the ides of august "squawk box" begins rite now ♪ live from new york where business never sleeps, this is "squawk box." good morning welcome to "squawk box" on cnbc. we are live from the nasdaq market site in times square. i'm becky quick along with joe kernen and andrew ross sorkin. our top story is reaction to yesterday's 800-point selloff for the dow. throughout the hour we'll show you the hardest hit sectors, everything from retail to the banks. financials were down more than 4% let's check out the u.s. equity put ch features things were looking like they would improve earlier this morning but that changed we're back in negative sentiment again. the dow down about 50 points

s&p is now down 2.25 the nasdaq is off by 40 points that happened after news that we heard from beijing that we'll tell you about in a moment interest rates are a huge part of the market story. yesterday we saw the inversion of the two-year and the ten-year yield. so short-term bonds are paying more than long-term bonds. historically this is considered a recession warning sign check this out the 30-year bond this morning is now yielding below 2%. this is the first time in history we've seen the 30-year below 2% 1.99%. ten-year is yielding 1.557%. the two-year is yielding 1.54% let's look at what happened in markets overnight in asia. things got a slower start there. the nikkei was down out of the gate it ended down by 1.2%. in china, stocks are stronger. shanghai is up by a quarter percent. the hang seng up by three quarters of a percent. in europe, there is active trading taking place, you are

seeing some red arrows across the board. the biggest decliner of the three major averages would be the ftse we have breaking news out of hong kong and china. want to start with china the government there responding to president trump's plan to raise tariffs on some chinese imports that were supposed to go into effect on september 1st or will go into effect on september 1st saying beijing will take unspecified counter measures but giving no details. when that happened, the dow futures were higher prior to that by more than 100 but tumbled on that news you can see what's happening there. this s >> this is the key we looked with president trump saying he would hold off on some of these maybe people would think this would be some way that there's a truce, something that comes together china comes back and says, no thanks they don't even mention some of the delayed tariffs. >> all the administration officials we talked to, talked to wilbur ross yesterday, they said this is not a concession to

china. they made a point to say we're not being nice this is about consumers. this is starting to square me, the brinkmanship on both sides of this. president xi is not stupid knows that president trump loves a higher stock market. and is up for re-election. i just thank god it's not nuclear brinkmanship, but this is economic brinkmanship that can get scary. they know that president trump, it means a lot i think president trump sees what's happening in hong kong. he's like you have your own issue fofrce you issue fofrce you for your econot president xi has ways to quell problems that we don't >> and president trump tying what's happening in hong kong to the trade turmoil. which may or may not complicate things let's get over to eunice yoon in beijing now. eunice

>> thank you very much, andrew as you said, there are no specifics or details about what those countermeasures are, from what we see on the ministry -- the finance ministry website, the reasoning they were giving is the move by the u.s. side contra events the c event contr consensus reached. i was speaking to some people here, some who do consult policymakers in beijing. they said china wants all the tariffs lifted and that even with the latest round of tariffs, they feel they were especially unfair the way it was explained to me, they felt president trump just announced theselatest round of tariffs and now he says he is delaying them but those tariffs should have never been put in place in the first place president trump in one of lhis

latest tweets last night seemed to suggest that the chinese needed to reciprocate because he did delay on these tariffs people here say that goodwill is not really there there's a reason why on an ou official level china did not respond officially liofficially. they feel this move was done because of complains from u.s. businesses as opposed to a goodwill gesture to china. i asked do you think china will make big soybean purchases, the don't expect any at all. in terms of what president trump's tweets on hong kong, the chinese government has not mentioned anything about those tweets about hong kong and state media has given us a bit of a sense of their frustration about what they see as broad u.s. interference

for example, the official peoples daily put out a commentary that reads to heck with the u.s.'s concern on hong kong china daily editorial said the u.s. politicians tweets expose their ugly hypocrisy when i was asking people do you think that president trump -- or president xi jinping would meet with president trump as president trump seemed to suggest in one of his tweets, the answer back was universal that is that president xi jinping would not accept this kind of invitation because then it would be seen here as china allowing the united states to intervene in domestic affairs because china believes that hong kong is a purely domestic issue. so that is something the government would want to avoid >> eunice, just to put a fine point on it, you don't think we'll hear from president xi via twitter or elsewhere sending his regrets, if you will, to that n

invitation >> no, more likely maybe on china's twitter, but i don't think so >> eunice, thank you we want to get to hong kong, separately as we were talking about there, hong kong's government announcing a wide ranging stimulus plan as it admits the trade war is cutting into its own economy it says growth for the rest of the year could be flat brian sullivan is there. we'll get to him in just a minute joe, i know we want to talk markets here and the reaction. >> yeah. let's get back to the markets and your money after yesterday's 080-point selloff. joining sus is brian levitt fro invesco north america. good global perspective but more about north america, and david bianco brian, i did not have time to talk to you earlier. i spent time with david in makeup neither one of us were getting

makeup >> yes >> i was getting makeup. >> you were. it is beautiful. it's great >> thank you >> what we decided, david, and we go back a long way, you think that this is not quite finished yet, as far as a correction. and that we may have a full blown correction we're down about 7%. you're saying it could be 10%, 15%, 20% >> the 20 is still unlikely. >> from the highs. >> i think what's likely is a full blown proper correction plays out, 10% to 12% decline. 2700 on the s&pment s&p. >> we're already down. >> i think we might have a test in september and october i think this will be a textbook correction there's enough reasons for it. valuations are not cheap they are demanding i know they're supported by the low interest rates, but these

low interest rates, particularly the possibility of something like a total of 100 basis points of fed cutting rather than the 25 or 50 that we were thinking a month or so ago. this is a real threat to the profitability of the financial sector you can trace this back to the trade war, the general deceleration of the economy, in the past you would hear me talk about threats to industrials, materials, technology companies, but this is a threat to something domestic, the financials >> we talked about your worry that even though interest rates are low, the multiple could contract to 15 tl doesn't matter whether it's the multiple contracting or the slowdown you're seeing causes earnings to go down. one way or another you put 15 on a lower earnings number, can you get to 2500 on the s&p >> i think earnings will be $163

this year. no growth this year now. i think earnings will be $173 next year. >> you should get something for that there is no alternative. >> yes if we were to be comfortable and confident that we would get mid single digits earnings growth, i would be comfortable with an 18 trailing pe on the s&p 500 until then, it's 17, 17.5 at the highest with the possibility of people getting more unnerved that the pe could fall lower than that. >> right i didn't talk to you, you heard all that were you nodding or whethere yo rolling your eyes? >> i'm nodding when we talk about the downturn in markets. downturns come with policy uncertainty. we have a lot of policy uncertainty now. i think investors should get back to what the bigger picture is, which is it's a slowing growth environment, modest inflation, a accommodative policy globally, low interest rate environment, all that should be good for equities.

but we need some -- we need to know the rules of the game until we get there, there's going to be a churn. the fed steps in i think at some point in an election year we'll have to have some agreement to -- i don't think we're getting a framework trade agreement, but some agreement to push this off a bit to the future. i think equities will respond. >> how do you think you'll know the rules of the road when things are changing so rapidly >> that's part of the problem. that's the issue we have now we had a good economy, then sentiment falls as we add additional tariffs, as sentiment falls, the capital goods fall -- >> is this the fed's fault or is this the trade war >> i don't think it's the fed oomfed's fault. i don't think this is a fed problem. >> there are people who think it is they think there was 400 basis

points of tightening when you take the balance sheet, and they're so far behind now where the yield curve is on the short end, almost a 50 basis point would make sense >> people for so long thought the fed was too easy for too long my concern is any time the fed signaled additional interest rate hikes, the fed would strengthen, the yield curve would flatten, they needed to back down. they're doing so >> but to becky's question, you think this is a trade story? is it a trade war story or do you think this is a global economic story and trade is a piece of a larger puzzle which is to say really things started to turn the wrong way yesterday as a function of what was happening in germany >> i think this is a byproduct of what's going on with trade. the uncertainty around trade that is slowing u.s. growth. >> so you think if the trade -- when you took that off the table, everything else is -- >> not everything else is great. but in the united states, 2%

growth, 2% inflation, easing fed was a fine back drop as soon as we started to muck around with policy, whether it was stimulus, then rate increases, then trade, we disrupted the apple cart >> do you agree with this? >> i agree with a lot of what he's saying. i would say a couple things. there is always a difference between gdp, the u.s. economy, and the s&p, and the profits situation at the s&p even before we get to the valuations and this is a healthy economy. however even before the trade war people had to realize we had a deceleration in investment spending, excess capacity, commodity complex, things that are important drivers of profits were already slowing down. >> that's what i'm suggesting. the jobs number always looked good on top. we thought all right now we have capex spending, they're saying that's not where it should be >> a good economy. >> hopefully it's not the ten years of central bank easing

we talked about this yesterday the 30-year at an all-time low yield, that means 30-year bonds were never more valuable than they are now, which gives us leeway with our deficit issues because our -- >> to issue more 30-year and go to 100-year? >> let's do the 100-year >> the deficit -- what threw a wildcard for me into the china thing, suddenly we're talking hong kong, they're mad at the way they're -- they're pointing fingers at us for how we're responding to what's happening in hong kong six months ago that had nothing to do with it. we were talk about soybeans. >> for a long time this trade war wrapped more into it, including north korea. >> there will be more talk of human rights and environmental concerns there's a lot of democratic nominees who believe more issues should be brought into the trade debate >> i was surprised president trump raised the issue of hong

kong yesterday i appreciate why he was doing that, but given where we are and actually how fragile it is to connect those two makes his job that much more complicated >> it's hard not to. >> i appreciate that by the way, there's been lots of times where they were separate positions. >> wilbur ross yesterday said what are we supposed to do invade hong kong cisco out last night bad forecasts. they had problems with dropping revenues when they drilled down on china, they did mention china, when they drilled down on it, it's 2% of their revenue, it was 25 -- a quarter percent weaker that is still not -- you're talking about this overall feeling about the trade war and uncertainty, but you're not seeing it if you drill down to the numbers. >> it's hard to separate >> there's a lot of things i look back and for a decade or more i used to think take every good business model in the s&p 500 and replicate it all around

the world. now i spin the globe and i have just concerns all around the world. it's a tougher environment to grow in. >> yesterday wilbur tweeted after the show and said i wish i could have made the point that tariffs have not affected import prices or companies in this country. he implied he was cut off. i don't know who would have done that he implied he was not able to say that >> there must be an impact from the tariffs down the road. >> if china is paying for the tariffs -- >> these tariffs will be eased in and left in for a long time that's what it looks like to me. >> wilbur ross was right about import prices, but when you started to see flight to quality, strength in the dollar, yield curve flattening, david's points what that means for the banks, you start to see where the problems surface the good news is that these are

self-inflicted so we can ease -- we don't have to sit here with a flat yield curve. we can ease policy conditions, central bank doesn't run out of ammunition the administration could take some steps to try to ease some of this pain around trade. >> std inveis the inverted yiel signal of -- >> we're not inverted. we were inverted briefly just because invert briefly in a low interest rate environment, the fed can ease conditions. >> i could make that point if it's 7% on the short-term and 6% on the 30-year, i can see how that's nuts. i saw cramer tweeting this morning, somebody said jim, we went from 2 basis points not inverted and then 2 basis points inve inverted and the world ends jim said do you have any idea what these moves have been really significant of?

he said it like a small cap stock trading on steroids. there's something really happening here, could be >> there is. >> any way, did we figure anything out >> no. >> not really. >> not yet >> thank you >> can you guys come back at 8:00 thank you. when we come back, much more on the market turmoil. we'll take you to the sectors impacted by the trade war and the tumbling interest rates and talk about the fed's next potential move first two big breaking news stories out of asia shaking up markets here brian sullivan is in hong kong brian, how does it look where you are? >> it looks nice now it seems peaceful, but underlying this, as you know, is a lot of political turmoil and financial turmoil. by the way, i heard andrew's comments asking why the president, president trump, would reference hong kong right now. well, there may be an answer to

