business never sleeps, this is "squawk box. good morning welcome to "squawk box" here on cnbc we're live at the nasdaq market site, i'm andrew ross sorkin along with joe kernen and kayla tausche who is hanging out with us today becky is off we have a big show today we want to start with yesterday's big market rebound the dow coming off its best day in two months thanks to a cooling of trade tensions between the u.s. and china we will see whether that's real or temporary the trump administration delaying new tariffs on certain consumer goods made in china they'll kick in in december instead of september they include cell phones, laptops, that sent apple stock higher by more than 4% we should say not all tariffs were delayed a tax of 10% will still kick in on september 1st for a range of goods including chinese made smart watches and smart speakers, including the amazon echo bluetooth headphones still on

the list and flat screen televisions this will take pressure off retailers ahead of the christmas holiday season still other product that will get hit. >> only a little pressure. because in the breakdown that some conducted for the items hit with tariffs on september 1st versus december 15th there are still tens of billions of dollars of foot wear and apparel categories that will be included in september 1st you have musical instruments, sporting goods, and a lot of food items that will be hit on september 1st. >> musical instruments, is that a big market in the united states >> chinese made musical instruments? i don't know i'm happy that today -- you're serious today. it is a big show >> it is a big show. it is a big show every day >> that's the part that bothers me sometimes it is not. you say it is. other times he says i will be honest with you. i'm like really?

that's nice. in this one vignette you will be honest you're not always maybe honest but you say it's a big show every day. you have backish today >> we have bob of the combined viacom cbs -- >> first on cnbc you got him. you have to leave to go to where he is. >> i have to leave i know you're excited about that wh >> what time is it >> we'll do that interview at the 8:00 hour. >> it's probably one block away. >> you can get this camera over there? you can see the viacom sign over there. we'll walk across the street >> these lights take forever i would say 6:30 is a good time to go. i agree. don't you agree? this is a big show today >> big show, not only backish but wilbur ross on the day that is the deadline for the waivers for companies to do business with huawei. that's the big thing happening today. >> it's a big show one other thing, you were talking about these electronics.

i want to update people. my air pods -- >> what happened >> someone told me put the right one in the left ear, the left one in the right ear it worked for this person. they work for me it's a little uncomfortable. >> what was the issue? >> they don't fit normally right and left they're too -- i think they might be too big so it never is in there well >> i have one right here >> you could be walking over a sewer grate -- i'm petrified just standing there, they fall out. >> one goes to the right ear like this. instead of placing it there, backwards? >> yes >> but you have to turn the volume up more because the actual speaker is facing the other direction. >> i didn't notice that. i didn't have trouble with that. did it fit it's tighter, right? >> tight ner a less tighter in a

less comfortable way >> so musical instruments. they can make anything if you're a school, if you are in orchestra -- we make light of it, but certainly a lot of buyers for these products that are not consumer every day -- >> you know what is not made in china now? something you might like it might be the label you see on things now not made in china. >> how about made in the usa >> we'll talk more about the reprieve yesterday but what do you make of it is it he's not a great negotiator he folded again? he's in tune with christmas season and consumers and doesn't want them to be hurt even though he argued it's not the consumers that are hurt, it's the chinese paying the tariffs >> you're saying all the good stuff right there. >> i'm trying to draw it out of you. >> senior administration officials told nbc news this

should not be seen as a thaw in tensions between the u.s. and china. that view was echoed in lots of reports from capitol econ and goldman sachs. the tranche that hits on september 1st is still 1$112 billion in goods that's still bigger -- more than double the size of the first tranche. that being said, couple weeks ago i asked larry kudlow this question what happens if you hit all of these consumer products that the administration has acknowledged, all the consumer products were in that tranche. what happens if that hits right before christmas he said the impact would be negligible clearly there was hand wringing, and a lot of thought that had to go into how do we limit potential economic impact. if we say there's not one, how can we prevent there from being one. >> are you going to say anything or are you thinking about this

big interview you landed gaggle, is that a bunch of geese? >> a bunch of reporters. >> that's a good analogy a bunch of reporters >> so that is like a bunch of geese is called something. you know how we have different -- we have these different names. a school for reporters it's a gaggle. >> yeah. >> that's cool should we get to the markets let's check. you think about what you're feeling is on this -- >> what my feelings are? >> you know what if people now accuse president trump of being weak or of flip-flopping, that could make him mad enough to just throw some back on to prove he will do it >> easy come and easy go the announcement of these tariffs came like a thief in the night >> do you totally rest easy now if you're long stocks that there won't be another round of tests? >> no. it's a temporary situation at best >> the markets are down. we were talking about that giving back some of the gains we

saw yesterday. we were up well over 400 we ended up on the dow up 370 or so there's an inversion now again the ten-year note now falling below the two-year yield we'll have some people on trying to decide whether it's a forecast of a is recession or cn cause a recession or is a reflection of low inflation and sovereign yields everywhere else there's an argument that this guest thinks it's the latter we'll see. not everybody is in the recession camp u.s. equity futures are giving back some gains. now we're triple digits, down 120. maybe participants are watching as we raise the specter that the tariffs can be put back on at any time overnight in asia, things that got a little bit calmer in hong kong, but that is reflected a bit. that's not the only thing happening.

all green. in europe, things are down down in the red, and it looks like our markets this morning. >> we got some negative gdp data out of germany followed some weak data earlier this week and some weak gdp data out of the uk. so certainly a lot of worried signs over there this developing story in hong kong is where we want to go next. flights at one of the region's busiest airports have resumed after two days of mass demonstrations janice mackey-frayer joins us now. >> things are calmer today the airport authority got an injunction to repeat what happened the past couple of days where thousands of protesters took over the airport, disrupting operations here cathay pacific is saying 55,000

passengers were afaffected authorities are restricting access to the airport. you have to show a flight ticket or proof you have a reason to be here there are still some protesters though they're allowed to set up in this area behind me. but they have been told if they cross those lines, so to speak, they will be seen as acting unlawful there is a stronger police presence here today. definitely a shift from the chaos that we saw here last night with riot squads storming in at one point an officer was beaten with his own baton. he drew a gun. the other officers had to try to get him out of the building. the mood inside really shifted to protesters looking at each other with suspicion rumors of chinese spies among them and now a lot of trepidation about what happens next with the authorities here in hong kong as well as the government in

beijing signaling that they want these protests to end. >> it's interesting this de-escalation happened just as there's images spreading of not only trucks at the border of shenzhen and hong kong but also president trump saying he's learned there's troops being sent to the border what role does that play in this >> beijing has been telegraphing, perhaps not its intentions, but it's options through state nemedia for over a week now they've been referring to the protesters as rioters. today they're being called radicals chinese officials in the last few days have been using words like terrorism, which is very broadly defined in china it can justify the use of certain policies then there were the videos of the military drills in shenzhen that have been shown on state media. we got word about an hour ago that there's going to be a

special drill tonight at another airport, security forces will demonstrate how they would quell riots if they happen there all of this messaging coming from beijing saying this is what we can do. so it's time for these protests to end >> all right janice, thank you. we'll check in with you later this morning coming up, a potential recession signal in the markets. the ten-year falling below the two-year yield much more after the break. and we did get some weak economic data out of germany overnight. as we head to break, here's a look at the biggest premarket winners and losers in the dow.

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recession warning in germany. the country's q2 gdp fell by a ten ths th of a percent quarterr quarter and it could contract in the nithird quarter as well.

the gdp slump was in line with estimates but still sent the negative yield on the ten-year bund to a record low got a minus sign before it any time you see a minus sign before it, you have to think about it >> crazy >> some weak economic data released from china overnight. eunice yoon has the latest on that you're in the center of everything again, eunice >> thanks, joe sometimes i do feel like i'm in the center of all this just too much news it looks as though china's economy is headed for a deeper slowdown all of the data released today missed the factory output figure came in at the left level in 17 years. retail sales were hit because of the weak auto purchases, fai fell a lot of this was because the

economy faces increasing downward pressure but the official said that the impact of the trade war should be controllable president trump did provide some relief because of the decision to exempt or delay tariffs however what was interesting is there was no official response from beijing the state news agency, xinhua, did report on the phone call but said china lodged its opposition to the additional tariffs that would be kicking in on september 1st. so that suggests that the chinese think that the u.s. need to do more and that this latest move is not particularly meaningful i was speaking to some suppliers to the united states and asked what they thought the impact would be they didn't think it would have a major effect because they had been rushing orders ahead of the september 1st deadline to get

stuff to the united states in time for christmas they did say that at least it provided some time for them to adjust their pricing for 2020. so in that way it was a relief >> another company, hasbro, which had lobbied the administration to make this change said the additional three months would give it more time to change where it sourced some of the materials and products that would be affected by these tariffs. i wonder if there's concern on the ground in china about how many companies are trying to find manufacturing sourcing elsewhere. >> yeah. there is concern if you talk to, say, workers or if you talk to people in the government there is some worry that as this trade war continues, that manufacturers, supplier also start looking and sending teams to vietnam or to mexico to try to move production but there is still a lot of reasons why a lot of these

companies from the u.s. source in china it's not just because of price a lot of it is because there's so many skilled people here. so there is concern, but it doesn't -- from their perspective it doesn't look like it will happen quickly >> yune nice yoeunice yoon, thau let's get to the big story for u.s. markets the ten-year yield falling below the two-year yield for the first time since 2007. joining us is jason hunter head of global fixed income and ed campbell, portfolio manager at qma we have a couple of campbell's on today charles is later you're ed. >> yes you say either the yields are forecasting recession or it's the biggest bond bubble in history. you tend to think it's the latter i do got that right? >> i don't think i used the phrase biggest bond bubble in

history. i guess they're certainly overvalued i don't think the u.s. economy or the global economy is going into recession at this point we're neutral on bounds, but i think the bond market is overvalued at this point >> as far as the machinations and the trade wars, you're a little bit tentative about committing a lot right now while this is going on >> we were bullish earlier in the year we pulled back to neutral in may. reduced risk again -- >> underweight now >> yeah. modestly underweight equities. skewed pretty defensively in terms of some equity groups that we're overweighting. i don't think yesterday's news changes the underlying dynamics of the situation this is less of an olive branch. not a true deescalation.

