board. s&p looking to be up by 11 points dow jones up by 102. the nasdaq looking to recoup 44 points as for u.s. treasury yields, we saw a 2016 low also. we had the ten-year note at 1.758% overnight we breached that 1.7 level. a key level here. we have cnbc reporters everywhere this morning covering the market reaction to this escalating trade war willem marx is in london we'll get to him in a moment, but across the world to china. eunice yoon is on the ground in

beijing. >> reporter: china strongly opposes being labeled a currency manipulator. the central bank, which manages a floating currentry cy exchang rate called the move unilateral protectionist behavior that violates international rules it also says china doesn't mean the three criteria for the label. secretary mnuchin said he will have conversations with the imf as part of the process to eliminate the unfair competitive advantage of china's actions the central bank addressed that saying the imf believes the yuan exchange rate is in line with fundamentals so the evidence from china's perspective is in beijing's favor. i spoke with a source who consulting with the negotiations team in china he said at the end of the day the chinese want to have a trade deal. and that we should expect the

rhetoric to be firm and strong but that the action will probably be moderate for example, he actually brought up the decision yesterday and the announcement that china was going to suspend the purchases of american agricultural products he said the word suspend was used very carefullybecause it' seen as a way to message the u.s. that there is still room to maneuver for a solution. even though china doesn't want to be labeled a currency manipulator and it could be seen as an escalation of the tensions between the two sides, he said it is not necessarily if the u.s. were to come to the negotiating table from the chinese perspective, and come up with some other solution >> eunice, it looks like overnight the pboc took some actions that made it seem like it was in their interest to stabilize yuan trading, right? by suspending the sale of yuan denominated bills in hong kong

>> that was the signal and message that people were taking. you were talking about it, too the central bank set the midpoint as well it was at the lowest rate we've seen in 11 years, but still set stronger than the psychologically important 7 mark so people were seeing this as a way for the government to say we will stick by our word, which is to maintain a stable currency. >> okay. eunice, thank you for that we'll come back to you in a bit. we have to get over to willem marx in london he's looking at the market moves taking place as a result of all of this in europe. >> yesterday we saw the worst day on european equities since that brexit referendum quite some time ago. we saw the ftse 100 down more than 2.5%. it's coming back today we have the german, french and italian markets back in the green. the french have seen much better

manufacturing numbers and pmis over the last few months that is trading strongly today we look at the individual sectors behind the numbers, it's worth looking at oil and gas it's slightly below the flat line we saw that reaction yesterday in oil and gas prices. clearly some stocks exposed to that feeling the heat this morning. media, this is a strong performer in europe. that's primarily being driven by one big french firm. i want to bring in some top movers on the stocks front vivendi is up 6.5% that has to do with an interesting deal in this context, the idea that tencent will take a 10% stake in vivendi's universal music group. amid this tension between the u.s. and china, there's one chinese company looking at a big stake in europe. one of the worst performers, metro, a german supermarket chain, they're facing difficulties so those kind of stocks you might expect to see more

movement in because of exposure, not a huge amount of that today it feels like europe is stabilizing slightly >> okay. thank you to willem. we want to get to our guest host this morning, figure out what the heck to do what are you doing tom farley is here mr. wonderful is here. are we in it >> i think this is garden variety volatility >> that's all this is? >> that's all. >> this is not a turning point yesterday? >> no, nothing really changed. the rhetoric is up a bit i like this pressure because you have cash. >> no. no i need the end game to end with c access to the chinese market and protection of i.p. there >> what is relevant is consumers in the united states, no >> this is a small price to players haves the upside of the potential. imagine if we sit here today,

trade deal is done with access to their markets and protection of i.p i will launch 30 products that i'ml already manufacturing in china, i can release it to them. keep squeezing their heads i want to jump on kevin's train here i think china's in a very tough spot illustrated by the last 24 hours. why would they want to de-value? this is an export-led economy that stated they want to be a consumer-led economy i agree with kevin they don't buy more soybeans, that's only a big deal because two swing states are growers of soybeans i think china is in a tough spot >> let's say they did allow the yuan to deprecate. it's not in their interest to

de-value completely. i agree on that. this shows china has other tools in its arsenal that maybe the u.s. is not factoring in state media made a reference to stopping the export of rare earths, which would hurt us. everyone from the military and electronics uses some rare earths >> we have some in california. >> we do, but that's not fully operational. from here to there, what do you do >> it's not a one-sided fight. i don't want to give that impression really what they have is an election the u.s. has many, many more tools at its disposal. china will hope the tough guy negotiator loses in the next election but they have a losing hand. >> but how about the markets in the meantime >> what you're seeing last night, china let's calling it backing up a bit by setting the fix below 7.

>> to the extent there's a volatility story here, i think this is one piece of a longer sort of -- this is a marathon. >> earnings did not disappoint we had a pretty good session nothing has changed. the rhetoric is going up so what? this is the first administration, whether you like trump or not, it doesn't matter. no one is taking these guys on for the 15 years i'm doing business there i'm sick of it i'm ready. let's dance. keep it up i'm so big a hawk on this. keep squeezing their heads >> do we care about the cost to the consumer >> in the end the upside to the consumer is immense. what is going to happen is the upside to the s&p and all the domestic companies that want to sell there see the other side of the river, you're crossing the rubicon, rowing the boat, when you land into the land of ip production, you will love china,

everybody will be happy. >> how long does this take >> six years >> so the markets for the next six years do what? >> they're not having a good time over. there capital decisions about building plants in china -- >> they're not having a good time we came off a selloff that so he the lows down 900 yesterday. >> people say uncle eventually keep squeezing >> water will find its level in terms of the consumer. what will happen is -- the big producers in china will just move they'll move to vietnam, thailand they're doing it now i spoke to a friend of cnbc, very well business person who said i already leased out five factories in five countries. it's in production now to move my computer production i think you'll see that over and over again >> let me say this, we've been talking long-term, i like that we're talking long-term, because short-term is not nearly as important. however investors are waking up this morning watching us and

trying to figure out what to do. before we go to break what are either of you thinkings will do? >> it will be volatile it will be a month or two of volatility >> move to companies generating more cash. you don't have to care about sectors, find the best balance sheet in every sector. it will have less vol. people like quality. it's a quality story now >> okay. we'll be with you for the rest of the show. we'll continue this debate when we come back, four former fed chairs getting together to take on president trump and they are out with a new op-ed calling for fed independence we have that story coming up after the break. and we'll talk about the implications of the market turmoil on the fed's interest rate plans for the rest of the year as we head to break a look at the biggest premarket winners and losers in the dow.

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news just out about apple's new credit card. today a number of customers signed up about the payment

offering will be selected to participate in a preview program. this credit card will spintegra with apple's wallet app. people will know where their money is going apple plans a full launch of the apple card later this summer if you get the notification, you get your card on the phone first. then they send you the card. you need to pair your card with the phone. you don't pair it with the card, you pair it with the box it comes in >> what do you mean? >> when you pair it, you have to pair it with the box that the card comes in. because the idea is if the card gets stolen, you wouldn't want the card to pair on its own. so the box becomes part of the pairing process. you'll see >> if someone steals the box -- >> that's interesting. >> it's a tough space. >> you're not as bullish on this >> if you look at the credit

card companies, the big issue is customer acquisition costs versus lifetime value. >> if apple can pop this up on my screen and say andrew, take my card. >> i bet it's not as fast as you think. people don't say i'll give up my cash-back credit card and switch to apple why? why could you do that? all the hassle of switching. i don't think so another credit card? >> 3% back on apple products, 1% back on -- >> on apple products only. think of all the money you spend. >> i think there's a 1% cash back on everything we have to get the details >> not so fast >> i have seen it. it's cool. it is cooler than anything you've seen. all right. let's look at individual names to watch in the trading session. shares of shake shack are higher the second quarter earnings beat estimates. it raised eits guidance for the year it announced its partnering with

grubhub. and marriott's second quarter earnings were in line with estimates, but they're cutting their fuoutlook for full-year expectations coming up, former fed heads speaking out against political interference in the central bank's business. we have the highlights next. and fallout from the selloff. we'll talk about the other potential trade war weapons and reaction from the fed that could have an impact on your money "squawk box" will be right back.

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> welcome back to "squawk box. time fore the executive edge. we have to start with a must read in the "wall street journal. the last four fed chairs teaming it's titled americaxdneeds an independent fed. paul volcker, alan greenspan, ben bernanke and janet yellen are writing that we are united in the conviction that the fed and its chair must be permitted to act independently and free of the short-term political pressures and inj particular without thrt of removal or demotion of fed leaders for political reasons. read between the line3iy you know who this op-ed is addressed to

>> this isfq basically leave jerom.x&=]1 alone that could have been the headline easily for this >> i have tremendous respect for these authors. i thought this wasj a bit ridiculous >> they all got the call themselves >> elections have consequences presidents will always apply short-term pressure. lbj beat up the fed chair. this is a long history in this country. get over tchlit >> paul volcker has a piece in his own book about the time whe reagan came to him and effectivelye1 pressuredñihim. it's not that presidents have not pressured fed chairs before, but have they done it so publicly does t("á public nature of it change the dynamic especially when you're trying to inr example or otherwise with other countries? >> since when is the mandated of the fed to discuss politics and trade wars it'sq inflation and employment. all of a sudden 60% of the reason is because of trade wars?

>> you don't think the president would like the fed to get in line and help with the trade war? you don't think there's something going on you don't think that's part of the arrangement? you don't think that's what the president wants? i think he's encouraged. he says i want 50 basis points gone off rates he gets results by saying that why stop powell actually acquiesced by saying i did this because of trade wars >> isn't that terrible >> no. it's not terrible. gregg popovich when he gives the nba refs a hard time, should he be thrown out of coaching? that ref should continue to be a great job and be an independent arbitrator it's okay to have pressure >> what is the upside? he gets beaten to a pulp >> transparency. you don't want transparency? >> you do not need a press

conference >> you want to rewind to the old days twice annual humphrey hawkins? >> you put out the press release and go back to work. you don't need the press conference you get nothing from that but abuse. it was perverse, it was weird it was crazy. what about this? what about that? it was crazy nuts >> i don't know if i agree with kevin on that. that argument but the rest of it -- >> you agree with the transparency thing >> i think the press conferences are good if you go back to the december press conference you learned more about the attempt the market showed the reaction it was a healthy but volatile feedback >> why do you want the president to effectively try to politicize the fed? >> it's been going on since the fed -- >> not an open forum like this on twitter almost on a daily

basis. twitter didn't exist for lbj lbj didn't go out on tv constantly criticizing the fed the reason -- >> i understand that we need to move past it and get to the substance i'm not arguing donald trump is infallible here. the pressure he applies on the fed is not always the correct pressure his voice being heard is a healthy thing. >> everything is working keep everything going the way it's going that's what i say. no problems yet. >> i'm not sure everybody sees it as working. we'll talk about that. >> let's bring in some more voices into the conversation >> helen hazen and stan stovall from cfra. welcome to you both.