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welcome back two big breaking news stories out of asia and they're taking a toll on the markets and your money. the dow futures even after the 800-point loss yesterday are down again this morning a decline now of 142 points. s&p futures down 13 points the nasdaq off 80 points after the worst day for the markets all year yesterday let's get to brian sullivan, he's in hong kong. he has the details good to see you. thank you very much. both of these stories breaking over an hour ago at the same time one out of here in hong kong, one out of beijing. i will get to answer andrew's question in a second

here's the headlines you heard eunice talk about it china vowed retaliation of some kind on the 10% tariffs. in hong kong, also at the same time, the region, special administrative region of hong kong coming out and cutting its economic growth forecast they were saying maybe 2% to 3%, they cut it to zero percent. at the same time announcing a number of economic stimulus measures to try to revive growth and maybe placate some protesters who had a press conference today in english talking about the economy among other things those protests are expected to continue perhaps tonight, tomorrow, and into the weekend in your previous discussion, you guys were talking about maybe why president trump had referenced hong kong in some of his tweets i don't know what the president is thinking exactly, this might

go into it in 1992, five years before the handover, there was the hong kong policy act, which basically gave hong kong special sort of economic and financial privileges because they foresaw the takeover from china basically, they foresaw that as a hindrance on the economy and they wanted to placate and ease out financial markets. so under that rule basically the u.s. government gives hong kong special economic privileges. here is the thing. there are bills or proposals i should say in congress, marco rubio in the senate has been a big propoentd of thnent of this' happened but they're being nudged through, whereby every year the u.s. government could re-evaluate what they view as hong kong's youautonomy and how hong kong is being treated and re-evaluate that special economic status every year the answer to your question is why would trump reference this he may be doing it as a not so

subtle lever, message to beijing saying if we view you getting a little heavy handed with hong kong, we might look to change that special status which has benefited the special administrative region so much. >> is it that or is it president trump saying look, there are reasons we should get together and talk about trade because you have issues going on in your backyard like president xi has used some not so subtle references to north korea. >> certainly could be that as well it's hard to read between the lines. i will say this, yesterday the state department, the u.s. state department put out basically a notice, a press release. they were talking about the special relationship that the united states has with hong kong, and that not -- not saying it's at risk, but that they

referenced it. then you had the president sort of mention hong kong and saying he wanted hong kong treated humanly in the negotiations, linking that to the trade deal so there's some clues, i think there. that special status certainly has benefited this area, which hong kong, as we know, 3% of the chinese total economy, it's small, but it punch es above its weight for a lot of reasons. not least of which it's the only area in china with a surplus in trade from the u.s the u.s. imports a lot to more to china than it exports from because so much fire power and intellectual capital comes through the region >> i guess the main point for anybody watching the markets, futures were up about 100 points before we heard anything from beijing. now it looks like things are getting entrenched and digging deeper on the two sides with the trade talks. futures are down 150

that's a swing of 250 points just based on what we heard from beijing this morning >> yeah. i think the beijing headlines are probably trumping the hong kong headlines about the economy. let's be clear, the other day on "worldwide exchange" the futures were up 30 points. we got headlines that the airport was closed or closing because of protests. it's pretty much fully back to operation now. as soon as those headlines about the airport came out, futures dropped like 120 or 150 points it's not so much becky the macro economic impact as much as it is the growing sense of unrest. by the way, the hong kong administrators in their release this morning with those stimulus measures noted a couple things they noted 29 countries issued travel alerts to their people who plan to come to hong kong. they say it's damaging their rep. and tourism was down, and this area was being hurt and it goes

to the sense of unrest they even mentioned brexit so all of this goes to a macro global feeling of not chaos, but certainly discombobulation >> good word that gives us a lot to dig into. brian, thank you all right. more coming up on "squawk box. as we sort through these volatile markets, in this time of volatility we look to whales. new moves from some of the biggest investors in the world, including activists in investment firms there is warren buffett. i'm not putting him in the activist category yet, but we'll look at some of his investments. look at u.s. equity futures at this moment. we're coming up to three hours ahead of the market open we would open lower, dow down

about 133 points the nasdaq also opening down a look at the premarket winners and losers in the dow. "squawk box" returns after this. [sfx: turntable - needle scratching record] [music (plays throughout): lack of afro - recipe for love] ♪ whoaahoooo oo ♪ ♪ yeahhh aa aa aye ♪ i've got so much love to give ♪ ♪ i've got so much more to give, baby ♪ this is a moment you plan for. to start your retirement plan, find an advisor at massmutual.com [sfx: mnemonic]

welcome back you're watching sq"squawk box" live from the nasdaq market side in times square. our top story, reaction to yesterday's 800-point selloff for the dow. this half hour we'll show you where some of the world's biggest investors are putting their money. we've been in this state of uncertainty for a while now. it accelerated in the last two

weeks. we'll show you how the plunging interest rates are impacting the housing sector and actual to tom freedman about china and the trade war. here's where things stand now. u.s. equity futures were up about 100 or more than that at within point now they're down 140 china threatened retaliation and said this is not cool what you did, trump but that was in response to when we said they backed you the of that deal. >> right this is 60% of the tariffs -- >> it's turned into finger pointing from both sides >> it's getting harder and harder to extract yourself from this whofrnl >> who did what first? >> i can understand both sides >> you were supposed to buy ag products, you said you weren't slap tariffs on. this is counterproductive to

what you said you would do >> makes it look a lot longer before we could see a resolution >> throw in the dow, the election in 2020 and hong kong interest rates are a big part of the market story yesterday we saw the inversion of the two-year and ten-year, this means short-term bonds were paying more than long-term bonds, historically this has predicted a recession. not every time that's the old -- it's forecast 10 out of the last 5 pretty good. >> are things different this time especially with interest rates so low >> with inflation so low so much innovation, sovereigns around the world 15 trillion of negative debt >> 25% of all sovereign debt >> history never repeats, it just rhymes. i don't know if it's rhyming

bill ackman has long said warren buffett influenced his career now he is paying homage with a new investment in berkshire hathaway pershing square bought 3.5 milli million of berkshire's "b" shares berkshire hathaway revealing they boosted their amazon stake by 11% in the second quarter according to a new filing. we're learning more about other big whale moves. leslie picker is here to tell us about them >> we talked a lot about ipos on this show. the second quarter was huge month for ipos a lot of those companies sold off in yesterday's market turmoil. we have a better sense of who snapped up all of those ipos during the second quarter of the year tiger global was a big buyer

disclosing stakes in chewy, crowdstrike, luckin coffee, and the realreal chase coleman owned uber before the ipo and it had been reported they were trying to sell the stock before as part of the listing. that same report said tiger opted not to buy more stock as part of the ipo. but the firm's latest disclosure showed an ownership of about 7 million shares worth about 2$200 million at yesterday's prices. third point bought into the high-flying deals. dan loeb took stakes in trade web, pinterest, zoom and cloudstrike. as for the best performing ipo this year, up more than 550% despite yesterday's selloff. beyond meat, the investors did not include big names we often talk about hedge funds were barely invested in the company at all. a tsh atika capital management and axel management are the two with

the largest stakes >> explain the buffet piece. i don't get it >> with ackman >> yeah. >> it's a passive investment i'm told >> that's all it could ever be >> that makes sense. warren buffett holds a huge voting majority of those shares. to run a problemsi iproxy fight warren buffett would be a big battle >> why do it >> shares have been depressed. at the end of the day activist investors are value pray layers they look for things that are cheap. ackman has not disclosed anything since starbucks last year he has not done activist on anything since adp recently sold shares of that it looked like he might get involved with utx, writing a letter to them, to the ceo there, urging for a breakup but then sold out of shares of utx

as well. this is part of a broader trend of activists taking a step back. >> ackman is like, you know? i've been doing this for a while. i'm not that great i'll give my money to buffett and head to corsica. >> he is up 50% right now. >> i'm kidding >> why run an expensive proxy fight if you can just kind of invest in good companies >> ackman had some of the great calls of all time. general growth, alexander's. it was just -- i don't know. >> gets hard when you get bigger >> it does what should i do just throw in the towel. give it to buffet. go on your yacht somewhere right? >> not a bad plan for the summer >> can't blame him >> leslie, thank you want to take a quick check on futures trading near session lows. looking at the dow off about 187

points s&p looking to open off about 19 points nasdaq looking to open off about 90 points. rate shock and real estate lenders have been busy handling refinance requests this month. we'll tell you what it means for hom b home buyers, serllers and the builders as we head to break, a look at the biggest losers in the s&p 500 and nasdaq during yesterday's selloff. [leaf blower]

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we're looking at the market response after yesterday's selloff in the dow futures a little under three hours away from the open, dow looks to open down about 200 points. s&p looking to open lower as well, off about 20 points. that down draft in the market taking a toll on sectors across the board. diana olich has a closer look at the home builders. >> the home builders took a hit yesterday as well, which was ironic given the talk about falling bond yellields which

usually results in falling mortgage rates and benefits the builders look at these stocks dr horton, lennar, up 20%, 30% or more. why? because of falling mortgage rates. the average rate on the 30-year fixed was up over 5% last november then it began falling to start the year that's when the builder stocks took off it's well below 4% builders reported stronger orders this spring what's next? low rates but high fear over a potential recession. i interviewed ivy zellman yesterday, she said the market swings we're seeing now will only affect higher-end home buyers i spoke to the ceo of kb home last week, he said while lower rates help, consumer confidence moves sales more than rates. confidence in housing is high now, but if there are more signs of a recession, it could take a hit. >> thank you very much

when we return, let's look at yesterday's selloff and the market's response today. we'll talk about the breaking news out of china put pressures on the futures once again this morning. we were up about 100 points before we heard from beijing and it's retaliatory tactics now you're looking at the dow futures indicating down by almost 200 points. we'll be joined by tom friedman right after this break and talk to him about has he sees happening in the trade battle. as we head to break a quick check of what's happening in the european markets they're also under pressure. the dax down by 1.57%. the ftse off by 1.6% the cac down by 1.32%. "squawk box" will be right back.

breaking news out of china the last hour on the trade war let's get to eunice yoon again with the details hi, eunice >> joe, china has vowed to take

countermeasures if the u.s. carries out its september tariffs. on the finance ministry website, the authority says the move by the u.s. side seriously contra events the consensus reached between the two leaders of china and u.s. during their meetings the move deviates through the correct track of measures. it was suggested that president trump in his tweet that the u.s. -- that u.s. expects china now to reciprocate because he has offered up some relief on the tariffs. and the source of mine said the chinese don't see it this way. they see it as a way that president trump is addressing some issues within the u.s.