it's more of an attempt to avoid politically damaging price increases during the holiday seasons. i don't think the latest announcement of tariffs was pretty hastily put together. and now they're thinking through some of the implications and backing off a little with no concessions from the chinese >> jason, you're two people sort of you wear a couple hats you're head of global fixed income, right? executive director at jpmorgan but also u.s. equity technical strategy that's impossible to do both >> the correlations are high >> so it is related. let's put your head of global picked income has tht on is the bond market overvalued? >> i would say the inversion of the yield curve is a forecast of a recession, but there is a lag. it's usually two years when the

curve inverts and the recession hits we're in the early part of that transition that doesn't mean the equity market rolls into bear market. >> is there any way it could be based on innovation and secular disinflation and positive things and we should look at -- you say we'll stop at 1.52 on the ten-year >> on the near-term basis. yes. whether that's a -- >> is it good that we can have low unemployment below 4%? we can have what seems to be a good consumer and a good economy and rates are low, why does it always have to be something is wrong? why couldn't it be there for different reasons? >> i'm a technician, i take signals from the price action. the willingness to go from the safe haven of assets that's not necessarily a good thing. >> it's problematic. that's what we always think. i wonder if it could be sending -- sometimes technical signals are wrong, right >> that's right. we've seen the last four business cycles, they've been

consistent that timing and everything you take it for what it is now maybe it's different this time more often than not when that term is used -- >> what's the real problem globally for growth. central bankers, we lived off that so long that eventually it no longer works? pushing on a string. have we built something up that will end badly >> at this point, again, as a technician, i look at price action for signals, i'm not an economist. from my perspective, if you look at the way the market is acting now, it's clearly manufacturing -- markets most impacted by manufacturing have been underperforming the trade story is the dominant weight on the global economy so from our perspective we're in the same camp. let's say underweight on broad index exposure we've been that way since early may. locking in gains that we picked up from fourth quarter purchases from last year at this point, if that

manufacturing pressure were to lift, that's purely trade policy, what we're looking for now is the most cyclicly sensitive markets, copper, if those are showing positive signs, those are the groups we're happy to chase into. if the cycle were to extend and the s&p goes 3,000, we think that leadership is required. >> both of you are doing horribly in terms of the down. we're down 175 when we started, we were down 100 or so. i don't know which one of you i have to blame. i guess it's a combination >> we should take credit for that >> do you think this is a -- a correction that will -- like next year, are we going to be down >> i don't think this is the end of the equity bull market and we're not full on bearish. but i do think given the escalating trade war, the

general environment of elevated geopolitical risk that we need to see about a 10% correction from recent highs, and before we would be putting money to work again. >> would a 10% correction stave off a recession? know one believes that there will never be another recession again. we're already in the longest expansion and bull market in history. there's a debate over when it happens and what is the catalyst >> right i would agree with some comments made earlier the inverted yield curve is a very effective indicator for recession but a long leading indicator. the recession could come 18 months from now. equity markets don't really response to that until about six months out you could have another leg of this bull market in the late cycle those tend to be powerful. >> thank you both.

ed campbell. jason hunter, you're able to merge fixed income and equities but you can't do anything with fundamentals and technicals. you don't have an opinion on why it's happening or -- >> if we have a macro backdrop to our work. the technical signaling will tell you short-term -- >> fixed income and stocks, but no fundamental analysis. no feeling about anything? >> none that we publish. >> are you married do you give anything to your wife emotionally seriously. honey, i saw the way you were acting at dinner, therefore i'm not sure what's behind it, but i will treat you -- huh? >> we gain the aggregate decisionmaking we let others make the decisions and play along. coming up, we go whale watching new numbers show a big rebound from a well known investor after his worst year in a decade details on which investor and how he got there after the break.

dear tech, let's talk. we have a pretty good relationship. you've done a lot of good for the world. but i feel like you have the potential to do so much more. can we build ai without bias? how do we bake security into everything we do? we need tech that helps people understand each other. that understands my business. we've got some work to do. and we need your help. we need your support. let's expect more from technology. let's put smart to work. ♪ ♪

whale watching, tria partners staging an impressive comeback in 2019 the $9 billion hedge fund posting an 18% gain through the first seven months of the year

that's according to "the financial times," this after peltz suffered one of the worst annual losses in a decade last year among the firm's most notable holdings, procter & gamble, cisco and general electric nelson peltz will join david taylor on stage at the delivering alpha conference in new york joe kernen will be there interviewing vice president mike pence. register for your tickets at deliveringalpha.com. check out u.s. equity futures at this hour we're down near session lows up next, the big movers including one pot stock seeking 10% and some big moves from two ipos a huge lineup at 8:00 a.m., starting with commerce secretary wilbur ross and ending with robert bakish, ceo of the

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♪ welcome back you're watching "squawk box" live from the nasdaq market site in times square. good morning welcome back to "squawk box" on cnbc a quick look at u.s. equity futures at this hour the two-year and ten-year have inverted the dow jones off about 172 points nasdaq looking to open down as well

off 62 points. the s&p 500 off about 20 points. got a couple stocks to watch tilray down sharply this morning. the marijuana producer reporting a wider than expected second quarter loss as it ramped up investments to boost production. revenue beat forecasts tilray warms growth will be muted in canada where recreational pot is legal. sales have been hit by supply constraints. shares of realreal are higher the site which sells secondhand luxury goods are reporting a narrower adjusted loss since going public in june sales rising 51%, in line with expectations shares of another recent ipo are falling sharply. adaptive biotechnologies posted its first quarterly report since going public 1 lo it lost $1.23 per share. coming up on "squawk box,"

the latest news out of hong kong we'll take you there live after a day of violence at the airport. we'll be joined by asia insight circle walter jennings for a look into how the unrest is affecting business in the area u'ay tuned yore watching "squawk box" on cnbc by consolidating your credit card debt into one monthly payment. and get your interest rate right. so you can save big. get a no-fee personal loan up to $100k.

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flights out of the hong kong airport have resumed after days of mass demonstrations janice mackey-frayer joins us again with an update >> things have remained calm here it appears the airport authority has been able to get things back on track after two days of chaos, of canceled flights cathay pacific saying 55,000 passengers were affect eed by protests that flooding both levels of this terminal. the authorities are allowing some protesters to stay. you can see behind me they've been set up here it remains quiet they have been told they have to stay within those lines. if they don't, they will be seen as acting unlawfully a different scene than what we saw here last night. the chaos, the violence, when riot police stormed in it's really being played up today in chinese state media now portraying the protesters as

radicals, talking about the need for punishment and also still playing those propaganda videos of the chinese military drills happening in shenzhen, dangling the possibility or options before beijing. tonight, there will be a security drill at guangzhou airport, about 25 miles from here security forces there will be practicing their tactics to quell what they call riots at chinese airports a lot of messages being telegraphed by beijing on what they could do next kayla? >> beijing seems at the ready should the situation escalate. let's welcome in walter jennings, founder and ceo of asia insight circle. jennings formerly served as huawei's corporate spokesman in shenzhen, china. thank you for joining us let's talk about how your members are looking at this

situation in hong kong and any business decisions that may come out of this. >> look, kayla, hong kong people love certainty hong kong businesses enjoy certainty. right at the moment we don't have that. today is wednesday, it's the middle of the week, so we are in a bumper period between protests on the weekend but i think we're going to continue to see uncertainty as this issue resolves itself >> so, walter, tell me a little bit about your read on u.s./china relations in the wake of this. we got relief on certain tariffs that the white house and u.s. tr announced yesterday. china demanded that the u.s. halt the sale of aircraft to taiwan what is your read on u.s./china relations at this moment given

the situation in hong kong >> look, u.s./china relations are very strained at the moment as we're seeing with the escalation of trade tariffs and we're seeing that hong kong protests are coming at an inconvenient time. it's placing greater pressure on china in the public stage, in the global arena yet you're also seeing china very successfully carrying on and conducting businesses in hundreds of other countries around the world so if there is disruption in trade with the u.s., there are plenty of other markets for china. i would suggest that china's state media is playing up the role of international organizations and international agents in these protests here in hong kong. so it's a very good time for american businesses to lay low

and look at their options. >> how is china viewing the u.s.'s role in this? there was some suspicion that perhaps china believed the u.s. were behind these protest because they were carrying american flags, singing the national anthem. president trump said yesterday that he hopes the situation works out for everybody, including china. trying to message to china, they're not picking sides here do you think that that actually works? >> look, currently we're in a public relations war as well as in protests within the city of hong kong. you're finding that state media are being very quick to categorize the u.s. as being an agent in these there's a cartoon that's been deployed showing kind of an octopus with many tentacles,

each of them is a finger puppet with different actors playing different roles in hong kong you also saw the british flag being proudly waved by an elderly female protester as the beginning of these troubles. so there is heightened concern about outside influence, yet at the street level you're really just seeing predominantly hong kong youth fueled by their own challenges and frustrations protesting and continuing to protest with really no end in sight at the moment. >> i'd like you to put on your former huawei executive hat for a moment to ask you finally, it's expected that as soon as this week, we could see some carve out for companies in the u.s. to continue doing business with huawei after the commerce department put it on its business blacklist a few months ago.

do you think there's a clear line among huawei's business of certain business that could raise red flags on u.s. national security and business that simply doesn't >> when you're looking at huawei specifically in the united states, there are many concerns around 5g technology which is the fifth generation of mobile te telephony. huawei has other businesses in terms of enterprise services, mobile handsets. there's quite a lot to love about huawei and those balance out those concerns on 5g where you will find the greatest pressure is on the smaller in independent carriers in the u.s. that rely on huawei technology to affordably provide their customers great broadband service at prices that the competition can't match. >> walter, real quick, if you were to look at a calendar,

trying to understand the timing of when some form of a resolution -- even if the resolution is no huawei ever again in the united states, i don't know, what does that look like to you? in terms of the timing of all of this or is this something we'll be talking about for five, ten years? >> joe, i think what we'll see is until we have other nations fully 5g, that is when you'll see greater and greater pressure on the u.s. with regards to huawei so we'll be seeing china, korea, other countries rolling out and becoming fully 5g, which provides an incredible national competitive advantage unparalleled speeds and connectivity so i think we're going to actually see this carry on and on with regards to calendar here, closer to home in hong kong, we're dealing with summertime, schools, universities beginning next week. so perhaps some of the

disenfranchised protesters will be resuming studies. we're also preparing for the october 1st 70th anniversary of the peoples -- of the peoples republic of china and the concerns that the issues in hong kong are resolved prior to then. huawei, we'll be talking about that in two, three years time. the hong kong protests i do see those leading to some form of resolution in late september >> all right walter, we'll leave it there walter jennings, ceo of asia insight circle. coming up, we'll dig into the media merger that finally came together. cbs and viacom renewted, but both stocks down this morning. we'll talk to the ceo of the new company, bob bakish later this morning. as we head to break, a quick check of what's happening in european markets right now -driverless cars... -all ground personnel...

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playing the music for the deal, cbs and viacom reaching a deal joining us right now to talk about what the deal means, ed lee, corporate media reporter. and jeff sonnen berg, also a cnbc contributor who's watched this company combine, go apart, combine again. we have seen it all several times. so ed, tell us something new about this deal. i mean, like groundhog day for almost for a year. we've waited for this deal. >> actually -- >> what's the biggest surprise this morning that's come from the details that we have learned thus far before we go see bob

backish? >> i think the newly created cbs division, they'll be around for a few years in the role or at least a year based. >> you don't think that's a transitionary role >> i don't think so. i think the fact that they're only looking at half a billion in synergy that's not as overlap as you might think so there is a bit of a carveout there. >> hey, jeff, should they have done this two years ago when shari redstone was first trying to make it happen? >> this is a great triumph to shari redstone and the timing of this is really just incredible with all the consolidation in the industry that it was the old eradio comedian fred allen who used to say that imitation is the highest form of television, he didn't like tv yet with the at&t massive deal of course with time warner and the exciting deal happening with disney and fox, and of course

our parent comcast here at nbc kicked off, these guys are doing one more, no, this goes back 67 years they have been together and the miosis andcytosis is amazing. people didn't get along with each other so i think ed is right. the fact that jo and bob bakish gets along so well, but shari redstone she's with one of only 7% of major corporations chaired by a woman she happens to own 80% of both of the businesses but her dad who really put this together originally so undervalued her. as his health declined she had a chance to come back in and forcefully make this happen. but this was definitely a match made in heaven, a great fortitude to the division and the courage of shari redstone and the understated brilliance of bob bakish. as you will see in moments when you're with him.