good morning sam, i'll start off with you if you look at the lows of yesterday's session, down 900 points, all the way up to where we are today, which is dow implied open up 82 points, you could argue this is quite a turnaround in the markets. for you to be convinced this sticks, what would you need to see? >> follow through. i like to say there's usually pop after the drop if you go back, this has happened before, and i think i need to see what happens not only today but also for the rest of this week to see if there's true meaningful follow through >> when you'rewatching what else happens, are you also watching what happens in terms of the barbs being traded between the u.s. and china there seems to be backing off, cooling of heads this morning in terms of china's response. the ball is in our court i would say. >> i guess i'm trying to figure

out did the president up the ante on trade in order to get more pressure on the fed if that's the case, to me that would be like drilling a hole in the bottom of your boat to bail out rainwater. we have to be careful what tact we take to get the desired outcome. >> the fed funds pfutures, the pricing of a 50 point basis cut has gone up since friday that's note enough to offset concerns in the market to exist because of an ongoing and deepening trade war? >> it's unclear whether or not the problems that we're seeing in terms of global gdp slowing, global pmis slowing, and other weaknesses that we're seeing are due to interest rates too high there's some concern that the fed is to some extent pushing on a string as it were. and i agree with sam i think there's certainly some chance that this most recent ratcheting up of tensions was in

some part designed to respond to what you were saying earlier about the fed responding to this trade war. but the results are real we've seen this slowing in the industrial economy here and in other places, and part of that is do you to uncertainty and the slowdown from the trade rhetoric i don't know if a 50 basis point cut or more will turn that industrial economy around. >> in the meantime, we just came off a decent second quarter earnings season. we're at the point now where we're approaching september. september is traditionally the time when companies decide what to spend an how much to spend. we enter september with this turmoil and volatility on our hands. what would you think about third quarter earnings >> well, third quarter earnings now are expected to be negative. but then second quarter earnings initially were negative. first quarter earnings were initially negative this is the 30th consecutive quarter in which actual results have exceeded end of quarter

estimates. so right now the earnings recession is off the table because while the third quarter is expected to be down by 2%, fourth quarter is expected to be up by 5% or more right now earnings recession is just evaporating. >> business activity has slowed. business confidence reduced, and the consumer keeps chugging along in the u.s who wins >> the consume ser tr is two-thf the economy. our best case scenario is the consumer will win. we've seen strong retail sales, low unemployment, we've seen wage growth. consumer confidence near an all-time high. the consumer seems relatively unaffected so far by uncertainty going on in the industrial economy, both here and globally. and of course part of the question will be with this newest round of tariffs, which is slated to hit the consumer more than the previous rounds, is that going to begin to be

dented right now we are expecting that it will not make a significant difference but that's the biggest point of pressure >> ellen and sam, thank you. more coming up on "squawk. we have more fallout from the trade war escalation we'll show you how crude prices and commodities are reacting the big jump in the price of bitcoin over the last two days as well. we want to show correlation. as bond yellields come down, lo at the fixed interest rate on a 30-year mortgage >> 2016 lows call your mortgage broker. "squawk" returns after this.

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welcome back you're watching "squawk box"

live from the nasdaq market site in times square. good morning welcome back to "squawk box" here on cnbc we are talking about all of the market turmoil look at u.s. equity futures. we're about three hours away from the opening bell. things are moving better just a day after the trade war escalation sparked a massive selloff. dow looks like it would rebound a bit here about 113 points. nasdaq opening up about 45 points higher. s&p opening about 12.5 poen po higher wti crude now, $54.93 per barrel look atom farley's favorite measure. we have the vix. the measure of volatility. you know what? i'll ask tom you give us commentary >> what i want to point out in this chart, when you see the vix spike north of 20, it doesn't just go away

that heightened volatility, in every one of those if you went back a year, five years, you will see that period of volatility last a month, two months, three months as you sit at home and think about what's to come, if you're an options trader f you', if yon risk-on stocks like f.a.n.g., i would think risk-off these spikes last about a month. >> 12 to 21 is the new normal on the vix. >> we got up to 24 yesterday >> we were stuck in there for a long time. there's periods of peace and harmo harmony. >> that kind of volatility is perfectly normal it feels like a big deal, asthma lisa poi asmelisa l melissa pointed out,s the points in the dow that fell.

>> everybody brought down the number so much we always surprise to the upside each quarter for 29 quarters. do you want to make one point nothing on the ten-year? that's cry zazy. the best thing to invest in even now. >> while we're near all-time highs, the s&p multiple is basically at the long run average. >> we'll drill down into all of this where else can you hear about the vix and things hitting the fan on one show. >> it just shows you it's not that bad coming up, much more on the china trade war front and what it means for the treasury department, which is officihas y labeled china a currency manipulator. and tech stocks hit hard in yesterday's selloff. the five most valuable tech companies losing a combined 1$12

billion. will they bounce back after today's opening bell we'll try to make sense of it. stay tuned, you're watching "squawk" on cnbc

the trade war seemingly turning into a currency war. the u.s. naming china a currency manipulator the other day.

kayla tausche has more >> reporter: it's something that treasury refrained from doing in five currency reports, but snuchen sasnuc steve mnuchin says china is using its currency to make an unfair currencyadvantage a statement last night said treasury will work with the international monetary fund to eliminate that advantage but first the u.s. must get the imf to agree the china state tv says the u.s. doesn't have a case. kellyanne conway defended the money to eamon javers last night. >> this is a reaction to what china did. currency being designated a currency manipulator, that's in direct response to their

actions. >> reporter: china's ministry of commerce says it won't buy u.s. agricultural products and may add charges to products it's bought in recent days. one farmer says the ag community counted china out of the market for now and prices are more reflective of weather and supply side issues. andrew >> thank you, kayla. leland miller is joining us coo of the beige book international. you've been busy >> it's a busy summer. >> tell me what the chinese are thinking this morning. >> they're seeing a trade talk that they thought were on hold for three months disintegrate and now things are potentially spiraling out of control they -- >> because of us or them >> they weren't expecting the

tariff hike that the president did. then rather than just sort of be quiet during the leadership retreat, they responded by allowing the blowout past 7. a minor move trump didn't like that at all. then the u.s. administration's responding all of these are very economically insignificant events the problem is that politically they're creating a frost over the talks. this will make it difficult to progress through trade talks when you have that animosity >> one big question we had yesterday morning was whether this was something the chinese let happen or actively doing there was a question mark about whether it mattered. clearly this is not something they're actively doing, but we have not talked about hong kong and whether you think there's an overlay there to what's happening here with the yuan >> the chinese let the currency go past 7. this was not incidental.

this was not an accident this is not something that some bureaucrat at the pboc did this would not happened had the beijing leadership not weighed in what you have in hong kong is a deteriorating situation in which chinese troops may be involved shortly. so this is causing significant pain i think they may be looking forward to the fact they want to have this wiggle room past 7, this is a good time, but blowing past 7 is a big move this has not been seen since before lehman collapsed. >> i've been watching 7 for years. that's the magic number. they're not really manipulating their currency down. they're propping it up they have been forever if it was a free-floating currency, how muchdepreciation would occur? 15%? 30%? >> nobody knows. if they free-floated overnight, you could see 30%. the problem is nobody knows. nobody knows what the fair market of the yuan is. there's no market mechanism for gauging that until there is -- this would be a dangerous thing to do, you

have to have the pboc propping things up and everybody operate with the chinese as a managed currency for the time being. the fact that the u.s. is pushing against that, everybody knows this makes no economic sense. this is a political move the president wanted to hit china they want to prepare the way for the department of commerce to call china's currency manipulation a subsidy, to use counter veiling trade mechanism -- >> it's not a concern about u.s. intervention in the currency markets, it's more what the u.s. could do if that's categorized as a subsidy >> the commerce department is setting up to do that. >> are you surprised the chinese appear to have stepped back as quickly as they have in the past 24 hours >> i don't think their intention was to blow this out i think they wanted to test 7 -- >> they wanted to test 7, a stick in the eye to say we can do this.

>> as i said many times before, it doesn't make sense for the chinese to pull out of the talks now. they get more by doing just enough to appease the president, extending this on. they need to worry about huawei in the short-term. the temporary general license expires august 19th. they have to worry about tech companies, this blowing out to 25%. it's not impossible september 1st that we see 25% tariffs on september 1st instead of 10% >> is it good or bad for the chinese currencurrency, the yua de-value >> this has been long overdue. if you had a market mechanism the yuan would have blown off steam a a yeyear ago the chinese have to be mindful of their long-term goals which is to empower consumers. you empower consumers with a stronger currency that puts purchasing power in the pockets of households to spend more. china wants a stronger currency.

in the short-term they have big problems with this trade war >> china will see problems in a lot of different sectors, airlines for instance that hold dollar denominated debt. real estate developers, the chinese consumer has less purchasing power how long can this go are you concerned in terms of china's economic outlook that this is a pressure on that economy? >> it's definitely a pressure. a lot of people look at this as a trade war that stepped up over time at the beginning of the trade war there were tariffs those tariffs were dealt with with back door subsidies, currency depreciation. they counter acted as much as possible where we're going now is a place where they can't do this if they were trying to do that with the currency, not only would there be a major political reaction but they could lose control. the fear is not about breaking 7, now that they're no longer restrained by 7, this could go anywhere once it starts, the chinese

themselves may not be able to stop the fall of the yuan along the way. >> thank you >> pleasure. coming up, should you consider bitcoin as a safe haven? it continues to rally despite the market turmoil we have the chart that could help you make your decision. as we go to break a quick check of the european markets right now.

♪ as the stock market tanked yesterday bitcoin took another leg higher past 12,000 but has

pulled back. it is now trading 11,775 that is just down fractionally joining us to discuss the cryptocurrency market is anthony, partner at morgan creek digital assets there had been an argument that bitcoin is a good sort of hedge against global turmoil, against central banks, et cetera it seems to be coming to fruition right now how much longer is this going to last >> yeah. institutions have spent decades looking for assets to use as a diversification in their portfolio. we've been banging the drum over a year saying this is a noncorrelated asymmetric asset look at times of global instability like in may where we're kind of lobbying tariff threats and the trade wars are raging on, bitcoin is up 55%, a negative correlation, so it's negative 0.9 to s&p, negative 0.8 to gold and we're going to continue to see that play out where there's people around the

world electing to put their wealth into something controlled by software and cannot be manipulated by single country or politician. >> when we see in the oil markets a drone strike in iran or something like that, right, you sort of a bump presidein the of oil and there's a premium built in are we seeing a premium built in bitcoin with the threat of a currency war >> in countries like venezuela, iran, arnlg again tina wheres the kurnsys begins to fail we see large upticks where people are electing to take the wealth out of the currencies and put them in bitcoin. they're small countries. now we're seeing this play out in the largest economies in the world. with deposits in chinese banks 1% would double the market in crypto. >> do you believe this is a true fn function from outflows from china or the perception of outflows that there will be outflows from china and therefore this is american and

other investors, if you will, pushing the price up by the way, from what i understand, it's not so easy for capital actually to leave china, despite the debates we've had on this table. >> i think it's a combination of both there are some outflows it's occurring. you see things like in the central bank meetings there are reports people are talking about bitcoin. what we get is a reminder. we understand that look, why participate in the chaos we're basically here to sound the alarm and say, there is a way to opt out, a way to get diversification and get a hedge. you don't sell all of your assets and put 100% in bitcoin to size it in an institutional quality portfolio of 1 to 5% and get the hedge when you have noncorrelation we thing it can do things to the portfolio that other can't do. >> help me become a believer i'm a scenter of it.

