squawk box begins right now. ♪ >> announcer: live in new york where business never sleeps there there athis is squawk box. >> good morning. welcome to squawk box right here on cnbc. we're live at the nasdaq markets. guess who's here who's back in town, joe cernan is with us this morning, aloaning with kala becky has the day off. >> i'm playing mediator today. >> you're a buffer. >> come on it's nice to see you. >> thank you. >> there's bane lot going on the past two weeks. >> i know. >> we've missed you, missed your comments, your insights, your thoughts. >> there's a lot of things -- >> you know what, there are times that sometimes you just want to get -- you know, stop the world and get off. >> yeah. >> and a vacation helps you do that a little bit. it was a rough couple of weeks, it was it does kind of impact the feeling of vacation, but i'm

back now all i know is that that alarm is still -- it's very early when it finally goes off that's hard to -- >> when your on vacation does your body clock still make your get up early >> 7-30, yeah. what is that three extra hours or something. >> that's like a weekend for me. i think we both do that. >> you can't, after all these years. and i think ben franklin was on to something, i do i'm not missing anything with that late-night tv, right? and by late night i mean like 9:00. >> we've got a lot to tell you about today. we want to get to the futures moves in just a second but i first want to show you how we got here. the dow dropped 390 points during yesterday's session fell back below 26,000 bond yields resumed their augustdown tuaugusdown turn the rate cut jumped sharply. now it's up to 100% in september. that's the betting line right now.

and 82% in october >> some people alt 55% now on recession. so i don't -- you guys got a feeling on that? i mean, does the yield curve mean there's a recession because is there anything else indicating that? unemployment anything like that anything else pointing to that that we know or once again are we -- are we predicting that 13th out of the last four? >> -- here on overseas you did have growth data in the uk that contracted. >> we have someone coming on today at 55% for here. he'll be non a little while. i've seen 1 out of 3 that's what most people get to 1 out of 3, that's very negative if they're 1 out of 3 for recession in the next 12 months. but we'll talk to the american coming on and get -- >> 12 months i think is too soon, given the strength of -- >> don't you think 55% is high for a recession over the next 12 months >> we had yun yesterday again, the jan any offen rule you go out jied aside and ask d think you can get another job

quickly? yes. do you think you can get another job for more money if the answer is yes, there's no recession. >> what else. >> kramer. >> kramer has been -- it's -- he's had more trouble staying positive. i think there's a lot of people you read what he says he's like look, you want me to sell everything he's not going to say that have you been following kramer >> i have been following kramer. >> trying to stay positive, right? >> he's trying to stay positive but he's been a little bit -- that's not jazz hands, that's just a little -- >> like a golf clap? >> a little lukewarm. >> a little back and forth. >> between hong kong and argentina and everything else, we should be a sea of tranquility here but we're not in this country. >> especially with a debt feel e deal for two years the treasury is the actual safe haven low risk right now because any actual budget worries here at home are off the table for

now. >> could you ever see negative rates here >> i -- >> you could. >> couldn't fathom it. >> what do you mean? >> i wouldn't say that we've never see it. >> we never say never. >> what's your time horizon? >> we're 160 next week? i don't know here's a pick tire right now u.s. equity futures, 82 point. we can deal with that in our sleep, right anyway, we'll see what happens by the end of the session. but after 389 yesterday, it puts the s&p down right around 5% so 5% corrections. we always talk about them. they happen all the time and people predict them and say nothing serious, 5%. but it feels more serious when you're in the middle of it here's a look at the treasury yooelds, 164 we were close to an all-time low on the 30 year there you can see 2.1. 1.62 on the ten year >> checking the overseas markets in europe right now, it seems like there are headwinds from all directions look at where europe is right

now. we've got some weak data out of germany. and you see the german dax down close to 1%. france, germany, spain, all lower by about 1%. and look what the happened overnight in asia. the travel in and out of hong kong has been disrupted by protests again, departing flights in hong kong are now canceled for today. take a look at the nikkei down more than 1% after having been closed yesterday hang seng down 2%. shanghai is down about .6 of 1%. weakness across the board as investors look for keys in asia. we did have comments from pboc officials about saying they would keep china stable. we're also watching a data point that's become a key daily data

point for the global stock market china central bank, this midpoint for its currency. they set it weaker than the psych lodgeally important $7 mark for the fourth straight session. it's stronger than analysts were expecting but of course anything that's weaker than that $7 level it's going to give investors some pause i want to pull up these specific comments from this pboc official said they said china's going to stick to the managed floating exchange rate for the yuan and it's committed to keeping the exchange rate basically stable so some conditional adjectives there that make you scratch your head a little bit about what's a managed floating exchange rate, joe? >> means you're going weak ten if you keep putting tariffs ton. we're going to man it lower. >> if they go lower it hurts their own economy. very complicated >> i saw the fp, i thought you

were going to lead with that today the. >> which story is that >> that the china's winning in the trade fight against the u.s. >> well, i would say within the last couple of days there's been increasing argument that they're winning or putting us in a bit more of a box than we thought we were in even just a couple days ago. you have the farmers coming out. there's more and more -- >> farmers are still 60% behind the tariffs. >> more and more news the consumer's going to hurt, the goldman sachs report there's this push that be direction. >> i went to the state fair, interviewed a lot of the farmers. a lot of them say let's get through harvest and see what our year-end books look like iowa caucus is february 3rd, they'll reassess at the end of the year strong support is strong for this policy but there are a few months where financial situations can darken and perhaps people change their mind then. >> time is passing and november's coming. winter's coming.

i don't mean this november, i mean next november's coming and time is passing and china knows that you mentioned, look, you mentioned iowa and mention farmers. >> iowa. >> you know ways down south. i had a corn dog, but luckily there were no cameras around did you see candidates do not have a corn dog at the iowa state fair, do not have a corn dog. that was the one thing that came out again and again and again. i saw it on the news again last night after i had read the actual article and then i thought, wow, i just -- >> the pork on the stick is a much safer photo op. >> it's just not a -- that's -- rule number one, i saw the article that rule number one if you ever are -- >> don't eat a corn dog. >> there was other things. someone got a smoothie. i think john kerry got a strawberry smoothie and they were mad at him for not getting something fried while you're in iowa it's very -- and all this is going to play out. that's exciting for you. who's starting to change my

front runner you think that warren -- you think warren is -- >> i think that warren has -- i don't know who's got a chance anymore. i don't know >> you want to talk about something else >> i want to talk about hong kong because it's moving markets right now and then we can talk about -- >> or not. >> no, i'm very -- >> question don't need to. >> we haven't talked to each other in a long time breaking news in hong kong and i want to get to this. protesters flooding the airport a little over an hour ago check-in for all depart are flights has been suspended members of the public have been advised not to come to the airport. we have a report from be in's matt bradley at the hong kong airport. >> reporter: well, there were thousands of people here this morning and now thousands more in just the last couple of hours. and there used to be downstairs in the arrivals hall, now they've migrated up to the second floor and they're occupying the departure halls. you can see all of these youthful protests wearing black, holding up signs

they're trying to block people from checking in for their flights. they've taken luggage care sells an arranged them back here throwing them around it's an attempt to shut down one of the busiest airports in the world for the second day in a row. hundreds of flights have been canceled in the could have a devastating effect on hong kong's economy it also could be an invitation to beijing to intervene. they've been gently but firmly rattling their sabers across the border imflying in no uncertain terms that it's only a matter of time before they might take matters into their own hands the other day they used the word terrorism to describe what they thought was going on around here that could create a pretext for them to intervene. matt bradley, nbc news, hong kong national airport. >> you're looking at the futures there. dow looking like it would open down about 71 points continuing concern but how if this becomes an everyday event, at what point this goes back to the idea of at what point zt pla

show up on the scene if the pla shows up on the scene, what's the response from the rest of the world? maybe that's the worst case scenario the question is that on the table or off the table >> you see the trucks lined up at the border. the longer that they sit there and the bigger the buildup, the more images come out on social media and so i think that's part of what's stoking the tensions is that you realize how ready they are >> right you realize that the protests are no longer even about what they were about two or three weeks ago. it's now a very different discussion. >> yeah. and all we have do is talk about it and, you know, we know that they blank us out. they immediately take us off and get a blank screen we hear from eunice all the time i think this is something that she, i mean from you think trump's juggling russia and all this other stuff over here, this is a serious thing for him to be dealing with at the same time you may be dealing with a weaker economy too. >> but it's interesting to hear

what the driving force that results is does the -- and that is something that the markets are really focused on, trying to figure out is does the pressure from hong kong make president xi more likely to do a deal because he needs to deliver -- >> does it make the president instill patriotism and nationalism in mainland china? >> force him to show that he is strong against domestic pressures and have the opposite effect that's what we don't know yet. they said the two issues are completely unrelated the white house's statement yesterday said they are going to continue to look at this as a china issue. but -- >> i've decided on toothpaste out of a tube is the hardest -- you can't unscramble an egg, that's another good one. but if this gets arab spring-type sentiment in china and that starts -- i don't know if that really moves to mainland china o china or not but don't you think the writing is on the wall that you can't

stay as an autocratic state forever? >> one of the reasons why social media is banned in mainland china is because they don't want images of something like this to create -- to amass a group of demonstrators like this. >> but economic progress for the masses in china is what at least has kept that other sentiment under control to some extent you need economic progress and if that starts being harder to come back given the trade war, then i think, you know, the were to related. i don't know coming up, a potential recession signal that -- we've seen this, the yield curve obviously predicting 13 out of the last four recessions on the ten-year and two-year moving closer to inversion. we'll talk about the next -- or the rate chart next and portfolio opportunities. 50% of s&p 500 companies carry a higher yield than the ten-year treasury

we go to break and here's the biggest winners and losers specifically in the dow.

treasury yields ticking over with a ten-year and two-year getting closer to inversion. we have the global head of rate strategy at td securities.

the portfolio manager at jp morgan bank. and the strat strategist at john hancock investment priya, were you near tv? i was talking about you. >> thank you. >> were your ears burning? >> i didn't hear that. >> you have a recession model and it's based on the yield curve at 15%. >> it is, yes. >> on the-year-old curve you're at 55% do you take anything else into account or is that fully what your recession forecast is based on >> so we have multiple models. we have an economic model so that's based on initial job claims, et cetera. then an eco model. i have to say if there's one single market indicator that you can look at to predict recession it should be the e curve it's saying the yield curve sin verted so it's not that good an indicator. i would argue it's a good indicator because it's -- global

growth is weak that's actually forcing the fed to ease. i would argue the fed has gone from being all this preemptive to now potentially behind the curve. the curve is flat evening. so the lawman is telling you the fed is not doing enough. so if the fed does not come in and say we're going to zero if need be, i think essential lirp the market is telling you they're not doing enough it's a signal of weak global growth which we think feeds into essentially u.s. weak growth plus the fed not, you know, essentially doing enough so i still think it's a very good indicator i mean, the market continues to essentially bull flat. the model is dlors 60% now after i ran it this morning. >> putting all that together, in the next 12 months you expect a better than even chance that the united states enters into negative gdp to drop in gdp? >> yes i would say, you know, whether it's negative, whether we're

officially in a recession. >> i understand. >> but our forecast for gptd next year is below potential because we just find it very hard to see how global growth can be this weak and the u.s. can be this island of prosperity we don't see any fiscal stimulus so the fact that business investment is weak, that's the first sign that global growth is having an impact on the u.s. the global growth is next. >> you're nodding at all of that all that put together and you come up with quality growth stocks is that what you should do with the backdrop sp that's the core. high return on equity, good balance sheets, focussing on the balance sheets within the united states is your best opportunities. the way that we're doing it, though, is we're bar belling it with infrastructure equities in the is an undercovered asset class that we think will gain a lot of traction in the last 12 months given the background that she just outlined. >> you agree there's going to be a recession in the next 12 months or 60% chance you in that camp