in a world full of pitch man and show business, he's the classic still waters run deep. the last year's performance just proves that the recovery of paramount and other things, the ad search. >> i agree with him. i think this is a win for shari. the deals are personality driven and it came through in this in terms of making it happen. of course, she has been pushing it for three years >> long term, there's still a question about the size and scale which is to say that -- relative to some of the goliaths we now see it will still be small so the question is, two or three years from now -- i ask this of ed and jeff, do you believe they will acquire other things? are there enough things to acquire of quality that you can get to the size and scale that you may think you need to compete or do you think that shari redstone would ever sell the combined company to somebody else >> who do you want to go to

first? >> ed is next to me. >> so i think in the next two or three years you'll see her wanting to take on other assets. there's sony is out there. of course they're not saying they're for sale but of course that's always the state of play. you know, networks like amc, starz is something they have been looking at as well. even if she sort of makes the deals, discovery is also out there, it's not quite big enough i think. it makes it a more attractive company, slim some things down and then that combined in two years could become an attractive target for someone else. >> jeff? >> i agree i'll add to what ed put on the list good for you, ed, i would agree with both of the opportunities you mentioned discovery. judith mchale on the board who used to be a deputy secretary of state she led discovery on this -- some of the biggest and best years tremendous relationship with

john malone. she's on the board and that's a great asset she certainly could help make that happen. also at sony as you mentioned, nicole seligman was president of sony entertainment and a great attorney, she's -- she can make this happen. and zellman, take two interactive as well as by the way, we see -- we can talk about win view the opportunities for gaming >> thank you for the shopping list ed, thank you. >> sure. >> appreciate you both being with us. stick around for our interview with bob bakish, ceo of the newly formed company, 8:40 eastern time. coming up on "squawk box" a recession warning from the yield curve. u.s. equity gave back much of yesterday's gains. we'll talk about inversion signals and what happens next. plus, a closer look at apple's big day.

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breaking news. the main treasury yield curve just inverted for the first time since 2007 triggering a recession warning equity futures tumbling on the news. don't forget about trade still a big driver for the global markets commerce secretary wilbur ross will join us in studio.

raising the roof on housing and the economy. new data just crossing on mortgage applications, the numbers and what they tell us as the second hour of "squawk box" begins right now live from the beating heart of business, new york, this is "squawk box. >> good wednesday morning. welcome to "squawk box" here on cnbc i'm kayla tausche with joe kernen and andrew ross sorkin, we are closely watching the situation in hong kong the markets moved yesterday on the tariff front and look at where futures are now. the dow would open down 175 points the s&p would open down 19 and the nasdaq would open down 60 that was not the case when we first came on the air at 6:00 a.m. but equity futures started tum

bling after the yield curve or the spread between the two year and the ten year treasury bonds inverted earlier this what morning. the ten year is yielding 1625. that's a just a couple basis points more than the two year note and that's a closely watched spread and we'll keep you posted on that but that seems to be the escalating factor for the markets. even amid all of the weakness globally some soft data out of china coming on the back of other weak data globally earlier this week. even as nfib, consumer price index, all that stuff came in well this week let's get you caught up with the latest dom chu is at cnbc headquarters watching the market movers and eamon javers is here but we begin with eunice yoon.

>> the fai fell, retail sales sank hit by weaker auto purposes and the chinese statistics bureau that the economy continues to face downward pressure but they believe that the impact of the trade war will be controllable. as for president trump's reprieve on the tariffs what was interesting is that the chinese government didn't respond. it only said that the chinese lodged their opposition to the tariffs that are supposed to kick in on september 1st that suggests that the chinese don't see this move by president trump as particularly meaningful speaking to some suppliers who sell to the united states they said that they think that this reprieve is not going to have so much of an impact because they have already been rushing a lot of orders for christmas, answering the september 1st deadline but they did say it will have an

effect on their pricing adjustments because the tariffs had been announced very, very quickly. so now they have a little bit more wiggle room to make those changes on pricing into 2020 guys >> okay. eunice, thank you for that report i want to head to washington for the latest on hong kong and the move by the u.s. to delay some tariffs on china eamon javers has that story this morning. >> yeah, andrew, i think the vibe is that the white house is taking a soft touch approach on both of these problems that it's facing, both the trade war situation with beijing and also the hong kong protests which affect the white house's relationship with beijing. here's a statement we got late yesterday from a senior administration official on the protests in hong kong that shut down the airport for two days. a senior official saying freedoms of assembly are core values that we share with the people of hong kong and it should be protected. the united states firmly rejects the notion that we are sponsoring or inciting the demonstrations so the white house is pushing back on this idea that the

united states has anything to do with these protests that are happening in hong kong but also taking a soft touch approach there you notice that the senior administration official did not want him or herself to be named. we haven't seen a cavalcade of administration officials running to the talk shows, running in front of cameras to talk about hong kong. they have been keeping fairly mum about this just issuing that statement and then we saw the president yesterday taking a soft touch approach to the tariffs as you have been discussing here's how he explained the decision to postpone some of the tariffs and also to offer some exemptions yesterday talking to reporters. >> for this christmas season, just in case some of the tariffs would have an impact on u.s. -- so far, it's virtually none. >> so the president there saying he's doing it to protect the christmas season in case the tariffs would have an impact on consumers. that's an awkward straddle for the white house. the white house has been insisting so far that the tariffs don't impact consumers

the president says the tariffs are paid by china which is not true they have also insisted that consumers are not going to see price increases. the president said he's pulling the tariffs back to make sure they don't see tariffs between now and the christmas shopping season, so the president is taking some steps in the face of economic and political reality going in to 2020 he doesn't want to see any price increases in this christmas season, guys? >> all right, thanks now to this morning's market story. the yield on the ten year triggering a recession warning dom chu has been following the move i'm doing some research, waiting to intro you i don't have an exact record of, you know, we have heard that people joke predicted 14 out of the last three recessions. i don't know the actual data, plus it depends on how long you wait during the great recession. and in 2008 it took two years before it happened

it's -- is it better than 50% in terms of its accuracy would you say, dom >> all right, so here's what i would say. the folks over at credit suisse ran the numbers going back to 1978 and it turns out the last five times that we have seen this two to ten year spread, this part of the yield curve invert, we have actually seen it lead to the recession on average about 22 months after it happened so this could be a long runway before things happen i would also point out, joe, that they figured out that it's about 18 months on average where we actually see the stock market turn lower from the time an inversion actually happens this is not something imminent, but it's something that people have been watching and the reason why is because this is the last and perhaps more significant portion of the yield curve that's now inverted. that's to say longer term rates dropping below shorter term rates. and the reason why it's important, joe, as you pointed out it has been a quasi reliable indicator of a down turn not just in the economy but the markets overall.

as you can see here, we are fairly close not just there yet. but we did briefly invert on that side of things here but you can see just about even at this stage for the two and ten year note. i would put a star right by the 30 year right now because it's at a record low yield on that side of things and let's point out just historically, we have mentioned the fact that it's been 2007 since the last time that we saw a yield curve inversion so the level that we're seeing here going all the way back here. the reason i would say it's 2005 is because 2007 was the last time the yield curve was inverted but that was when we were exiting this idea of a yield curve inversion. we actually went into that inversion back in 2005 so andrew, the reason why it's important and the reason why you're seeing on the ticker below us right now a cycling of the dow, the two year and the ten year is because there's a good amount of focus on it from traders all over the world we'll keep you updated throughout the morning back over to you guys. >> okay. futures as you just mentioned

dropping this morning. joining us is anastasia amoroso. charles campbell is here from mkm partners are sirens going off in your office this morning? >> well, we have been watching this for a long time it say in medium terms it's about 11 months of the stock market peaks that the curve inverts and it returns about 15%. >> but there's still 15% to go. >> well, potentially i want point out to 1995, because there was an instance where the yield curve was on the cusp of inverting but actually steepened out. and the reason why that was the case is because the fed overdelivered on market expectations for easing. so whatever the expectation was they cut quicker and faster. so this brings me back to the fed today. this is what they have not done in july and this is essentially what has to happen going forward. if we are to resteepen the curve. the fed has to get out of being behind the curve

so they have to cut more than the market expectations. >> '95 was an unbelievable year. three in a row of 30% gains in the averages you're saying that the fed did it the way it should have been done back in '95 they reacted to what was happening and prevented something bad from happening and maybe they could do it again if they do the right thing? >> if they do the right thing. the historical parallel is uncanny. because you had a manufacturing slowdown you had the unemployment rate at the lowest point in 20 years then you had the fed cutting rates more than the market's expected so the stock market did very well after the first cut in 1995 this is why i think it's crucial for the fed to focus on this yield curve because i get they do a mandate, of full employment and inflation. but it's all these different things that ultimately matter to full employment. >> charles, are we 1995? what year are we in? >> it's a different year, not comparable to prior years and here's why the story here is that we have got a fed that's behind the curve.

market based indicator since the fifth fed meeting july 30, 31, are consistent with a fed behind the curve. the three month ten year which is what the san francisco fed said last year is the best metric for predicting recessions it's been minus 30 yesterday and continues that way tip spreads are all shallower. iron ore prices, it's down 20% in asia since that june/july meeting. all indicating a slowdown and tightening you combine that with the fact that the fed has contributed to every single recession except for win in the 1960's -- one in the 1960s and we can see that the market is is telling us that the fed is behind the curve. they tightened nine times. we're now at risk that's what's going on the reason it's different from '95, you have a trade situation between the u.s. and china

incremental gdp growth between the two largest countries in gdp is 47% of global gdp growth. china's 30, we're 17% that's why it's critical. >> let's say the fed catches up, let's say they lower the fed fund rate to zero and we enter a recession later, what's the monetary role then >> 20 years ago we had one sovereign debt that was really in negative deal then. that was japan now japan is negative yielding out to 15 year terms we have got countries all across europe, 24% of sovereign debt worldwide is negative yield, why? because monetary policy is doing all the work fiscal policy from elected officials is not carrying much of the ball. the stimulus is not there. our measures of gdp and inflation i would submit to you are probably not accurate because the models that policymakers and economists use have not kept up with technological developments >> and what do you think the chances -- can i go back to this

idea that the market could still be 15% off of the highs before it goes into this recessionary move do you think that's possible le >> 15% meaning we'll decline 15%? >> no no no. >> i think she's saying there's still an opportunity to rally 15%. >> sure. we can go to 31. >> whether you want to trade that or not is a bigger question. >> yesterday's move up higher 60%. the hedge fund guys have to participate in that. they can't sit by and do not nothing. they may not believe it or have high conviction but they begrudgingly get involved. >> still unfriendly towards the market i don't know, it feels like a downward view of it. maybe we might get 15, but - >> my job is to ask the questions. >> this is - >> to answer your question, i think there's many excellent trading opportunities in the markets. between now and 12 months from now. you may have a period of time in

august where we want to project but if i look at september and october i do think the fed has a chance of catching up. if they do cut by 50 basis points they may be successful at resteepening out the yield curve. because that's what the long term bonds need to see and then what if president trump does continue to back off the recent escalation, which by the way, there's some theories out there that maybe that's the case maybe that's the playbook. there are a lot of flash points in the next six months, maybe you call them trading opportunities but you have, you know, this september 1st tariff deadline, you have a phone call that's supposed to happen before then in person talks that may or may not happen after that. the october 1st holiday, december 15th -- i mean, do you buy or sell going into those anything can happen. >> right that's what we have learned. we have the big downdraft last monday we said there's a relief rally, but use it to add some protection, especially for august because weak liquidity and who know what's going to happen on the -- you know, escalation

front. longer term, i think there's a trump put, there's a fed put that will kick in. maybe september or some time before year end. so you want to be positioning for that rebound and by the way, for tactical investors the options markets have given us excellent opportunities to do that. >> with a market that goes up over time, the question might not be do i trade this for the next 15%, but do i worry about the inevitable pullbacks that we'll have from 15% higher or do i just stay long and - >> that's the question. >> 800 to 30,000 >> i would give you one sector to stay long. >> what about trading in the next 15, worry about getting -- invest in u.s. companies and u.s. growth, andrew. >> if i told you - >> you're a young man. you're a young man. >> -- in the next 18 months you might want to -- >> buy cheaper you can buy cheaper. >> but how good do you think we are at selling and buying? >> terrible.