i have my crypto wallet, i put money into it, it's worth $30 and $62 cents, because all the other crap, bitcoin cash, stellar, blah-blah-blah-blah, what happened to all that stuff? if this is really such a great idea why is there only one vegas game working >> yeah. look, i'll save you a lot of headache i'm here to talk about bitcoin bitcoin is the most important and that's the only one you should focus on. the reason is, we are now entering a position where it's actually irresponsible for institutions to not have exposure to this asset their job is to find assets that actually can provide noncorrelation to the rest of the markets especially in times of global instability where there's likely to be market draw downs. bitcoin is providing that data it's just math not personal opinion, not somebody else's opinion. the math suggests it is noncore related to -- >> how much of your open dough is in it

>> over 50% of my net worth and i don't plan to sell it. >> i forbid that that's insane. that breaches everything about diversification and investing. >> how much of your net worth is in the stock market? >> any one stock never more than 5%, any sector, never more than 2 20%. i teach this stuff 50%, shame on you, that's nuts. >> but the assumption being what happens here for you >> yeah. so again, because it is a scarce asset you're looking at is the global adoption has to continue to occur and it's a fix supply it's supply and demand economics. i believe humans will continue to trust software over -- >> let's remember they have to value what the scarce asset -- there's a lot of things scarce and nobody cares about. >> of course if you don't believe in bitcoin you're saying you don't believe in cripping tography. >> calling bitcoin a safe haven is a bit reckless in my opinion with all the hacks that have kind of cost so much --

>> the hacks are on the exchange level which is different. >> our viewers at home contemplating buying bitcoin, how should they think about safety in terms of custody. >> what we do for our clients we use qualified custodians similar to what you see in the legacy system again, do your own reeach, and make sure you're investigate the exchanges. there's only a couple that we think provide quality solutions. we've chosen to go with the ones that have that qualified custodian articulation. >> always good to see you. anthony. >> big two hours ahead we're going to talk about all of the trade turmoil, the sell-off and what may happen next we're back in a moment at carvana, no matter what car you buy from us,

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hiv controlling, joint replacing, and depression relieving company. from the day you're born we never stop taking care of you. global market alerts stocks are bouncing back after suffering their worst session of the year. >> still, don't be fooled. we're in the middle of a trade war and this story could change in a heartbeat good news, we have you covered. the latest headlines from washington and beijing and what they mean for your money as the second hour of "squawk box" begins right now. ♪

live from the beating heart of business, new york. this is "squawk box. good morning welcome back to "squawk box" right here on cnbc i'm andrew ross sorkin with melissa and joe tom farley is hanging out this morning. former nyse president and current chairman and ceo of far point and shark tank's kevin o'leary. we're getting to them in a little bit waking up, tell us what's going on. >> good morning, first of all. we want to check on u.s. equity futures after the massive sell-off the dow down as low as 900 points looks like we're going to have a positive open, the dow looking to be up 69 points, s&p looking to add 8.5, the nasdaq up 31 stocks did swing and now currency headlines out of washington and beijing and think about what has happened in the last 36 hours or so. late sunday night eastern time china let its yuan fall, global stocks plunged, fast forward to

last night the u.s. treasure department labeled china a currency manipulator and we did see futures drop at the lows down by more than 600 points on the dow. this morning, though, beijing responded it's not manipulating its currency at all and took steps to limit the plunge, fixing the yuan mid-point at a stronger level than many expected at 9:00 p.m. eastern time last night and that's when we saw the futures really start to come back to where we are today at 7:00 a.m. on the east coast and that is a higher open across the board steve and mike are here. a trade war, a currency war, how does the fed play in. >> what we have this morning is a dramatic reprising of the outlook for the federal reserve and interest rates here. let me just move along here, folks in the back there, if you're not -- that's right thank you very much. there's now a 64% chance of a 50 basis points cut in september and a 68% probability of another

25 basis points come december. don't worry, i'll add it up for you at the end and give you the bottom line here even some chance in december of a half point cut march 2020 a 52% probability of another cut. add it up. markets pricing in a full percentage point 100 basis points of cuts between now and march. goldman sachs writing last night the fed has been ceasingly responsive this year, the trade war threats and bond market expectations and global growth concerns they're on board with 75 basis points of cuts by october. does the fed deliver on the easing expected from the markets and demanded just about everyday from the president the following questions, will interest rate cuts offset the negatives from the trade war question two, does an independent fed increasingly risk being seen as an arm of the administration that getseven worse and even more intense if the president actually intervenes in the currency markets there the fed has a choice to join in or not worth noting no one can remember a time when the u.s. has intervened on its own.

almost always happens as part of a broader agreement with allies. the president who has the authority over the currency, not the federal reserve, and you hear that a lot from people who come back and say when the president says, you should cut rates to devalue the currency, the response to those who understand the federal reserve is, no, mr. president, you responsible for the currency and the exchange stabilization fund, that's your responsibility >> the cutting rates in order to prop up the dollar -- i mean to push the dollar lower has not worked really so far >> go back to -- >> the quote from alan greenspan, he said, there is no factor that goes into the value that -- the value of a currency that's any better than the flip of a coin and predicting how it affects it you could lower the rate, do this with the budget or any other factors or economic growth currency is going to do what currency is going to do.

good example look back to last week, 25 basis points cut by the fed, dollar rose in value. tariffs came along that reduced the value of the dollar. >> steve, basically you're telling me as an investor a high probability for another 100 basis points of rate cuts. it's got to be trump's job it's being blamed on trade wars. powell said half the reason he cut the rates is the uncertainty of trade wars. when is the mandate of the fed to talk about trade wars ever. mostly employment and inflation. all of a sudden he's worried about trade wars trump is winning this. >> i agree with one thing you said but not the other. >> that's really strange. >> to the extent that federal reserve has mandate to deal with employment and inflation and to the extent that the biggest factor determining the outcomes for employment and inflation are the trade wars, it has every -- >> that's interpretive and not in the mandate where is that written.

>> >> it's not written who said you don't interpret that's silly, don't you think? >> he's bowing to political pressure that's what trade war debate is with trump isn't that exactly what trump wanted >> i think you raise a great -- that was the point i was going to kind of agree with, was i don't know the answer to that. i think that fed is in a tough spot here where you could make a legitimate case that the trade war has hurt global economic growth and has the possibility and potential to ricochet back on the united states and reduce u.s. growth engendering a need for a fed response on the other hand, you could make the same case what the fed is doing is in response to what the administration did with tariffs. >> if a trade war were to show up in the data -- >> there's a lot of people part of the long thread former fed officials and fed observers who are arguing that the fed is doing what you just said, that they should have waited.

they didn't wait they acted ahead of time. >> i don't want these cuts it's taking away ammo from when we're going to need it >> i didn't think it was that clever >> the op-ed in the 6:00 hour, paul volcker, ben bernanke, janet yellen, alan greenspan, all writing together in the "wall street journal" to keep the fed independent. >> i don't -- look to the extent maybe it has influence on congress, it could be effective in that regard i think it's ridiculous to think it would have any influence on the president who, in fact, will probably use this to show that the great deep state conspiracy is now against him in this regard i think that's kind of silly in terms of having that what's interesting is whether or not there was also a message to powell, and this is picking on what kevin was saying. >> behind you. >> the other way around. >> act independently >> oh. >> that's interesting. >> i saw the possibility it's kind of a silhouette of that thing.

>> the letter to powell -- >> i think it is a letter fundamentally to trump but there's also a part of a letter to powell. >> the implication to that, that they think that powell has not acted independently in what he has done so far? >> look, kevin makes an interesting point and i'm fascinated by his other point here, which was that he doesn't want the fed to move that's a separate discussion the idea that the fed did not have the data -- you saw the skepticism among the fed press corps about this cut fed told us they were data dependent. there was not very much data to justify this rate cut at the moment the prospective risks that powell acted on are defensible but not the data they said was going to be the basis of the -- >> he clearly caved and i thought, to quote one of my daughters -- >> you can say that. >> i thought the op-ed was lame. what should the fed be doing i agree with kevin, we have to save some dry powder >> all i would say is --

>> whether it was the trade war, whatever has happened to the global economy that got global bond yields down to these depressed levels and leaves the very, very short-term treasure curve as the only thing out there with 2% yield on it, that was weird. that tells the fed, there's some feedback we're getting from the global economy that says these risks are rising and our policy seems out of tune with where the world is however the world got here, if it was the trade war or strategic or accidental, they had to act in that regard. >> what's your guess on why the futures -- >> can i push back on mike here? >> okay. >> it's not like the fed is an independent player in that outcome. >> no. >> right so in a sense -- >> any market price themselves because they expect -- >> they're not the puppeteer holding the strings bunt in part they have a play in that outcome. they let it do it. it's important what's happening right now, does the fed let the market run at the current

pricing. >> what was the notion or the hypothetical cost of the 25 basis points cut markets are going to get over confident, a bubble, down 6% since they cut it seems not to -- >> gave up some dry powder for when you really need it. there was no data to support this. >> mike, i want to get your -- >> we have to bring in somebody else. >> let me bring in another guest and continue this conversation >> i understand. >> i promise you, joining us on the news line to help us with this, someone who has thought about declaring china a currency manipulator before, but never went through with it, former fed governor sara bloom raskin, a deputy treasure secretary in the obama administration good morning to you. i want to talk about the currency manipulator decision because i know it's something that over time you have thought a lot about. >> that's exactly right. yes. so the designation that was made yesterday by treasury, was a

designation that had not been made for quite a while this is a designation that is usually done very deliberately, with a lot of care, and done -- >> are you suggesting it wasn't done with care yesterday >> sorry >> you're suggesting it wasn't done with care yesterday >> it wasn't done by schedule. it's usually done in a scheduled way. there was legislation put in place in 1988 which said that the u.s. treasury is required to analyze on an annual basis the exchange rate policies of foreign countries, and so since 1988 it's been the treasury's role to do this. then in 2015, another piece of law came in place which said the treasury has to publish semiannually a report and in that report it makes public its decisions regarding what it believes those exchange rate policies amount to, whether or

not there are currency manipulators in our midst. >> given that the imf just under three weeks ago said that the yuan accurately reflects chinese fundamentals what do you think the game plan is for treasury for doing this we had leland miller on of the china international beige book and he said he believed that it was to set up the commerce department to be able to say they devalue the yuan, it's basically a subsidy and we can respond using counter veiling tariffs. >> right well the law certainly suggests that those options are now in place, so in other words, if, in fact, a country is deemed to be a currency manipulator by the treasury department, it does open up the possibility of particular sanctions, particular repercussions. so that was the intent of the law and that's the intent of the

designation process. >> sara, does it dramatically cea increase the probability of sanctions or actions you could almost argue a bit of a nothing burger, get the imf to agree and it could be in 2022 before there's significant action. >> i think that's actually deliberate i think the idea there should be a disciplined approach around going to war so to speak on a currency basis and so what the law does is, in effect, set up a process by which there have to be a series of discussions and particular analyses before real sanctions or, you know, consequences emerge. i think that was all -- that's all really built in to or baked into the process of designation. >> what does this tell you about where treasure secretary mnuchin is in this whole thing

as you point out and i've done this on friday's going back for many years now, they come out with this report twice a year is when they're supposed to be designating it they moved up the process, and according to several analyses i read, china doesn't meet the criteria for a currency manipulator from the imf or the treasury's own designation, what does this tell you about the role secretary mnuchin is playing in the battle over tariffs? >> right he appears to be wanting to endorse and underscore and support the president's repeated calls for china being labeled a currency manipulator what treasury is now doing is saying, okay, yes, you know, you hear the president keep, you know, keep talking about currency manipulator, china's a currency manipulator, we are now going to say it is, in fact, the case china is a currency manipulator. so that is what the treasury department is now doing.

they are enabling this -- what has been heretofor mere labeling, they have now said we're saying it's actually so. china is a currency manipulator. >> we have to run but a quick question, were you surprised that it seemed like china backed down as quickly as they did and does that mean we have more leverage than we thought >> okay. no that didn't surprise me at all. i think that china knows exactly what it's doing here it is telling us that it knows that this tool that it has in terms of valuation, that it is able to move to, you know, crack 7 and can use this tool both as a shield and a sword it knows exactly what it's doing and it's not triggering any capital runs this mechanism that china has is a mechanism that they're showing us they've got and we need to

understand how it works and understand that it is again both a shield and a sword >> okay. fair enough. thank you for joining us this morning. appreciate it very much. >> thank you >> thank you, steve. see mike at the top of the hour again. coming up, no sector is safe every dow stock dropped and 12 of the blue chips fell by more than 3%. some of the widely held names hit hardest and ask what investors should expect from here futures, we are still positive we've been positive all morning and considering that yesterday night we were down more than 600 points on the dow, this is a turnaround dow looking to be up by 92, s&p adding 11 nasdaq higher by 42. you're watching "squawk box" on cnbc moving is hard.