>> we look at the leading economic indicators from the conference board which includes the yield curve. that's probably going to go negative in the next three months it's at about 1.5% year-over-year if it continues the current trend it goes negative typically, on average recession starts five months after it goes negative >> jack, you -- >> it's a similar outlook but it's what you do now the fixed income, high quality within equities and the u.s. is still the best game in town. >> jack, you, as a rule, thought that growth was going to be slow this year anyway. >> yeah. >> and that stocks might not to do as well as they've done but, the fed has changed that dynamic for you and valuations remained high. >> valuations went from very average to high. and over the past month they have come back to a richer than fair but i think relative to the cost of capital, relative to the tlat we know get from the fixed income markets, stacks are more

reasonably valued. i do think that we can think there's a tradeoff when you think of the herla rates would suggest they're more valuable that they're equities off the growing income, that's more valuable but you have to balance that a bit with the idea that interest rates decline because of the uncertainty of what the ability to generate a dollar of earnings will be. now, i think the fed has shifted from being really the price setter for the world tock a pri to being a price taker. and that's something i've had that's different with 30 years in the markets and only having 10% gdp tied to growth, i think i could be vukt constructive on the u.s. story. >> we were supposed to have an earnings recession it looks like we'll have a little, very modest but still some earnings gains year on year when all is said and done.

>> after all this, one of the quotes in your -- in your note is that your year-end view is not really affected at that point. but i couldn't find your year-end view anywhere what's your -- do you have an s&p year-end view? >> i do not have a number. but i entered the year that we'd be up 8% to 10%. >> 8% to 10%. >> i was 20, i was wrong i like to be wrong frequently when markets do twice as well than what i thought. i feel like we're finish the year -- >> and there's still a few months left in the year for your outlook to come true. >> i know. >> or to be really wrong. >> yeah. either way -- >> i thought last year we would be up by ten, we were down four. year before that i thought we would be up ten and we were up 20 so you average that out. >> stick with that ten it sounds like -- they pay you for that? >> they pay me for being right, to the for my s.a.p. foreca&p f.

>> coming up on squawk box, we'll get a new read on small business latest numbers coming up next. and shares of uber hitting an all-time low we'll talk tech and recent ipo performance straight ahead you guys played your hearts out. you played your hearts out all season. uh... unfortunately we've gotten a bit of bad news. >>to whom it may concern, due to budget shortfalls, the panther's baseball program >>ballard softball >>vikings basketball >>we regret to inform you that due to budget shortfalls, the tigers basketball program ...is indefinitely suspended. ♪

wait, what're you saying? all the work that we put in? ♪ i wish it wasn't so to whom it may concern to whom it may concern to whom it may concern to whom it may concern to whom it may concern to whom it may concern to whom it may concern to whom it may concern every kid deserves a chance to play ♪

welcome back to "squawk box. the national federation of independent business is out with its latest confidence report kate rogers joins us kate, what does it tell us today. >> the index increase by 1.4 points to 104.7. the uncertainty that we saw back in june around trade and tariffs

seems to have subsided some what in july. it is important to note this latest survey was taken before trade tensions escalated in august and china was labeled a currency manipulator we'll have to wait and see if that weighs things down. we are just about four points below the all-time high that we hit last summer. this month, seven of the ten components increases the largest increases were centered on the economy. more businesses said that they expected higher sales and expected that the economy would impruch. n improve the biggest drop was in inventory satisfaction stild lab skilled labor is an issue. the group said that small business are likely to continue to increase wages to attract talent in this tight labor market something we're hearing month after month. >> thanks so much, kate. okay

a lot more up on squawk in just a minute when we return we'll talk about volatility and what it means for opportunities. why does it seem like activists investors have been hibernating all this time? we'll talk about that right after the break. as we head to a break, take a look at yesterday's s&p 500 winners and losers we're back in just a moment. through the at&t network, edge-to-edge intelligence gives you the power to see every corner of your growing business. from managing inventory... to detecting and preventing threats...

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welcome back you're watching "squawk box. live from the nasdaq market site in time square >> good morning. welcome back to "squawk box" right here on cnbc take a look at u.s. futures this hour as we get to about three hours before the open. and we opened lower, about 55 points lower nasdaq looking to open about 26 points lower and the s&p 500 looking to open about 8 points lower right about now. want to talk to leslie picker who is joining us this morning

because activist investors have been fairly quiet recently and leslie is here to tell us why they may very well be and we'll call it a summer hibernation, is that fair or an all-year hibernation? >> i think it's been an all year hibernation. all 2019, kind of sounds like an oxymoron, the silent activists but those investors known for saber rattling in the big suites have been outwardly quiet. they were subjected to demand by activists in the first half of the year that's the smallest number for the first half of the year going back six years the figure is actually down about 20% from last year's peak. only 19 campaigns went to a final vote in the first half of the year, and nearly 80% of those were for companies that were based overseas, according to la zard so what's driving the muted action well, sources close to many prominent activists say they've been worried about a big market

selloff. it's tough to sell your stock in a correction if you're agitated for changes in a company and especially if you've just won award seats at that company. so far this hunker down strategy seems to be working. activists are up more than 9%. and the environment getting long and leveraged which is the active strategy has paid off but with the recent selloff, that maybe changing, guys. >> but it looks like the outperformance is slim at best and i'm wondering if you're seeing any impact on fundraising for some of these -- some of these big-name investors who are performing okay but just okay. >> yeah, no, that's a really good question. so even though they're returning 9% in the first half of the year, that's compared to about 20% including dividends for the s&p 500. they're still returning about half the s&p and it is a direct comparable to the s&p because the strategy is specifically long and levered. so, yes, the question is is this impacting fund raise something

absolutely investors who have been kind of putting money into this strategy in the bull market, because it's a bull market strategy for the most part, have been paring back in giving money to the activists funds in the first half of the year and that's due do this underperformance and the fact that if you're long and levered to large companies in the s&p, then it's hard to justify continuing to put money into these funds. >> how many of these guys are just stop doing -- to the extent that some of them have had a decent run and just said i'm done for the year? >> well -- >> like hand down, like cards down >> it's hard to know what permanent doing behind the scenes a lot of people you speak to say we're not just, you know, at the beach all summer we're actually speaking with management, engaging behind the scenes you as the public and media are just not hearing about it. you do see certain activists that are more active than others, you know, names like elliot and star board come to mind this year in terms of the campaigns that they wage

icon as well by by and large the entire tragic has been lot quieter than usual. >> leslie, thank you appreciate it. we should also tell you not to forget the delivering alpha investor summit is back for its ninth year in new york next month we have some very big guests, p&g's ceo, it's not really the ceo, but nelson pelts is going to be joining us. >> david taylor is, but not pelts. jay clayton will join us joe, why don't you introduce this. >> vice president mike pence we have the p ahn&g ceo. >> together, yes i thought they were trying to -- >> no, no. >> my misreading of the situation. >> we have the p&g ceo, nelson pelts. >> and. >> and vice president mike pence who will be -- i haven't spoken to him but i've interviewed him before, he will be on message, i

can tell you that. he will be very succinct and you'll know exactly where the administration stands on a lot of different things. i mean, i've -- i think he's very honest with -- with what he's saying, but it's an administration that, you know, that at times you wonder who's on board and who's not sometimes people leave the -- am i allowed to say leave the -- probably not anymore but that would be rare for the vice president. >> he's often the messenger. >> the messenger, yes. >> of very difficult policy stances for the administration. >> that's my point we'll ask him -- i want to get some questions that your side would like asked as well and we'll try to get into all of it. >> you guys can have a ball together. >> he's -- he will be on cnn like six times today or something roa

something, right >> there's another place becoming the hub for innovation, we'll tell you where next. later, still inching toward a deal and we'll bring you the latest on the cbs viacom saga. stay tuned you're catch watching "squawk box" on cnbc johnson & johnson is a baby company. but we're also a company that controls hiv, fights cancer, repairs shattered bones, relieves depression, restores heart rhythms, helps you back from strokes, and keeps you healthy your whole life. from the day you're born we never stop taking care of you.

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with an ingredient originally discovered in jellyfish, prevagen has been shown in clinical trials to improve short-term memory. prevagen. healthier brain. better life. welcome back to "squawk box. shares of uber, they close at a record low in yesterday's session and they show no signs of recovery overnight. this coming after some disappointing second quarter results. and now some investor doubts about the long-term profitability of the stock you're looking at it now at about 36.91. i don't know what to think. i mean, is it just -- people are souring on the model and the game >> when you have a risk-off day when that is the name of the game, volatility literally everywhere around the world -- >> your new losses big, but when you see 5 billion? >> you knew that there was -- >> in a corner

>> this was not a secret. >> in a quarter you want to spell it out >> they said up front this next year is an investment year there is what's going to happen. some other recent ipos faring better than uber. lyft, pinterest, and beyond me trading high irrelevant. but will recent market volatility put a damper on new issues joining us now is tristan walker he has a start-up that specializes in health and beauty products tristan also on the cover this month, check it out, a fast company hitting news stands today with a very cool picture you're looking sort of -- it's the side angle, tristan. good to see you had the how are you? >> good, how are you >> great thank you for joining us congratulations on the cover of fast company question to you. you decided to sell your company to p&g rather than go the ipo route. why? >> i think when we think about these things there are two things that matter values and mission you know, last time i was on your show i talked about how our

mission is to make healthy beauty simple for people of color, the majority of the world. p&g is to improve the lives of people in the world every single day. it just made a lot of sense if we are to build a company that's lasting, that's around for the next 150 years, what better way to learn than from the company that's already done it, right, to accelerate that vision for us allowing us to operate independently, doing what we do best while we get to leverage what they do best in r&d, supply chain and the like. >> so given some of the ipos that have taken place, do you look at any of them and do you say to yourself i wish i could call the ceo and say this was a mistake, you should have sold yourself to somebody else? or do you look at in jealously and say i wish ways doing that >> no, absolute not. i started this company to serve, to serve consumers again, we want to make health and beauty simple. and, you know, i think we wanted to find the best path do that, the best path to accelerate it

p p&g's been doing it for 180 years. we want to do the same but i want to get to those 5 billion consumers as quickly as possible. >> now that you're inside the belly of the beast, there are a lot of entrepreneurs that say i want to remain independent and i could never sell to one of the big guys because once i getten side, my entrepreneurial culture, all of that will get pounded out of me. >> so a couple things. first we operate wholly independently. p&g has really fulfilled its side of the bargain here usually in cpg concept to launch a lot of companies will take 18 to 24 months to develop products, get it to market, et cetera, et cetera. we're already realizing that we can accelerate our speed to market, you know, just in january/february we're going to launch up to 15 new products and we just started shortly after our acquisition in september