business community, and this is one reason why we have not seen beijing officially making a comment about the tariff reprieve now, what i also thought was interesting was you guys were talking about what the -- what president trump was thinking when he mentioned hong kong. you were talking about that with brian as well. there is a theory that's going on here in beijing that is that president trump mentioned hong kong because he doesn't think he's going to win with china so the thinking is that he is seeing that there could be a u.s. recession, that he doesn't think that he's going to be able to get the best type of trade deal, and he's worried about what impact it could have on his political base the thinking is that he's instead trying to talk a lot about hong kong in order to as an issue that he doesn't think will go anywhere since previously he seemed to share the same view as china this was

a purely chinese affair. >> eunice, that's interesting. almost a pressuring tactic to try to get them back to the table on the trade talks by putting pressure on this situation. >> yeah, exactly so finding a way to try to get the negotiations somewhat delayed, but then not actually in the end having this trade deal go anywhere >> eunice, thank you very much for more on u.s./china trade tensions let's welcome tom friedman, "new york times" foreign affairs columnist, and the author of "thank you for being late." his latest column is focused on the latest u.s./china trade tensions, and talking about president trump and president xi being locked in a cage match your column looks more pressing

based on what we heard out of beijing. it looks like this is ratcheting up with no end in sight. >> i think where we need to go on this now, we have to get off twitter, both sides. they'll have to sit down face-to-face it's clear to me that the kind of deal thatface-to-face it's clear to me the kind of deal the united states was aspiring to, which is a deal that would codify american law and real life goods in the coin market that's just not possible right now. it's pretty clear the chinese system simply can't handlele that i think the best outcome would be if the two leaders sit down on representatives sit away from all the press and basically reap some informal understandings china will agree to buy more american goods but also open its markets in ways that it does not codify in law, which xi jinping fears will make him look too weak and america looks to postpone some of the tariffs

i think this is how it will end ultimately, how we get there, i can't predict. >> that sounds reasonable. how do you get there with both side saving face >> i think you do it by the united states saying we will lift, postpone the tariffs or temporarily lift them for the second six months or a year. we'll see how china does, china will say we will be opening our markets more, nobody puts anything in writing. we have to see where we are at the end of the year. i think that's about the most the traffic can bear right now >> you know you have been behind the prussia, president trump's push to try to take china to task on a lot of these unfair trade situations the idea of backing off at this point and saying, okay, we'll wait and see what happens. i feel like we got to this point partially because the chinese had been stalling again, which is a tactic they're pretty good at >> no question

one of the things that is important when you use the word coin i prefer to use the term one-sixth of humanity. that's what we're dealing with here it moves slowly and they're moved slowly so my feeling was the president was right, that the structure of u.s.-china trade had changed and the game had to be called in this sense china got rich over the last 30 years, went from boar-to-middle income one bucket was hard work, delayed gratification, long-term planning, smart investments if infrastructure and education bucket number one. bucket number two was basically non-reciprocal trade arrangements, forced technology transfers and stealing intellectual property. bucket number three, by the way, very important, was relying on the u.s. fleet our fleet assured all of china's measures that china could dominate economically but fought

geopolitically that was the strategy china used to grow around toys, tee shirts and tennis shoes the character of what china makes today and wants to exchange to us, now it's batteries, cars, ai, part is smartphone if we use that from poverty to middle income to grow from middle income to high income, we, all of the partners would be crazy. the game had to be called. they signed tpp, align with the european, create a broad front around global mark access rule i was not a fan of the tariff strategy but i was a fan of getting tough. i think the president was right to do that the game had to be called. >> it sound like we need to dredge up the kick the can down the road so that's all we're going to do. >> joe, i wish there was a better strategy. you see the pain being inflicted on both societies. i just don't see how this is

going to come to resolution. >> we won't, but do you in your view and you've seen it happen, the arab spring, remember the fall of the soviet union and the berlin wall, do you see the seeds of anything similar to that in hong kong and, you know, we have talked about eventual regime change in china and then we deal, we have been dealing with a completely different set of parameters, or do you think culturally one-sixth of the world's humanity responds effectively under an autocratic government can it stay like that forever? it seems like eventually there is a wakening of what the rest of the world has and they know what we have in terms of freedom? >> joe, i think are you asking probably the most important geopolitical question which is where is china my view on this has been china was on a path. coin today is so much more opened than it was 30 years ago and it's so much more closed

today than it was five years ago, that xi jinping took china on a right turn backwards. and a lot of people have written, they've found the magic formula, where you can stake control of the economy political repression and innovation. i don't buy that i think in the long term they're going to have to open on their own terms in their own way i think what hong kong tells you and i would add to hong kong, joe, istanbul, the election there. what's going on in russia today is that people, god bless them, have bodies and seoouls and any time a regime things to think they can feed one tore other for a long term, they made a mistake. xi jinping is one of the players in the story we don't know anything about what we know last may they seemed to be on the verge of a deem all of a sudden they made a

giant u-turn we know that happened. why did that happen? what is xi jinping thinking? what by the way, we all basically know what trump's position is. does anyone have any clue what xi's position is, is he in favor of no market opened here i don't think they have done a good job of explaining their position as well it's one of the things that concerns me. now you introduce hong kong into this story which is a hugely nurk /* nurl neuralgic story. >> it's like this dark, deep, right sort of at least a slate grey but that's good to know. anyway >> tom, come in the studio we'd love to see you and sit down longer with you we appreciate your time today. >> thank you for having me. when we return, "squawk box"

has you on every story impacting your markets, we have walmart earnings, the interest rate effects on bank, fed, auto lending, plus new struggles for the aerospace industry we're two-and-a-half hours away from the market opening. nasdaq about 22 points down, s&p 500 down about 14 potsin we'll explain it all in the next two hours after we return after this

breaking news, china jolting the global markets early this morning threatening to retaliate against u.s. tariffs futures whipped selling on the news pointing to another wild day on wall street. it's not a bat signal. call it the bond signal. curves are inverting and some yields are dropping, record lows what this tells us about the broader global economy plus, earnings alert quarterly results from the largest retailer about to hit the tape walmart's numbers straight ahead. we are covering every big story impacting the markets and your money as the second hour of "squawk box" begins right now! >> announcer: live from the beating heart of business, new york this is "squawk box" good morning, welcome back

to "squawk box" right here on cnbc we have a big morning, i'm andrew ross sorkin along with becky and joe. we have a contributor, chief investment advisory group, we want to get his thoughts on this very volatile market let's show you u.s. equity futures at this hour we are in the red. markets looking to open lower, the dow off 133 points nasdaq to open down about 65 points s&p 500 looking to open down a little over ten points i want to get to courtney right now who has walmart's results, which everybody is watching. good morning >> yeah, hi, good morning. here we go, for walmart's second quarter, we have adjusted earnings coming in at $1.27. wall streeted a will be been looking for $1.22, that's stronger than expected on revenues of 133.7, better than consensus. >> better than core?

>> $130 billion. the world's largest retailer raising the full year guidance as well for guidance for revenues and u.s. comp sales wal-mart u.s. comparable sales actually coming in 2.8%. that's about .4 of a percent above what analysts have been expecting. >> that marks the 20th quarter comps driven by grocery both in store and online walmart's online net sales, those were 37% >> that matches last quarter's growth rate. you are looking at about 35% for the year i spoke with walmart cfo brent b biggs. it's been a hard couple weeks after the massacre in el paso and mississippi. they say it lists for other tariffs but it's still walmart

importing one-third of the merchandise sold in the united states in total and just part of that is from china so further, bigg says walmart is hopeful for a long-term agreement when it comes to tariff policy. in the meantime, the retailer thoughtfully managed through profit and margins, they're working to find a nice balance between customers and shareholders, when it comes to the broader economy, bigg says we are watching tariffs. they have been on our mind the last several months, as a cfo you are looking forward to what is coming. we seen over the years, walmart does well in different commitment environments. >> it's very bold they are raising their guidance >> it is. >> not even knowing exactly how things will go down with the tariffs or things happening. there are people saying maybe they would have done that a few weeks ago if not for the tariffs out there. >> that is a bold call >> it is, it is based on their understanding of the guidelines from tuesday and just a reminder, we know how big walmart is

you pointed out the revenue numbers, this is important to remember, the they import a third of what they sell. a third comes from china. >> it's 10% of all sales and largest supporter outside of the federal government. >> it's still humongous, of course walmart is looking at this like other companies that sell multi--categories with the pricing a and the margins. if there is an item that has a tariff on it priced less, they may not raise the price of that item >> you were saying i felt a little emotional i did like this great company when times are really scary and there is a lot of trepidation to put up numbers like that, the world is not over for the future, especially given the recent you know events out of walmart, it's just -- maybe it wasn't the moment but just proud it's a great u.s. company. >> the second player. >> >> macmillan is doing a great

job, malmillion i think he should -- macmillion, he should add the i. courtney, stay where you are >> we want to get reaction >> you feel that way about hugh way? >> i don't feel that way about hauwei i do want to show you the futures. the dow looks down about 128 points, things were looking up, they turned around after china said it was going to impose countermeasures. those countermeasures, we don't know what they will be charlie o'share, a retail analyst at moodies, the confidence that they seem to have and yet the markets obviously don't have, not in walmart, don't have a lot of confidence right now and we don't know what china will do next on the tariffs. >> even with the dow under pressure walmart up 4.1% even with the massive pressure on

stocks overall >> this is walmart flexing its swagger. and doubling down on what it's been doing over the last several years. we're going to invest and then we're going to just come in and we're going to take market share. what i found amazing about this quarter and i don't throw that word around very often when i tell you about retailers is the margin expansion in the u.s., given how promotional things get in the third quarter, surrounding amazon's prime day everybody jumps into the game. everybody plays "me too. walmart did it best buy did it. walmart was still able grow margin in that quarter amazon we see, it's a third quarter phenomenon for amazon. so we'll she how that holds up but that's the one thing that really sticks up for me is that the growing share, they're in this protracted price war with amazon over margin share and it's continuing to expand. >> speaking of the amazon war there, i should note that they also say that next day delivery

service from walmart.com covers 75% of the country they've just announced that no so many months ago they were aggressive in doing that they said, look, we back in a minute our supply chain with this in mind, so it wasn't this big one-time cost. we had built it in a way that we had intended for it to be this fast. >> can i just ask you a question, too, when they break out grocery online, the stores are doing pull fillment. >> that's tricky they talk about online grocery and they talk about i asked this question about what about the grocery a pure instore they said that was one of our best comps and high single digits there. >> they're the ones fulfilling the orders. >> they r. there have been some concerns sometimes the aisles get crowded with the regular shopping with the walmart employees doing the picking. it seems it is working people are using it. >> is this a purely walmart story, meaning are we looking at

that, doug macmillan, that management team, they've nailed the system or does this say something about the rest of our economy when we're having a problem with it? >> well, the walmart shopper demonstrates middle and a little bit lower, but let's not forget about a third of walmart shoppers make over $100,000 a year so ipt not what it used to be. it is a good cross-section i think it speaks to the health of the consumer i think anyway is similar divorced from some of the other things we are seeing >> explain that. >> the consumer is still healthy. and the markets are influx a lot of things are happening. i know you had mark sandy on yesterday and you know mark painted a picture. but the consumer, itself, or themselves, is still spending. i mean we're still seeing. >> it's been bifurcated for a while. some of the others have been abysmal. >> the question is whether the consumer is a leading or lagging indicator. what are the numbers you look at

these days given these sirens going off between two two and the ten-year and everything else that's happening in the market in your world? >> consumer confidence is critical from where i sit. if the consumer feels good and the universe in michigan and conference board, if those numbers are solid, then that tells me the consumer is still out there and still spending i look a lot at car sales. i cover the auto retail sector as well and when those are booming, it's a a sign of consumer confidence, b, also a sign that maybe the consumer doesn't have as much to spend other places now car sales are starting to contract a bit, it frees up spendability for the consume early. and to joe's point, we are seeing a distinct bifurcation in retail what we saw yesterday, what we'll continue to see over the next several days with target reporting, best buy reporting, costco reporting some sales numbers, is the guys at the top of the food chain are just feasting on the guys at the

bottom of the food chain that's not going anywhere. >> you have to have a good web presence a strategy for energy. >> walmart point for point helps the dow. >> yeah. >> not to this extent. the dow down 43 points wal-mart is up five or six so six times seven is 43 43 points and that's -- >> another 45 points somewhere >> it's just in better tone, really. >> because, look, if you can say we can survive the challenges out there. that's across the board. >> that's why i looked over at you, when the demons come at night, like last night, were you worried about wal-mart or you knew it was going to be a great quarter? >> no, i can't to believe that walmart will set the tone. >> nothing surprises you >> no, absolutely not. >> i looked over at you, right you got, i saw you -- >> one of my eyes is bothering me what we're seeing is the margin expansion is the thing that really hit me. because -- >> what was the margin expansion? >> five and change >> the operating income, we have