that's what this conversation is about every single morning >> one thing if you're not -- if you want to buy something for the long term, look at buying health care. look at buying european health care specifically because health care tended to be the sector that outperformed past the fed cut. and by the way, european health care gives you a yield of 2.88%. and the bond yield is 0.6% i would take that 2% any day and it's seeing the earnings inflex. if you're going to buy one thing, i would suggest european health care. >> no, comcast. >> comcast >> that would be my -- don't you think? >> the only thing we're allowed to buy. >> that's right. >> so that helps. >> hence the - >> double down on margin. >> all right okay thanks. >> half empty, half full people. you don't want to go through life half empty, do you? do you know what i'm saying? >> i'm half full. >> i'm completely full. >> i know that. >> thank you, guys.

coming up, we are -- how would you know -- look we work. if you're going to read that it would be like we work, you would think it's a verb, but it's a noun, because it's a company we work filing could go public heads up quotation marks. >> three different -- by the way, classes of stock. >> at wework that's great i hope that the guys in charge get e sttothbe sck [leaf blower]

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don't get mad. how you watch it does too. tv just keeps getting better. this is xfinity x1. featuring the emmy award-winning voice remote. streaming services without changing passwords and input. live sports - with real-time stats and scores. access to the most 4k content. and your movies and shows to go. the best tv experience is the best tv value. xfinity x1. simple. easy. awesome. xfinity. the future of awesome. welcome back to "squawk box. wework just unveiling the ipo filing literally moments ago this one we have been waiting for and leslie picker is going through the filing as we speak gam. >> hey, andrew

that's right hundreds of pages long this filing is. they're filing with the place holder of $1 billion the actual offering size for wework is likely to be much, much larger. according to sources about three times that amount. as you mentioned earlier filing with three classes of stock, in "a" class, "b" class and "c" class and they rebranded them to be the we company. we know them as wework interestingly they do not have banks on the cover but they have them in the underwriting section. it will be led by jpmorgan followed by barclays, credit suisse, the list goes on and on as you can imagine a lot of the firms are also participating in the credit facility they're raising alongside of this ipo. so - >> description of that >> there's a description of

indebtedness in this ipo prospectus and they say that in may 2019 they entered into the agreement that provides $2 billion of stand by credit and we expect to -- concurrently with the closings of the offering they don't mention the amount although i'm told that the credit facility as well as a loan offering that they're looking at should amount to about $6 billion in addition to the proceeds the equity proceeds they'll make from this ipo as well. so still going through the hundreds and hundreds of pages, the risk factor so far kind of exactly what you'd expect. you know, we have been growing at a quick pace. we may or may not be able to maintain that pace of growth we have had so far. >> any numbers in terms of how much money they're making or losing right now >> we do the most recent date from which they posted is the six months ended june 30th. >> okay. >> they say revenue was

$1.5 billion losses which i know everyone is keenly interested in here, net losses were just under $1 billion, $904 million, but losses from operations came in significantly higher than that at $1.4 billion so you're seeing almost a one to one ratio of losses to revenue when you look at losses from operations. >> sort of reminds me of snap, the rebranding of the ipo. we're not just a company where people go to work remotely, we have apartments. we have all of these other assets so we are the we country, a community. it didn't go so well for snap because people think of the country and judge the company by the core app and the core metrics associated with the app. they did not become a camera company per se i imagine there will be a lot of questions about that. >> i think so. it reminds me of snap with the governance structure as. we i mean, they don't go so far as snap did to have no voting rights for shareholders but the three classes --

>> can you explain the three classes to us? >> so it's 20 votes per share for bnc. let me confirm that real quickly because i was breezing through this then class "a" as well will be sold in the offering so class "c" appears to be for their preferred shareholders let me pull this up real quickly. >> viewers at home will see us all inside our laptops trying to do some heavy control action here we are joined on set by dan levitin, cofounder of mav -- did i pronounce that correctly question. >> yeah. >> you have consumer companies but hearing about the wework ipo what's your reaction >> it's great for the consumer companies to be going public they're bringing the growth

that's unique in this economy to public investors and by and large, i'm a big believer that companies are better public than private in terms of governance even if they have three classes of stock. >> do you think they stay private too long not just weworks but in the past decade. >> i don't know what too long means, andrew. but what i would say is you have had an unprecedented amount of private capital flowing into the private markets. late stage versus ever before. i mean, i worked on the starbucks ipo in 1992. it was a $40 million ipo and that's a series "a" today so billions of billions have come from if public markets into the private markets and why do public if you don't have to? because you can finance as a private company. never happened before up until the last five years.

>> just to clarify, it was 20 votes for "b" and "c." one vote per share for class "a." "b" and "c" will vote as a combined unit. owned by insiders there. more details on the credit facility they are aiming to provide up to $6 billion in every single underwriter for this ipo participated in this credit facility for wework which is pretty interesting >> i think this is also an example of the consumerization of so many big industries. i mean, real estate was a laboring noninnovative industry and i think weworks is the beginning of many public companies you're going to see in innovation and not just commercial but residential also. >> right a lot of the companies to try to woo investors they're talking about what products they can offer, how much revenue they can get. wework is saying its total

opportunity is $3 trillion i mean, that's 3.5% of the entire world's gdp how does a company get to a number like that >> a lot of people are very focused on tamm as -- what's the size of the price. i don't know the exact definition of how they're creating their tamm. but there's plenty of adjacency to wework's core business is let's say residential housing that can inflate the tamm and frankly, unless the entrepreneurs are incredibly ambitious, they don't create companies like wework and uber i think the world loves the ambition of some of the entrepreneurs and then sometimes frankly it's excessive. >> when you look at the ipo class this year and the middling performance of a lot of the stocks does that give you pause without knowing the financials and the composition of wework itself

>> getting back to what i said earlier when you say the middling performance i totally get it many of the stocks haven't performed well, but that's because they have gone from obscurity to ubiquity in the private markets and are being priced as public companies in the private markets so yes, it worries me long term that i hope maybe some of the velocity of capital and increases of valuation as they're private slows down a little. so that stocks are rewarded for having pops in the public market does that make sense >> it does dan, we appreciate you letting us put you on the spot in realtime. >> you're wearing high tops -- is that what those are >> that's correct. >> i have enough seen those before. >> well, i'm glad to hear you say that, andrew should i >> just show real quick. look at those. because he's an investor. >> limited edition. >> limited edition. >> and kind of an -- tommy john

underwear that andrew would want to -- you're not going - >> you know me and my tommy john's. >> don't show them. >> i won't. >> another good company you can invest in. >> dan, we appreciate it. >> i want to tell you about bo jo boris johnson on facebook. there's a terrible collaboration between those who think they can block brexit and the eu collaborating. he says we need the eu to compromise the eu is not compromising at all on the brexit deal the longer the situation goes on, the more likely of a no deal exit is what's going to happen and then he goes on to say, we're leaving on october 31st. one way or another so there are some other comments in here as well saying that if the eu thinks that parliament is -- if they don't have the votes for a no deal exit that means that it makes it more likely that they're not going to compromise so knowing that they can't do a no deal exit means that they're

more intractable and so i don't know. >> u.s. is trying to figure out its own contingency plans. the u.s. reporters were told that ambassador bolton met with his financial counterparts to structure a temporary trade deal that will take effect on november 1st sort of day zero, that would be a makeshift trade deal that would cover things like financial services >> well, it's a long way from it being at the end of the queue, which is what president obama said there would be if there was a brexit do you know what a queue is? >> yeah. >> school of fish, i'm thirsty, i'm going to go to the bubbler to get a drink after i throw away this rubbish. >> study all the puns and the oxymorons. >> and movie references.

dan was in -- robin williams named after you. amazing. coming up, mortgage -- you're not even a disc jockey are you? weird. mortgage application data out a short time ago we'll run you through that data ted we're watching the ten year no "squawk box" -- the brexit comments are interesting we'll be right back.

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breaking news this morning we are watching the spread between the ten and two year notes right now which went negative for the first time since 2007 a leading recession indicator, even as many market experts say it can take 14 months to bear out. but it's something being watched very closely we're taking it to three decimal points but it's still negative nonetheless. we'll keep you posted on that. meanwhile the latest report on weekly mortgage applications was released diana olick has the details. >> good morning. huge reaction to that further

drop in interest rates, total mortgage application volume jumped nearly 22% for the week up 81% from a year ago all thanks to the drop in the 30 year fixed fell from 4.01% to 3.93% on the mortgage bankers association index. that's the lowest since november of 2016. refis popped dramatically, up 37% for the week and 196% higher than a year ago. rates are still not as low as they were back in 2012 and the first half of 2013 so a lot of people are holding on to even lower rates. but if you bought a house in the past five or six years you might benefit from the refi. it's 88 basis points lower than the same week a year ago home buyers not as enthused. up just 2% on the week but a stronger 12% annually. lower rates are helping some, but still not off setting sky high home prices insome market as well as short supply of homes

for sale back to you guys. >> how do you know when it makes sense to refi? everyone says it's going to create a surge of refinancings, and you could have been refinancing for the last 12 months. >> yeah. serial refiers and there are a lot of them. but look, the number is generally 75 basis points. if you can lower your rate by that much you can benefit from a refi but you have to calculate in how far you are into your mortgage if you're into the 30 year, 15 year or 20 years it probably doesn't make sense to start that again. but 75 basis points, rule of thumb. >> what do consumers spend it on >> consolidating debt. get your credit card debt, student loan debt all under one roof and use that money to do that but also a lot of people are putting money back into their homes. now, the renovation market has been cooling quite a bit

it did last year that might have been because mortgage rates are higher so we'll see if we get a pop in the renovation business. >> should we wait till we go negative the rest of the world and the mortgage goes down over time i'll get a 100 year mortgage it will end up at zero. didn't you see that piece? >> i read that about denmark and i called the mortgage gurus could we have a zero in u.s. -- absolutely not. >> how did happen in denmark it's crazy. >> well, in denmark it's a different model. it has to do with where to put the money over time, would they get a better yield but you can get a better yield on credit cards and all kinds of lending. >> so i shouldn't wait. >> you're not going below zero. >> don't wait for the negative rate, okay, thank you. >> a lot more coming up on "squawk box. we're going through the wework

filing and we'll bring you more on in a little bit apple stock is getting a pop in yesterday's session after the trump administration delayed tariffs on electronics until december we'll discuss the apple economy, holiday sales figures in a bit as we take a break, look at the u.s. equity futures at this hour as the ten year and two year note have inverted and folks are talking about a ceression. the dow jones off 219 points right now. 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.