no not other we doing what we do best, but we get to leverage the entire infrastructure at p&g to do so. they are fulfilling their side of the bargain i'm happy with how it's all shakd out. >> we have a little bug, it says live from atlanta. i want to talk about that because you moved from the other coast where you had your company to atlanta why? >> when i think about atlanta, i think is it is the greatest entrepreneur arbitrage i've been able to experience and there are a number of reasons why. first, diversity we all know that leads to better outcomes second, it's one of the fastest growing cities in the country. third, when i think about the airport we have the busiest airport here so what that means for diversity and collaboration, anywhere around the word is met forrically across the street when i think about cost of living, atlanta provides an opportunity for us to live when i think about not only my own family but also our employees, folks that we try to target to work with us, it

creates an environment where we can actually focus on the business without having the focus with the kind of run around with lifestyle. >> but so many companies are trying to move to cities with robust public transportation that don't have the traffic issues that atlanta has. >> right. >> i'mcurious whether you are finding that you're having to relocate people to atlanta and giving them a hard sell to come there or whether you're able to access that talent already from within the city? >> we get to lever ratht infrastructure he leverage the infrastructure here one thing that folks might not know, atlanta was the biggest metric so our ability to recruit folks here who were kind of seeking refuge from those places, whether it be high cost of living, et cetera, or folks who are already here looking to join upstart companies like ourselves that are very exciting, we have not had one problem in that regard at all. >> i want to ask about the health of your customer, because we've been having the debate about a potential recession and

pointeding pointing to a strong consumer and wondering at what point maybe the consumer doesn't feel comfortable spending their disposable income on a grooming and beauty product do you sense some trepidation from your customer sore it still strong >> when we think about walker and company we're targeting and ought audience that's gone underserved for way too long so the question has to be reframed. i think our consumers are happy that there's finally a company that is serving them in the way what they deserve to be served our company continues to grow. our revenues are going continue to grow. we are accelerating our business as quickly as possible and we have seen no signs of slowdown in that record >> okay. tristan, congratulations on the fast company cover congratulations on all your success and look forward to seeing you soon. >> you bet. coming up, the fallout from the trade war. look at the china trade index and where it stands right now created by cnbc, it tracks companies with revenue exposure and supply-chain impact to china. it has taken a sharp move down

since the beginning of august. over the last two months it's only down about 2%, but we'll talk tariff impact on one of the largest companies. of course that is apple on the other side of this break as we head to a break, quick check of what's happening overseas we did get some really soft data out of germany that's why you're seeing that index down close to 1% france, the uk, also negative as well we'll be right back.

♪ the ongoing trade war between the united states and china has been taking a toll on some u.s. companies, but none more than apple. what effect will it have on one of the biggest and most recognizable companies in the world? joining us now to talk about how the latest round of tariffs could affect apple in the coming

months is dan ives at wedbush securities we get the 10% tariffs in september which would apply to consumer electronics what is the effect to apple if they raise prices on their consumer and wind up buying fewer iphones? >> right now they do absorb it as of now. what that's going to do to eps, that's going to take off that 50 cents of eps for the 4%, 5%. and right now, for them it's a conundrum. they basically -- they pass it along to the u.s. consumer would take off 6 million to 8 million iphone units which would be 10% of u.s. demand. for them right now at first they'll absorb it. if it continues, they'll have to pass it to the u.s. consumer >> we talk about the number of iphones. we talk about the hit to eps do you have a dollar figure?

like, how much will apple pay? every quarter we talk about how much cash the company has. it doesn't even know what to do with cash. it's buying back its stock it's upping its dividend can it afford to foot that bill? >> right now we think it's about $20 to $25 overhang in the stock. because you take 2020 eps and it could be more as it moves forward. they have to absorb because we've heard throughout asia that they're not going to budge they know going into a massive iphone cycle, if they pass to the u.s. consumer that would take off about 10% of demand that's why for them right now that's a balancing act for cook and cupertino where they'll absorb it at first ultimately will have to pass it along if it continues. >> why not change suppliers? i know the september 1st deadline for these tariffs, this came out of nowhere for a lot of people watching the situation.

but the ongoing tensions with china especially for someone like cook who's been an emissary essential lly trading messages between leadership of both governments, he of anyone should know where this is headed and should be able to make company decisions and production decisions in response to that. >> i think ultimately, they thought they would get exempt. i think it has come out of left field they are not going to get exempt if you look at what they've done with foxconn and china, 5% of production they can move to india or vietnam that would take 18 months. right now they're the poster child for the trade war caught in the crossfires because they can't just at the snap of a finger move their production >> 7% would take 18 months what if you needed to move 50% of production? what does that -- is that three years? is it possible >> i think 50% of production would be best case three to four years. and ultimately, they've created such an ecosystem with foxconn

and china that right now they bet the farm there if they had to take production out of china, it would be a disaster story for apple that's why right now that's the fear that's why they're front and center >> the flipside is if they take any of their business out of china, doesn't china -- the same way china is frustrated over huawei, if they meaningfully lost jobs, does china say that's cost of the tariffs and the same way that's the cost of the tariffs on either the consumer or the american farmer i mean, how do you think that works? >> i think it does cut both ways you look from the multiplier effect at height iphone production, 1.4 million chinese were employed by apple right now the question are the tariffs do get exempt. the last thing china wants to see is apple taking foxconn to india, to vietnam and other countries.

that's the big question right now. >> also want to support national tech giants like huawei. there's been some speculation that one way to retaliate is to have consumer boycotts in china. you say there are 60 to 70 million iphones in china that are eligible for an upgrade soon what are the odds they'll get a huawei phone instead i don't want to support a u.s. company. >> that's been the fear. the nationalistic, anti-apple. it all does come down to 60 million to 70 million iphones in the window of an upgrade in china. globally, that's about 350 million. it's about 20% so i think that is a risk. but the one thing we've seen, we have seen a slight uptick in demand and that is really the key right now. a lot of it comes down to them for pricing. i think when it comes down to this next iphone especially on the lower end version, i think they could cut prices in china that's one of the things in their arsenal.

>> what do you make of the rollout of the new huawei operating system has it gotten more pickup than you expected less >> i think it's still early to tell, but i do think that was a shot across the bow. because huawei is obviously going on the offensive as well that's why right now, you know, this is really a battle for this next sort of smartphone cycle. especially going to 5g that's why it's so important a loss services customer that's really the key to the valuation and really the apple story going forward. such a crucial fork in the road period for the tariffs with apple. >> all of the consumer products by design in this last trench, hope we don't get there but we'll see what happens thank you. >> thank you >> dan ives. you take a look at andrew yang now >> as in one of the candidates

>> because of elon musk? >> oh. likes elon musk. >> is that an actual endorsement or just i'm back on the idea of universal basic income >> just to bring everybody into the loop here -- >> there are no loops. >> there may not be. >> andrew yang tweeted out elon's saying he would back universal basic income >> we promised we talking about elizabeth warren >> we can talk about -- >> are you going to take a look at andrew yang now >> i'm going to take a look like we all do. >> well -- no. coming up, trade war fallout. you? trade war fallout. we'll be right back.

futures falling as protesters shut down hong kong's airport again. the latest from asia's financial hub and what it means for the ongoing trade war is straight ahead. investors seeking safe havens amid the global turmoil a look at what's moving markets and where you should be putting money to work? a enwill around the clock talks help get a deal done we'll discuss that plus a sale of tumblr to word press for an undisclosed amount. 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 and welcome back to "squawk box" here on cnbc i'm joe kernen along with kayla tausche and andrew ross sorkin u.s. equity futures now down only 13 points on the dow. not the armageddon that we were forecasting at the top of the show after 400-point loss yesterday. but we'll see. it's a long way until 9:30 and even further to 4:00 a lot can go on today. we'll see what happens with yields we seem to be keying off that. of course we got hong kong and argentina in the mix as well here's what's making headlines at this hour small business confidence rose last month the monthly index from the national federation of independent business was up 1.4 points in july to 104.7. expectations for business conditions, sales gains, and expansion all increased during the month. verizon is selling tumblr. it was among the assets verizon

purchased when it bought yahoo two years ago. the buy ser a company called automatic. the owner of wordpress.com and larry culp has bought more of his company's shares according to an s.e.c. filing, culp purchased almost 334,000 new shares at an average price of $9.04 a share that brings his told holdings to nearly 943,000 shares. so a purported vote of confidence in a stock that could very much use one. >> absolutely. meanwhile, let's talk about the tensions in hong kong. they're back again this morning. chinese military vehicles building up near the border. meanwhile the airport in hong kong again suspending departing flights. and china's central bank weakening its currency we want to get to eunice yoon

who's got more on that story >> reporter: hong kong airport has suspended flights going out once again for the most part the airport has been calm today. there were several protesters staging a sit-in once again, but the authorities made an announcement saying they wouldn't stand for this action in fact, the hong kong leider carrie lam was asked several different questions from a quite rowdy bunch of journalists she reiterated the government's stance that violence would not be tolerated now, in terms of some of the other developments that we have on the trade front here, the u.s. soybean farmer has been under pressure as you guys know. and it looks as though chinese demand for soybeans globally could fall even further. in fact, some of the processors here have said they're holding back because --

>> translator: china can purchase globally instead. but such a purchase will be far enough that buying has raised global pig prices to a higher level now. to solve the problem, we have to rely on our own ability inside the chinese system >> reporter: so many livestock feed producers are now pessimistic about the fourth quarter because of this shrinkage they're seeing in the pig population but there could be some upside, a possible opportunity that was commented on just a moment ago by the chairman of new hope which is one of the largest feed producers here. and that is china is now making a greater push to try to industrialize its farming practices. in a similar way that the u.s. does so they're looking at the u.s. model and saying perhaps this is something we can do. the government has been rolling out more financial incentives, also providing other demands

saying that techniques and processes and investments needs to be better and replicate some of what they're seeing in the u.s. in order to try to help stave off more problems because of this disease. >> eunice, do you have some possible scenarios of how this finally plays out? it's just -- i mean, i look at when these things get started, there's still yellow vests every weekend in paris how does this end in hong kong i could think of scary ways it could end. and i could think of other ways that don't seem that plausible >> reporter: yeah. well, you guys were talking about the gathering troops along the border and what has been interesting to watch and a little bit worrisome is that the state media has increasingly been posting those videos on either their social media or just on their website

and what people here are trying to figure out is whether or not the chinese government is just bluffing and they just want to send a message to the hong kong protesters that something scary could happen, there could be a clampdown. or if it's actually something that beijing is really thinking about. and just a couple of hours ago, the peoples daily which is authoritative, they highlighted a meeting that president xi jingping had two years ago because of the hong kong 20th anniversary in which he said that there shouldn't be -- that there are red lines and that people shouldn't cross the, you know, china's sovereignty and territorial issues that china -- that hong kong is part of china. and we're really seeing a lot of nationalism whipped up over the past couple of days on social media. it's just -- so many different companies are being targeted for example, today swarovski,

the crystal company, had to apoll jaz because apparently on its website because it listed hong kong as a country/region. and that was not -- didn't go over very well from a lot of companies. and just in the past hour or so, we saw that samsung hasn't clearly delineated what -- you know, their stance on china sovereignty. so this is becoming a big issue now. it made me think a lot about how if you are a foreign brand here, if you have any business in china, you better be looking at your websites and making sure that you categorize hong kong or taiwan in a way that you think china would like unless you're willing to stand up and say, you know, we don't apologize hong kong is a market. it has its own currency as taiwan does. but unless you're willing to make that stance >> eunice, hong kong, london,

new york, financial centers, people traveling, planes go in, planes go out. this is no way to run a financial center i just don't understand how long this lasts and what the end -- we're going to talk about this, eunice we'll check back with you a little bit later thank you. let's find out how the protests in hong kong will impact the u.s./china trade war joining us now brookings senior fellow david dollar to talk currencies you must get that a lot. >> i've got the right name for the topic. >> yes, you do better than -- i don't know. the lira, the yen, something like that. and economist torri whiting. david, do you see some type of sort of a neutral outcome to what happens in hong kong now? i see all kinds of scary scenarios on this. >> i agree with you. it's very scary. i think it's hard to see a neutral outcome.