4% >> yeah. >> so 4%, even with the onslaught would have been expect ed how much do you take away from this new guidance? the reason i ask is, because what is the cost for walmart in terms of credibility now you will think i'm a cynic, for them to come out and say this, and if dare i say the tariffs get put on, it's terrible, i would think you would have a very easy time of turning around and saying you know what, we thought this is where the world was headed but actually got so much worse and obviously the stock would get hit, i'm not sure, i'm not sure it would be a bad excuse >> all they can do is tell us what they see based on what they said on tuesday and things can change on a day-by-day basis >> that is a smart savvy team. they will not over promise and under deliver. they've seen through this, the supply chain, they source a lot

overseas but they've done a lot to hedge almost any possible occurrence in the markets and with disruption and all that kind of stuff, this is a company and i think i've said this before, i've covered these guys for 16.5 years now. this is as good as it's ever been. >> remember tom freedman said coin did it through tuesday. >> tees. >> you think china gets all the free stuff from china to sell. is it because of the yuan if they really, has china made it possible >> they've also said their goal is to be the low price leader. if everybody's prices are up and walmart's are up, they will still be the low >> charley said you said they're the best at this they have diversified. does that mean everybody else is going to be able to sidestep some of these issues the same

way or is it going to be more impactful on somebody that doesn't. >> i will switch to a different retailer i'm use best buy for example if you want to tv, best buy has the broadest selection sourced from multiple countries. walmart is in the same boat. they have as broad a selection, obviously, they're not neiman marcus, but in their cohort hay have the broadest selection sourced from multiple places, say tariffs implemented and they're awful. walmart will still have a product that you will be able buy that isn't tariff-impacted so they won't have to rely so heavily on the muscle they can flex with vendors for the vendors to eat some of the price increases that would emanate from a tariff. >> to what extent is walmart going to try to pass it on as opposed to eating it >> in the past they've leaned on the vendors as heavily as possible to avoid having to pass it onto the consume zpler they'll source it somewhere

else >> if walmart has to past s pass it onto the consumers, that means everybody else is dock it in a big way and walmart will come out in a big way in my view >> i seen days like this, you get inthg like that you see one data point and everything else ends up down anyway, six or seven points doesn't help the overall average. >> are you left bleakly today? did walmart help at all. >> i look at walmart as a consumer non-durable in a sense. i think the market proceeds by wag mart >> so it doesn't help. >> it's a phenomenal company that put up good numbers >> but it doesn't change your overall view whether it's why a downturn >> the consumer is the way to reflect it >> thank you let's get to the big market story of the money china threatening against u.s.

tariffs. eunice joins us from beijing maybe you can explain what you are hearing there in beijing >> reporter: well, first, what's interesting is that there are no specifics to the counter-measures, so that's an important point. but the reasons are on the finance ministry's website the authorities detail it saying the move by the u.s. side seriously contravenes the consensus reached between the two leaders and the move deviates from the correct track of resolveing difference through consultation now i was speaking with a source of mine who consults with chinese policy makers and he said that the chinese feel that they want to have all the tartives lifted and that this particular set of tariffs was unfair so he said that in terms of the reprieve, that the officials feel that this reprieve was really meant to address concerns of the u.s. business community and not really meant to be any relief for china and that's one of the reasons why he said we

still haven't seen any official comment from beijing about the reprieve or any comment directed at president trump's previous meet, which seemed to suggest he wanted the chinese to reciprocate when it comes to the tariff reprieve. guys >> will you stick around, eunice for like the next 12 hours, if possible so is that we will keep >> not 12 hours. but a lot of hours is fine. >> okay. thank you. we'll be back in touch coming up this morning, big stock movers including ali baba after that company included quarterly results. first, the big number of the day is 481 that's the dow's daily average range so far this month. remember it seemed so quiet in the summer nothing going on, suddenly 481 which was in double the average range logged during the rest of

2019 the dow has shed 1385 points since august 1st >> stay tuned. you are watching "squawk box" on cnbc these folks, they don't have time to go to the post office they have businesses to grow customers to care for lives to get home to they use stamps.com print discounted postage for any letter any package any time right from your computer all the amazing services of the post office only cheaper get our special tv offer a 4-week trial plus postage and a digital scale

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quarterly results in from china ali baba, the company beat estimates for the latest quarter. it was helped in the core ecommerce business and the cloud computing unit. some other headlines, shares of ge have taken a leg lower in the last few minutes after a story in the "wall street journal" which made off whistleblower says ge masked its problems with financial filing also a ge spokesperson says ge stand behind its financial reporting he said he told about madoff's stories before they were made public >> that's a weird story.

is it not that they got mark copolis? >> mark kopolis has been trying to look at a wholenet ne -- whole nether world of business >> people are willing to believe this too quickly probably, unfortunately. >> but that's interesting, he's consulting >> he's in that world. he's in that world i don't know where the, who is paying whom and what not, but i hear his name often times within the short seller community apparently you will hear markopolis is looking at so and so. >> that would be hurting the dow. but it's not. >> not anymore. >> not today. >> not in the dow. >> not in the dow anymore. >> which is also something to get used to, too. by the way, we've gotten the latest numbers from pappestry, the company formerly known as coach, it reported profits of 61

cents a share. >> that matched estimates. revenue fell below the street's forecast tapestry said coach was strong and kate spade did not meet expectation and that stock is down 5%. and it's an extremely busy day for economic data. at 8:30 eastern, we will be getting jobless claims, retail sales and productivity and industrial production. business inventories and home builder sentiment will all be out. coming up, a lot more coming up we will talk about bank stocks, getting slammed, so the big question, of course, should investors be running for the hills? or are these buying opportunities? we will ask the top financial analyst right after the break. take a look again it a rue now at futures at this hour. boy, it's already been whipsawed around for us. the dow looks like it will open, 50 points lower. it's a lot better than we were literally a half an hour ago

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welcome back to "squawk box. the treasure yields are uninverted again so we can all, never mind with the inversion. do you believe that? 153 now on the ten year. a sub 2% yields on the 30 year,

so government gets your money for 30 years or you stay, at least you stay in the bonds for 30 years you get less than 2% a year. >> that's crazy. dividend stocks, unless they're going down >> this is historic low. we never seen 30 year fall below. >> bonds have never been so we're still invertd on the five year just not -- no we're not. okay so ten years okay that's better. bank stocks, though, it doesn't help them. getting hit hard this week dom chu joins us with a look at some names to know and i guess we shouldn't be that surprised at what we're seeing they like to lend, short, borrow, long anyway, the yield curve is not working for them, right? >> no, nims, we often throw that term out there, net interest margins, all of that stuff in play for those big banks like you said let's look at how some are playing out in big market today.

we saw a pretty good sell-off yesterday. one of the worst performing groups right now banc of america shares are off a third to a half a percent on pre market trading on roughly 40,000 shares. banc of america is exposed a little more than some banks in that investing and spread activity we'll keep it on those shares. also watching what's happening with citigroup shares, yes, they are xha capital markets extensive as well. those shares off three-quarters of 1% on roughly 4,000 shares of pre-market volume. then we will focus a bit on wells fargo, among these three the most sensitive, some of that lending activity and fet interest margins, those shares off a half a percent on pre-market shares as well. those three stocks in aggregate and industry-wide overall takes us to a lock at just how some of these bank stocks have performed over the course of the long term now, over a year, the spider s&p bank etf, kicker kbe is down by

13%. certainly not a good performer look here, it's been range bound and yesterday a leg lower, we'll see if this trade plays out a little more. over to you. >> joining us is geoff hart, executive principle at sam o'neill, jeff, we did finally see an inversion with the two year, but none of these yields really came out of left field for you know just yesterday. it's been six months, so people should know that the banks have been challenged for six months should there be new lows in the bank stocks or are we getting to the point where the word's already out on these things? is it time to uy >> well, i mean, look at overall, it seems like they're oversold, maybe that's kind of my feel. though it's hard to make kind of the blavg et statement, you got to buy banks here. even if the yield curve inversion and it depends what you look at doesn't for shadow a recession in the future, a flat

yield curve and a ten year under you know 2% makes a tough environment for banks. so i do think banks are oversold here i think there will be a time to buy them i don't think you got to go rushing in kind of today necessarily. when are you looking to buy banks, though, i still favor the universal banks, the big guys, right? you get more fee relative than an interest income with a lot of banks. you get capital markets exposure if we do get into an environment where the economy is okay with the yield curve, capital markets could be good. they're returning a ton of capital and probably most importantly, they've got scale and they've got the scale of the fed profit margins really well so i mean look at banks, be selective. but focus on the big ones. >> how about i want to get to just say it here, but, jeff, you point out that the august has a feel of a panic move to some extent and 800 points on the dow. they cover it on the "nightly

news." people get specials that preempt other programing and normally those are sort of sharp, scary breaks that mean that we eventually make that back and go higher >> that -- do you worry more about the slow sort of sickening decline it takes a long time, it just happens in pieces are these sharp breaks, which seem to shake out the weak ends that people want to own therm long term will buy them cheaper >> currently that's what we've seen really since the financial crisis when you get panics they don't last very long as long as the underlying economy stays okay at this point it appears it does, it's tricky to say that, the economic numbers lag so the yield curve tends to be a leading indicator. most of the color commentary from bank management suggests things are going well and the credit quality indicators are good so i think this is probably

overdone and the catalyst could be a trade deal from china and u.s. i mean it wouldn't take a whole lot to maybe turn these things around i don't think you need to rush in and kind of catch the falling knife here because even if we do get better news for banks in general, it's going to be a tough environment after if 2018 it was about as good an environment for banks as you can get. >> jeff, following that point, where are you with loan officers are they tightening lending standard what are they seeing on the demand side for loans? are companies looking to tap credit facilities as sort of the backups? >> you know, we're not hearing so much about the demand for loans going away, though i kind of got to preface that with loan growth has been sluggish for a while. it's not like it was terribly strong to begin with when you look at capital market space, talking to some of the investment banks, you hear companies engaged if strategic

dialogue in wanting to do things, kind of a less urgency and be more cautious in the long term it feels we are getting a pullback in the willingness to act the longer term secular or i should say cyclical desire to act is still there i think that already an important thing to watch economic ally over the next couple months if we see a sustained dropoff and capex and things like this that that will be another feather in the quill of the bear saying a recession is coming. if that maintains itself or picks up, i mean that could be one of the catalysts that pushes bank stocks back up again. >> hey, i want to just point out to the viewers, while you were talking in that last few sentences there we have seen hugeactivity, some moves in th futures watching all of this dow futures were up over 150 in the last couple of minutes then we slid back down to up about 70 now dow futures are up about 95 points a lot of people placing their bets before we get in this

morning. >> it wasn't you, jeff. >> futures down 800 or the dow is down 800 points yesterday that was the biggest decline of 3% we've seen all year this morning, the futures were up by over 100 points early. but then beijing came out for anybody waking up, by a skwing came up and threatened retaliation against any of the tariffs that are due to be going on very shortly in september >> futures down. >> futures down about 150 points walmart came out >> china hopes u.s. can meet halfway with it on trade >> okay. this is a much better sort of message that wear hearing from beijing than we did a few hours ago. >> china hopes u.s. can meet it halfway with trade issue >> if that's the case, if it looks like both sides would be willing to come back and come to the table and talk about things, that would be a reason you'd see some ups and downs again these are just head lines. there is clearly a lot of pressure on both side. a lot of pain on both sides in

terms of the trade talks and the economic fallout of what's been happening. we did hear from walmart coming out, not only beating expectation handily for the quarter. also raising guidance for what they see the rest of this year >> that tells you a lot, too, when walmart imports so many items coming from china and would be impacted by the tariffs. they say that they still expect to beat expectations where they'll rise i raise guidance because they think they can manage based on what they know the latest tariff situation is on tuesday right now the dow is up by 2 points the nasdaq are up by about 3 points. >> if it's not the tariffs that are causing the global slow down and the inverted yield curve, then every time we you know hit the buy button when there is the slightest ensin wakes that there may be some progress there, what good is progress if it's not because of - >> well, that's to me the fundamental question that's why we say is tariffs the small piece of the puzzle or is

it a puz sfl. >> i think it's a lot. i think it is the puzzle. >> from an economic standpoint it's less than the tariffs that's a good point there. >> did the two basis, when you ba irly invert, does that really mean something sore is it -- >> i looking the two 10s inversion is sort of the last domino inversion. >> we had a lot -- >> reports of the curve has been reported for a while reports of the curve has been reported -- so manufacturing globally is in a recession i can argue. capital spending has been soft trade has been soft. the key with the u.s. and whether we go into a recession or not is what's the behavior of the consumer will be >> this is the most widely telegraphed recession. >> that's the thing, when are you in a record expansion, everyone is looking for the end. >> it won't last forever i guess. we heard ninth inning yesterday from bernstein >> 9th inning in a 9 inning show or is it -- >> they don't have those

anymore. >> you do get extra inning also. phillies had one a week or so ago. >> ernie banks >> i loved him i loved all those old guys, frank robinson anyway. >> thanks to jeff. when we come back, lots of talk about the yield curve this week but what does an inversion really mean and should investors be worried we'll debate that question first, though, as we head to break, check out walmart the dow component is on fire this morning after beating expectations and raising their guidance for the full year look at this walmart now up 6.4% that is saying something given the take we seen this morning. stay with us you are watching "squawk box" on cnbc t