welcome back to "squawk box. we have been watching futures slide into further in the negative territory throughout the morning and dom chu has more on what's moving dom? >> so kayla, the macro picture being driven in large part by this kind of flight to safety on over concerns that longer term interest rates are below shorter term interest rates the yield curve as it's better known as. gold you can see, it was unchanged for much of this morning so far not a huge amount of movement but all of a sudden, in the last couple hours or so, we have seen a nice move higher in gold prices now 152370 and this continues the trend of the safe haven asset like gold which is considered to be rising in price as concerns about the market kind of take a little bit more of a -- a bit of steam here. so we're watching gold prices also watching now what's happening elsewhere in the macro complex. oil prices are falling economic concerns playing out

there. you can see the medium term trend is to the downside and it's off by 2.5% for wti cruise futures. that's something to watch there and we put up bitcoin prices because there have been folks on wall street, analysts and others, talking about this idea that bitcoin has been one of those quote/unquote haven type investments as things have looked a little bit worse. i would point out today even bitcoin prices are taking a bit of a slide 10470 last trade, off 3.5% but still a huge elevated move over the course of this year. we'll see if the bitcoin prices still reflect some of that haven status that some traders are assigning to it, joe back over to you. >> i guess haven, another word for haven is just a place maybe to go when you're seeing the neighbor race to the bottom around the world in fiat currencies >> earlier today we spoke to

nick hollis -- this idea you did see that on the hong kong concerns and china, kind of took shape over there bitcoin maybe one of the places they do that, but not stocks it's not correlated as much to stocks >> i like to blame it on the other places too but i think we matched our budget deficit from last year already to this year. >> i would say that with the budget deficit, if interest rates keep going lower. >> we're spending it on good things >> we can finance at such low rates. >> right right. dom, thank you apple rose sharply yesterday on some trade war tariff relief, but this morning's yield curve inversion signal trouble we have the managing director of d.a. davidson who has one of the highest price targets on apple at 270 and tim lesco, principal at granite investment advisers. we'll start with you, tom.

what is the key thing that anyone that buys apple now should be thinking about it's not tariffs, is it? it's more things specific to apple or do we worry about if something happened with china where it just -- you know, something really -- you know, there was a scorched earth against apple. but other than that it's their transition into the services model rather than hardware, i think, isn't it, tom >> definitely the long term story for apple is moving away from their dependence on the iphone which was 60% of their sales in their last fiscal year. but when you look at today's news on the inverted yield curve, i would argue on a short term basis for apple's shares the greater risk is concerns of a global economic slowdown i think that trumps the risk of the china trade war to the extent that apple is a multinational company selling to consumers across the globe and you have already seen consumers shown a willingness to hold on to their iphones for extended

periods of time if they get concerned about the global economy. i think the news on the inverted yield curve does pose some risk for apple shares >> are you going to change your price target >> actually, no. all right. on that point, i think what you're seeing is that this transition into services as you pointed out has enabled the company to, you know, maintain their revenue growth rate and the free cash flow and they're still returning a lot of the free cash flow to buy backs. it say this is a risk we're monitoring but today would not inspire me to lower my target. >> your comments >> yeah, well, i think i echo some of the same comments as the other guest, but where the tariffs are concerned is a microstory so tariffs aren't the issue, but it's being able to sell iphones and particularly services into

the economies that were perhaps having a war with. we want the chinese market open to not only iphones but the rest of the services. i say the same about india india has some pretty restrictive trade policies so we're all we're doing around the world is much more important to apple two or three or four years down the road than perhaps the cost of a broadband antenna going into 2020. >> so tom, where -- what will the company look like if it was not an iphone based company? i can't imagine. i'm going to need a new iphone, sorkin my battery -- it goes down so fast now i don't have -- i don't like the big one. but what's going to change that? i need a new one because of my battery. but that's not a business model. >> basically, apple looked more diversified. think of the premium content when apple tv plus, think of what they're doing with health care and including wearable devices. enabling you to monitor your heart rate among other things on your smartwatch.

you think about their efforts potentially in cars. to the extent that they may be creating a full automated car or just an operating system for automated cars so apple in the future will be a much more diversified company. the smartphone will be one of many services they will offer and it will offer the lower portion of sales >> you're okay with that we don't know what the next great things will be, i guess. >> well, i think that people's relationship with apple really does start with the iphone so if you're going to move to the company that's selling more services whether that be more airpods, more watches, still ties back to becoming an apple customer the good part about apple nobody lives so the customers buy more and more services over time. so, you know it's all about the air pods. >> i think tim should come out -- not you, tim. tim cook, sorkin, turtleneck, he

should say, different size airpods for different ears i do i think that should be the big -- no? >> i don't think -- i don't know how big the market is. >> i'm using the right in my left. >> your skew on that one. >> you don't think that would be the one more thing that would wow. i think the stock could bounce -- i don't know anyway, that may not be enough he wears a black turtleneck? >> he does not. >> he looks pretty casual. >> buttoned down guy. >> we are counting down to a big hour lb rs llwiuroswi be our special guest on the set we'll get the latest on huawei and much more. "squawk box" will be right back. what's working is sponsored by comcast business. beyond fast. comcast business gives you high speed internet. we also have solutions like powerful wifi that gives your entire business more coverage and automatic internet backup that can keep your business running.

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investors are waking up to the recession warning from the bond markets steve liesman has more we were going to talk about the deficit, but obviously the conversation today has changed. >> yeah. up to less expensive deficit, at least in part. let me do -- everybody is up on the conversation an inverted yield curve where short term bonds yield more than long term bonds, supposed to be the other way around because the investors want higher interest rates if they're going to lend you money for a long period of time and it inverted for the first time since 2007 and tried and true

recession warning. each one curtain raised a recession from 13 to 17 months notice i did not circumstance it will recent one because we don't know if that leads to the recession. how did we get here? well, the fed cut rates and the markets thought that was not enough that was a big ten basis point decline in the yield curve and then a trade war escalation and a deescalation and a stronger than expected cpi inflation that pushed up the two year bond yield. which is why we inverted this morning. here's what the market expects from the fed in coming months in context of all this. getting a rate cut in december, 100% we don't have the third one dialled in from here until january. in the 40% it's the 40 percentile for december so big caveat with the capital "c." no one knows if it means the same thing as a decade ago

it it rose after the president rare raised some tariffs you have negative interest rates i think the count is $15 trillion one other thing. we don't think that the yield curve inversions cause the recession. they reflect concern about a recession. but it shouldn't be something like oh, my god it's what causes it it just reflects the - >> a good point. short rates are like -- who knows, 6%. much different story than if they're 2.6. plus when was the first part of the yield curve inverted like a year. >> march back for the three month ten year which is by the way the inversion -- the fed follows >> whether you're taking about the entirecurve or just this 10/2 bread. >> it's something to worry about. you see a bond yield it reflects the combined interest of investors in trillions of dollars of bonds in

the outlook for growth and inflation and all sorts of other things the federal reserve is out there. so it could be anything happening here you have to watch it. >> i wonder if it could be a good thing for the first time in history. because it reflects innovation and secular disinflation around the globe. i want it to be the good thing we have low unemployment and inflation is so low that we can have low interest rates too. we can have it all. >> i could give you a serious answer to that i share your aspiration in that regard. >> it would be nice. >> but in that world, why would short term money cost more than long term money? >> because it's a couple of basis points >> in that world, joe -- >> all interest rates are basically the same. >> but everything's the same sounds like an alvin top - >> lower interest rates are

good. >> more on the bond market, the recession warning and the fed. we're joined now by university of california berkeley economics professor brad delong, a former deputy assistant treasury secretary under clinton. and row mena -- a budget director we are joined by jim rio and talking about what this means for the recession risk and when we could see that. but i want to start with you, brad, because it's not as if unemployment is high there are questions about whether the u.s. can continue to issue debt to pay its bills. so is this telling you >> there are no questions about whether the u.s. can continue to pay the bills. look at the interest rates on the debt look at how extraordinarily valuable the debt is people worldwide think that holding u.s. government debt is an extraordinary good thing to do and it has an extraordinarily high value i don't united nations -- i

don't understand why you can say there are questions about whether the u.s. can continue to issue debt when everyone out there wants it and wants it a at a high price. >> a high price compared to what they're getting for their money anywhere else around the world >> no, high price in general u.s. bonds create a dollar of cash flow and sell it as a cash bond and it has a uniquely high value. save for germany and jap where it's even higher. >> you're just talking relatively today, not relatively in life. because otherwise it doesn't have a high price at all. >> it does too 30 year treasury bonds ever been this high? >> no. >> the price is not. it's -- brad, real quick, how worried are you about this yield curve inversion? >> not the yield, but the price. >> it's honking the horn very loudly at the federal reserve.

the question is does jerome powell have a better sense of how to maintain the expansion or is the market right to be worried? given what we have seen over the past 40 years you'd be likely -- you'd be well advised to bet on the market and i think powell is going to respond. which is why everyone expects interest rates -- the three month rate now to be 75 basis points lower in january than it is today. >> but how much -- >> honking the horn at the economy and the fed is responding. >> and the fed responded in july certainly because how much longer do you think the fed is actually able to expand or to extend this expansion? >> this is a really tough question and ultimately the market is going to decide this but the fed shouldn't concern itself with facilitating fiscal policy for the u.s. federal government to enable this huge borrowing spree that we're

witnessing we're looking at potentially almost $1 trillion deficit this year certainly next year. the interest cost alone will exceed what we spend on all of medicaid at the federal level. and over the next five years it looks like interest on on the debt may exceed what the u.s. spends on national defense who is backing the debt, it's the u.s. economy, the american people if things should turn for the worse, those interest rates could spike relatively quickly and that could get us into real trouble fast >> one of the reasons though why president trump has advocated for lower rates is so that the cost of government borrowing would go down because of the expectation that it would be issuing more debt. but what happens if we do go into the recession, if corporate tax receipts get lower and does that offset any potential cost savings from low interest rates? >> you know, the federal reserve should be independent. that's the whole purpose of

having an independent central bank if we get in real trouble when they see their mandate as facilitating fiscal policy for a government that is spending out of control and borrowing at excessive rates. the fiscal situation is not sustainable not just in the long run but in the short run that's a real problem. now, we have to see what the markets will do, but i do worry that we're finding ourselves in a bubble and the longer we try to extend it the deeper that fall will be. >> i want to ask jim, earlier this week you said that even when this spread goes negative that if it for tends a recession it's not for 14 to 18 months when you look at futures and you see just this spread going negative, leading the dow futures down by more than 200 points, 250 points, does that seem overdone to you >> yeah, it does it seems to me there was people waiting in the weeds for any

little bit of bad news to come out and sell the stock market. i don't think they're selling it because of the bad news. i think they're trying to find pockets of panic out there the discussion has gone on for ten minutes or so and nobody has mentioned that the world banks tried to compress the long end rates to the tune of turning $15 trillion into negative yields to me then when everybody is buying long in debt creating money across the world to do that, wow, long end yields are really low that shouldn't surprise us as much. there's some distortion. we can argue about how much distortion is in the yield curve but there's some for me that it's lost some of the predictive power is completely reasonable. if it's operating at a flatter pattern to begin with. >> steve >> i agree with what jim is saying which is the next step to what jim is saying which makes me a little nervous is central banks could reinvert the curve as a mission if they decided there

was some sense to that i'm pretty sure they're not there. in fact, brad might know a little bit about the current state of thinking but the idea of creating a positive slope to the curve, brad, is not sort of one of the items in the fed's playbook. >> no, no. definitely not >> right. >> should it be? >> definitely not. >> should it be? >> i don't think so. i think what the fed is in the business of doing, it's in the business of controlling short term rates and then watching what the market then does with long term rates and using that to assess the state of demand. for investments. >> let's - >> i think that's the right thing to - >> peter fisher has an opposite opinion of that. thinks that where the banks and other reasons. >> and it's an important idea we have do go for now macy's earnings just hit thanks to you, thanks guys.