the hong kong authorities are really dug in. they suspended consideration of this controversial extradition bill but they really need to withdraw it they need to set up -- probably carrie lam has to resign there are things they could do to diffuse the situation they don't seem to be moving in that direction, so the protests continue on. i think the assembly on the other side of the border, i think plan "a" is to scare the protesters a bit if things get out of hand and plan b is going to be to descend into military, that's going to be a disaster. >> tori, your view and what does it mean for managing the currency as we've heard they like to talk about they're going to continue to manage it in a floating fashion. >> well, really what the thing is here on the business side is that businesses thrive on certainty for the future and right now these protests are not providing a certain and

predictable environment for businesses in hong kong and china at large and so we'll continue to see that as an issue that coupled with the uncertainty with the trade war spells trouble and i think what's important here is the united states needs to be supporting the individual rights of the people of hong kong to be free and independent and the united states needs to be supporting those efforts while also keeping the trade discussions separate. >> so how does it play into president xi and president trump and the dynamic there with a possible trade deal? is it a separate compartment in president xi's mind, do you think, tori? >> i can't speak for what is in president xi's mind, but for the u.s. perspective they should remain separate. we need to be seeking an amicable agreement between the united states and china. that means that the trade stuff has to be the trade stuff. and so we need to be focusing on things like intellectual property rights, investment

restrictions, and those sorts of issues these are broader issues of economic freedom in china as well i think you see the dichotomy between mainland china and hong kong but between the u.s. and china, those things need to remain separate >> do you -- i mean -- i may have been born at night, but it wasn't last night. president xi knows there's an election coming up here. president trump knows he's got these protests in hong kong. don't you think that both sides would be looking to gain some type of edge based on the specific situation that each faces respectively in different country? >> right so i think both sides are constrained by politics. bauss china is an authoritarian country. we tend to forget they have their own complicated politics a lot of social media on the mainland is speculating that the u.s. is somehow behind these protests in hong kong which is absolutely not true. but that complicates it. president trump is looking at

his re-election possibilities. so the economics is hard enough. leaving out politics, it would be hard for these two sides to negotiate a good trade deal that each is happy with then you bring in the politics and it seems very unlikely they're going to reach a deal in the next few months. >> all right we're going to leave it there. and watch very closely and with great interest in how things work out i think all of us are hoping that it's -- i don't know. you hear troop buildup and -- i don't know david, tori, thank you >> thank you coming up, cbs and viacom holding around the clock negotiations to get a deal done. it could happen as early as today. plus the sale of tumblr to automatic. >> say that again. >> i was going to say it's not particularly hard to roll off the tun. >> is it bumbler or tumblr >> no.

cbs and viacom we said today is the day >> we'll talk about the deals and more in the tech world in just a few minutes you're watching "squawk box" on cnbc

welcome back to "squawk box. a fast food promotion to tell you about. the parent company of kfc, taco bell, and pizza hut is promoting coo david gibbs to the top job and he's going to replace greg creed who will retire end of the year gibbs has been with the company for 30 years creed has been ceo since 2015. he oversaw the spinoff of yum china and the introduction more importantly of the doritos locos tacos. shares of yum brands up more than 25% this year coming up on "squawk box," jim stewart penning a piece about his encounter with jeffrey epstein at hisman --m manhattan mansion. and protests in hong kong continuing we'll talk about what this means for the trade war and global

commerce check out asia markets overnight. nikkei which opened after a holiday yesterday, closed down 1% hang seng and shanghai both in the red as well. "squawk box" will be right back.

welcome back to "squawk box. stories continue to emerge following jeffrey epstein's surprising death over the weekend. one that caught our eye was a piece in "the new york times" from jim stewart writing about the day that epstein invited stewart to his manhattan mansion. this is about a year ago and the dirt he spilled or didn't spill in some cases over that meeting joining us now is ed lee from "the new york times" also a cnbc contributor. a lot of tongues are wagging, eyebrows raised as people read about it i think the biggest sort of takeaway was just jeffrey epstein either lies about what he's saying or trying to leave people with the impression he has dirt on others >> that he knows more than he shared also interesting that he -- the presumption is that, well, you know, my infamy is what's attracted people to, like, open up, right? and confess their sins >> or do you think that's just

him trying to turn -- >> i think it was an interesting column he himself admitted in the column he didn't come away with much from the actual meeting in terms of he didn't get that much information out of him >> but what that column does do is fans of flames to some degree of i don't know if you want to call them conspiracy theories or not, to the extent this was not a suicide or that it was a suicide with help. or that there was something amiss -- >> or that assets should be frozen and investigated because of what might be found during the course of said investigation. >> i mean, there's a lot to unpack there >> i thought it was interesting that it's a -- you know, when someone is in that position of power, supposedly, that there's always this sort of small circle, hey you know so-and-so can you help me with this? the presumption of that meeting that jim took was that he had heard that elon musk had reached out to him to help him figure out, create a roster of independent directors. he was under fire for that tweet he put out

whether or not that's true, the point is that, you know, there's this idea that people of epstein's stature, right privy to money and people in power and connections. and that was his -- >> i just want to say this because i remember doing some of the reporting on this myself that both tesla and elon musk specifically and vehemently denied -- >> they said they never had any connection >> -- any connection to him on this whatsoever. and when pressed even in that column, epstein didn't have an email and then he said i didn't really get an email but from somebody else. i think what happened here is epstein trying again to insert himself into the conversation, if you will. and that seems to be something he seemed to do regularly as a way to prove to others that he was more important than perhaps he really was. >> what's crazy is he kept inviting jim back for more do you want to go to lunch with woody allen and others

you got the sense that he's basically alone. he needed some company at least that was jim's takeaway from it. it was interesting and sad at the same time. >> woody and jeff were friends >> oh, yeah. there were pictures and everything apparently jeff is friends with a lot of people though >> that's an interesting one woody and jeff i'll leave it at that. not for nothing. >> friends in high places, joe >> yeah. okay never mind what about you you care about viacom? >> oh, of course i care immensely about it. >> today, what do you think? >> we were here yesterday talking about this >> two hours, the market opens can we get a statement >> i'm waiting for it. i think it's going to happen >> today >> yeah, today if it's not this morning, it will be after market today >> you want to give us some details on the price that's what people want to know. >> i think the journal did a good job of getting some information out there yesterday. the idea being that it will be about 0.6 or 0.95 for every

viacom share the last time they had this conversation it was 0.61 the way viacom has been trading, it's a take under. you're getting it at lower than what it had been trading on. the argument from the cbs site, it's been the deal has been baked in it's a way to sell the idea to cbs shareholders you're getting some kind of a premium look, there's going to be shareholder lawsuits about this anyway that will happen shari will get her wish. the bigger picture is that enough are they that much heftier that much stronger not necessarily. we're in a different world now where these affiliate licensing agreements they come up with, that's kind of over. you're not going to be getting a higher fraction. >> let's say it's not though what does that mean? it means 24 months from now there'll be another deal >> what's left what more are you going to buy

>> what'd you say in. >> what's left >> i'm not making a prediction i'm suggesting it myself >> you have a prediction when they split after going back together >> you mean, they're going to split again? >> who knows, right? the investment bankers are working -- it made a lot of sense to split these guys. >> if you're talking about a sale, what's interesting is that viacom by itself is an easier sell than tied up with cbs even despite there's -- all of a sudden cbs is a broadcast network. only so many buyers for that kind of a thing. with viacom, it's a smaller, nimbler company now. so i think shari, i think she's going to be more of a buyer than a seller i wouldn't rule that out 24 months from now. >> you think she's more a buyer? >> at this point there's a bunch of smaller networks, smaller studios out there for sale i think sony is the only other sort of target that's of any real size that, oh, wow, that could be a thing there have been reports from

discovery last year. that would add, but that would add in the sense of the fight for these licensing deals. again, that era, i feel, is coming to an end. >> so much about this situation has been telegraphed in the press. what happens if the deal gets announced, with roughly what's expected and both stocks plummet? >> yeah, well, that will tell you that a sense of your prospect in my company aren't necessarily better as separate companies. >> you think this deal would be ironclad you don't think either could walk away? >> i think they could still walk away she can't interject herself in this process based on agreement she had with a settlement agreement with the old cbs board. but she wants it so it's going to happen. >> i got a crazy one for you what happens if someone tries to come in over the top if you get the joke here, but not really. which is could there be another

bidder that sees the price of this and she can obviously say no because she's a control shareholder, but could you get into a bancroft style "wall street journal" murdochian deal with a price -- >> you've been watching succession >> where the price and the premium are so high, you can't ignore it and people start talking about fiduciary duties in a way they haven't before >> i love thatted y, but again, who's that hot for viacom? >> sorkin enterprises. >> get your credit cards together and we'll get together. >> yeah. we'll get some funding >> thank you nice to see you. coming up, how old is sumner >> 90-something. >> i know that but i think we're above 95 now, aren't we? >> you know what he's going to do a quick check we should look at that >> god bless him >> yeah. he's held on >> sumner is 96 years young and we wish him always the best.

>> all right coming up, much more on the situation in hong kong and the impact on the trade war and what it means for your investments. as we head to break, take a look at u.s. equity futures the dow, the s&p, nasdaq have fallen for the past two trading days with the dow now down 3% below it's all-time high and the s&p 4.8% below its july 26th market high more market moves straight ahead. we'll be right bk.ac these folks don't have time to go to the post office

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♪ still to come on "squawk box," the latest on the hong kong protests and what it means for the trade war between the u.s. and china and then searching for safe havens markets moving lower again ahead of the open today. what you need to know before the first trade on wall street and later, an investor in hot companies we talk about all the time here on "squawk box" including we work and spacex will talk ipos, why companies are choosing to stay private longer, and the venture capital landscape with a wall street pro. "squawk box" will be right back. choosing my car insurance was the easiest decision ever.