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exposure to a trade war. as the rhetoric heats up we're looking at areas investors need to watch to phil lebeau who is in chicago who covers airlines and autos. >> when you talk about aviation or airlines and the china trade dispute you start with boeing. shares yesterday dropping to a seven-month low. they were down at one point below $330 a share as for the airlines, the concern here, especially with the large legacy carriers with exposure to routes not only to china but asia pacific, they will see a falloff in business. we have talked to some of the ceos in the last month and said there are hot spots but see relatively strong demand to china and in terms of the auto industry, when you look at china you look at what's happening with general motors. when they reported earnings last week they is saw their income in china cut by more than 50% compared to the second quarter of a year ago. the concern is the chinese economy continues to weaken. that will hurt general motors. for the auto parts suppliers, a

trade dispute really could hit some of these companies further because remember you've got tier 2 and tier 3 suppliers who supply to these suppliers and then the overall cascading effect is that you would see this, really almost all of the large auto part suppliers could be under pressure. those are the stocks and sectors we're keeping a close eye on today. >> civilian aircraft are the number one export to china. >> yep. >> are there non-u.s. replacements for those civilian aircraft, such that we could see that 18, $20 billion go to zero? >> no. well, look, there is air bus is it likely you're going to see the chinese airlines, which are state owned or partially state owned, say you know what, we're scrapping that order with bogeig and go to airbus highly unlikely they need these planes as quickly as possible. it's highly unlikely that air china or china southern would

ever -- any of those chinese airlines would say we're done with the 70 or 80 737 we're waiting for or 777 an go to a airbus highly unlikely. >> air china said it was going to halt service between beijing and honolulu and i'm wondering if you've heard when talking to these airline ceos is there a concern perhaps they can limit the number of gates accessible by u.s. airlines and stem business in that way >> they have not talked about that being a possibility at this point. most of the gate awarding that has taken place through the u.s. government, that's negotiated between the chinese government and the u.s. in terms of hey, this is how many gates we're going to award for carriers into the united states. most of that is still proceeding as it normally does. we have not seen the chinese government say, you know what, we're going to cut back on the number of gates awarded in the future to u.s. airlines. if that were to happen, then i think you would see the u.s.

airlines voice greater concern so far, when they talk about china, they all say the same thing, there's still steady demand there, though some volatility they're keeping an eye on. >> phil lebeau in chicago for us coming up, perhaps no sector is more exposed to a trade war than technology. we'll talk to well-known technology analyst and investor neunerth'sexge mst, at nt.

welcome back to "squawk box. if you are just waking up futures look to be rebounding this morning, at least a bit here the dow looking like it would open up 93 points higher, nasdaq up about 47 points higher and the s&p 500 up about 12 points in large part i think on the sense now that china has backed off pushing the yuan even farther down at this point in this larger trade war. >> big tech was hit particularly hard in yesterday's market bashing. the country's five most valuable tech companies lost a combined $162 billion joining us with what is next for tech gene munster founding an managing partner at loop ventures good to see you. >> hi, melissa. >> we had apple down practically 5% in yesterday's session. given what has gone on, do the concerns about some sort of retaliation, whether it be by the chinese government making it more difficult for apple to

operate and manufacture there or a chinese by cost of apple goods do those concerns go up for you? >> melissa, before we jump into that i want to take a step back and advocate for clear, level-headed thinking. the idle speculation has not been helpful and gets to your question in the past few months on may 5th when things began to escalate, there was a lot of speculation, present company included, that the china business, apple's china's business, would be diminished, simply that the chinese consumers would feel this was a vehicle boycotting apple products to voice their displeasure with what was going on apple had a record june quarter in china what i want to emphasize first as we step through the potentials here, there are a lot of moving parts to this. there are effectively three levels that can happen one tariffs can be increased, maintained or decreased. to specifically answer your

question, one way that we can get a pulse in terms of what the demand is going to be in china is we can actually monitor the chinese social media that's something that we do on a routine basis. what we found up until two days ago, was that the chinese government is still advocating a positive posture towards apple obviously the on-line content is heavily influenced by the government and so as it stands at this minute, i think that idle speculation is less helpful but i am confident that the chinese business more broadly is going to be intact for apple in particular >> gene, i mean i understand the good china quarter for apple in june, but the quarters previously were impacted by the trade war and didn't we see china sales softer than what we expected isn't that more of the blueprint of maybe what we could expect from here going forward if these tensions continue? >> potentially

i think what we saw was a combination of something related to trade there also was an issue that apple had in particular that started in december that effectively is huawei as being more price competitive this is a different topic. apple in the june quarter took a more advanced, more aggressive and unprecedented approach to really stoking demand in china effectively what they did is, they discounted the products by increasing the trade in value of former iphones had the effect of discounting. so melissa, i would put the impact kind of in the december and march quarter and apple's chinese business is probably a quarter of that related to some of the trade related fallout, but probably three quarters related to more aggressive competition from huawei. >> gene, what you call idle speculation i call the market discounting future cash flows. apple down 20% since october

the s&p is by and large flat i think there's another 20% to go if some of the nightmare becomes true for apple do you not see that risk for apple with the huge sales to china and supply chains deeply meshed in china? >> i don't see that risk i mean i would point back again to the most recently data point we have is that things are not good, but they're not horrible in china specifically, the china business in the june quarter was down 4% year over year compared to down 20% in the march quarter another perspective on china, greater china is 17% of overall business mainland china is probably 13% of business. it is understandable that investors try to discount what is going to happen i agree with that piece of it. but what i'm really advocating for is a more realistic approach to it. for example, we can talk about the risk to the 13% in mainland china. but there's also a perspective

to think about china over the next decade and to think about this is still going to be a growing economy and apple is really the only large tech company in the u.s. that actually has exposure to china i mean that ultimately could be a growth vehicle that topic is almost forbidden to talk about, just because we're so focused over the next year that would be an example to me of clear-headed thinking, to take the negative about what's going into china today, also with the positive opportunity that apple can grow that business over time. >> gene, let me go to the negative for a second. just to be specific about what the true downside would be, stay on the iphone, manufactured in china over a million chinese making it, is the idea that we wake up one morning and the chinese government says, these phones, even though they're manufactured here and we employ a million plus people, are going to be tariffed even though they're internally made in china. we're going to charge our domestic users over a phone mad

in china isn't that what everybody is worried about? >> yes that is the real risk. let's take -- want to put one risk that is not real that gets mixed in with this incorrectly mixed in this concept that the u.s. government is going to somehow tariff apple products coming in. apple is a u.s. dom mow soil company that will not happen but you're exactly right there is this risk then you do the game, the chess game, and the truth is several layers beneath the surface and the chess game, the obvious gives and takes is, that the -- maybe the benefit is that that could be a black eye to the u.s. if they tariff that and it would have a negative impact like you said on those million people and again, i point back to what is the public posture of the chinese government if we take that risk that you just framed in there and say, what's the probability that that happened, i think you would see

some indications from the government about some more public frustration with apple within mainland china. we just haven't seen that yet. one quick thought, just to finish it, what would the impact be if that scenario happened, albeit low probability, but what would be the impact? i think you could see the china business go from mainland china from maybe 13, potentially 10%, or 8%, something like that it would be a negative again, extremely low probability, but it would not fundamentally change the trajectory of where apple is going longer term. >> gene, always great to see you. thank you. gene munster. from lv to ferrari, luxury companies have soared on the unlikely strength of the chinese consumer now that support is under threat we're going to talk about what it means for u.s. investors, next first, as we head to break take a look at u.s. equity futures right now.

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good morning if you're just waking up let's take a check on the futures because we are looking to stem what had been a six-day losing streak for the s&p 500 and nasdaq looking to add 13 points at the open on the s&p, dow by 102,

nasdaq looking to add 50 points here, so these are practically the highs of the premarket session at this point. let's talk luxury stocks for a second because huge impact from china they were among the biggest losers yesterday and investors wondering whether the industry's big bet on china will be costly. robert frank is here with that story. always with the luxury angle >> yeah. this is interesting because chinese consumers actually account for a third of all global luxury spending on luxury goods. most of that growth is also coming from china, but now that spending is under a little threat luxury like lvmf, tiffany, ferrari, falling on concerns about the fastest growing market lvmh which owns luis vuitton and dior is down about 10% over the past week. the ceo bernard arnault was the biggest loser among the world's billionaires, his fortune down $4 billion, down to a mere $92

billion. he useden to the second richest and now the third. the owner of cartier down 12%. tiffany down only about 2% yesterday. the luxury stocks had been soaring this year on the back of china growth now the weaker currency will make the imported european goods more expensive in china and the number of chinese millionaires down about 5% over the past year as the economy and markets have slowed you have the unrest in hong kong causing problems for the swiss watch makers because hong kong is their biggest market in the world. now so far luxury companies have not changed their outlook for china projecting 18 to 20% growth this year in its earnings report last week, they said, quote, trade tension and the slowing chinese economy do not seem to have weighed on spending in luxury goods by chinese consumers that was last week we'll see how it fares this week. >> more than any other country in the world the chinese do not spend, they do not travel, when

their currency devalues even a little bit which underscores to me why long term, china cannot devalue their currency. >> yeah. >> if they want to be consumer led. >> china did this interesting thing which has gone unnoticed in the press which is that they repatriated luxury spending. for decades most of the spending by chinese on luxury goods was in europe and the united states. >> it didn't change on the brands the company set up boutiques in those markets. >> that's right. >> the long term on these stocks, and i own them all, is that as that middle -- >> you own all the products and stocks. >> that's true too you know, i look at it and say to myself, over the next 10, 20 years, the emerging middle class, upper class in china, will become 50% of this market what amazes me is, these are the brands they want there is no domestic chinese fashion brand they're screaming for. it's got to be one of these global brands, whether it's a pen or ep watch.