>> courtney reagan has the results from macy's. hi. >> hi, joe, yes. it's big miss for macy's profit. 28 cents per share analysts were looking for 45 cents. we have got revenue though essentially is in line at $5.55 billion that was what we were expecting along with the 0.3% comp sales growth so that marks seven quarters without that metric declining. but macy's is lowering the annual guidance range to between 285 and 305 a share and that was previously at 305 to 325 and that guidance does not reflect the new tariffs. macy's is still evaluating the details and macy's ceo jeff gennette said it started slow and finished below the expectations and they had to discount if merchandise. after one, a fashion miss in the private brands so they sold things that customers just

didn't want to buy slow sale through warm weather apparel in general and an accelerated decline in international tourism. i spoke with ceo jeff gennette who told me quote we took our medicine we took almost a full point of margin for these markdowns to address the inventory issues he said we needed to protect the fall gennette said he learned from list three tariffs moving from 10% to 25% that quote, the customer has no appetite for price increases and that right now, we are expecting that there won't be price increases with tranche forward at 10% but if it goes to 25% we'll have some more work to do that's a bit of a change from before when gennette had said he didn't see a way through this without higher prices. gennette calls the store sales healthier and notes the 40th quarter of double digit online growth but shares of macy's is down more than 12% after these results. andrew >> thank you we should tell you wework is

unveiling the ipo filing this morning. now, it's a doozie hundreds of pages literally. probably the longest filing i have seen in quite some time couple key numbers to focus on this morning they're going to be raising $6 billion they're putting $1 billion for the filing itself -- or for the ipo itself, but an additional $6 billion led by jpmorgan the message there of course is a sign of confidence that the banks not only want to bring the company public but want to finance this company in addition to that. for those cynics out there i don't think you get enough fees. i don't know how it's structured but to the extent there's some saying you have to do the financing to get the ipo there's still not enough to money to go around to get that work i think there's a semblance of confidence in the future of this company. as of june, the run rate revenue number is $3.3 billion they're growing at an 86% growth rate year over year. enterprise membership increased 18%.

from 2016 to 40% in q2 of 2019 if you're playing at home, go to page five because we talk about the path to profitability. they say there's one and then if you're playing at home, the real place to go is to basically page -- around 200 page 200 because then you get into the related party transactions and how the ceo and founder of this company is going to be paid there's three different -- three different voting shares. >> right. >> in this instance, he gets -- he's going to get 10 million share options are going to vest over a five year period irrespective of what happens he gets another 9.5 million shares if he can get the stock -- i'm sorry, 7 million shares if he gets it over $50 billion. gets another 7 million shares if it gets over $72 billion another 9.5 million shares if it gets over $90 billion. sort of like -- remember when

elon musk got his compensation strategy plus, all sorts of related party transactions that are worth looking into there's the charitable giving element. if they don't give away over $1 billion they get money taken back from them. >> probably for tax reasons. >> probably for tax reasons. but they don't get into that there's properties that he owns, that's being leased back to wework. >> yeah. we know about that. >> it's awesome. >> adam has committed quote not to purchase any additional properties with the purpose of making them available for our occupancy. >> that's good. >> they'll be selling the properties back to wework as part of the sale lots going on. >> so uber -- the path to profitability. they skipped that. less paper for them. they didn't have a page five went four to six. >> i think - >> don't have to bother with that we have no path. let's get to the big interview of the hour. for the latest on the u.s./china

trade war, let's welcome in wilbur ross. this was yesterday today, we'll get right to that we will. but i have to ask you about the yield curve and as an administration official, i would not suggest that you should say we'll have a recession in 12 to 18 months. that probably would not be the tape that i would have on this, but a lot of people say that's what this indicates. what do you think? >> well, formulas like that work when they work and they don't work when they don't work this is also a question of how far into the future and eventually there will be a recession. so the idea that 1,000th of 1% inversion which is what i saw in your screen a little before is going to be the end of the economy strikes me as a little aggressive. >> yeah, i agree it's the point being made that rates are so low there's a difference between the 7% short rate and a 6%, 30 year or a ten year and when you're down it's

basis points too. >> this is 1,000th of 1%. >> you're good at that stuff that's how much the tariff on aluminum cans were you're good at these really, really small numbers let me ask you about the deal that was -- the reprieve that we saw yesterday. i don't know if we know for sure whether there was any concessions from china yesterday on that phone call or whether this was purely a move unilaterally by the president to make it easier for consumers at christmastime. did china blink on anything or was this totally unilateral? >> there had been all sorts of research done before there were public hearings about what items to put on and nobody wants to take any chance of disrupting the christmas season. we don't think - >> so you're saying we didn't extract anything from china to do this? there was no quid pro quo? >> not a quid pro quo. it was a decision to do what we

decided to do and then we -- >> the president said we'll see if they follow through this time on some ag buys which seems to indicate there was behind the scene maneuvering and some tentative deal there too can you comment on that? >> well, when we broke off the talks they had very publicly when we were all in the oval office committed to buying lots of soybeans. doing all kinds of things in addition to that we thought we had a very detailed deal on the basic trade issues they didn't deliver on any of that and i think that's what the president was referring to. >> you also are saying that we're -- where you'd like to get and maybe there's a phone call resumption in two weeks that we're going to see on the phone -- >> right. >> do you think there -- you said they might be back to where they were before things broke down on some of the big issues some of the things that we

are -- we say that they reneged on are they back to where they were or are they getting in that position where there's been no movement whatsoever? >> i think until something is really formerly announced and mutually agreed it's premature to say where everybody was we had three objectives in the beginning. those are the same three one was increase current trade, reduce the deficit that's the easy part if that's all we wanted, we would have had a deal three years ago. second part was structural reforms. the problem of technology transfers being for us, problems of not fair market access to foreigners that whole list of things you're familiar with. that takes legislation and that's a big ask but the third and most important is the deal that's verifiable and enforceable. we need all three components so it isn't a question of just

agreeing on something. >> but it's often the in person negotiations that's more productive did china commit to coming to washington in early september? >> i don't think it's a question about anybody committing to anything what we're interested in is having discussions that focus on where we thought we were. >> but the white house said frequently that they have invited the chinese delegation to washington in early september for negotiations is that formalized >> i don't believe a date has been set you'll notice all that was discussed was perhaps another phone call in a couple of weeks. >> today is also a significant day because i believe it's the day that the three month general license that was provided to huawei comes up. can you update us? >> no, it comes up on monday. >> okay. can you update us on then where that process stands to issue more licenses? >> an monday i'll be happy to update you. >> mr. secretary, has the administration done any type of concrete analysis, economic

analysis, of the economic impact of these tariffs internally? is there a piece of paper? is there some real analysis that looks at this, given we take -- we talk about the analyses done by banks and investors and a analysts and what is done inside the administration on this >> about what we just did yesterday? >> what you did yesterday and what's taking place over the last several months in terms of the bigger approach. >> well, in terms of yesterday, it was only certain products, namely those that are 75% or more supplied by china and the reason we use that as a cutoff is that it's very hard to replace quickly somebody who's a 75% supplier the earlier things we had done were ones where china was a much lower percentage therefore, much easier to replace them so that was one of the sorting devices. >> but no, is there an analysis that says, okay, if we put these tariffs on, this is who's going

to -- this is what the cost is going to be on the american consumer, here's what the cost is going to be on the american farmers. this is what we'll end up having to play out. i mean, a full sort of analyses, if you will, in the same way that goldman sachs over the weekend put out its own analysis >> they can put out their analyses - >> is there an internal one and what does it look like >> we do a lot of analyses and the important thing is that you're trying to judge people's reaction what's going to happen to currency that has an impact on the inflation that might come from tariffs. what are they going to do by retaliation? you have to make guesses to each of those in order to make a sensible thing so you need a whole matrix, not a single point analysis but the fact is there is not very much inflation in the economy.

import prices in fact have been very stable. and the study done in europe indicated that of the 25% tariff we had put on 20.5 or thereabouts was borne by the chinese and 4 point some odd by the americans. >> how much is based on china's currency devaluation and the administration has criticized and the president last wee acknowledged benefits the u.s. consumers? >> it's not a question of whether we like it or not. it's a fact that the currency has gone down. that does offset tariffs so that's a fact. it's not a matter of opinion. >> on the phone call where we informed china that there would be the reprieve, it would said that we made it clear that this was not a concession to china. was that a point that we thought was important to make? >> listen, it wasn't even a debate we had decided before that to -- >> okay. the hong kong protests and

there's been criticism -- i mean, there's going to be criticism every day as you know. you're used to it by now with the trump administration but that we have pulled back from our role in the world as supporters of freedom. by saying we're neutral on what's happening is creating a vacuum where we should be there saying we're with the people that are looking for freedom and freedom of expression. everything else. >> i think what the president said is that this was a tough decision and that he hopes he works it out well for all parties. >> should we be taking a stronger tactic? are the trade negotiations making it harder for us to do -- to lead in a way that we would have in the past would you say >> i don't know that we would have done anything different in the past what would we do, invade hong kong >> we might warn china overtly in the very strong terms that we're watching what's happening with -- you know, no one wants another tiananmen obviously.

>> the president has made clear that he is watching very carefully what's happening he talked about the possibility of troop build-ups and it's not that we're not watching it it's a question, what role is there for the u.s. in that manner this is an internal matter. >> okay. the -- we have been hearing a lot about ag buys. we have been hearing less about ip and some of the other bigger issues is it possible with the election coming and it's getting closer -- i can't believe how fast time goes, but is it possible that it becomes some type of -- let me -- we'll get some big ag buys and resolution of huawei and that's all we get with the president at that point saying that's all we'll get and if he's re-elected we'll revisit this but we're going to sort of agree to disagree on these other things >> well, the president's the ultimate arbiter of trade policy

obviously, but i haven't come off the firm objective that we need structural reform that this is really after all about the section 301 action that we brought. all these tariffs are a section 301. and the purpose of section 301 was to induce the structural reform >> but there's been an expectation that there would be a short term set of deliverables and then a longer term set of deliverables if you have a reprieve on huawei and some agricultural buys, then that would usher in where the two sides can negotiate the tougher issues instead of not talking at all. but that would push the longer term outcome further down the road. >> that's a whole theory as to how the talks may evolve there's no basis for that. >> have you had a discussion or within the administration has there been a discussion on how

the hong kong situation plays into the negotiations and whether it emboldens president xi because of nationalism rising in main land china or something that adds to his -- you know, all the balls that he's got in the air right now. this is not a great time to be having a slowing economy or something affected by a trade war. when you wonder whether this is the beginning of it -- really the beginning of something. >> well, there are lots of speculations but the truth is we don't know. >> does it help our negotiations or hurt in our negotiations? >> i don't think we know the answer just yet because we don't know what the outcome will be of the hong kong situation. >> i just wonder, you know, whether long term we think th that -- how important it is for china to continue to make progress economically to sort of keep people, you know, in the fold and not -- you know, if

that were to slow, you know, and the middle class emergence we have seen were to slow, that would be a problem for president xi and for the communist party. >> the economy has been slowing. the output went up in july and that's the lowest in 15 years in some such time period and there's no question that it's been slowing and no question that a lot of the supply chains are moving elsewhere some to the u.s., some to mexico, some to vietnam or other countries. so there are some other economic problems that are -- that are partly induced by the trade situation. >> some people said that move yesterday was purely a stock market put and that the president had seen enough in terms of 1,000 points on the dow or the volatility and the averages he loves the stock market going higher he loves a good economy.