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mackey frayer joins us live from there. good morning not where you are, obviously, but good day. what can you tell us >> reporter: well, the announcement has been on over and over again stating the obvious that the operations here have been seriously disrupted. this is the second day in a row that flights in and out of hong kong airport, one of the world's busiest transport hubs have been canceled people are being told to make other plans, being told to avoid hong kong airport altogether people now trying to find hotels in town. the protesters seem to be gaining some momentum. they're using trolleys to block off the departures area. police are around the airport, but they're not yet moving in to break it up. this is the big question now with this escalation that we've seen over these weeks of protests against this extradition law, against the chief executive here in hong kong, and now demands for an inquiry, the question is what is

the next step. protesters say they're going to continue to push these demands, but there is the sense that beijing is not going to let this go on forever. the prop gaganda on the mainland right now is quite intense state media using words like terrorism. they're showing videos of pla, the people's liberation army, doing drills in nearby shenzhch. what the government could do in order to shut these down >> janis mackey frayer in hong kong, thank you. for more on what this could mean for the trade war and markets, we are now joined by hudson senior fellow general robert spaulder. he's also the author of "stealth war. that book is due out this fall we're also joined by cnbc contributor michelle caruso-cabrera general, i'll start with you the protesters that janis was

just showing, their goal is to loosen beijing's grip on hong kong how does this get resolved knowing that is not possible >> we all know how it's going to get resolved the party will move in because the protesters won't respond so how are we going to respond to what happens? >> obviously there are parallels being drawn to that eventual outcome and what happened in tiananmen square many moons ago. do you think the chinese government is sensitive to that imagery and parallels or do you think they would rather see images like that broken up at any cost in. >> no. i think they're absolutely sensitive and that's why they haven't moved in already they clearly see a problem here. they think that the united states is trying to overthrow the chinese come mist party through a color of revolution started in hong kong and progressing to the mainland. so they're really concerned. but at the same time, they understand how important hong kong is to their financial well being. >> michelle, the asian financial

system for so long has seen hong kong as a gateway for so many western companies. at what point if you're an executive and you see travel and commerce disrupted, economic softness, and potential currency volatility at what point do you say we don't need to be there let's go to singapore, let's go smer else? >> those are all major concerns. the extradition law that caused all this was also quite problematic for business it was retroactive, right? they could take somebody away from hong kong, bring them to the mainland and we already know they take away chinese executives who disappear how many times do we ask on air, where is chairman wu gone so yes, these disruptions are absolutely concerning and will hurt the economy but the more beijing encroaches, the more hong kong loses its

luster of economic freedom >> yesterday when you were here, there was a discussion about the hong kong dollar pegged to the u.s. dollar. whether that was in peril by this in the last day, it moved to the very lower edges of that band. do you see these decoupling? and what would happen if so? >> so you're talking about the dollar peg with hong kong. okay i'm focused much more on what they're doing with the currency despite their promise they weren't going to weaken the currency every day they seem to weaken the currency and what i don't know and what i think is a crucial, crucial question is why are they weakening that currency? is it a salvo in the trade war which is what they said on day one? or is it that that economy is weakening, they need to do something to bolster their exports, they need to offset the tariffs and they can't keep spending all the money they used to spend on defending that currency if that is the case, we have a

much bigger problem in the world because that could have a deflationary impact. >> general, is there any scenario where we fully understand china's motive in weakening its currency i mean, to michelle's point, it is either to combat the u.s. in this trade war or it is to juice up their own exports will we ever know what the motive was here? >> i think there's multiple motives. one is i think they're having a hard time defending the currency so their building to weaken it means they have to spend less. but at the same time to michelle's point, it's helping them on the trade front. so i don't think we're going to know fully what the real reason is >> what are the odds in your mind for some grand trade bargain to be reached? >> what's going on in hong kong is far worse than the 150 page document that lighthizer came up with the chinese are absolutely believing we're trying to overthrow the communist party. this is going to harden their stance on the trade talks completely

>> so you don't think they will say we need a win, let's revisit all of the previous terms we walked away from in may and let's sign something >> no. they think that everybody else is at fault, not them. and so to the point about the extradition law, they don't see any fault in thatemselves they believe they are due that right as the leaders of china. >> there seems to be an expectation, though, among the free traders in the administration that if president trump and president xis held a phone call, they wouldn't have to agree on anything they would just speak on the phone to not have these tariffs go in effect i imagine you don't think that's possible >> i was there in april of 2017 when they met in mar-a-lago. they've talked plenty of times and they've had great friendly conversations. this is about what the chinese economy wants and what's best for the american people. >> yeah, the events in -- so this is day two of the airport being impacted

and the protesters have clearly discovered a potent wedge, right? throwing tear gas, firing tear gas at an airport full of tourists and business people, not going to happen at this point, right it gives them maximum leverage at the same time, it pushes the authorities to a much tougher place. and brings on the potential for a severe escalation at some point. it worries me because i don't see beijing ever giving into -- they want universal suffrage that's not going to happen under beijing. >> you believed potentially past tense that the beijing government would wait until september, see if these kids go back to school and whether that's a threat enough but do the events of the last 24 hours make you reconsider? >> i still think they wait to see what happens if you look, there's an official protest calendar you can look at and they have started to schedule protests into the calendar year, the school

calendar year. let's see how many people show up there's two to pay attention to. kids go back to school then the october 1st anniversary of the peoples republic of the communist party. and the thinking i'm told in hong kong is that beijing wants absolutely nothing to mar that event. and so that this has to be over before that event. so there are calendar constraints built in on the other side there are these constraints that china faces with their brand, with maybe do they want to try to get a deal doesn't sound like it. but -- >> obviously there is a view that perhaps the cafe pacific situation could have a particular effect. if people were known to be participating in these and they were sacked from their jobs, then may they would not do this. they would go back to work is that having any impact here >> look, i'm not on the ground there, but my understanding in my conversations are that right now there's a lot of sympathy within the general population

for the protesters and then to what degree does the disruption of daily life start to erode that support? that's what you have to wonder about. >> what about -- >> i mean, the civil service sector had a demonstration in support of the protesters, right? we heard about financial services companies allowing people to go out and express their views or at least not come in on the day after a strike things that suggested there was support among the population >> how hard do you believe it is to get money out of china? >> this is very interesting. since we started this conversation, i looked into this more the chinese government over the last two years has imposed many more levers that they can control to make it more difficult. so there's an argument that the reason they've allowed the currency to weaken is because they now think they have enough control over capital but they don't have to worry about it the way they did back in 2015 the last time they did this sort of mini depreciation. they also started to prosecute

people very publicly who go outside the rule which is you're not supposed to take out more than $50,000 from china at any one time and yet we all know that's impossible because they don't have a vancouver they pay for harvard and nyu right? >> my other question is, the big financial services companies, you were talking about them. do you think there's any chance they say to themselves, we're not doing this anymore, we're out of here. or we're going to scale back >> it depends on what happens to rule of law in hong kong that's what they've always relied on. if that erodes and we saw whispers of it. when they started taking away the book sellers, those kind of things you disagree with me >> it's about our relationship, our allowing the chinese communist party to actually get access to western capital markets through hong kong. if we say -- if we take away that special relationship, that's a huge, damaging blow

>> another reason why financial institutions might leave, absolutely, sure >> final question to you, general. investors in taiwan and macau are now wondering if this could happen there if there is some sort of catalyst do you think there's a spillover effect >> i don't think quite yet particularly macau taiwan, that's a different story. you know, as the more this goes, the more taiwan independence forces are going to be emboldened >> all right we'll leave that conversation there. great to have you both thank you. coming up, your morning movers and what you can expect in today's trading session the dow, s&p 500, and nasdaq all falling for the past two trading days will that trend continue to the downside or will we turn it around we will find out when we return right after this

time for a look at this morning's market movers. dom chu joins us with them how are you? >> i'm great welcome back first of all let's talk about what's happening here overall with the movement we're seeing in some of these regulatory filings right now let's look at shares of netflix which are off by about 0.5% we did see third point which is the hedge fund run by dan loeb increase their stake by 20% in netflix shares nonetheless caught up in a relatively down take here. also watching what's happening right now with shares of another one which is microsoft a boost there to dan loeb's

holdings at third point as well. shares off about half a percent on premarket trading as well and then we will end on what's happening right now with shares of american express which are relatively unchanged premarket american express was one of the liquidations in the regulatory filings. these were as of june 30th already a month and a half old nonetheless, an indication for what these guys are looking at in terms of hedge funds and big money managers also want to bring your attention to ge. we saw a regulatory filing saying that current ceo larry culp has boosted the number of shares that he has purchased in general electric closely over the past week or so. and so general electric shares up a boost about 2/3 of 1% on that news. we'll keep an eye all of those stocks and much more of that regulatory filing coming out with those views into what these hedge fund managers are holding

>> dom, thank you for that want to get to our market round table right now. we are joined by jeremy zeroing. he's the head of investment strategy julian michael ls also with us at btig. matt toms at voya investment management we've got six people altogether. but you're to my right, so i'm going to go to you first we've been talking about hong kong all week. that's been a bit of a cloud obviously the goldman report over the weekend whether tariffs are actually going to be impacting us and whether we're going into a recession where do you stand >> so look for the past three or four months, we've been between 30 and 25 on the s&p. right now we're in the middle of the range. until we get clarity on whether the tariffs 10% on list four items will be implemented on september 1st, it's going to be hard for markets to gain a lot

of upward momentum or downward momentum >> is that sitting cash and wait >> certainly not i think the risks are se mymmetc we're have the next tranche to be implemented assume when tariffs are implemented it's going to be game over for the economic expansion and what we've learned is that it's trimmed growth but hasn't derailed growth >> who calls the shots at ubs. i'm serious. >> sergio armatti. >> your forecast >> we have different divisions we have a wealth management division and -- >> what are you? >> wealth management and chief office >> so hoe who has to -- >> our investment bank strategist has a different view. >> hahn comes on and pounds the table at 2550. so who's right who am i supposed to -- i have money at ubs

do i listen to you you talk out of both sides of your mouth or -- >> our team synthesizes all of the views -- >> what is that? >> our view right now is investors should have a diversified portfolio. >> you see how i could be confused if he's at 2550 and you're at 3025 >> we've had different -- we have different parts of our business and there are -- we allow for different views. >> it's a bit tense. >> that's convenient because our market could go up to 3025 or could go down to 2550 >> we try to say how should an individual investor be invested coming from the views -- >> do you think he is wrong? >> so our view is that markets are unlikely to reach the levels that are forecasted -- >> your view >> within the wealth management business >> wealth management, okay >> julian. >> we'll break the tie here. we're siding with jeremy we think the year end is at

3,000. >> is that the house view? >> that's btig's view. that's where we are. >> you thought we could go -- you were one of the real bullish guys at 3200 you think that if things go right but things aren't going right. tradewise. >> yeah. i mean, the escalation, the threat of september 1st tariffs combined with the potential for an all-out currency war, the markets have reacted in what we would submit is a pretty logical fashion the last several weeks and obviously the tension in hong kong does not help matters either but ultimately, you go into 2020, it's an election year. incumbents of all kinds globally are incentivized to make sure economic growth stays on track we think that is going to be the

result and you could have some more volatility while things remain uncertain here but ultimately, we think stocks end the year higher than where we are >> is there a house view is there a house voya view or your view? >> right so it's ultimately we manage portfolios and fixed income. we think we're seeing a flight to equality into the u.s. dollar and bond market which still has higher yields than foreign country alternatives so likely that you will see an abatement of this move as trade tension goes away. the one big point we'd make is that flatness of the yield curve is saying maybe interest rate cuts aren't going to help that much even if they're unwound in the market, you've got a head wind if they're achieved, i'm not sure it's a tail wind to growth. >> what do you think jay powell does for the rest of the year? >> we think he's going to move three times. that would be 100 basis points told the problem is it's unlikely that the economic growth comes from that.