. three big stories this morning. walmart shares rising on better-than-expected results. then there is china threatening to retaliate against u.s. tariffs treasury yield capture the attention as well. the yield dropping to 2% for the firsti in t mehistory. we have all these stories covered when kwaux com"squawk b" comes back

welcome back to "squawk box. what a wild ride we have been on literally even just this morning with the futures right now they are pointing to a higher open. 73 points higher after being up several hours ago. then taking a real tumble when we heard about retaliatory efforts from china everything switched around in positive territory when wal-mart gaye came back with a

better-than-expected results and better guidance. then we had a headline that appears to have come from a chinese news agency suggesting there might be an opportunity for some kind of trade story >> that's what freedman said half measures on both ends. >> we should caveat we're unclear about the veracity or at least where it's coming from. >> the news agency >> it appears to have moved things into positive territory s&p 500 now looking high sfwler >> i will inquiry you. we do a lot. the big question from investors what's behind the sell-off steve leishman joins us with answers. >> i have answers. you might not like them, though. >> my question for you is that, when you got 30-year bonds so valuable and so much demand -- >> right >> -- why don't we now know monetary theory now works and we can run trillion dollar deficits and never think about it again >> maybe it's a question for

john >> why does it matter what we spend because we will be able to float whatever we want to float it even go 100 years, go a thousand years >> you can do all that, joe. modern monetary, you can >> we have been waiting for the till you can't time for a long time. >> we have been. i have been a person that has been skeptical about the people that have these dire forecasts on the deficits. >> are you not amazed at the 30-year beingall time low yields and is most valuable piece of paper on the planet that we've never seen before >> i am. but i'm interested in the idea that the thing that the bond market cares about most is inflation. the next thing i think the bond market cares about most is, where it puts its money next and it's the fear that i will invest at a lower yield that i think keeps people going into this long-term paper and i mean,

look, we would give you an exercise the other day, i'm going to give peter $100 for a year i'm going to lends him that money and he's going to give me $10 back and i'm going to give you $100 for tern years and you are going to give me $5 back right. the idea that you should be paying me more but it's the other way around. it's the inversion that is so curious. >> what did you say about the german - >> to the 30 year minus 20 basis. >> let's skip all of this. what i want to show sui that the president has blamed the fed but the tale of the tape is essentially that it looks much more closely tied to trade if you guys want to skip to the full screen that i have created with the data on it that i looked up. okay in the 24 hours afterf the fed meeting, the, ma fell and it came back. the s&p was only down 6 points in the hour before the president tweeted that he was putting new

tariffs on in the 24 hours after that, the s&p fell 86 points so people blame the fed, in fact, it looks more tied to the president's tweet. then go ahead and look, the yuan fell that was another 60 points on the s&p. you come back, the tariffs were eased. that was plus 60 >> when you go back the december at those lows the fed reversed course look at a three-month effect of what happened, you have a huge bounceback in the face of all the tariffs and the trade wars continuing so a 24-hour move, a knee jerk move is never right. you see what i'm doing >> no, i don't. >> you have 24 moves, knee jerk reactions. >> those are the market reactions to what is happening those things add up one after another. >> do you not go to new highs while the trade war was happening after the fed reversed course >> did we go to new highs? >> in the averages after the fed reversed course in december and said there were no longer and the trade war was still

continuing >> here's why i keep a very careful track in our surveys of what market expectations are this is what i think is really key. the market has been burned i think twice and maybe three times in its outlook on trade. we had the market pricing in a tariff agreement in 2018 and that was burned. >> that did not happen then we had the market pricing in that they would continue talking. >> that was taken away so those are the things that i think are the unexpected moves meanwhile, if you look at a one-year chart and a ten year, there has been an amazing amount of easing in this market 150, 170 basis points of easing if you look at the ten year. so i'm just saying, you can blame the fed. what does the market do when these things happen? it prices in more fed rate cuts. >> the fed is down 400 basis points they're way behind, they need to go 50 next time. >> they're not behind in the

sense that the market has priced in substantial amount -- >> they wouldn't have inverted if short rates were much lower >> i think that's probably true. >> so then we wouldn't have a recession. so it's all the fed's fault. >> the fed priced itself, joe, for a market where china and the u.s. continue to talks for a market without additional tariffs. that was the world on july 30th. the day after that is when the world changed. >> steve, stay here. i think you will be interested in this next conversation, too, which blends into all of this. joining us right now is the head of the black rock investment institute and he's got a very interesting paper on what's been happening with central banks and what happens next. john, thank you for being here great to see. >> you thanks for having me. thank you. >> first of all, your thoughts on what peter was talking about the 30 year now yielding a negative 20 basis points can you believe this situation 16 trillion almost in negative rates for sovereign debt around the world?

zblnd. >> and more than 60% of europe in the universe negative it is mind-boggling. i think there are massive forces behind them that are related to you know big risk inversion and flight to safety i think this is what we are seeing playing out rates are raising a big question of what is coming next especially from our side, the biggest question is not so much whatever we have a recession, i don't think we have one. i think trade is a big driver of what's happening in terms of mark, the biggest driver the biggest question for us is what's going to happen when we have the big shot next and central banks are fought clearly able to do much in our view. >> i wanted to dig into the bigger question. i think it's very important when you just said you don't think this is signaling a recession, the inverted yield curve >> no, i think if you look at the fundamentals overall, we think it's slowing down, the slowdown is material globally. europe, germany is doing bad this is a big beat in the global markets economy. so it's slowing do you mean. there is no clear dynamic that

should lead to a recession per se except that there is big tension, big shots so that's why geopolitics trade is the biggest driver. without these shots, there is no big imbalances that trigger necessarily on its own a recession. >> your biggest concern is we are now in a situation with monetary policy where you can't do much mord and with fiscal policy is going to be under extreme pressure, too, because of politics? >> yes, the reason why it's the biggest concern to us is that if we don't know whether a recession can happen and over the next couple years, it's very likely we will see something that will look like a recession and we don't quite know what's going to be available if terms of responding to this situation. and i think that's what creates nervousness on the part of investor that's a part of the reason why it's such a big bid for long duration assets. that's the protection you are seeking if you don't know what kind of policy. >> how is the fed curve? >> so i think you know the point

here is that 25 basis cuts here and there not really the solution to this confident problem. it's more what's going to happen what can they really do when there is a big shot coming with the yield curve as flat as it is now across all maturitys, there is not room to do much there is not room to do anything sizable to respond to a til typical garden variety recession as we've seen in the past. >> we will not handle it anyways. >> well, i'm not worried about this being the reason why we should be at this stage in 2019, this is not the driving, it shouldn't be a drive of concern. but shops are accumulating the market is focusing more and more about what we can do about this. >> can you do qe >> all of these policies, they have worked by lowering rates. you know, it's further started by lowering the short-term rates, the policy rates. when that was not enough, we started to work off the yield curve and buy long duration asset.

>> it works in doing that. it doesn't work in stimulating economic behavior. here in europe i argue the ecb is actually restrictive because it's killing their banks so how do you expect faster growth when you destroy their banks and profitability? >> before he answers that i want to say, peter is an advocate of something that has a little support out there in the world a little bit when it comes to smart people, among them, peter, about the fed targeting the yield curve. right. you think that what the fed ought to do is take action to establish a positive relationship between the two in the ten so that banks can lend profitably. >> well, i am for if the fed wants to cut rates, i am against them repeating the mistakes that the doj and ecb and going back to zero. i this i that i will cut rates, that i have to stop like 1%. and just say you know what, that's all we can do because we don't want to damage our banks. we don't want to be in that rat hole that the ecb and doj are

now stuck in and trapped at these lower levels. >> john has his own solution and it's one that i really had to read through a couple of times in your paper and get my head around it, because we have all been taught for years and years and decades that monetary policy and fiscal policy have to be run separately by separate institutions the fed and the treasury should never kind of commingle. you got this idea, like a ghost buster's idea like cross the streams and team the two of them up >> i think the issue is starting to where we left it and then getting to the way we were seeing things isio edge t i donk the yield curve is effective for lowering rates is impactful. even independent of that, there is not much room for rates to go lower. so as a result we think inevitably the next prices will require policy makers to blur the distinction between fiscal and monetary policy.

always measures you can think of will have to have a flavor of going direct what we call direct means bypassing the -- by passing the interest rate channel without lowering rates anything you think of this flavor as a fiscal element to that we've seen some of that in the last crisis. some of the credit easing, murring the distinction between fiscal and monetary policy. >> it was a blurring of that. >> so is mmt. >> that's typically what happens in a crisis and it's not a long stretch from what you are saying to helicopters right? i mean helicopters dropping money down on people >> the extreme form is helicopter money absolutely but once you go down that path, it's an extremely slippery slope, which we are very worried about. we are bluring distinctions, the central bank independence is not a part of the picture anymore and how do you control like reckless fiscal spending like this so, the point here is we think that the pressure, if we will push in that direct, no matter

what, because we are going to see the toolkit being completely bear so the point of what we talk about is how do we put guard rails around that? so it is a case we think of passing interest rates, you have to have some nice cam element in nature how do you do that in the way that you know maintains institution credibility and strength at the same time as providing that stimulus. to do that, we think there needs to be. we talk about exploring the possibility of an emergency standing, fiscal facility, that could be available only, you know, when margin policy stems out and putting the guard rails. >> we need to pass the baton from monetary to fiscal. he's on at 8:30. >> that's draghi, that's all he ever says. >> i don't think we used qe to buy s&p. have we tried that yet can't you? >> japan has >> japan has

really get this market >> you see the smile on joe's face that was a devilish smile. >> people have tried it, though? >> they have bad idea they failed miserably at it. >> japan. >> 70% -- >> up to 4,000 quick. >> don't give anybody any ideas. >> john, thank you for coming in we really appreciate your time. >> thank you very much. >> steve, good to see you. 8:30 retail sales data big data for the day you want to tune in for that. given all these big headlines coming out of asia this morning that seems to be swinging the markets around in all different directions, we want to get to brian sullivan, who has made his way to hong kong and where we find him this morning. his evening. brian, good to see you again. >> reporter: yes, andrew, by the way on a nearly empty plane. when is the last time you can say that it goes to show there is a toll being taken on hong kong i listened to your conversation. and i don't have anything smart to add about the yield curve

i will say this, the economic toll is being taken both on the financial side by both sides, the ten-year yield is down 23% since president trump announced that new round of tariffs. think about that our stockmarket is down since then but it is still higher for the year you can not say so much about the hong kong stockmarket. the hang seng is down 9% since august 1st and remember, the hang seng, whatever you think about it is the fifth largest stockmarket in the world it matters you've also got numerous reports out in the last 24 hours, guys, perhaps some firms, like ali baba that planned a secondary listing on the hong kong exchange and other countries may be rethinking where that either list or relist some of their stocks that's an economic toll. it's not just major corporations it is also about people. we know for years a lot of wealthy chinese have been taking their money and leaving china.