do you think there's some truth to that? >> no because i know that the decision had been planned quite a while before >> but the tariffs -- the september 1st tariffs weren't announced until a few weeks ago so how long could it have been - >> well, we have been doing analysis since the hearings were announced by the ustr. there have been hearings submitted about the whole idea of the last batch of tariffs so even though they were only announced as being imposed recently, the analytical work had begun well before that. >> i'd like to ask about your dialogue with congress right now. come september there's a lot of efforts, bipartisan efforts, to try to tie the administration's hands on tariffs do you think any of them will be successful are you having any conversations with about them about how to craft the legislation so it's effective? >> well, there's been legislation proposed by one

member of congress for the last couple of years. >> but senator grassley which has jurisdiction over trade said he's open to working with all of the lawmakers who are interested in this to find something that suits everybody. >> sure. if you look back i think you'll find that chairman grassley has made similar statements in the past so it's not new. >> but what about van holland and cotton who are trying to limit what you're able to do on huawei >> well, we'll see what they do. where we are on huawei is where we are. >> as a private sector turn around guy, you would go in there to auto parts or mining or oil and gas and all of -- whenever you went in it was because it had way too much debt so you know about that do you see what's happening in our balance sheet in the united states, and rates are low but do you look at this now and say, wow. if this -- i know you can't equate private sector and public sector debt but is there a

problem yet in your mind with the amount of debt we're running up >> i think the key to our debt situation is how fast the economy grows. if the economy grows at 3 plus percent, the debt problem -- >> it's not. and in ten months -- last year it was $1 trillion and in ten months we're there already this year then you aren't even talking about entitlements and what we know there, wilbur. >> absolute the amounts aren't the issue, but the relative amounts relative to the size of the gdp. the important thing is can we grow at 3 or 3 plus -- >> can i ask you a question about that, which it hasn't. you look at the tax policy and all of the things that have been implemented, what the president laid out as the goal and that line has never been hit yet in a meaningful way do you look at that and say, we have not succeeded yet are you willing to - >> no. take for example the most recent quarter, boeing's problems with the 737 max, probably took

something like 0.4% off. that will come back when the 737 max problems are ultimately fixed. we think that the economy is strong the economy is headed in a good direction. the key to growing at 3% is three things amount of people in the working age population that's already been pretty well set. second labor force participation. and that's starting to go up that's important then the third thing is productivity those three add up to 3% we go at 3%. >> 60% faster than the previous eight years. 2.4, 2.5 versus 17 not for nothing. >> mr. secretary, you have the huawei issue coming up and you have the census situation in the rear view. i want to ask how long you continue to continue serving in this role and what conversations you have had with the president. >> well, you remind me with your

repeated suggestions that i'm departing, when pt barnum said when they published his obituary namely that the reports of my death are greatly exaggerated. >> i never reported that you were dying i reported that cabinet members serve at the pleasure of the president and sometimes the pleasures of the president change. >> i'm not going to debate with you, but you might be on that. >> i think you love doing this because we throw -- you love answering these questions. you're like ready, bring it on you're like with us, you like to argue. >> this is the most stimulating thing i have done in the last 20 years. >> "squawk box"? >> no, not "squawk box." >> oh, okay. no i knew what you meant. >> although with a little more belligerent questioning might be "squawk box." >> wilbur, secretary ross, great to have you on, so great to see you. we want to do it whenever we can. >> andrew? >> you have another big interview. >> going across the street right

now. >> this is a great get for you. >> i'm going to leave you now. >> good job. >> that's okay. >> wilbur, nice to see you i'm going -- >> whenever i tell you to leave -- >> camera is following you. >> i have to run. >> i didn't know i had this power. see you later. >> okay. good to see you. >> thanks, mr. secretary >> thank you that's what happens in golf nothiand in life.ily. i'm very fortunate i can lean on people, and that for me is what teamwork is all about. you can't do everything yourself. you need someone to guide you and help you make those tough decisions, that's morgan stanley. they're industry leaders, but the most important thing is they want to do it the right way. i'm really excited to be part of the morgan stanley team. i'm justin rose. we are morgan stanley.

welcome back to "squawk box. futures red now. not quite the worst levels but pretty bad down 327 points, 330 points indicated on the dow the s&p giving back 36 nasdaq indicated down about 113. if it were to end today, it would be a lion's share of the rebound we saw yesterday after the tariff reprieve. coming up, breaking economic data, a fresh read on import and export prices due out in just minutes. stay tuned for our first on cnbc interview with bobakh. bis he takes the lead as ceo of the newly announced viacom/cbs looked at chart patterns. i've even built my own historic trading model. and you're still not sure if you want to make the trade? exactly. sounds like a case of analysis paralysis.

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welcome back to "squawk box. rick santelli. we have breaking news, the july read on import/export prices up 0.2% that's definitely a higher number aal though last month we lost a few. minus 0.9 stands at minus 1.1.

on the import prices ex-petroleum unchanged and if we look at import prices year over year 0.2 cooler than expectations it's also 0.2 cooler than the last peak. export price up 0.2. although in the rearview mirror we upgraded last month from down 0.7 to down o0.6 the macro view on export prices eyear over year now stands at down 0.9 sequentially following the revise down. these are firmer import and export prices and minus 65 basis points low yield, historic negative year on the bund. ten years have touched 157

30 year bonds never settle under 2.099. we'll round it out to 2.10 this is going to be a biggie and considering the yield curve and the fact that it certainly looks like tens to twos is in the red zone i'm not talking football, remember the last time it was in the red zone meaning inverted, two year note yields closing higher than tens, june 5, 2007 kayla, back to you. >> all right, rick santelli, thank you. joining us now for more is richard bernstein, ceo of the richard bernstein advisers and cnbc's steve liesman digest that for us. >> a lot is a decline in the prior month. you were down 1.1 in june which is a downward recision from the prior report up 0.2 which is hotter than expected so it kind of washes

out. i think the best way to look at this is year over year 1.8% year over year. petroleum down 6%. nonpetroleum down 1.6% you are seeing the reversals motor vehicle prices have been soft zero in june my must 0.3. you nonts know how the tariff -- you don't know how the tariffs affects this what we see is global economic weakness one of the ways that the overseas economies affect our economy. in part through the import of inflation. as for tariffs, these are pretariff prices so the tariffs go on afterwards to the extent they're down it could reflect some margin pressure back on the supplier. but they need to fall in concert with the amount of the tariffs to fully off set it. it's this kind of data that tells economists how and why they're being paid on this side

of the border, not the other. >> richard bernstein when you look at the unexpected rise in the import prices for the month, obviously it's a small enough amount it wouldn't necessarily be passed on to consumers but what does that tell you about the economy? >> sure. so kayla, we're in a late cycle environment. i know the fed likes to say it's a mid cycle environment. it's a late cycle environment and the yield curve is telling you that late cycle environments are horrible for the fed why are they horrible for the fed because the front end of the economy begins to slow down. but yet, you have lingering inflation pressures so the fed is always in a late cycle environment caught between a rock and a hard place and it's not so easy. if you look at the recent inflation data, you're starting to see that. it's not out of control, not horrible but what's interesting is the fed is easing and willing to talk about easing in a late cycle environment. that is highly unusual to see that happen. >> although what inning are we in the late cycle environment? that's the million dollar question. >> i think we're in the ninth

inning the yield curve is telling you the lead you have batter may be up and there's not a pitch yet but we're in the ninth inning. >> the fed is in a no win situation, steve. >> i want to before responding to that tell you what's going on overseas rick alluded to this earlier he talked about -- didn't allude to it he said it the german bund new all-time low. minus 0.646 if you want to be precise. also happening in european bonds. again, the chicken or egg question are we importing their low yields or are they reacting to what's happening here? a little hard to tell but it'll all a global downdraft in yields that's animating the stocks. >> i agree but if you look at policy here in the united states, policy here in the united states whether it's tariffs or the fed easing at late cycle environment is a pro inflation policy. whether it's monetary or fiscal policy that is the story. >> 100% right. >> usually the fed is battling inflation at the end and now

they're not. joe has a great question. >> there's the correlater of what i was saying. >> exactly. >> recessions come when yields get too high the yield curve inverts and the fed has to tighten this is totally different. that's why i disagree with you it's the ninth inning. a twilight doubleheader? >> no. >> twilight doubleheader >> i used to love those. >> they don't do those anymore. >> you're so old. >> i know. >> but with age comes wisdom which might be lacking >> he still has his hair. >> touche. >> somebody's hair. >> but steve who knows -- i think he said something i disagree with earlier about half an hour, 40 minutes ago. that is i think that the yield curve does have an effect on the economy. because when short term rates are above long term rates for an extended period of time you begin to shut down the credit creation process in the economy. so not only does it reflect expectations, not only does it

reflect current situations but it has a proactive effect on the economy which is never good. and i don't think -- you know, people are saying why is the curve inverting and this time it's different it doesn't make any difference. >> a couple of basis points -- >> i'm not panicked. >> you said ninth inning you're selling everything? >> look, if you're a yankee fan, unlike a cincinnati red fan, you know the ninth inning can go a long time. >> i'm not saying the yield curve doesn't have an effect on the economy, but does it cause the recession or reflect concerns about a recession i don't think -- i don't think the yield curve itself causes a recession. or an inversion. >> it can contribute but i get your point, yeah. >> richard bernstein, thank you for joining us and steve, thanks. >> you never said this before. ninth inning. >> well, we reduced equities quite a bit in our portfolios. 75%. >> you're burying the lead. >> i'm just following what the

questions are -- >> i know you are. >> it's our job too to get you -- >> 70% equity. >> the chances of a recession in the next 12 months are >> i would say 50-50. >> that's high that's high. >> it's usually one in five. >> thank you little less than an hour until the opening bell and come chu is joining us now with more. >> hey, joe, let's put some real numbers and premarket movement to the discussion that you, richard and kayla and steve liesman just had and why you're seeing the market reaction in the way it's playing out right now. one of the places we have seen buying on recent dips is in large cap technology and media telecommunications that sort of thing. let's check on the faang numbers to start this morning with the dow implied opening down, you are seeing amazon off 1.5%

and netflix up 1.5%. and almost 1.5% losses for google parent company alphabet the faang complex, you can see the profit taking happen over the course of the short term also what's happening right now with regard to banks to speak about what richard bernstein said about the yield curve what it does to lending and creation, one of the biggest moves that you will see premarket so far today is coming from the financial complex. specifically, money center and regional banks look at citigroup. off 3.5% right now bank of america a similar percentage decline right here. jpmorgan chase outperforming some of the peers. only down around 3%. and then pnc financial on the regional bank side of things they're more exposed to perhaps traditional lending activities those are down as well just to put it in a little bit of context here, check out this chart. one year of the financials both the banks and the regional banks can we see that downturn here continue? that's a big question for bank

investors as they weigh the yield curve inversion story. joe, back over to you guys. >> all right dom, thanks. coming up we'll head to the viacom building -- well, not actually going to do that, but we're heading to andrew at the viacom building. you did it you made it. no trouble crossing the street >> i made it. >> go against the lights >> i crossed the street. it wasn't that hard. i don't know if anyone saw me jaywalking but i'm over here when we come back, the big interview of the morning we're here with the ceo of the newly combined viacom and cbs, bob bakish what it means in the media world, when "squawk" returns after this

i'm here at the nasdaq market site in times square with jpmorgan asset management's alex dryden the volume of government debt is continuing to increase, could the u.s. be next >> the fed has begun the rate cutting cycle and they're nervous that they'll follow the ecb and the bank of japan into the murky world of negative interest rates. >> you continue to be skeptical aboutnegative yields but make the case. >> negative yielding bonds are strange. if you hold it to maturity you

guarantee yourself a loss. why would investors do that? two holders of negative yielding debt some are forced buyers like central banks or financial institutions, some are traders, speculating on the direction of bonds. the challenge is however, those drivers force bonds to survive in a different way they behave more like a commodity and less like a fixed income as set. >> there are global implications of this. >> inverses no longer have to go to fixed income. they can use it for insurance and hedging against equity risk but they have to go elsewhere if they want to find income. >> thanks, alex. >> thank you. >> for more insights from jpmorgan asset management, search jpmorgan solve it online.