i think the markets underestimate the market influences of negative rates there's positives and negatives. and that's a big change. >> now correlating when it goes lower, it's not helping us you think it's hurting us? >> that's exactly right. you have offsets it may net help a bit, but it's not a free lunch there's offsets and a lot of the benefit is already priced in >> what do you think of that, julian one of the views is, you know, as long as you stay under 4% you got to ride the tiger, basically. >> no. low rates, particularly if you get three fed rate cuts, stocks are not going to end the year at 3,000. that is going to send a signal that things are worse than they seem and potentially deteriorating. >> okay. matt, julian, and jeremy, thank you, all by the way, there is no house view here on "squawk." that's clear >> right >> i just wanted to make it clear. >> definitely not looking here for -- and i wouldn't recommend it

exactly. >> just putting that out there coming up, we talk hong kong, trade war, and much more with former ambassador to china max baucus and an investor in hot companies we talk about all the time, jihan bowes-little wl ilbe here to talk with us. "squawk box" will be right back. ♪ sfx: record scratch music (plays throughout): [ 'watch me walk' by spencer ludwig ] yo dj, can i put in a request? ♪ don't have no sass about this ♪ ♪ i'm on my way i'm on my way ♪ ♪ can't take no class about this ♪ ♪ i'm on my way i'm on my ♪ like this! ♪ this is a moment you plan for. to start your investment plan, find an advisor at massmutual.com sfx: [ mnemonic ]

warning. the bond market could be sending a major recession signal protests in hong kong grounding flights for a second day. why it could upset markets worldwide. >> and the reluctant unicorns. what's behind the biggest start-ups to stay private? the final hour of "squawk box" begins right now ♪ livefrom the most powerful city in the world, new york, this is "squawk box.

good morning and welcome back to "squawk box" here on cnbc from times square i'm joe kernen along with andrew ross sorkin and kayla tausche. becky is off the dow is indicating to give back about 62. we were down 100 at one point. then got to single digit losses in the dow now we've backed off again down 63. dow down about 5% from its highs. the s&p similar down about -- less than five, down more than five nasdaq indicated down 23 you see only some of the details there. take a quick look at treasury yields which have been dropping and i think 162, 164 now shocking to most people. why do we have that there in

red? >> why is as it moved down >> oh. only because it's moving down. let's get to hong kong now that's the big news story of the morning. disrupting flights in the crucial financial hub now for a second straight day. jan janis mackey frayer joins us now. good morning to you. >> reporter: good morning. there are no flights going out this is one of the world's busiest transport hubs it's become a complete stand still. people are being told to avoid it there are thousands of protesters in the airport right now. a lot of them in the departures level using suitcases, trolleys, anything they can find to create barricades and to create a problem for hong kong authorities. the protesters say they will not leave or calm down or stop their protests until their demands are

met. specifically for an independent inquiry into what they say is police brutality now, what isn't clear is what beijing's next move will be. because they will not tolerate this for much longer the signs are already there. the propaganda machine on the mainland is kicking into overdrive. state media is showing videos of the pla doing drills just on the other side of the border in shenzhen and officials are starting to describe protesters not just as rioters but talking about terrorism. which in china is a broadly defined term that's used to justify its different policies so there has been the sharp escalation here in the last couple of days specifically ten weeks ago when the protests started it was a lot of families in the streets and there was this sense of purpose and a sense of spirit now things have digressed to mob

violence accusations and some serious trepidation about what could happen next. >> all right janis, we'll check back in with you later thonk. meanwhile, the u.s. has been watching developments on the ground in hong kong closely, but so far we haven't seen any large scale moves out of washington. eamon javers joins us with more where the administration saying this is up to them, not us >> reporter: they say they're monitoring the situation the president of course is in new jersey this week on vacation he'll be making a couple of side trips, but we don't expect to see him have the opportunity to say anything about the protests in hong kong any time soon here's a statement from a senior administration official that the white house gave me yesterday saying as the president has said, this is between hong kong and china. with the understanding that they're looking for democracy. and i think most people want democracy. the statement goes on to say, the united states urges all sides to refrain from violence

the senior administration official also said that societies work best when everybody is allowed to express themselves freely. but other than that, the administration here careful not to be seen as meddling or taking sides publicly here in this dispute which they say is between hong kong and china. all of this coming as the president is negotiating a very fraught trade deal with the beijing government at the same time these protests are happening in hong kong the president's balancing two priorities here in terms of politics and global economics. and we'll see whether this hong kong protest sort of plays a role in those trade goernegotias or not as we get closer to the meeting between the china and u.s. sides >> to that point, we know the president is in bed minister but on tuesday usually has a meeting to discuss the state of affairs with china, with usmca this is where the dollar

devaluation debate happened about a month ago in that meeting. do you get a sense that's still happening? whether it's remote via teleconference they're checking? >> the president obviously works the phones at all times this president in particular. the president is taking a side trip to pennsylvania at some point today. we're also told there will be others but we don't expect he's having a full plate of meetings and things that he normally would have when he's in the white house. we do see pictures released by the white house of the president playing golf with at least one golf celebrity this week so he's spending some time there. >> who was that? >> john daly >> oh, really? that's interesting how was the outfit crazy? >> i think, you know, there was a picture released it was cropped in such a way it was hard to tell i think daly might have been wearing american flag pants. >> i was talking about the

president's outfit no, i'm kidding. daly has some crazy looking -- >> yeah. >> yeah. >> it would be fun to play golf with him >> yeah. i think it's fun to do anything with daly. from what i could understand >> all right that's news you can use. >> i'm here to help. >> you are always long way from the weekend, though, eamon. for more on the potential economic impact of the hong kong protests let's bring in our guest former u.s. ambassador to china max baucus he recently returned from a trip to hong kong you got out of there, anyway, max. not everyone can do that now in terms of departing flights looking at what you're seeing, are you apprehensive, nervous? you've been there a lot. is it going to get worse from here in hong kong and how bad could it get >> my sense is it'll get a little bit worse

i think the protesters, they got wind at their back they've tasted victory there's a lot of sympathy among the hong kong residents that i talked to when i'm there they'll say let's urge them on the other hand, obviously very concerned in main land china chinese has to save face they can't give into the demands the protesters are asking for unless there's some way they can both save face i think the business community is worth watching looking at because when i talk to the business community in hong kong, they're getting a little nervous that this is hurting business in hong kong. i talked to some companies that say they have a hard time recruiting families from other countries to come to live and work as employees in their businesses because of the unrest there. so i expect business to say, okay

enough's enough here but to try to help quell some of this dissent >> the overall state of our trade negotiations with china has worsened since last time you were on. how bad is it? do you think we're going past the election now >> i do. i think that because of the distrust, they don't see china giving in much in the structural issues same time, president xi thinks president trump changes his mind all the time so he's wondering if he can trust the president. i do think they're waiting i think there will be talked in september. i hope that president trump does not enact that threatened tariff in september we'll see. if he does, that's going to make it very clear he'll not be any solution before the election

>> who has the -- the fths says the numbers are in and looks like china's economy is suffering worse than our economy and we have that do you think the evidence is clearer? i think both sides have some -- president xi has the election in 2020 i think president trump sees what's happening in hong kong. that's a lot of things for president xi to be juggling right now, isn't it? >> there's no question president xi has got a lot to worry about. but, you know, they're tough my experience is they're very, very tough i think they can smell weakness better than any other people i think also in a position where they'll both -- there's lots on both sides and i think this is hurting china a little more than it's hurting the united states.

however, the chinese are so tough, they can withstand more pain in my judgment than can americans. >> what do you think about the current approach from washington it seems to be a good cop/bad cop strategy where you have the white house staying out of things but then you have secretary pompeo and secretary esper who are rattling the saber is that effective? >> well, i think it's probably wise for the united states to not get too involved the more it's going to upset china. frankly i don't know what we can really do in hong kong we want to stand up for human rights there we do. but i don't know what actual leverage we have i think it's wise not to get too involved >> all right ambassador baucus, thank you we appreciate it and we'll see you again i'm sure in the

future >> all right coming up right after the break, the rush to go public versus what we're calling the slow play. we're going to be talking to an investor some of the buzziest companies out there. why they're choosing to stay private so much longer and then mohamed el-erian will join us to talk about bond yields and what itea fhe mnsor t markets. stay tune d. (indistinguishable muttering) that was awful. why are you so good at this? had a coach in high school. really helped me up my game. i had a coach. math. ooh. so, why don't traders have coaches? who says they don't? coach mcadoo! you know, at td ameritrade, we offer free access to coaches and a full education curriculum- just to help you improve your skills. boom! mad skills. education to take your trading to the next level.

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welcome back to "squawk box. take a look at where futures are right now. they've been slightly in negative territory throughout the morning. dow would open down 75 that seems to be a little lower than it was earlier in the morning. s&p would open down nine nasdaq would open down 26. of course there are pressures from all over the world. the unrest in hong kong that continues, weak data out of germany and the uk and of course some election results or polls, rather, out of argentina and a steep stock market slide there the worst in decades so certainly a lot for the

american investor to ponder as well as trade relations between the u.s. and china we're going to talk private markets now because our next guest spent years at golden sachs. u no he's an investor in hot companies we've been talking about here on "squawk box" including lyft, coinbase, speights spacex, juul, and more jihan bowes-little, thank you for being here >> thanks for having me. >> you got into some of these companies in the secondary market but before they all went public i want to talk about why so many have stayed private as long as they have. one of the questions i have, it relates to uber given how we've looked at that stock whether you think the valuations in the private market actually are right. >> yeah. this is the fundamental question, right? we were coming up to -- we work off the emblematic of this cohort of private companies. where you see private market

investors investing for growth for users. with less of a clear path to profitability. we weren't an investor in either interested to see how it plays out. >> why did you think the valuation was off? >> yes yeah we didn't think it was a fit for us we like to invest in businesses with more predictable and foreseeable revenue streams. and so a lot of the investments we've invested in have revenue bases. we did invest in lyft. >> that's interesting. lyft but not uber. why? >> that's right. we like the focus. we like the focus of the management team. obviously uber has been a fantastic investment for all the early investors who got in we were more interested in that type of execution. sort of a single minded purpose opposed to trying to do everything >> so you have money in airbnb >> we do >> that company has not gone public. >> no. >> do you believe when and if it goes public, it will go public at a higher valuation than where it is today? that's the fundamental question. >> we do airbnb is probably the iconic