as the protest ramps up, we wondered, is that accelerating earlier we spoke with a lawyer and he specializes in helping primarily wealthy chinese people get their money out of either hong kong or mainland china. we asked him, as the hang seng and stockmarket goes down here, are people looking more to get out? >> especially in this scenario, where it seems to be keep going down, there is no sense that kit, it's going to stabilize, so everybody is looking for where is it going to stabilize >> and the more it goes down, the more your phone rings? >> absolutely. and i just came back from holiday, my phone was literally off the hook with people saying okay i want to move to this place or that place what do i do >> reporter: that cannot be news, guys beijing is here. back to you. >> brian, good to see you. we'll be seeing more of you. in the meantime when we return,

vanguard's chi iesefnvtment officer greg davis will join us. we have a lot to talk to him a big hour ahead on "squawk box" right after this 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.

the trade war escalates. china threatens to retaliate over new u.s. tariffs rattling markets sending u.s. futures into the red again. >> walmart, the gain is easing the pre-market pain in the dow futures. and more market drivers on their way this hour. >> we have an avalanche set to

hit the tape in 30 minutes the final hour of "squawk box" begins rights now. ♪ >> announcer: live from the most powerful city in the world, new york this is "squawk box. >> good morning, welcome back to "squawk box" here on cnbc live from the max market site in time's square. i'm joe concerning along with becky quick and andrew ross sorkin it's been like a novel already with the futures isn't it there have been chapters, prologues, addendums, indexes. now we're up 143. >> we're in the book >> exactly >> i don't know the ending >> page 87. >> but we were up 150 then we were down. how far at the lows were with e? down over 200. >> down 200. >> china retaliated. wal-mart reported great numbers. it was up a lot.

then the new service in china that china says we hope we can meet halfway in a trade deal and that's really meteoric recovery at that point we were down 50 or 60 and that came up now we're up 150 here is the number we were talking about with walmart up sharply after better than expected earnings and a forecast you wouldn't know a lot if you came from another planet and saw the wal-mart report you wouldn't know there is an inverted trade war. you see, wow, the consumer is it made inroads in digital and online and. >> to improve the margins. despite everything, the pressure from the trade talks and higher tariffs and from amazon prime.

we're going to talk more about walmart in a few minutes even with all that, we have a big hour still to come on "squawk box. team coverage on what you need to know this morning from the latest news, all across the markets, everything to watch from wall street to corporate earnings to key industrial sectors, of course the unrest in hong kong. we got a long lineup of reporters to come through. we will start with eamon javers. >> good morning, becky the early part of the week the hong kong protests and the trade associations were not explicitly linked by the white house. they were implicitly all a part of the same packages a washington tries to invite beijing and vice versa last night the president issued a couple tweets directly to link the two. here's the tweet in which the president reached out to beijing and suggested that he has zero doubt if president xi jinping wants to quickly and you mainly solve the hong kong problem. he can do it the president asking for a

personal meeting with xi jinping. we will see if beijing responds to that one and a series of tweets that came a half hour before that, the president said good things were coming in the trade negotiations as a result of the phone call between the u.s. and chinese sides earlier in the week. the president suggesting, of course, china wants to make a deal then he says, let them work humanely with hong kong first. the president seemingly to imply there he wants a peaceful resolution to hong kong first. >> that is before he agrees to any trade deal now a lot of analysts have suggested, look, there was no trade deal in the offing here anyway any time soon, clearly the hong kong protest situation would be dealt with one way or another, but this gives the president a linkage now between those hong kong protesters and the trade negotiations and the president kind of throwing out there the idea of having a meeting with xi jinping. not sure how realistic that is

what wilbur ross said on cnpc yesterday is that there is no plan right now for a face-to-face meeting between the chinese and u.s. sides in early september as we had been expecting. so for right now it seems like it's own diplomacy and we'll see where it goes. >> a add to that, there have been these headlines out there about china suggesting they want to meet halfway. we got the translation of what happened this morning. eunice yoon helping us out with this a spokesperson of the foreign affairs was asked a question of president trump's and its tweets and says hong kong's affairs are purely hong kong and want the to us stay out of a that the trade negotiations has been consistent and clear. we hope the u.s. side will meet china halfway and implement the consensus reached by the two leaders during their meeting in osook ka and look for mutually acceptable solutions through dialogue on the basis of quality and mutual respect the market's seeing that as a potential for these two sides

actually starting talks and finding some way to meet halfway and that's why you see the dow futures up by about 152 points n now. >> yeah, look, it seems like beijing is saying to washington, we want you to stay out of on congress we don't want the u.s. meddling there. president trump has gone out of his way to take a soft touch on hong kong. he said a few favorable things about the people that want democracy. everybody wants democracy. he hasn't been leading the charge on hong kong. >> eamon, u.s. officials haven't been out there >> you don't think the president's comments yesterday on twitter tying this tariff issue will make it harder? those in the market were watching this thought actually now he is engaging in the issue for better or worse. it will get more complicated this comment now from the chinese government perhaps trying to separate these issues again won't make it earsier. >> you wonder, it does make it more complicated it was already a very hairy

deal and now you have an -- you are bringing in another hairball into it and making it a lot more hairy altogether the question is why? why is the president doing that? one possible explanation for that, this is speculation here to be clear, but one possible explanation for that is the president wants to complicate the deem that is he doesn't see it going anywhere. he said publicly he thinks the chinese are stalling until after the election anyway. so perhaps the president wants to bring in another layer of complications, another vector, that way if it stretches out, he's got a good reason to stand on why it's stretching out. >> china says we hope we can implement a consensus by the meeting in osaka that's not the one we were saying they were close and renegged on it are they pretending to >> it's a question of you know what happened behind closed doors there and we don't fully know exactly where that was. there was reporting that there was -- >> we will go back to what we

had, maybe we can go back and talk about some of those things that became, we heard freedman on it, apparently, it was codifying some of the new stuff in the chinese law that was a stumbling block for president xi on opening up, you know, opening up the marks there but i'm just wondering whether you could read that as to say, okay, let's get back to where we were and start from there. >> you could read it that way. >> that's pretty positive. >> you could read that it way and it's a positive read the problem is it's opaque we don't know what happened there. >> to meet halfway means we didn't want to do some of that stuff then you said we renegged. we are still only meeting you halfway. >> my definition of halfway and yours is very different. we don't know what happened on the phone call this week between the u.s. and chinese side. we've gotten partial glimpses. the president was tweeting after that about ag purchases and things we don't know if that was a part of it or not

they had not been briefing reporters and others on the contents of these calls and these negotiations so it's all a bit of a black box at this point. >> eamon, thank you for that report meantime, we want to get you straight to the markets, what's making moves ahead of the open what has been a remarkable rise, joe as head even over these past several hours, dom chu is here he's been looking through it all. dom. >> so i'm going to put some exact numbers to how the interpretation or all the headlines came out and what it comes down to is that we're back to where we were at 4:00 a.m. this morning like the other headlines didn't even happen. the reason i know that is because when we started world wild exchange this morning right around 5:00 a.m. eastern time, the dow was indicated higher by 150 to 160 points. if you look at the bottom of the screen, that's how the dow is opening up now not without volatility if you take a look at the high-to-low moves we seen so far today in the future session, between here and here just

before 5:00 a.m. to where we saw the lows come out. >> that right there was about a 400 point move overall i should put a minus there a 400 drop there in dow utures related to headlines on china and hong kong. then we bounce back all the way to where we were again so it's like nothing even happened that's how big a move it was in dow futures. with regard to the interest rate picture. we did see a little movement there. now we see a slight move to the downside with regard to yields you mentioned before, the long bond and the u.s. now currently, it was above 2% before that 5:00 a.m. hour. now we are a hair below there. the ten-year note 1.55% and about 1.53% for the two-year note a slight expansion for that 210 yield curve no longer inverted for the time being to put a point on that 30-year long bond, becky, we at that level again reiterate we see these historic low levels.

i'm putting a star there it does stand out. it's hard to imagine, though, back in 2010, this was north of 4.5% so something to keep an eye on but for the stock picture, becky, we are pretty much back to where we were 4:30 to 5:00 a.m. this morning. like those headlines didn't happen after a decline in the dow we'll send things back over to you. >> never mind. >> it was like i was in a vacuum arc time reason, rip van wrink him for the last three hours >> dom thank you. what that means you have to watch, ever tick is different. let's bring in greg davis a chief investment officer at vanguard thanks for being here today. we can use your help there are so many things flashing here, so many sorts of warning signs, what would you tell investors to think right now? does the inverted yield curve mean a recession is coming >> thanks, for having me on. the first thing investors have to keep in perspective, the volatility we seen recently is

driven by a number of factors. clearly it will be the trade tensions and the slowdown we've seen from an economic standpoint globally also the fact that you know the federal reserve had disappointed the market in terms of what they've done from an interest rate cut standpoint. the market was expecting moral they haven't been as aggressive as the market would have liked >> so what's an investor to do now? what itself the next step? because people are feeling a little more bigger sense of unease >> yes so the big thing we always tell investors, look, they need to have more realistic expectation of where they think u.s. equities will do, our vanguard modem, we're expecting u.s. equities will produce somewhere around a 4% annualized return over the next decade and we think there are opportunities. >> 4%. >> why 4%? most of the time even mutual funds or if are you a pension fund you are looking at it saying 7 or 8% why 4% >> 4% it comes from vanguard

capitals market modem. it's driven by valuations where we are from a valuation perspective. also taking aing look at where we are, we are towards the end of aic'le and you know correlations that happened with the various macrofactors and ultimately, we think there is better funopportunities for investors outside the u.s. ours are closer to 7% on an annualized basis for most investors, we're telling them, make sure they rebalance their portfolios if you look at a portfolio typically a 60/40 portfolio, given how strong equities have been over the last five years or so relative to bonds, you will be overweight by call it 65 to 35 for that type of portfolio. so investors have skewed towards a riskier portfolio and we would encourage them to continue to rebalance. >> let's talk about where you see those opportunities internationally. 7% of all the rest of the globe outside of the united states, the world is a big place, though where do you think the best opportunities are?

>> when you think about international, it's like we look at it from a diversified basis across the entire market the entire external market there. so looking at europe, looking at asia-pacific you are looking at places where p.e. ratios are you know at 13 times or even lower than that compared to where we are in the u.s. where we're north of 17 times. so again from a valuation perspective, the rest of the world seems a bit nor attractive to us given what's priced in at this point in time. >> there is a reason p.e. ratios are placed in europe and japan or other levels they haven't seen growth. do you think that will change, that i will see more growth in those places or u.s. growth gets dragged down to match what we've seen internationally >> i think our pace cases sui will see a slower growth profile for the u.s. we think trend is somewhere around 1.7 and 1.8%. we act knowledge the fact that europe is slowing down we've seen a slowdown in asia-pacific as well a lot of bad news is already

being priced in those markets. from our point of view, that the u.s. mark, valuations still seem elevated there is still a lot of pad news potentially out there when it comes to things we talk about, whether or not it's trade tensions, the federal reserve that hasn't been as aggressive as the market is anticipating and we have this in the backdrop of a world where we have negative interest rates over 15 trillion dollars of debt out there. wily the that is ultimately going to have an impact as well. >> the only thing i'd say to that is when you are looking at negative interest rates and such a huge portion, 25% of sovereign bonds around the globe right now, stocks look like a much more attractive place to put your money at least you can get some return >> but you also have to think about what's you know driving those low interest rates around the globe? you know, clearly there is a lot of liquified in the marketplace, there is also a tremendous amount of concern around growth. so when you look at the u.s. equity markets, there is a lot of good news priced in we think there is a significant

amount of head winds out there that's one of the key drivers that's ultimately impacting our outlook for the u.s. market going the next ten years or so >> i realize every portfolio is different. if you tell people to rebalance right now, what would be a general term you would say in terms of international equities and bonds, how would you kind of split that up? >> for the most part, we'd say, you want to be globally diversified, we want to help the market international and across bonds and equities it's easy for investors to do that, whether or not they do it actively or on an index basis. the key thing is many investors, what happens is they become complacent they put these allocations in place and they let them run. they're not realizing when you have a big run in the equities markets like in the u.s., you become overweight and your portfolio gets riskier oversometime, encouraging them to le balance and get back to a

more neutral weight and they can live through a downturn because your rick isn't too lie in your portfolios >> thanks very much for your time today. >> thank you very much coming up, walmart's quarter, what it means for retail stocks that could be in your portfolio they're so different and how the latest trade war developments could ripple through this sector as we head through break, take a look at futureles. i again epke an eye on these, they keep changing you are watching "squawk box" on cnbc johnson & johnson is a baby company.