the reason i can't buy a white daytona now is hong kong and china. you can't buy one of those. >> it's impossible >> that's exactly what they will tell you when you walk in the new york beteak. >> you'll never see one. >> all that depends on a straight line growth with the chinese consumer. >> i will take my chances. i think those people will want those watches forever. >> a white face daytona. >> you will never -- >> why not >> if he can't have one. >> that's his favorite. >> i begged him to buy them when the buying was good. but no. >> this apple watch is killer. come on. >> anybody can have that. >> this is a fabulous thing. thutite ily. >> coming up, this morning's biggest movers you're watching "squawk box" on cnbc

welcome back to "squawk box. less than two hours to the u.s. open here and we are lifting higher across the board in terms of what we are looking at this open s&p looking to 19 points, dow looking to add 172, nasdaq higher by 67 these are the highs of preet market sessions. dominic chu joins us with a look at the biggest movers. >> good morning, melissa big extension of those gains, almost doubling in the last 20 minutes or so. some of the bigger drops yesterday and balances we're seeing today apple shares up over a percent now they were -- that's about 200,000 shares premarket that particular stock was down a

bit yesterday. we're also going to watch what's happening with deere shares off by about 5% yesterday, up about almost a percent today on thin premarket volume as well apple and deere both bigger losers the semiconductor space in focus. nvidia lost yesterday, up over 1%, around 35,000 shares premarket. we'll watch those stocks to see if the gains extend as well. to put it in perspective for you, the s&p 500 has lost nearly 6% over the last week. the losses were led by tech. down 8%. energy was down 7% during that span the outperformers utilities only down 1%. all sectors down, tech and energy see if they can bounce big today. back to you. >> thank you joining us is a portfolio strategist at richard bern stein advisors i want to know what you did today and now what you're going to do today? >> andrew, first of all -- we're

out there -- >> you're doing stuff -- we're investing in the markets but not trading day to day i've been on with all of you this year and hows the fundamentals have been consistently slowing and as the fundamentals have been slowing we've been taking down the risk profiles of our portfolios and investing in the more defensive, higher quality sectors of the economy and those are the sectors as dom pointed out that are working. this is why. this year there have been three hopes for the fed. there's been a hope trade going on, the fed, it's been that earnings bottom and that -- the trade resolution will get -- the trade talks will get resolved. those three things are not coming through and that hope trade is starting to fizzle. think, you've had the fed and trade been the big distraction over the last three or four months now you're forced to focus back on the fundamentals. look we're almost done with second quarter earnings season like the third or fourth consecutive quarter of deceleration and it's not just like lower positive. if you look at the components

the cyclical sectors all negative earnings year over year this is what we're talking about. this is looking like it's going to continue into the back half of the year because look at what the guidance the guidance you're seeing this earnings season is probably some of the worst you've seen since coming out of the 2016 -- >> you said that last quarter too and we beat it. >> this guidance is worse than last quarter yeah what you're talking about has companies for the last ten years have been trained -- training on wall street to sort of lower those expectationses into earnings season so that they can beat. >> where are you for this quarter in negative earnings this quarter >> yeah. we think that way that most of wall street looks at it was different than us. it's coming in at about flat year over year almost a perfect copy of what you saw the last quarter and third quarter. as this is happening you've had zero earnings growth and now you've put on additional headwinds to growth and the hopes that where the market was relying on, whether the fed coming in on a shiny white horse

or, you know, trade resolution, those things are less likely. >> i want to bring in a headline, probably why we're seeing a lift in the futures this morning china's pbo, the central bank of china, tells foreign firms the yuan will not keep falling seems like china is coming in and saying you know what, the currency won't keep falling. >> sounds like they're manipulating. >> who blinked here? china blinked? >> no. >> this is in their interest this is -- the narrative was wrong yesterday. china doesn't want to devalue the currency this was about a poke in the eye to let us know they have other tools. >> this is really -- >> good for china for the currency. >> it's hard to argue this is anything other than natural market forcesp when you put tariffs on chinese imports the currency will tend to go down. the manipulation is holding it up by imf rules is not manipulation. >> 7 is the number. >> the imf to be an official currency manipulator you have to be stepping into lower the value of your currency, not to raise

it i think that -- that's why when we just got our latest report from the treasury that said, you know, when they investigated this, they would not call china a currency manipulator. >> yesterday's sell-off down 900 points driven by fears of the currency war we have the pbo saying that the yuan will not keep falling does that take off the table that concern of the currency war and, therefore, make yesterday's sell-off completely overdone and maybe we reverse a lot of that today? >> i think there's two dynamics going on it was -- the market reading into it being a currency war was overdone at most you're going to get, you know, a currency schoolyard fight. it's like little moves they're not -- like they have little interest in massively devaluing their currency what happens if they do that, you will see capital outflows and they don't want to see that either directionally, just pull up the long-term chart for the chinese yuan coming down for the last 10, 20, 30 years i don't think this changes that story.

>> does this change your allocation to u.s. domestic allocations? >> we have been. >> where are you going. >> we've raised some cash but lowering consistently our u.s. equity exposure. and we've been moving abroad we had zero weight in europe as an example last year we've now neutralized that and roughly equal weight china we think is a good risk/reward play look at the underlying data. there's trade talks and then the underlying data for china is actually starting to improve at least on a relative basis, relative to everywhere else in the world where it's getting wors worse on a daily basis, given that no one wants to touch that with a ten foot pole. >> thank you >> thanks, guys. >> we should say while dan was talking, snap announcing a billion dollar convertible senior note. it was interesting it means they're raising money snap owned partially by the parent company of this network. >> when we return the global story driving the action in u.s. stocks the common theme populism.

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contributor. michelle, i'll start off with you, what is the importance of this pboc message? is it just, i don't know, is it meaningful to you? >> oh, i think it's very meaningful yeah, so when this devaluation happened, i think we were all asking, okay, why are they doing this is this just a salvo in the trade war to get the other side back to the negotiating table. or is this them -- is this the chinese government looking at the currency regime, seeing weakness in the world and saying we have to help the exporters over a longer period of time so now is the time to begin devaluing the currency if it was the latter, that's extremely -- that would be extremely detrimental in a lot of ways to the global economy because it would be deflationary you've talked about it look what happened to the luxury retailers yesterday. chinese consumers f there was going to be a continuing weakening of the chinese currency, could buy a lot less foreign stuff, right, whether

it's luxury goods, whether it's apple ifoens, whether it's oil it would be bearish for oil. and remember, there's a lot of debt out in the world that when you have a lot of debt, what do central banks like to do and trying to do, inflate. if you had a donation nary environment it would be a negative. >> ambassador, do you think that this was completely misinterpreted it seems every step of the way you could make the case that chinese government or the pboc was not on a devaluation campaign, but yesterday they set the mid-point lower but stepped in to stabilize the trade in the yuan yesterday and set the mid-point last night a little bit firmer and also stepped in to make sure that it's stable and then you have the pboc statement this morning >> well, it appears to be on the surface an act of restraint by the chinese central bank and the chinese government behind them because this intense rivalry

between the united states is playing out in the trade war it's also playing out in the military sphere. it's playing out in this battle of ideas, the authoritarian versus democratic model. there's a white hot element to this relationship between china and the united states and frankly, actions to lower the temperature and more diplomacy, talks, our treasury and ustr with the chinese, it's got to happen on the diplomatic side as well >> what's the next step, michelle if the chinese are dialing back and it's not in their best interest and u.s. treasury went ahead and labeled china a currency manipulator what do you think we do, the u.s. does >> well, so they could have gone a different way in china, right. the u.s. makes this big move last night and we highlighted what's the response been as the ambassador says today they show restraint. i'm not sure you're going to get a response, a negative response, as the best response i think you could get out of the chinese at

this point i think ambassador burns highlights the battle of ideas which is the core issue, whether we're looking at it through trade or whether looking at the situation in hong kong, where the hong kong people want less china and the plan for china is that they're going to give them more china this is -- there's the day-by-day tick tock that we talk about and then this bigger picture and i just don't know where it ends. it's a huge question >> michelle, the chinese are very thoughtful in long term i refuse to believe they set it above 7 yesterday and then they backed off today because of the uproar. >> i disagree with that premise, tom. i don't think they're that long term i think they manage the quarter and the economy like any s&p 500 ceo. they do this, they inflate, inject, you know, they're always trying to manage the economy down to, you know, to the point whatever and if they can't, you know, they give you a fake

number i don't think they're actually that long term, quite frankly. >> so what happened -- >> they're backing down. they were working on reforms for how long and now they've given them up and haven't tuck stuck with them. >> what happened in the last 24 hours? why did they change their mind >> i don't know that they changed their mind. >> the premise of changing their minds the belief that china was engaging in a currency war that's the basic premise yesterday if you assume that chinese were embarking on a currency war then it looks like they changed their mind. if we never thought it was a currency war, then they never changed course >> right >> it's a longer conversation. ambassador, thank you. michelle, we want to thank you we're going to continue all of this the the next hour because it's been a volatile market and it's not even 8:00 a.m. on the east coast lfrket opens in an hour and a ha the stories investors need to know ahead of the opening bell when squawk returns.

a fiery week on wall street. it's only tuesday. futures looking higher this morning after stocks saw their worst day of the year. >> china responds saying it's not a currency manipulator just hours after the u.s. said it was we'll tell you what it means for the trade war. >> this hour, ideas from some of the smartest minds on street and how they're maneuvering to turn volatility into profits. the final hour of "squawk box" begins right now

♪ >> live from the most powerful city in the world, new york. this is "squawk box. we got a lot going on on this tuesday morning good morning welcome back to "squawk box" here on cnbc we're live at the nasdaq market site in times square i'm andrew ross sorkin along with melissa lee tom farley former new york stock exchange president is with us, kevin o'leary, co-host of shark tank, both cnbc contributors we call them mr. wonderful we'll see what happens today. >> truth in advertising. >> a lot going on, especially when it comes to the trade turmoil. >> our top story this morning, stocks looking to recover a bit after yesterday's selloff that saw the dow drop 750 points, down 900 points at the lows. u.s. equity futures we did see a bounce moments ago when we got the headline that people's bank of china told foreign firms the yuan will not keep falling

so there's some questions as to whether or not this is, in fact, a currency war or whether china is actually supporting the yuan and stabilizing the yuan at this point. the s&p 500 up by 13, looking to snap a sixth straight day of losses nasdaq looking to add 47, dow up 127. a look at treasury yields yesterday we did see the 10-year treasury yield breach 1.7. we're at 1.761 and we did see that rise just a touch off that pboc headline as well. >> we have team coverage right now of those global market sell-offs. today's premarket rebound from several angles we're going to be hearing from folks all across the market spectrum from the stock moves to energy prices and hedge funds. want to begin in washington with kayla tausche on the trump administration's move late yesterday to label china a currency manipulator and the reaction since then. kayla? >> well, andrew, treasury has refrained from doing this in five currency reports under the trump administration but now secretary steven mnuchin says