investor company everybody is familiar with. it's profitable. the growth rates are strong. and so we're quite confident we're looking forward to that. >> you think it's been a mistake for some of these companies to remain private so long it used to be a mantra, i want to stay private as long as humanly possible >> yeah. >> and yet what that means to some degree is that the public market is not able to participate in the growth story in the same way they might have a decade ago >> that's right. increasingly more of the value capture and creation is happening at private markets versus the public markets. there are pros and cons for that certainly i think a lot are being boxed out of great companies because they're staying private longer that said, it does give you a lot more flexibility to grow your company with a longer term mind-set and so i think there are pros and cons it's conversation. >> it also a shield from the investor to the downside that might happen when the company is

still public -- still private, rather and i'm wondering how you size up risks so many of these companies have a binary risk. >> i actually think a lot of what we'll see in the next private market companies is companies attacking highly regulated industries whether that's finance, health care. these are some of the big e problems i think a lot of entrepreneurs are drawn to solve the problems. >> where do you come down on juul how did you think about it by the way, there's some people that think juul is putting aside the business metrics of the company, not -- it's sort of like investing in the tobacco industry >> yeah. i mean, i think that -- look from our perspective, we've read a lot of the reports a little bit early to tell there's a large cohort of people who think these are much healthier. obviously we hope that's true. i can't comment on the regulatory side there. but certainly, you know, that was the mission of the company

when it was founded. and we hope it plays out that way. >> could you be an investor in coinbase without being bullish on bitcoin >> i am bullish on bitcoin. >> you are what does that mean? >> same thing it means, you know, for most investors when you're a private market investor you're looking at call options to some degree i think history has taught us that it's perhaps unwise, you know, to come down adamantly against something which is early in its stages. so i think there is a large use case >> you're about stage three or three and a half you don't sound like a stage five yet are you? >> probably not a stage five but that's because we've run a different type of portfolio. i am a different type of invest per. >> do you expect five, ten years from now people will be over the internet making payments using virtual cryptocurrency in a much greater way than they are now? >> i think they will

my point of view is that the strongest use case right now is store value. and obviously any -- >> so the goal not as a -- but you also have the ability for frictionless commerce, too, which is pretty different. >> digital call with an option >> do you think that it will eventually track a stock to flow model of valuation like gold >> i think it's possible >> i wonder whether they're pie in the sky or whether that's something you can think on >> and from our standpoint, i think either hitting the sun or the moon, either one of those is good relative to where we are now. >> should be much better 92 million versus a couple yeah >> before i let you go, wanted to ask you about the ipo process. >> sure. >> one of the things we have seen which has been a unique sort of shift is this idea to a

direct lesting and what that means. obviously you can only do that if you don't need the money. but there's a lot of talk about wall street now about people thinking, you know what? i'm going to do direct listing now and i'll do a secondary three months out, six months out. >> right >> and how does that play? as an investor, what do you like >> the disrupter and the innovation doesn't stop. it's interrupting some of the processes of the finance industry companies we mentioned earlier, some of the more iconic well known names have that opportunity. you know, we're open minded and we think it's a positive development. it's more transparent. >> final final you want spacex to go public >> i'm very happy with what spacex is doing right now. so eventually i think every investor wants to see some monetization, but, you know, in the meantime i think this is a business only built in the private markets. it was relatively impossible

people thought at the beginning. the company is stable. the growth is exceptional. and there are many, many different paths to a positive outcome for private investors. >> you want elon musk to be a public company ceo for that company? >> i'm just an investor on the private side i think they've done an extraordinary job. honestly, i think there's a lot of news flow about what happens, you know, in personal lives, et cetera i would say, look. when you have a vision that extraordinary and you're able to execute it, i think we all have to be thankful for them building >> if they tried to merge spacex and tesla what would you think >> no comment. >> thank you coming up, we'll be watching closely for the impact on already volatile u.s. bond yields then instant reaction and analysis from mohamed el-erian

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coming up, breaking economic news july cpi numbers out in minutes with markets poised to react we'll bring you the data as it hits plus instant analysis stay tuned you're watching "squawk box" on cnbc worry. my dutch is ok. just ok? (in dutch)

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rodney: you know what my favorite part really is is when i greet students when they come in. because i know what great things we have in store in the classroom. marisa: when they come into my classroom, they're able to really get in touch with who they are. rosanne: my favorite part of teaching has always been this opportunity to make a difference. ever: every student has the right to quality education. no matter what neighborhood you live in. rosanne: we are cta.

ever: we are cta. marisa: we are cta. narrator: because we know quality public schools make a better california for all of us. welcome back to "squawk box" on cnbc live from the nasdaq market site in times square. we're just seconds away from the latest cpi data. take a look at the 10-year

t-note you can see right now it's at 1.65% as predicted by everyone on wall street at the beginning of the year. neighbor no one. rick santelli is standing by at the cme in chicago and, i don't know, rick. unchartered territory. we just report to facts. we don't try to understand it's impossible. >> that's right. that's right well, we're still in chartered territory, but we're getting on the fringe july read on consumer price index, up 0.3% as expected on headline up 0.3% when you remove core that is arguably a tenth higher. rearview mirror unchanged. so sequentially on a core, we're holding at an elevated level and with regard to headline we popped just a bit. let's go through some year over year figures, shall we on year over year cpi, 1.8%. on core up 2.2% which marks the 17th month in a row of 2% or

higher in this particular category if we look at real average hourly earnings year over year, up 1.3%. 0.2% lighter than our last look. if we go to hourly weekly earnings year over year, that's up 0.8%. also light sequentially versus 1.2% unchartered territory would be if we breached the 136 level, the double bottom from 2012 and 2016 30-year bonds on the other hand have never closed under 210. they represented a july 2016 bottom and threw some movements in the 30s, it really puts it in a very much leadership role to get to that part of the planet that you referred to -- >> pretty darn close >> yeah. we've been very close.

yes. >> we'll never go negative here, will we? >> well, i'll tell you what. you can already see. you know how these things happen things that should never happen that nobody can say a positive thing about over time when they seem less and less inevitable, there becomes little research around the edges, nibbling about. it's not so bad. you're seeing this on negative rates. factoring it in is not the evil that we all know it is if you have a market based capitalist system which is really done quite well considering its history especially stacked up against others, having negative interest rates removing the grease from the gears will result in grinding gears they can frame it any way they want and they could look at the fed as mandates and all the things they're supposed to pay attention to but sometimes you have to put your neck on the block and stand out there. this central bank needs to stop the wave of negative interest rates or at the very least not get involved here. >> i might buy a house in

denmark. did you see that did you see that, sorkin the house in denmark >> they pay you. >> your mortgage goes down >> pretty good, right? >> but there's oddities there. and i certainly wouldn't -- i'll tell you what. if negative interest rates happen here, we all know what the story will be. when you are paid in something, it's going to be on the negative side of that ledger. and when you need to borrow, you're going to be on the steep side of that i just think it's a bad road to go down. and given these quarter points away are succumbing to pressures for near term monetary gratification of return is not the way the fed should be looking at this situation. >> all right we're going to have that conversation appreciate it. we're going to talk about the plunging bond yields we've seen this week. but first this data. the chief economist of the americas at natixis, also jim iuor iuorio

gentlemen, great to have you both joe, first your reaction how do you read that if you're jay powell >> i'm still cutting rates because i'm looking at the yield curve and i made a big mistake tightening in december cpi is lagging and they're going to keep worrying >> we heard a guest earlier today say a hundred basis points need to be shaved off rates before the end of the year >> i think that's right. and then maybe more next year and certainly more in 2021 after the election >> powell said his goal is to keep the expansion going to extend the expansion as long as possible. but if you get to zero, what's left after you get to a recession? >> the advantage of getting to zero is then we'll be done monetary policy will effectively reach its limit. effectively they won't be able to do any more then we'll turn to the fiscal side then we'll spend whatever we want to spend money on at least the fed won't be part of the equation. you need a weaker currency especially against the em markets. and the fed won't have a choice

but to follow rates lower. >> jim, let's bring you in we're watching the spread on the 10-year and 2-year drop. it's down 23% in let's see what the time frame on that is. i'm looking at a one-week chart but it's unclear what the percentage pertains to we're watching it go down, though, jim. interestingly we're watching the yield on the 10-year go up slightly it firmed a little bit to about 1.66 do you think that's the right reaction in the bond market? >> i think it's fine reaction when $15 trillion are trading at negative yields and you guys talked extensively about that before i would add is ultra low and negative yields work, then europe would be fine right now clearly they're not. as far as the predictive power goes, i think it's diluted some. i'm not going to say it doesn't matter at all, but there's huge distortion in the long end of the yield curve with that negative yield if it goes negative, if we have an inverted curve, first of all, the average recession doesn't start between 14 to 18 months

later. i think it's the wrong time to panic now if that happens. second, i'll say it has much less impact to me viewed in the lens of the distortions. >> well, it -- one of the reasons why people are so worried about the spread is because it is the narrowist spread since, i believe, june 2007 and you remember what happened in june 2007, but the psychological fear is everyone remembers what happened next and there's this view that, okay, we're getting into the same scenario as we were then. but obviously the economy is so different from june 2007 for a whole host of reasons. but does that date -- >> there's no doubt. of course it's spooks people when the recession happens and we start to pull back the wallpaper, we start to see what the foundation looks like. so you have to ask yourself right now, do we have those kind of excesses built up the answer to that to me is absolutely not so far.

anecdotally you don't see people borrowing everything they can. mom and pops buying bitcoin or whatever to me it seems like a garden variety recession. i think they're diffused across a wide variety of assets and i don't think they're at any point now where it's going to blow up in their face. i don't think this is a great thing either i think we used to have recessions every two to four years. in the past 30 years, it's 9 to 11 years but when they come, they push people into risk assets. >> joe, retail sales have been positive the consumer confidence has been good just this morning we got a good read on nfib small business sentiment. do you see indicators of a recession? and if so, where >> i agree with jim. now is not the time to panic but the curve is telling you that growth is weakening yes, yields overseas are low and largely because of ecb actions if there was inflation, people would be selling bunds and everything else. so the message from the curve is

that yields need to go lower it's not that negative rates here or low rates in the u.s. will help. it's just we're in a globalized system and what's happening overseas is pulling u.s. yields down and they're going to stay lower. housing will probably boom eventually >> but joe, don't you think there's some distortion from the big three central banks being involved in this market for the last ten years >> of course. >> so it doesn't have the same predictive power that it did in the past >> well, i mean, it's -- look. if you look at break even inflation rates in europe and here, they're plunging so i do think there's some predictive power i mean, we were coming into this year we were thinking -- not us, but people were thinking rates were going to go higher because global growth was going to be stronger and it wasn't the curve to me is still valuable are there distortions? absolutely but i just think that historically it's been pretty good and if there was inflation risk in the system, you wouldn't see 1.65 they'd be at 2-something >> amen. >> clearly they're not there thanks to you both markets digesting the deals of

this cpi print we're watching futures go slightly lower the last time we put the futures board up dow would have opened down 93. we'll keep an eye on that. we have some breaking news on the cbs and viacom merger talks. they are now in the very final stages, i'm told by a source they have agreed on an exchange ratio for the proposed stock swap deal. viacom shareholders would receive 0.596525 cbs shares for each share they now hold and we are being told that a deal could be announced as soon as this morning. of course, we've been watching and waiting for the past week, but it does appear that we are much, much closer than before. you're looking at both companies' shares down margely in the premarket we will keep our eyes on the tape for a deal announcement very, very shortly all right. let's get back to the plunge in bond yields, continue this discussion