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welcome back to "squawk box. we are up by 121 points after the dow lost 800 points yesterday for the biggest decline we've seen all year, a decline of about 3%. s&p futures are up by 12 the nasdaq is up by 23 it's been anything but a straight shot up this morning. we were up by over 100 points early this morning then got news that beijing sounded like it was kind of doubling down on its retaliatory of threats for any tariffs that go into place in september. >> that sent the futures down by over 150 points. so we did see a lot of weakness on that we seen good news from walmart. that's helped talk that up there is talk the foreign ministry in china is floating this idea of potentially meeting again trying to see if there is a way both side could meet halfway. that's what's helped futures this morning we'll continue to see this

again, lots of news. >> all right big name out with earning, walmart scoring top and bottom line beats the stock is doing very nicely courtney reagan joins us now of course, she, i saw a lot of confidence in your eyes this morning. too. >> you did you felt it was going to be a good day >> i saw you covered the company long enough. >> you get feelings, right you are right. walmart's second quarter adjusted earnings did come in better than wall street expected about 5 cents. also on stronger than expected revenues, 130.377 billion. they are raising the full year forecast for earnings and u.s. comps and lowering the sales guidance and weakness in the uk and canada they see ahead. walmart u.s. comparable sales coming up 2.8% that's that key metric we watched. that's .4 above what analysts had been expecting, marking the

20th straight quarter of growth there, deliver largely by grocery online and in store. net sales were 37% that was the same rate we actually saw for the first quarter's growth rate. i spoke with walmart ceo brett biggs about the quarter. walmart has had a great quarter from a business standpoint, following the misgivings in el paso and minnesota. they list four larger amounts in asomersets and further he says walmart is hopeful for a long-term agreement if regards to tariffs in the meantime, the retailer says it will thoughtfully manage pricing and margins, finding a nice balance between our customers and shareholders there may be some price

increase, they won't detail. they have leverage to pull to manage that basket mix. >> courtney, thank you for that i want to continue this conversation right now for more we want to bring in a person the head of a research committee and head of etf strategies, michael, on this walt mart news, how much again and we talked about it last hour, do you look at this as a walmart story or do you look at it in the larger context of the consumer, the american consumer being stronger and perhaps the markets have been giving it credit for >> good morning, andrew. >> that is the key question and we would attribute more of this to walmart but with that being said, the consumer is in good shape as we speak. the unemployment is at a 50-year low wages are rising and that is feeding into walmart's results. but they did particularly well last year. they also generated margin expansion in the core u.s.

business and they raised the begins for the full year saying despite all of the uncertainties and as far as the eye can see today, we got this and the market is responding favorably to that confidence today. >> but should the market be responding not just favorably to walmart but the other retailers that are out there to the extent that people are looking at a broader economy, should they be saying to themselves, okay, actually, like we got this meaning we all have this or do you think this is a single stock story? >> this is walmart exhibiting a lot of strength. this is walmart deficit walmart managing it's hard to differentiate between weeners and retail this will not be seen through all the results through the reporting season walmart will show strength others are showing strength.

there is also many who will show weakness. >> mary yap, what's your take away >> on? >> on the markets this morning. >> what i would -- yesterday you had macy's report. according to our analyst that was a disaster. >> it was a disaster >> but that's apparel. walmart is a grocery store, it tends to be a little bit more defensive. our credit card data, that's pro pry thater to bank of america/merrill lynch is showing the consumer spending money. but we also recently had amazon prime day and that really impacted the numbers but what we recently took a look at was when you got an inversion in the yield curve, what's the sector that's most negatively impacted and that turned out to be consumer discretionary and retailers are in consumer discretionary. so if we are slowing down and if the consumer eventually slows down spending, the risk is that the sector that will have the

big impact is discretionary. >> what are the numbers you are looking at people are looking at the 2 and a 10 on the one side and consumer and employment numbers on the other, they're trying to make sense of it because it doesn't make sense right now. >> we're talking about the three cs our strategist is talking about the three c risks. it's china, it's credit and the consumer what you bring up is a main point. if the consumer is able to continue to be positive and spend, our economy will be able to hold up should the consumer with all of these headlines and with all the volatility in the market become a little more cautious and holding down spending. that's going to have a more negative impact on the economy but the point that we're trying to make is we're move nook the most seasonally volatile period of the market. we continue to expect what we call episodic volatility as we move into september and october. so we don't think the volatility

is over. >> okay. michael, marianne, thank you appreciate it. >> thank you when we return, a flood of economic data markets watching closely for fresh retail sales numbers coming at 8:30 eastern time, updates on productivity and jobless claims we will get into the details with the chief economic adviser. stay tuned "squawk box" will be right back.

welcome back to "squawk box" on cnbc. live from the market site in time's square. we are second away from several new economic data reports. we will be getting the latest reads on jobless claims, on retail sales and productivity. in the meantime, we're continuing to watch theioio that is be -- the yo-yo that is the

dow futures. they're up 88 points if you don't like what you see stick around, it's been changing more frequently than the weather. s&p futures are up by 9-and-a-half and nasdaq up by 9. remember this comes after the worst day we've seen all year with the stockmarket down, the do you down 3% this morning the 10 year is yielding 1.652%. let's go to rick santelli in chicago. take it away. >> reporter: a litany of data points start out with retail sales for july more than double expectations. a whopping up 7 cents. you strip out autos. it's up 1% strip out autos and gas, up .9 the control group number, a stunning 1%. these are big numbers. let's go to jobless claims, shall we 220,000, that's up 9,000 let's look at empire manufacturing, empire manufacturing is 4.8, that sequentially is a half a percent higher in our last look.

more than double expectations. preliminary non-farm productivity, expecting a number around 1.5%. 2.3% 2.3% 3.4% is in the rear view mirror upgraded to 3.5. these are solid back-to-back productivity numbers the comparison goes to the unit labor cost side. that's risen a bit as well 2.4, higher than expected. here's a stunning revision if you look at the previous unit labor cost number originally released at minus 1.6. it now stands up at 5.5 and finally let's go to philly fed, this is an august read and of course it's usually pretty volatile, expecting a number right in the 10 neighborhood also almost double 16.8 that's sequentially follows and unrevise 20.9.

if we weren't paying so much attention to yield curves and historic am comparisons that may not fit, this is group of data points that looks pretty darn solid. andrew, back to you. it didn't affect interest rates much, unfortunately. >> that really is kind of the problem. a lot of the things we may most attention to aren't tethered to an economic reality. there is a lot of other issues that team so get involved. >> rick, stick around, steve leishman is here he is pouring through the numbers. i think you think the things may be more tethered >> i shot a good two or three clips on the so year i saw a move in the complex, but i want to get to the data year, which what was rick's technica term there pretty darn good does he say that that's the right way to think about this as i look at this do you that, the first thing i wanted to know was the non-store retailer category you would say, steve, why did you want to know that? >> why

>> prime day it was in july. >> oh. so we have in the non-store retailer number, which includes i assume the internet sales from prime day. >> car sales and stuff too >> non-store retailers, that shows up, that would be the internet sales, that would be prime data, amazon up 2.8% >> that is not a year over year rate, that's a month over month rate year over year your non-store regional is up 16% raising -- >> it helped not only amazon, a lot of the other internet retailers as well. >> people are online shopping. >> it flattened uk retail sales this morning because they run also, so that was up, the whole world affected by that, raising the question should i back this out or not? i don't think so because they do this every year. right? >> right. >> ostensibly, i don't know this for sure

you assume this, the government is sort of adjusting for this. it expects prime day in july so this is above and beyond whatever expectation were there, with the question, does it take away something from august to september? that would also be expected. so i'm going to say it's solid i'm going to raise the question, which is i think so critical here, can the u.s. consumer save the world? because and i guess i put that in a hyperbolic way. i don't think it's that crazy to put it that way. in the following way, manufacturing we know has been weaker, capital investment weaker the globe has been week e weaker the one thing consistently not weaker has been the u.s. consumer. >> that would be new, how? >> it's not new. but it's not what we thought yesterday. >> you know what i'm saying? we led a lot of the prosperity. >> this is the committee to save the world. you don't need robert reuben and greenspan on the cover of "time" magazine you just need the consumer >> you need the consumer, which

we can debate is it a him or a her? you can say let's use they but that's what i think is the key here and i think what rick said is also bears repeating, which is that if you didn't know what was going on yesterday, you'd look at this data, fed better, productivity better, rick quickly points out the control group which is 1%. the reason why we focus on the control group, which takes out other stuff is that number feeds into gdp i think what we have a 1.9% in our tracking cnbc rapid update for the third quarter, i think that's going up today. >> rick. >> steve, i have a question for you. listen, we did pop a couple basis points. >> yeah. >> the 10s to 2s, it's hovering in positive territory. my question to you, though, what about looking at it the other way. can the u.s. save the rest of the world?

i don't know about that i think the real appropriate question we really should be debating, especially the fed and press conferences, is how much the u.s. can withstand the slowing of the rest of the globe >> right. >> because i seriously think some of the fundamental structural issues that are underpinning all the fluff from stimulus and promisesto hold the game afloat, that really is the issue at the end of the day, if you still buy some of the profits of multi-nationals, what's left? >> a couple things joe has criticized, sometimes correctly, sometimes i disagree with him the field of economicings for not having definite things like a planks constant. let me tell you, this is between -- >> eisen berg. >> eisen berg, all those things, but i'm getting to a point of giving a second, this is between the earth and the sun does not change but stuff in the world economically changes we do not have good metrics, rick for -- >> i know.

you know what i'm saying over billions of years yoo anyw anyway, here's the thing we don't have metrics for engaging the effect of what's going on in the world in this new more connected world to the u.s. economy and i have one gauge that i use as a benchmark. there was i think it was 2018 we expected or 2017 a stronger global growth than we got and the u.s. disappointed on gdp by half a point >> that could be any bech mark, we don't know, you make an excellent point. >> rick, in response to this, is it right for us with this strong economy to be in the interest rate with all these other countries. are we any different than italy or the southern european companies that had germany's interest rates and had all that stuff happening when their economies didn't deserve these low rates.

there is nothing we can do about it our economy is better than that. >> we are better than that germany is shreking. >> other things happen, though. >> within have you rates that change the -- >> dr. judy shelton said something that resonated with my sources? >> dr. judy? >> dr. judy, yes, she says it's ha ready to hold your ground to be altruistic in a vacuum. in other words, it's hard for the u.s. to do the right thing when all the other countries and economies, in her opinion, are kind of cheating a little bit and i understand that. it's hard to be virtuous in a vacuum but the problem is, where do you draw the line? okay whether it's the president or some of his nominees or a lot of his economic advisers you notice they think the dollar is too strong, we need to lower interest rates so what are we going to do next? start buying corporate bonds, take down the bank of japan? start buying etfs? >> the s&p