he's making the declaration under the auspicious of trump that china is using its curn stoi gain an unfair competitive advantage. the statement said treasury willwork with the international monetary fund to eliminate that advantage under the law treasury is using it must get the imf to agree with its assertion in a may report treasury found china satisfied two of the three criteria one a significant trade surplus with the united states and two net purchases of its currency for six of the last 12 months. the action that triggered the label was china's not purchasing the yuan, as you mentioned the people's bank of china reportedly telling foreign companies it won't keep letting the yuan slide china's state tv says the u.s. does not have a case against china here the white house counselor kellyanne conway defended the move last night speaking to cnbc's eamon javers. >> this was a reaction to what china did and china, as a currency, being designated

currency manipulator, that's in direct response to their actions. >> in the meantime china's ministry of commerce confirms it won't buy u.s. agricultural products and may add charges to products bought in recently days indiana soybean and corn farmer brent bible says the ag community has counted china out as a buyer prices are responding to weather and supply side issues, although they want answers, melissa, on whether these markets will open in the future. president trump is tweeting about china, just a couple moments ago, saying massive amounts of money from china and other parts of the world are pouring into the united states for reasons of safety, investment and interest rates. we are in a very strong position companies also coming to the u.s. in big numbers. a beautiful thing to watch melissa, of course, it's higher interest rates that attract this foreign capital into the u.s., not the lower interest rates that president trump has been pushing for. of course, they are just details here. >> thank you, kayla tausche, in washington let's get to our market

round table. futures pointing to a positive open after the worst day of the year on wall street. joins now is mandy, chief equity derivative strategist, john roque, managing director at wolf research and mike santoli, cnbc senior market commentator. good morning to you both mandy, i will start off with you in terms of positioning, what are we seeing? >> we're seeing a lot of volatility in the markets, that's for sure. within the fx market what's interesting expect volatility going forward in the yuan reached almost record high yesterday. investors are expecting this turmoil to persistp it's not a one-time devaluation the last time we saw this big move in the volatility of the yuan, august 2015, what happened in the weeks after, s&p down 10%, nasdaq down 12%. >> do you think that scenario changes and that the yuan volatility changes given what we saw from china overnight in terms of setting the fixing price firmer than expected and the headline from the pboc that the yuan will not fall further

so therefore, the volatility calms down, those outcomes for the s&p 500 do they come off the table? >> we'll see it's only been one day of course, you know, they're going to have to say this to prevent, you know, a massive capital flight we'll see going forward. certainly the positioning in the options market is for volatility to persist all the past two or three weeks we've seen massive buyers of vix upside calls, people playing for the situation where equity volatility picks up. >> are we still in an upward trend or have we broken trend? >> we're still in an upward trend but this is a corrective phase that's not yet over. that's the way we think about it >> which charts look stronger within sectors tech getting crushed, financials crushed as well. >> so in this environment we would think relative safety would be amongst utilities, consumer staples although they're expensive. the preferred asset globally two plus months is gold. gold stocks we think must be bought and should be bought on any pullback. >> when you talk gold do you

consider putting bitcoin into some of that trade it's acted like gold over the last six weeks. >> we pay attention to bitcoin fairly closely, but i don't have enough historical data or prior instances of it doing what it's doing now to have a better feel for it we're sticking with the original bitcoin which is gold. >> mandy, china is in a tough spot here. they're caught on the one hand between -- on the one hand with tariffs, on the other hand with making major reforms including how they deal with u.s. companies. i don't see how china wins, if you will, in quotes. how do you think they view their position right now >> i don't think anyone wins in a trade war. i think the reason we're seeing a bigger reaction in markets this time around to the latest round of tariffs because china's reaction letting the yuan weaken above 7, historically been a no-fly zone, tells you china doesn't see a near term resolution is possible or probable. that's what's really freaking out risk markets right now. >> devaluing doesn't help china. >> it helps them a little bit,

right, but no -- >> in the short term. >> certainly but as i said i don't think there are winners in this trade war, but the fact that they are kind of willing to go there and include fx as a tool that's a new development and what markets are reacting to. >> what about the hong kong situation which nobody was even watching until the last few weeks. now the tear gas stuff, gets heavy coverage is the yuan an issue there most people trade usd in that place. >> the hong kong -- that's the hong kong dollar that's different but as a political situation that's something china is focused on very much. in terms of broader implication for global markets i don't think that's as important as what's going on on the trade front. >> how do you interpret this open considering overnight yesterday we were at the lows down more than 600 points on the dow? you almost would rather see us be down at the open or have some -- weakness -- >> i think that's the standard tactical playbook, maybe you would like to see fuller flush

if you need that i'm not sure that always applies for a bounce i think the good news about yesterday it didn't start yesterday, right last week you were down a couple percent, you see stalling out of the market indicators, a lot more stocks under performing in the weeks leading up to it it was telling you you're losing some energy. we're down 6% to yesterday's close in the s&p 500 it'sroughly what you got in may. it makes sense to bounce i do think a lot of that standard playbook, though, also says, the low in the s&p futures yesterday is going to be like the heart beating under the floor boards for a while if you don't go back there it's going to feel like it's haunting you. big deal only a couple percent lower. it's going to stick in people's minds, make people cautious chasing it to the highs. >> yesterday was important, of course, for a number of reasons. the selling was almost entirely focused on s&p 500 stocks. the new york stock exchange declined to beat advances by seven to one, s&p 500 was 45 to 1. the reason for the great

discrepancy in those ratios because that's where the etf selling is focused the biggest etfs are s&p 500 stocks and that's where the selling occurred it's hard to believe that a big fund manager at fidelity said i'm going to reduce my position in microsoft that didn't happen. >> that's an important point you actually had the biggest, most successful growth stocks that have nothing to do with china exposure underperforming yesterday. >> can i ask a question, what is the chance that president looks at this situation, becomes emboldened by this, so the next headline you see he's going to put more tariffs on which will make you happy. >> it would. >> the markets would get nervous, china does something else and having the conversation all over again instead of the markets dropping 3% -- >> we're going to get 33% recovery and trump looks at that and said let's keep squeezing. >> right. >> i say -- >> they squeeze -- i know you want them to squeeze they squeeze and then there's another -- going to be another reaction this goes to your volatility

story. play it out for us. >> he should be emboldened completely agree we put $30 billion of new tariffs on or said we will, we labeled china as a currency manipulator, we have not seen a meaningful response. i think this means there's a greater probability of a light at the end of the tunnel, i.e. a negotiated settlement with china. >> mike, you're nodding your head in the opposite direction. >> to me, what has mattered for the markets, is this going to hasten the end of an economic expansion. it's about a hard landing in china. not about relative advantage on trade flows. our economy is not dependent on that the market gets nervous they realize we're in a 2% growth trend, vulnerable to shocks, don't want things to get disorderly in china and the rest of the world i don't think it's -- >> mike -- >> chess match you are laying out. >> if you want 3% growth you have to have a deal with china we will get 3% growth -- >> it's bragging rights, not reality. >> i think at the end of the day access to their middle-class and their growing market over the

next ten years gets us back above 3%. >> or -- >> the price -- >> china is a time bomb that's going to fall of its own weight and we're intensifying this contest at a time just like in japan in the late '80s when it was going to -- past its peak threat i don't know if that's true. i think people are looking at markets and deciding there's a tragic rationale for what's going on i'm looking at the -- >> a stock market issue -- >> this is access to growing consumer, the largest economy on earth in 20 years. >> it becomes a stock market issue, right. >> costs in the profit. >> nothing is free. >> but the question -- >> there's a lot of risk but somebody had to stand up to china. i've done a lot of business in china. the first part of the conversation, how much of your business are you going to give me, how much of your technology are you going to give me it is not a level playing field and somebody had to stand up. >> i want a short-term bow on this conversation. we're talking longer term. short-term bow on the conversation, how are traders positioning? we saw the vix go up to 24 yesterday. >> yes. >> how far out are they going in

terms of protection and bets on volatility >> what's been priced in the market is for this macro stress to persist in the near term. everyone is focused on the vix which had a big move the bigger mover yesterday was in s&p correlations, a technical term but tells you how macro driven the investors are expecting the market to be going forward. that hit 60%, which is higher than what it hit in december of last year. that's one measure that has already exceeded the q4 high pressure investors are expecting trade and macro to be dominating going forward. >> mandy and john, thank you michael, stick with us the rest of the hour. >> okay. coming up when we return, the sell-off's impact on wall street's power players where was the smart money positioned yesterday and where is it going to be positioned this morning what you can learn from some of the biggest stock buyers on wall street we'll tell you later this morning, don't miss top white house economic adviser larry kudlow, he's going to join the gang on "squawk on the street," you will get it straight from the horse's mouth.

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it was the worse session for the s&p and nasdaq since december 4th. s&p 500 looking at 13 at the open, dow looking to be up 130 points and the nasdaq higher by 46. most everyone's getting caught up in the latest bout of volatility on wall street. one group of investors seems to be positioned quite well if you can believe that given how off sides they've been leslie picker will join us with some of the big hedges and how they've been dealing with the past 24 hours. >> yeah. so even despite, you know, some of the gains this morning, they're feeling noticeably less pain today it's the hedge fund community, of course, because they were by and large positioned cautiously, positioned for this period of trade uncertainty. hedge funds are hedged and leveraged at least among equity funds is actually near a two-year low as one manager described yesterday's moves to me, it wasn't a hedge fund blowup thing it was a whole market blowup thing. in other words, the machines don't appear to have caused the sell-off nor do they appear to

be suffering from it this time analyst a high sector concentration in areas that underperformed according to credit suisse. 80% tied to four out of 11 sectors many of which took a large step down yesterday. prime brokerage desks didn't see much in the way of hedge fund selling in reaction to equity moves yesterday. rates, currencies and credit that took hedge funds more by surprise, guys. >> leslie, thank you want to continue this conversation talk to our guest host about this. you deal with a hedge fund guy named dan loeb who has been helping you. >> yeah. he's doing very well >> hedge funds have not actually done that well. >> there wasn't a stock pickers market in the year 2018. it very calm volatility, which is difficult to actually generate alpha and then at the very end of the year the massive volatility in december was frankly too much and most of them were kind of wrong footed it was a bad year for hedge funds overall.