it's the media merger wall street has been waiting for. for years. one that'll add another twist to the streaming content wars viacom and cbs are reuniting after a decade apart andrew, over to you. >> thank you, kayla. joining us right now is bob bakish the current president and ceo of viacom he will become the ceo of viacom/cbs when the big merger closes. >> great to see you. >> it's a big day for you announcing this transaction after yesterday after so very long how many years in the works have you been trying to get this together >> well, you can argue the third time's the charm we started this discussion at the end of '16 when i was acting ceo of viacom. then it was revisited again about a year and a half later.

this time, yesterday, we announced we're putting the two companies together. >> let's talk about the strategic rationale for doing the deal and how it may or may not have changed >> what we're creating is a leading multiplatform global content company. it really has almost unmatched scale in the content side. 140,000 television episodes in the library. 3,600 films. very substantial production capabilities feeding you know our own platforms, feeding third parties. we are leaders in markets all around the world certainly in the u.s. here with the cw and cbs and obviously the viacom pay networks. in places like the uk where we have a cornerstone and channel 5, argentina, australia, india and then branded network distribution all around the world. we have a very compelling play

in d to c. not something that people have talked about a lot but cbs clearly embarked early on a subscription strategy cbs all access, viacom on the other hand chose to enter in the free space, pluto tv, the largest free streaming service in the u.s., you unite that together and you have an ecosystem that's compelling with substantial millions of users, good, strong growth. so on the product side, the asset side a lot going on. financially a real power house company. >> you just said the word unmatched scale. there's some who would take issue with that. you look at a disney it has a market cap of $245 billion, for example. netflix value of $136 billion. i think the larger question actually in terms of scale is is this going to be enough and two or three years from now we're going to see you want to -- to continue to make acquisitions to compete at that level or whether you ultimately have to sell the

company, given this scale question because we have the big giants. >> well, let's unpack scale. where do you see value in case is you see value in scale in terms of margins and being able to amortize, no question we have scale and bringing the two companies together gets us more scale there. we have talked about $500 million in synergies on the cost side as an example. you look at content, we clearly have scale and content between the studios that we operate, paramount, cbs television studios, paramount pictures nickelodeon animation. viacom international studios a library of 140,000 television episodes 3,600 films. we have 750 series ordered to or in production. there is true content scale here and then you go and you look at dealing with partners. on the b2b side, distributors and advertisers. we have the number one television position in the

united states by audience. and that's general audiences like 25 to 54s 18 to 29s and specialized like kids and african-americans and et cetera. we have cop tent -- content for advertisers and for distributors no question the companies are stronger together than they were independently. and, you know, we'll start executing with that. >> in terms of the savings you have put out the $500 million number there was a $1 billion number that was being floated you look at the discovery scrips deal, there's $1 billion of savings. do you think there's more savings out there? because it sounds like between cbs and viacom there was a difference over this issue. >> look, this is day two, right, we announced the deal yesterday so we have a lot of work to do i feel very good about the $500 million synergy number on the cost side. again, this is cost, excluding programming. excluding marketing and revenue.

so there's a very material opportunity. as we get into it we'll move forward and begin to realize that that number is over 12 to 24 months a significant portion of it will be in the first 12 months and then a balance across the second year. >> what do you think of the culture or potentially even culture clash between the two companies? it sounded like viacom has wanted to do the deal for a long time, but cbs did not. both under les moonves and there was push back for quite some time how do you see that playing itself out as you try to merge the companies together >> look, i think there's a tremendous opportunity to create a unified viacom/cbs i think there's a lot more in common in the cultures than people give credit to. these companies are built on world class premium content. the employees love brands talk about a brand that's -- employee of cbs news, they love cbs news. just like an employee at mtv loves mtv. there's incredible value in the

combination. look at the strategy we'll start to execute against building a leadership position in d to c. through the combination of subscription product and this ecosystem. tremendous opportunity there you look at expanding the partnerships and building new partnerships with advertisers, with distributors. tremendous opportunity there for all of the people that worked in that area. you look at being one of the most significant content suppliers in the world tremendous opportunity there so i think very quickly this culture will come together the other thing i would say as an example is when i took the acting ceo job at the end of '16 for viacom, paramount was an island by the way it had lost half a billion dollars and the networks weren't that collaborative but today we run one viacom. we have multiple business units that are building off of the brands, whether it's viacom digital studios, domestic and

international networks and paramount. and that was the result of a vision, a management team and then executing it's the same kind of thing we have to do at viacom/cbs. >> one of the sticking points for a point is governance, who would be in charge, joe ianniello will stay on explain the rational in terms of joe's role and how that works. >> i've known joe ianniello for 20 years i have tremendous respect for what he's done at cbs. he's clearly a world class executive. he and i have spoken a lot in the days leading up to yesterday. and including yesterday. we haven't talked today, but it is early still and there is a tremendous interest, joint interest, in unlocking the value of these combined companies yes, he will take the leadership position, running the cbs branded assets upon closing. by the way, we need someone to run those assets, that's a big

complicated business, ideally suited to do it. he has, you know, 20 years of knowledge in that space. at the same time, he knows we have to create value from the assets we have to work across the company. he's 100% committed to it. i can't wait to get on with it with him. >> he has a compensation arrangement that pays him $70 million if he doesn't get the top job. will he be paid that >> you can look at the public filings and all. we're thrilled to be moving forward together we'll create a lot of value here and we can't wait to get on with it. >> so a public -- we have seen the public filings on this. >> his contract is what his contract is and you can pull the public filings. >> let me ask you, in terms of content, in terms of content spend, do you have to spend more money on content you talked about the size of your library already. >> one of the real values of the deal is the financial position

the combined companies create. $28 billion of revenue, $6 billion of income, $2.5 billion of cash flow, commitment to investment grade why does that matter it means we can sustain on an organic basis, growing commitment to content and innovation, and also means we have a balance sheet that will let us pursue other opportunities that might emerge in the marketplace that's critical today. there will be opportunity and just as we used m&a as a vehicle to accelerate our strategy at viacom, we will potentially use m&a as a vehicle to accelerate our new strategy at a combined viacom cbs. >> can we talk about how you see the rest of the landscape? there are other players, i mentioned at the beginning of the interview, the scale issue, people say will they go after discovery scripps next, after stars. how do you think about the future -- you're just getting started, so this is almost too early to ask, but how do you see

that play out? >> what we announced yesterday was the creation of a leading global multiplatform premium entertainment company. that's a big deal. we talked about our growing scale, we talked about our financial firepower. we're very well positioned moving forward of course we have people who we will compete with and we will and we'll look at what other opportunities emerge i'm feeling great about the hand i've been dealt. i'm feeling great about the team we'll put in place we made announcements yesterday and you see we'll have a blended management team with strong executives from both companies in the combined company and it is early days, we're just getting started. >> what is the role of shari redstone now in all of this? >> shari is an unwavering advocate for both companies. she has been for years now she certainly is thrilled at the prospect and now reality of bringing these companies

together she is an exceptionally intelligent and passionate advocate for these assets. she's become a great adviser to me and other members of our management team. and so we're thrilled that she is our controlling shareholder. >> final question, philosophical, this companies came together, came apart, coming together. should they never have come apart the first time >> they came apart at a different time in media with different circumstances around it what i can tell you unequivocally is putting them together today is the right move creates incredible opportunity you look at the valuations of the companies, the multiples are very low, why were they low? because there was a cloud of uncertainty hanging over both of them that cloud has been removed. people will pretty quickly see as we execute against this strategy how powerful this company will become and how compelling an opportunity it is

to be part of. >> bob bakish, thank you for joining us love the transaction back to you. >> all right, andrew awesome, thank you thank you for that get that was great going to ask about survivor, but i said never mind. i just can't believe -- >> you can ask about survivor. >> i can't bob, come on, pull the plug. >> are you a survivor watcher? >> i am. >> corporate survivor, right we won't go there. i used to give the last gentleman a lot of grief about that he said, you know what he said, we don't care about you, joe, you're not in our demo not in the key demo. so mean. for reaction to that interview and more, down to the new york stock exchange jim cramer joins us now. i can ask you anything, i just got to ask you about this yield curve, giving back everything we got yesterday. does it matter that yields are so low that -- when short rates go to 7% versus a six-year, 30 or something, i understand that. basis points at these levels, is

it as significant in terms of its recession forecasting ability? >> i think it is significant in terms of what diana olick said her reporter has been completely overlooked mortgage refinances at that level are extraordinary. more money going to the consumer, the consumer is robust i want very much to point out that germany had really negative yields the stock market has done okay there. we're in lockstep. must be some algorithm that says you have to sell stocks. you both know that warren buffett is still the greater investor of our lifetime he's sitting there and buying the banks. longer term, am i going to bet against buffett? i can't. particularly when the consumer is taking advantage of the rates and i look at the s&p top 50 companies and it is very hard to find ones that are really hurt by this. i don't know, joe. i know i have to be negative i guess i should trash the

economic policies of the president while i'm at it. i just -- give me a little something to do it so i can do that. >> six months from now, look back, it is always interesting to look back we got to go we look forward to seeing you in three minutes. >> thank you. >> coming up, he'll chewe'll ch markets. at synchrony,

we're changing what's possible. for instance, we know how your customers shop. and what they've already purchased. like this lamp. and we use those insights to show you what they might consider buying next. mid-century modern, nice. that way, you can keep sending them offers for the perfect products. and that keeps them coming back. how's that for changing what's possible?

final check on markets, anything could happen throughout the session. but after that nice rebound yesterday of 300 plus points, we're giving back 300, not quite

all of yesterday's gains >> we're off the lows of the morning. >> we are. >> important to know. >> the yield curve is inverted bring that up at the cook packtl party. see eyes glaze over. >> that's a way to make friends. >> thank you, again. be back tomorrow andrew will be back tomorrow join us. "squawk on the street" is next good wednesday morning withing to "squawk on the street." i'm carl quintanilla with jim cramer at the new york stock exchange dow features down almost 300 as the 210 yield curve inverts for first time since '07, that with disappointing china data. europe is red. 30 year yield hits a record low of nearly 201. so, a lot has been said already about the curve what it means for the timing of a recession and we should point out, doesn't necear