joining us now allianz's mohamed el-erian you hear a lot of the previous discussion you agree with much of that or have some, you know, can you drill down on some of those points >> absolutely. good morning, joe. i would add two points one is that the cpi number highlights the dilemma facing the fed which is neither the real economy nor inflation calling for what the market has priced in. but the fed will have no choice but to deliver what the market has priced in. that's the first set of dilemma. and the second one is look at how the narrative has evolved. it used to be the fed can help us avoid a slowdown. then it went to the fed is pushes on a string but it's okay. it helps financial markets this morning on your show, you had guests saying that rate cuts would be bad for markets and what we're seeing is that the fed is being viewed increasingly as being less effective and people are starting to worry about the risks and the unintended

consequences so i think these two things are really important, joe. >> how do you think -- i mean, can you give us an idea what we're getting near the terminal price for some of this stuff are we close own the 30-year are we close on the 10-year, do you think? >> i think no one knows because of 15 trillion of negative yielding bonds around the world. so this is not a u.s. story. this is well beyond a u.s. story. but remember we relied on central banks to stop the spillback from messy politics into the markets and the economy. now that they're becoming less effective, markets are becoming much more sensitive to political dislocations and there's a whole host of political dislocation and the list is getting longer, not shorter. >> you know, mohamed, you've had some good handicapping of the china negotiations that we've seen i wondered if you've changed your probabilities for how

outcomes are in the last couple of weeks with what we've seen. >> i haven't i think the best that you could hope for if you're looking for some resolution of tension is a temporary cease-fire but that cease-fire will prove not just temporary but reversible we are looking at further escalation of trade tensions i could go into the reasons, but whether you look at the china side or u.s. side, both are suggesting we would get further escalation >> and what does that mean for the u.s. economy you've been pretty bullish overall on our ability to weather this trade war and for the economy to keep moving forward what's your recession probability now for the next 12 months is it one out of three >> no, it's lower than that. i think the economy is fine. and your business confidence number today shows that. you're looking at growth in the range of 2% to 2.5%.

the problem is not the economy the problem is that the markets are much more sensitive to what happens outside because the markets are more open to the global economy and the thing that you've got to fear is a self-fulfilling concern that it starts on the business side, on business investment and then spreads to consumption. but on a stand alone basis, the economy is in a good place markets have been decoupled and now we're seeing what happens when suddenly politics contaminate markets. >> is -- we've talked all morning about, you know, on our side we have an election that president xi knows about and on -- we understand that hong kong is probably problematic for president xi what is a bigger force in your view and how does hong kong eventually play out politically, do you think >> so i don't know how hong kong plays out. the strategy of waiting it out isn't working. the protests are getting more

effective. so china faces a dilemma between intervention with all the consequences of that or letting the protests get worse and whereabout the effect to mainland china but from the u.s. perspective, that's what's important, joe the incentive to deal with china right now is less. if you're worried about national security, this is national security as well as economics. you wait china is getting weaker and weaker and you just wait this out. yes, there's going to be damage to the u.s. economy, but if you're playing the long game, it's the right thing to do >> it almost, you know, all is fair in love and war, but it seems like both sides they, oh, no they're going to compartment li compartmentallize it we don't want to say arab spring with china, but some day, right? i mean, some day there's going to be something similar to that

in mainland china. i don't know how long you can keep stalling that eventuality >> the economists look closely at china and always raise two anomalies. the question was how long can that last. second, china was the biggest economy trying what's called the middle income transition it's very technical. it's basically anned aless sa at becoming an adult. >> if that stalls, you can't keep everyone -- that's necessary to keep moving forward to keep everyone, you know, to sort of keep everyone placated and that's why i think it is related to the trade talks with the u.s. >> no, i agree i totally agree. that's why you have this narrative in d.c if not now, when when would we do this if not now?

>> okay. all right. you're out of the mainstream on a lot of this stuff. and we appreciate it i like to see that >> and joe, we're one game behind the wild card race. >> i didn't think it would last and i watch it every day i'm in shock with the mets i'm jealous nous >> i need your cincinnati reds to get it out. >> they're never getting above 0.500. fingers crossed. okay thank you. >> nice to see you meantime, when we come back, what boeing stands to lose the oueder that 737 max stays grnd we'll talk about that and much more when we return on "squawk box" on cnbc i wish i could shake your hand. granted. only pay for what you need. ♪ liberty. liberty. liberty. liberty. ♪

boeing due out today with the latsest order data for the 737 max jet. but wall street's already got ans expectation and it's not good phil lebeau joins us with what that is, phil. and how long this might go on, phil >> kayla, this is looking to be

the fifth straight month we're getting the july numbers today. looking to be the fifth straight month that there are no firm orders for the 737 max remember the parent of british airways has already said they're interested in buying up to 200 that's a memorandum of understanding at the paris air show but that's not a firm order. and again, there have been no firm orders for the max since march. the deliveries this year on pace to be at the lowest level when it comes to the 737 since 2012 and as you take a look at shares of boeing, we should point out that the interesting thing people are focused on right now is the timeline for returning this plane to service. if you talk to boeing executives, they will tell you we think we'll be by the end of this year. yesterday steven dixon, the new head of the faa, he was sworn in in washington. he said i want to see everything we're getting our first update on the max investigation today his first update and then he said over time he wants to make

sure 100% he wants to make sure that this plane is safe to fly before it is back in service so it'll be interesting to see what the faa and what steven dixon has to say over the next six, eight weeks as we move forward with boeing filing its application for recertification which is expected by the end of september. >> we'll keep an eye on that, we know you will too. phil lebeau in chicago let's talk more about what investors and analysts are look for in july's number joining us now is gordon bethune and ron epstein, research analyst at bank of america gordon, i'll start with you, do you think it is realistic for boeing to keep saying that it will return this plane to the sky by the end of this year? >> yeah, i really do believe i know they keep adding to additional requirements and additional testing, but sooner or later, the airplane is going to demonstrate its ability and won't be anything other than maybe political considerations but the airplane is ready to go.

and i feel comfortable that it is going to be a really good airplane. >> though, ron, the data certainly is not working in boeing's favor fifth straight month of no orders for this plane. do you expect that as soon as it is back in circulation that the orders will start pouring in or you to think there will be a tailwind from this where it is going to take carriers a very long time to get comfortable with it again? >> that's a fantastic question my expectation is that as soon as it gets back into service, there will be order activity for the airplane but i think the key question is when does the airplane get back into service and not to counter gordon's thoughts, we're not looking for it to go back in until early next year. if you worry the airplane doesn't go back into service by soon enough next year, if we get into another summer travel season without the airplane in service, that's a problem for the airlines. >> and, ron, i see the

washington backdrop behind you how do you think the faa with new leadership is going to be tackling this issue? >> the faa is under a lot of pressure how did the traps that were supposed to capture this, you know, not get trapped, right so i would imagine that the changes in leadership slows the whole process down ultimately the airplane will go back into service, it will be a good product but with a political pressure on the faa, it is impossible to me that's not going to slow the process down. >> the expectation was that boeing's pain would be airbus' gain is that happening? >> i don't see a wholesale migration over airbus. they're running at full tilt capacity right now themselves. they can't offer you much solace in the near term that remedy from boeing on the max will have been identified and those airplanes will be delivered. remember, they're already manufactured waiting to go, so -- the demand will be there

as was mentioned in the summer i think it is all going to play out it messy because we never had this much political involvement. >> gordon, this is the political question, you know, there is going to be the faa, but then all of the other regulators throughout the world how much -- even if the faa signs off on it. how much do you think that some of the others -- i don't want to just drag their feet on purpose, but given the situation, may decide, you know what, we'll take our own time. >> and i hope it doesn't come to that it has been a collaborative agreement among all international regulatory bodies. so they pretty much have to respect each other's opinion although there may be some of that i would hope, joe, not a lot i would hope so. >> okay. >> gordon bethune, appreciate both your time this morning, thanks so much. >> we should tell you president trump just tweeting the following, he says through massive devaluation of their currency and pumping vast sums

of money into their system, the tens of billions of dollars that the u.s. is receiving is a gift from china prices not up, no inflation, farmers getting more than china would be spending, fake news, won't report let's get down to the new york stock exchange, jim cramer joins us now do you have a view on what was just said and i'm not sure it is all accurate to be fair here a lot of fact checking, but -- >> yeah. >> i think there is some questions there. >> well, we do know that from the new york times, andrew, that the tariffs are taking in some money. they were talking about last one was $63 billion. inflation is tame, so i think he's right about that. i don't know what he says when the fake news won't report it. i'm happy to report whatever there is to report there is nothing -- there is nothing that unusual about that.

we know that other central banks trying to debase their currency to take advantage of our market because we have the most robust market, that's what they have been doing all along. >> jim, just a week ago, the administration said china's a currency manipulator the president is saying it is a gift to the united states. which one is it? >> well, you know, i don't think that those are contradictory i think he's getting a lot of tariff money but at the same time the chinese are manipulating again, here is the problem everything that is happening has been done for years and years. when president trump was saying that, when he was going back about all the previous presidents who had been snookered by china, that was his most effective critique. it has been -- he used to say, listen, she's taking advantage of our previous presence now he's starting to attack xi, not as constructive. xi will dig in his heels i think we're missing the point. i think xi is -- wear worried about the face being lost in hong kong. i don't know how much longer

they'll let that happen. we ran pictures about hong kong, hong kong, hong kong who is the -- trump or xi. all we hear from is people that xi is just inevitable. i've been saying xi is up for election i don't think the pla is happy with him he's not up for election now, but he will be i think we should be a little bit less pro-xi in terms of his strength i mean everybody i'm shocked how we knuckle under xi all the time as if he's an all powerful leader. he reminds me of brezhnev. >> you mean the communist party could unseat him if there is an uprising >> i do think hard-liners are behind it. the inevitability of communism is something that disgusts me, how powerful the soviet union was. there wasn't a day we didn't think they could take us down. and then suddenly they crumbled

under reagan why did we think the chinese communists would be any different from the soviet union? it doesn't make sense. their system doesn't work. >> jim, nice to see you. we'll see a lot more of you in a couple of numites on "squawk on the street." we're back in a moment what about him? let's do it. ♪ come on. this summer, add a new member to the family. hurry in and lease the glc 300 suv for just $419 a month with credit toward your first month's payment at the mercedes-benz summer event. going on now.

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final check on the markets, between down single digits, down 100 and we're in the middle there, down 61 on the dow. dow down 5% now.

from its highs, same with the s&p, a little less, dow more, nasdaq indicated down 21 also have the yields at 1.649 on the ten-year so a lot to watch. a lot to watch keep our eye on hong kong as well kayla, we'll see you tomorrow. >> looking forward to it. >> join us, "squawk on the street" is next. ♪ i crashed my car into the bridge ♪ ♪ i don't care i love it ♪ ♪ i don't care ♪ you're on a different road i'm in the milky way ♪ >> good us tuesday morning. free market is wary after sunday's sell-off. dow features down 60 here as the two spread is three basis points from inverting, flattest in 12 years and strongest recession signal we have seen in a very long time.