>> you think 2019 is a different story? >> it's been better. those who have been positioned appropriately have been successful where in '18 felt there was no appropriate position. >> is active management dead or not? >> i believe that active management can be emulated with rule based etfs. i don't use them at all because indexers -- >> this is your business you're in the etf business. >> my point is, the returns are equivalent at half the fees. what i say about hedge funds now is, every other sector of money management, i don't care whether you're private equity or mutual funds or etfs have seen margin compression. larry said as much last time sitting beside you not the hedge guys they're coming no one is going to pay 20 and 20 for any of this stuff. the performance isn't there. >> whoa. 2 and 20 hasn't been the going rate for a while. >> closer to 1 and 10 on average. >> crazy expensive if you can take the same strategy and now the idea of etf

that's opaque, that lets you actively manage within it and you don't expose your positions is what hedge funds do, at 40, 50, 60 that's half the fee. that's coming. i don't think these guys can sustain their margins. i really don't think over the next five years it's going to be a great place to be an adviser in. >> sorry. >> i completely agree with you i will say some of hedge funds, some of the activists like a dan loeb or elliott are getting in the board room and making real change investors are going to pay good money for that performance. >> if the outcomes are great there should be a high hurdle. that's what -- i don't have any of these guys anymore because they had liquidity issues in the big sell-off that occurred years back you couldn't get your money out. you had to litty gate. that doesn't work allocating every quarter. >> you're seeing consolidation and the bigger guys get bigger and smaller guys go out of business which is creating this dispersion within the industry

where there's kind of the haves and have nots. the bigger guys have the research to be well positioned to be cautious moving into, you know, yesterday's moves and the other ones just don't have the research capabilities to provide any kind of alpha even in an environment where the market is selling off. i think that is a trend we will continue to see over the next few years. >> do you think the legends are over >> who's the new hot kit hedge person man or woman i don't have a single name it's the old dudes able to track institutional capital to keep the game going even though performance has been punk at best >> what's the hedge fund that sac melvin capital most of its returns are attributed to its allocation to -- >> hot spot, young turk, right. >> that young turk should break out and become the new next hot thing. >> he did. >> here's the interesting thing about hedge fund positioning to your point, one of the bullish arguments going into the summer

was hedge funds had not levered up i wonder if the fact that we had a dramatic market low before the end of last year. >> yes. >> so you're on the calendar year performance clock if you're a hedge fund, the market itself gave you 20% in the first half of this year i think you're incentivized to back away and say let's conserve. >> the fed cutting rates is bad news if you're a hedge fund. the lower the rates the harder to generate alpha because there isn't so much dispersion in stocks that news, especially if it is more of a prolonged easing than more of a blip, for a hedge fund manager, that isn't the best news because they've been in this easing environment and, you know, whether they're right or wrong to blame that for the lack of alpha, it certainly is an argument out there. >> one last question before we go, investor question, if you're invested in banks which have a lot of these platforms for these hedge funds, and there's money to be made there, some of the big fund to funds, if this whole

game is going under, is there going to be market compression elsewhere, not just at these funds you think are going out of business >> well there is margin compression. some of the banks have gotten out of the business and laid off tens of thousands -- >> deutsche bank. >> that is over? >> do you think that's going to be a straight line down. >> passive investing in this country is 40% of the market n japan it's 70. it's going to move up from 70. low fee, passive investing type of investing kevin does, that's going to continue to grow and margins will decline. >> the banks i think they suffer with these new diminished rates. tough, tough. >> thank you >> leslie picker. coming up the triple threat in the oil market. crude getting buffeted in all sides. how low could prices fall? later this morning do not miss top white house economic inviser larry kudlow, he will jo "squawk on the street" at 9:00 eastern that is a must-see interview we'll be right back. can i get some help. watch his head. ♪

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welcome back to "squawk box. take a look at futures

we've had a pretty volatile morning if you will. we've paired our gains by about half in just the past 15 minutes or so. the s&p 500 looking to be up by about 8 points at this point, nasdaq looking at 33 and the dow looking to be higher by 85 points we had been as high as 170 plus on the dow jones in terms of indicated open. >> okay. one of the sectors most affected by the wild currency swings we've seen to start the week is energy and brian sullivan joins us now. what to -- what we're seeing in the oil markets and maybe where things are headed. >> they've been headed south it's been grim no group has been beaten up as much as the oil and gas stocks this year. look at one of the biggest etfs, the xop, at its lowest level since early 2016 when crude oil prices were below where they are now. crude oil prices are down, 30% below the highs hit back in early october. the question now for investors is how low can oil go? you have three things you have to focus on.

dollar strength. you might have heard about this. the greenback touching its highest level since the chinese yuan since 2010. as the dollar goes up oil falls. number two, too much oil just last month the iea published a report of another oversupplied market in 2020 on top of that reports showing that china and other nations have been sort of secretly taking more iranian oil than previously forecast in many cases, that oil is waiting, sitting, literally in floating oil tankers on the ocean and not yet seen the market it will hit the market at some point and that could add to an oversupplied market. finally what else, global slowdown fears investors worried that trade war will slow down economic growth leading to reduced demand for oil. one trader i spoke with yesterday said if oil goes below 50 it's headed to 45 and that would be more pain for the already slammed oil stocks as well i know, you know, melissa you talked about it on "fast money," investors can't run away from the oil and gas stocks fast

enough, literally it's been the most beaten up sector by far with nothing even close. >> the allocations to the energy sector as you know are extremely small. the smallest sector in the s&p 500 and research that covers the sector has become really marginalized at this point because there's no interest in the research for the sector. >> there is interest, but it's on the short side. everyone is betting against it. >> brian, thank you. brian sullivan. a lot more to come on squawk this morning, portfolio positioning from one of the biggest banks on wall street and how yesterday's sell-off is changing the thinking behind asset allocation in the next hour, you don't want to miss white house economic adviser larry kudlow he will be live with the gang in a special announcement as well, vice president mike pence is going to be sitting down with joe kernen on stage at this year's delivering alpha investor summit produced by cnbc and institutional investor, september 19th in new york register now to attend

deliveringalpha.com. you're watching "squawk" on cnbc

welcome back to "squawk box. here on cnbc we're live at the nasdaq market site in times square want to show you the futures after what has been a volatile

situation with some significant trade turmoil. things are looking marginally better this morning. dow up looks like when it opens about 100 points higher. nasdaq looking to open 43 points higher the s&p looking to open 11 points higher. a couple other stories that are out there and that investors might be talking about this morning. a couple of them, one that mastercard is buying a majority stake in nets, it's a european payment technology company you know a lot about this company company. the price tag $3.2 billion, making it the largest acquisition in mastercard history. mastercard does say the transaction will dilute earnings up to 24 months. i thought mastercard was the company formerly known as mastercard they got rid in the branding the name, the logo, the two circles. nobody knows what i'm talking about. google it. the labor department out with its so-called volts report,

expecting to show 7.3 million openings it would still be below the record high of 7.6 million reached earlier this year. walt disney set to release quarter earnings going to happen after today's closing bell $1.75 per share on revenue of $21.5 billion. expected to report a movie studio profit, a wild and fantastic summer for them, second time in history a lot of people listening to hear more about the launch this fall of disney plus. it's over the top service. as if the stock market volatility to start the week wasn't enough like yesterday the u.s. treasury took the step of designating china a currency manipulator something it has not done in about a quarter century. china is hitting back and the pboc telling foreign firms the yuan will not fall further steve liesman joins us on what this means for the two largest economies. >> thank you the people's bank of china setting the yuan rate below 7, that's the level that sparked

yesterday's sell-off and led the treasury to designate china a currency manipulator something it hasn't done since the 1990s the recent imf report found china is not really manipulating currency and several critics say it doesn't meet the u.s.'s own criteria for manipulation because it doesn't intervene persistently and consistently to weaken the currency. many in the market don't see much fallout from the designation by itself. the currency manipulator designation is irrelevant, signals no willingness on the part of the u.s. to adopt -- that is to be expected china allowing it to fall below 7 was a message, if set by market forces the yuan would be weaker than it is now in the wake of all this trade war the real manipulation may be by china to keep its currency strong because its domestic consideration is in capital flight right now that's a big issue and that might more explain the setting

below 7 and the message that was sent by the pboc this morning to foreign firms which was also one to domestic firms. >> do you think -- i have a bitcoin question for you, do you think all of this money, there's been a capital -- the flight out of china into bitcoin? do you believe that. >> it could have been, sure, into gold and other. look, where is the safe haven anymore? we have a president who has openly discussing the need to weaken the reserve currency of the united states. >> and yet the upside of the outcome of this, regardless of how much volatility ensues in the period is so immense -- >> wait, wait, wait. put a dollar figure on that. you are -- >> i've seen you be tougher on cupcake bakers on shark tank than on pricing out the value of the ip fight with china. >> here's the way i look at it just let's take the s&p 500, with 46% of its sales international, basically they

can't play in the chinese domestic market as i can. >> that's not true. >> it is true. >> do you know -- no, no, no i will tell you what the united states data says -- >> let me give you the number first. here's the upside. the upside on revenue to most of these companies is as much as 15% if they can really tap that market with ip protection and get access to it, normalize whether they can now, earnings could be as much as 8 to 10. that's why the market doesn't correct. i don't care if it goes down 900 points after the gains we've had. >> calling up my spreadsheet now where i looked at u.s. foreign -- >> you do -- >> do you know how much u.s. companies sell in china. >> practically nothing. >> so untrue it's the number one place, kevin. you have it wrong. >> they're making no money doing -- >> that's not true either. our profits in china of u.s. foreign affiliates are double digit with the rest of the world they're single digit. >> you think it's okay, give up your i.p. so you basically have to fight yourself the next ten years which is what's going on

there. >> i think it sucks you have a problem with your i.p. >> i have a problem -- >> i think anything else in the world -- >> manufacture -- >> it's a tradeoff, kevin. >> there is no tradeoff. >> yes there is. >> i want the same level the chinese get here i think you're going to revenue this one, here's -- love this one, a list that commerce maintains that is called a sort of bad actor list of suppliers >> okay. >> how about we do this, this is what the chinese do to us, you get put on that list by the president or commerce department you no longer have access to the american court system just like i don't have access to the chinese court system how about that >> can i respond >> one response and then we have to move on. >> i.p. is a problem it is perhaps -- almost certainly not the most expensive problem that we have given the upside of the potential of access to 1.4 billion chinese consumers. >> i agree with the same terms they have access to ours. >> we have access there, some

access the i.p. problem, kevin, as i've seen it estimated by former trade officials, is something like 50 to 100 bill dollars. i want to finish. >> i would rather talk to ceos that live and die there. >> they're doing business over there. >> and they're suffering. >> they're suffering. >> making double digit profits, kevin. >> but -- >> wait -- >> $400 billion. >> to the conversation -- >> another voice into the conversation i want to bring in one other voice on twitter, which is president trump. 51 seconds ago while you were talking about this, says, as they have learned in the last two years this is the chinese our great american -- our great american farmers know that china will not be able to hurt them in that their president has stood with them and done what no other president would do and i will do it again next year if necessary. >> that is about minnesota and ohio. >> that's what that is. >> those are the two swing states big producers of soybeans, 60% of soybean sales are to china it's a real -- it's a real issue

for our farmers. >> hold on. >> the s&p 500 has been flat for two years of this trade war. had it gone up by the average of 7%. >> yes. >> that it's gone up over the past 20 years, it would be $3.4 trillion higher. >> we have a senator who has been patiently awaiting us and i want to bring them into the conversation and talk about the escalating trade war, the kinds of solutions that could bring some comeback to u.s./china economic relations, marsha blackburn on the commerce committee trade subcommittee listening to this debate i imagine. by the way, thank you for your patience >> sure. >> this morning. >> absolutely. >> when you look at what frankly the president is saying on twitter this morning, and the reaction that the chinese have even in the past 24 hours, where do you see the leverage in this? what do you think the cost is to americans, american consumers, american citizens? >> one of the things i have to say is, i agree that american

companies and innovators need to be able to protect their intellectual property, and force china to abide by -- they've been in such violation of wto rules and out of compliance and the technology transfer and the amount of value that american innovators lose in this forced technology transfer, this is something i'm pleased the president is addressing and you all are looking at market volatility and i get that. yesterday i was up on the plateau in tennessee with about 50 local leaders, employers, some of them are exporting, some are importing, and here is what they continue to say number one, because of the tax cuts and because of deregulation that has happened under the trump administration, their economy is good. main straigeet and small busines

are doing well their problem, finding workforce. problem with finding work force education. they're looking for that when it comes to trade yes, they're looking at ag products saying if president trump needs to move forward with this to get china to the point that they are a trustworthy partner and we know that they're not going to be lying, cheating and stealing, then so be it. looking out for these ag products in tennessee it's soybeans and pork, we also have lumbertha is exported and lumbertha is imported, soft woods and hard woods i think that the economy at that local level, more granular than what you all are talking about is healthy and robust. they want a resolution. >> a critic would say that we should have much better growth in this country given the tax

cuts that effectively the president is, you know, slowed things down by pursuing this approach, even if you believe that there's a long-term benefit, we're subsidizing the farmers to the extent that there are critics out there and there are consumers and customers and citizens who believe they're being hurt by this you say what? >> i say there is a way that we can begin to get some relief and it is to put the usmca on the floor. nancy pelosi needs to schedule this when i talk to democrats in the house they say look, this is going to get 300 plus votes. you've got the farm bureau, uaw, teamsters, u.s. chamber of commerce all for this trade agreement. pass that. show that we can make a decision, we can stand with an agreement, get that done move on to china japan is in process. look at what is transpiring in the eu and the uk. but i'm going to tell you what, i think that we need to be tough

on china when it comes to intellectual property, this forced technology transfer, and we need to be very tough with them about huawei. because that is what will underpin their spy network and we cannot allow them to get a foothold globally with that network. >> senator, let's talk about huawei. >> sure. >> huawei has access to our american court system in a way that i don't nor does anybody else so they can come here, they can litigate on a patent and get in discovery my i.p. and they can steal it i can't do the same thing in china. i can't protect any of my products there i don't have access it that system. >> that's right. >> how about this idea why not put a company that's a bad actor on a commerce list that says they're a bad actor and do not allow them to have access to the american court system while they are a bad actor on that list how about that until we have a level playing

field, why can't i protect my i.p. like they can protect theirs this is so unfair. why don't we fix it? >> i agree with you that it is unfair and when you two to shanghai to the i.p. court it is so frustrating and i can assure you for a lot of the entertainers that are working about five miles, three miles from me, here in this study in nashville, they totally agree with you, and i heard you say that earlier that is an idea that should be up for discussion. huawei says we use some u.s. manufactured components. huawei embeds that spyware into these networks, these chips are so small, you cannot detect them until they begin to transmit to an outside receptor and at that point, they are into your network and they are spying on

you and they're manipulating the data within your network >> senator, lots of problems with huawei, but i want to -- point of clarification, you will be the first person at least officially from the u.s. government to make the statement you made about these devices that you believe are in all huawei devices we had actually secretary of state pompeo and asked him directly how much of a national security threat is, what is the evidence and we have yet to hear the evidence can you tell us, if, in fact, you're right, tell us more about that evidence but i will tell you, you're the first to really articulate it that way >> from the things that i have read, you know that huawei is embedding. this is why we are concerned about working with them. when you look at where mafcom is and the industrial military and industrial complex in china, tell me where one starts and where one ends the issue is huawei is a

state-owned company and china is looking to push huawei technology forward around the globe and with our allies. why do they want to do this? they want to spy how are they doing it? they are embedding spyware into their hardware and from the things that i have read then i believe that this is something they're looking to stand up their cyber warfare unit with. we have to be careful how we deal with huawei i think it is worthwhile to look at intellectual property and huawei and draw a hard line on that >> senator -- >> as we look at solving the trade issues that existed with china. >> we appreciate you joining us this morning and always like to have you on. >> thank you. >> i'm sure we'll talk again soon. >> thank you >> we want to bring your attention to shares of amd pretty interesting premarket trade. a swing to a peak of about 4% premarket. they had been down earlier on a

report from wccf technology which had said that amd's ceo was planning to move on reportedly possibly to go to ibm. lisa sue tweeting now, for the record zero truth to this rumor. i love amd and the best is yet to come. that's why we're seeing shares on the rise up about 3% right now. >> that board just backed on a 0 30 plus billionacquisition. >> how many years should you go without riding any shareholder value. >> she was dealt a tough hand. >> cry me a river. >> i mean, main frame company, transitioning it, sold a bunch of sdpoos of. >> how means years. >> i think you get five years and then somebody else should do it that's what i think. >> i have one more statistic i would like to give you. >> $343 billion. >> say again. >> $343 billion. that's the amount of u.s.

majority owned company sales in china. it's bigger than our trade deficit and it's bigger than all our exports. >> how can you not be an advocate for a level playing field? >> i am a 100% advocate -- i'm answering this question. >> we're up against the clock. >> i'm talking about cost benefit analysis. >> we will buy you lunch. >> dominic chu, to the morning movers >> i appreciate that i was fascinated to hear the discussion going on just now, so i was intently listening we just want to call your attention because the market action yesterday did lead to a bunch of different divergences and convergences that some traders will be keeping a close eye on to see if they continue that today the first one is what's happening with small cap stocks versus their large cap cousins we know large cap stocks have been driving the action. a chart of the russell 2,000 small cap etf versus the spider large cap etf. over the course of the year they've widened out in terms of

the gap but now believe it or not the small caps have been closing that gap a little bit with large caps. do large caps continue to underperform near term one other place we're watching as well, growth versus value stocks we do know that many of these large cap growth technology communication services names have been driving the action we can see it got a little wide here in terms of value versus growth and growth versus value but you can see here there's been more of a move to the downside for growth stocks as of late maybe that trend continues that's one to watch. we'll keep another eye on what's happening with the bond market we do know that risk has been coming out of the equation, but one place it's been coming out of faster than others is with large cap or rather high yield companies that have a little bit maybe less credit worthiness you can see here the gap right now between this etf, the white one which tracks investment grade corporates versus orange, which is the high yield side of things has gotten wider here as well credit worthiness almost back

certainly in focus i will send things back to you for times sake. >> thanks scr. investors big and small what do i do with my money right now. goldman sachs asset management might have answers joining us to thompson mike, great to have you with us. even derisking >> yeah. we just to level set will be talking about our 60/40 funding, which is moderate, which is very popular. it's a 10 to 15-year outlook just for the record we put out our instructions late friday, so it's important to know that. but our views are long term. think about a pilot, right you have storms, but you have to think about how to get to your destination. so, you know, dispassionate. in other words, we have to focus on where we think things are going 12 months and a day out and we review quarterly. >> so 60/40 is 60% equity, 40% debt in your allocations within the equity bucket, where are you allocated to >> what we did is trimmed back our small and midcap exposure

and stuck with the large cap, liquidity is a premium there i think the earnings picture is going to go. but more importantly and even before the correction, there's enough momentum in the economy to sustain the valuation, the earnings picture there and when you have valuations, now they have dropped from with 17 handle down into the low 16 and you can consider that relative to a sub-2% 10-year yield, you have to take a look and think that you're well positioned to take a chance and be modestly biased towards the growth story and large cap is a good way to play it. that's the way that we feel at goldman sachs asset management. >> can i ask you about putting your clients into short duration credits, into under triple b investment grade, under 3% yield. the dividend yields are the same companies that issue the credit are 2.4%, 2.6% how do you buy them those

credits? this is the tightest spread i've ever seen in my life. >> yeah, look, we know our investors. we know our investors and know what works for them. we're making sure that we're thinking outcomes. we want the right outcomes what we did this time, kevin, is this we took on a little bit more duration we are more weighted towards higher quality creds and enhanced that position in this rebalance. >> how long a duration >> we went from 1.86 years to 2.05 years >> still under 3%, though. >> this is how we anchor the management risk. with these programs we're talking about the most popular one. it's the one where people have 10 to 15 years that's where the money is. that's where that boomer money is we have $20 billion underleague this asset allocation that we advise on so we have to be very

careful that those risk parameters are observed and we're thinking about the outcome. that's where we felt comfortable positioning ourselves with fixed income. >> we've talked a lot today about bitcoin. we had a guest that has 50% of his portfolio in bitcoin have you contemplated bitcoin in portfolios >> that's outside my purview other than what i hear, it is not something that our core investors -- you know, they're sensitive to what we put in the portfolio and in the sleeve, so that would not be something that we'd be dabbling with. >> one of the things that i think has gotten lost is how well 60/40 has done because bonds have rallied so well the first part of this year. what are your return assumptions for the fixed income piece is that more for stabilization effects? >> indeed, and risk mitigation we were at 62/38 including cash last september we haven't rebalanced since. what we did is reset that and took it away from fixed income and put it to fund the

overweight to equities. >> mike, good to see you, thank you. mike thompson. i want to get down to the new york stock exchange, jim cramer has been up early i've been watching you tweeting, jim. goldman sachs coming out saying they don't believe a deal with china can be had until after 2020 you say you disagree. >> well, i think that the president would like a big win before the election. he doesn't have to right now but the idea that it will be, let's say, anything more than one kind of win. i think it's going to go on until 2021 when i think that xi's reign may be over that's the 100th year of the people's republic of china, the communist party. i think that this whole notion of invincibility with xi is a little bit more made up by the western press. i think it's tiresome. i'm listening to mr. wonderful i think mr. wonderful is dead right pause it's factual and empirical. thank you for speaking the truth.

why aren't you more fearful that the media will hate you? >> jim, i just have to fight it every day. i'm really tired of the last 15 years. finally an administration that's batting for the guy that puts his capital up there and gets screwed over, over and over and over again enough already, let's fix id. >> couldn't agree more thank you for speaking the truth. it's really refreshing. >> hey, jim, what do you plan on doing this morning if you're telling investors how to deal with this. >> the opening sucks opening is not something that i can buy. i was advising people yesterday at the close they should be picking something. this kind of opening, i think maybe the president tweets that what the chinese did last night doesn't matter and you get back this gain and go right back down so we don't buy up openings. rather take a pass miss this. miss it. don't buy up openings, period. >> you saw that blog post or report about lisa suh tweeting

she loves amd. the reaction was really telling. if they lost lisa suh it was trading lower in semi conductors could she be a solution in your view could she be the solution for ibm? >> lisa su is not going anywhere she was at ibm she's been there, done that. she loves amd very much and has been instrumental in a major turn it is kind of interesting to see the website. i'm here with david faber looking at each other and say, look, anything passes for reporting these days but lisa su is not going anywhere. >> jim, thanks we'll see you in a few minutes larry kudlow coming up. >> kudlow and cramer reunited. >> stay tuned to "squawk box." we'll be right back.

quick final check on the markets. a half hour before the market opens up right now if it did it right now the dow would open up 95 points higher, nasdaq up about 42 points. s&p 500 up about 10 points after a wild 24 hours in which the u.s. government declared china to be a currency manipulator a 10-year note right now 1.750

>> buckle your seat belt, i bet it will whip around today. >> tom farley, thank you for being here. >> we'll see you tomorrow. >> mike santoli, appreciate it we'll all see you tomorrow "squawk on the street" begins right now. good morning and welcome to "squawk on the street. i'm david faber along with jim cramer and sara eisen. you can see we are now set up for what would be a higher open a half hour from now when we begin trading for this tuesday here on the new york stock exchange yesterday, though, was the worst day of the year for stocks with the s&p of course falling about 3% the dow was down by more than 950 points it did end the day down 767 points this primarily on tensions between the u.s. and china over trade. of course china did allow the yuan to fall to an