>> and russell and nasdaq. >> no. >> see, so where do you draw the line i really think that j. powell can change history >> i have the answer, you stick to your name you look to your economy and say what is appropriate for the economy? >> it's been a crazy pattern now for a lot of years the central bank is sticking to old rules in a new world and many people including yourself have said but they need to do something even though they're not sure what to do. >> that is insanity. >> i will tell you one thing -- >> the fed didn't put the fed where it is or the 30 where it is the money coming from all these other places put it where it is. we have no choice. the fed can't control our yields. >> it isn't savings from global investors. it isn't the flight to safety. they're all important. no you know what it is, it's cerebral bank's balance sheets central bank balance sheets. if that was the case -

>> you are saying, joe said it it's not the fed >> it's the central bank >> the growth sounds right to me. >> can we get them on the screen, joe and rick c'mon. >> i don't argue with them. >> they don't do it. they leave me hanging here i want to say, we'll get to this another day. if you look at the differential in real interest rates, inflation adjusted rates, we are not as far off different from the rest of the world as you are. the reason, european inflation is much lower than the u.s. is okay and so let's put that away anyway, the bottom line here is i think the u.s. economic data this morning is solid, points to an upgrade in gdp, a consumer with shandr standing everything going on him or her. >> on the shoulders of the american consumers. >> that will maybe save the world here. >> the wind beneath the world's wings. >> are you about to break into song >> i love that song. >> ♪ you are the wind --

>> i don't, from "beaches. the scariest movie of all time anyway >> that's so old half your audience doesn't know what you are talking about >> "beaches. >> i'm so much wiser now >> thank you for joining us. with his reaction, three straight losses, they still decided to come on i told you they'd find a way, they'd bring you in and here we are again. we just talked about that a couple days ago. okay you heard all that conversation mohammed and you heard me reference you earlier about how you have been jones'ing for central bankers to pass the baton off to fiscal policy makers i guess it still hasn't happened >> it hasn't and let me just say on what you guys discussed, which is important, first, the u.s. consumer cannot save the rest of the world. two, the u.s. consumer can insulate to some extent the u.s. economy from the rest of the

world. three, our interest rates, yes, we don't deserve them. but there is two realities the ecb has negative rates and will go more negative and restart qe add to that divergence growth and like you said, we debt capital, so our interest rate structure is being determined by europe which leads to the fourth point, which is our markets are going to remain incredibly volatile despite an economy that's doing well, joe, i think people have to understand the distinction between the economy and all this silly talk about us going to a recession this year, we're not on the other hand, the markets, which will be more volatile and require a different approach. >> does it worry you that we have low interest rates based on the situation and others more slowly growing as you used to say multi--speed economies normally if your interest rates are too low, you get

malinvestment and it comes home to roost are you worried about that >> i have been for a while i remember i discussed in 2016 this book, this notion if the central banks are the only game in town you will get to a t junction, the road you are on is less sustainable things start breaking in the economy, in the financial situation, socially, politically, that's what we are seeing around the world. at some point we tip one way or the other. and the longer interest rates remain artificially low. the greater the risk of a market accident yeah, i do worry if we ever go to negative interest rate in the u.s., you are going to see pe flash, you know, waveing a red flag saying this is really bad news. >> mohammed, though, explain what you think is happening with the american consumer, as we talk about the wind beneath our wings. explain what you three is happening with the consumer, though, religiontive to all the

other numbers and data points that we have been looking at over the past couple of weeks that have been flashing sirens for the rest of the market >> so the ones flashing sirens for the rest of the mark to be clear are mostly from outside and this week has been china, it's been germany, it's been singapore. it's been about de-globalization, which is ongoing. the trade penchants are just a symptom of a much deeper malaise. and they have been about financial markets that have been influenced from what's happening outside the u.s. those are the ones that have been flashing yellow and red the u.s. consumer is in a good place simply because the labor market is in a good place. we continue to create jobs at a higher level than you would expect this late in the cycle and wages are still around 3% in terms of annual growth that's a good place to be. plus the saving rate is high so the consumer -- >> do you know which growth? >> no i don't think so, i think we will see wage growth go higher the main growth for the consumer

is self fulfilling expectations, people read the alarming headlines that do not take into account big distortions. >> that i get scared, understandably so. they spend less and if they spend less -- >> how do you explain the capex this year in terms of the lack of it due to spending? >> because the corporate sector is more exposed to the rest of the world. that's why the difference between the economy, which is relatively closed and business and the s&p which is more opened so we have to understand there is a distinction between the two. >> mohammed, just a very quick one here, the bond market is trading like there is a recession. the data is not coming in like this is a recession. is the bond market wrong here? or is the data wrong >> the bond market is distorted. it is distorted by what's happening outside the u.s. we live in an interconnected world. if you live in an interconnected world, have you no choice but to import the effect of negative

interest -- negative policy rates in europe. 16 trillion of negative yielding bonds, mostly in europe. qe about to resume, a central bank with a intpresidenting press in the basement willing to buy for non-special reasons. i would buy bonds ahead of them. you know they will buy you out and add to that, the fact that we have better performance, so all that is going to distort our yield kuvg it's going to weaken the stra ditional signaling mechanism. >> that sounds great if it wasn't for the malinvestment of rates, i'd like to keep them lower, not for savers, obviously, if we can 3.5% unemployment and 2% rates, it sounds like it can be the recipe for really good economic growth mohammed >> you and i agree, which is wonderful, but where you and i will probably diverge and this relates to something somebody said earlier, this is the time to launch and infrastructure program. >> i think you might be right

with the bond. >> right >> if you can fund it at third years two 2% if it's a clear lack of infrastructure need to modernize and it has a positive demand impact and a positive supply impact this is the time for the political poerts to come together and agree on this -- political parties to come together and agree on this >> it doesn't have to be a monorail >> look at all the funds we need. >> did you see that episode? >> it's in springfield. >> every town needs a mono-- we need to not dig holes and fill them up like we did a few years ago. shovel ready you knew that was coming anyway, cash for clunkers, good lord anyway, thank you, mohammed, for the quick response he just said it's different this time he basic ally said the yield curve is different this time >> now i don't know what to do, the distance between the earth and the sun doesn't need changing. >> before you goes away quickly,

is that the right interpretation this time is different, don't worry? >> yes i wouldn't say this time is different, don't worry what i would say is understand that at all times -- >> distorted >> -- you have to look much broader andens we live in an interconnected world don't, by the way, interconnected world means as we deglobalize things are going to get tricky i'm willing to bet new six months time, we will be talking about the re-wiring of the global system for a more de-globalized environment. and that's going to have some implications for the winners and losers that we have seen over the last few years >> all right thanks, we'll see you soon and now i what up this score every day, in addition to the reds with your mets. i don't know >> go look at something else and the braves always bring us back to earth. >> you see the nationals and the reds yesterday like 17-2. just awful

anyway, thanks meantime, we get to got to this story madoff whistleblower releasing report calling general electric a bigger fraud than enron. there is a website you can go to it now keep your eyes on our screen at the same time. dom chu joins us i know he has been pouring through the details. >> reporter: i mean it's 175 pages of details harry markop markopolos we have been getting it wrong the last few years here. anyway, 175 pages. the crux of this report deals with allegations that harry markop wil markopolos he is alleging a fraud 38 billion over gem electric. a lot of that is tied mostly to its long-term care in its insurance businesses talking about this idea that they may need to boost reserves there in

order to account for that business and some of the potential liables down the line that it may have he alleges that this is the biggest insurance fraud that he's seen bicker than enron and worldcom combined. he also says that of the 29 billion in new reserves that general electric needs, per his report, his allegations, that 18.5 billion requires cash immediately. he also goes on to list a number of other reasons why there are accounting issues at general electric now, we should point out, ge did respond to a comment from cnbc with regard to the allegations being made in this report. in that ge says, we have never met, spoken to, or had contact with this person while we cannot comment on the detailed content of a report we have not seen, the allegations we have heard are entirely false and misleading they go on to kind of justify or refute some of the allegations that are made in the report. however, we would point out here that they did disclose, mr.

markopolos and his website, gefraud.com, that in advance of publishing this particular piece of data and research, they had given this research to a third party for compensation down the line this is all being disclosed on the website there. gesays it is possibly a third-party hedge fund that has this report. so ge shares are off about by 4% that's off their worst levels of the premarket on the hint of these reports coming out made in "the wall street journal" earlier on as we pore through the 175 page, not all of it is text. some of it is presentation in powerpoint form. we'll go through it. that's the reason why those shares are lower >> wow thank you for that we're going to look forward to that interview, which undoubtedly will make news in the meantime t let's talk straight investing in the current volatile environment after yesterday's selloff, should investors look to buy on the dip, and which names are

worth a second look today? joining us right now, bill snead, ceo at snead capital management what's your plan, bill >> well, you know, we buy and hold we buy high-quality things when they're deeply out of favor and hold for a long time so none of this has changed our strategy, but i'd love to connect up some stock picking with what you were talking about with mohammed. what if 3.5% mortgage rates are the trigger for establishing the dominance of the millennial group as it pertains to the economy of the united states in other words, how many other countries in the world have more than 25% of their population moving into the 30 to 45 age range where buying houses and mattresses and furniture and a whole lot of things that you don't buy on amazon prime day become the come nandominant spe

pattern rather than picking up from your parents on your cell phone bill, which is maybe adulthood now. so this is a great time to look at all these companies in the value space that have something to do with creating a united states economy built around people that are married with children between 30 and 40 and i can't -- i just can't fathom how fortunate today's young people are to borrow -- before this is all done, we might be paying them to borrow the money to buy a house at this rate >> is that a silver lining i'm not sure how to feel about that but help us with this. in terms of portfolio management to the extent we have viewers this morning who are saying to themselves, okay, should i be buying on this dip, i assume you're suggesting this is a

buying opportunity but maybe not. we have a lot of people who seem to think the next couple months, just by default, are going to be terrible volatile, which might suggest that you should hold steady >> your reports show you have to separate the difference between a popular stock market that's had amazing froth attached to it as we dumped money losing ipos into it for six months, right? so we had a frothy market that had gone up a lot in the first half of the year we've had a 5% or 6% or 7% correction from a historical standpoint, it's noise you want to own meritorious companies at great prices. it looks like this might have been a value capitulation. so your shopping list should look at energy your shopping list should look at old media your shopping list should look at businesses that might be more interesting to people as they move into family life and away

so for example, let's use target the department stores got ripped yesterday. target goes way down yesterday if you look at the six or seven spending categories that will go up the most the next ten years for millennial, i think kids apparel is number two in the top six. and so there are amazing opportunities. discovery has superior content all of a sudden, no one is going to want euro sport anymore because of this temporary tribulation. you just go through the list >> all right bill, we want to thank you for taking the time on what has been a crazy little ride in the markets. appreciate your perspective, as always >> thank you >> thank you let's get down to cramer jim joins us now it's funny, jim, because the first thing i was going to ask you before bill smead said noise was whether there was noise. so china says we want to meet

halfway. i have some quotes from china from six months ago, three months ago they said very -- that's like boilerplate. they've said this before that's what they say, we want to meet you halfway is that new? do a couple basis points matter on an inversion? you point out the bond market is trillions of dollars it does matter, but we just said maybe it's because our interest rates are based on other countri countries that aren't doing as well there's so much noise. have you got the answer? >> no, but i like what janet yellen said yesterday, which is let's figure out exactly whether it's for sure or not i think a lot of people come on and literally just say, it's done, not take into account that a lot of what's happening is man made this is not 2008 this is not a credit recession credit is available. it is not a recession based on bad balance sheets of the consumer, which are very difficult to rectify

if we have something wrong, it's not going to be in the derivative world, which made it so we couldn't even understand what was happening joe, look, you and i both know we can make this thing worse do you want to make it worse 2008, i was perfectly willing to say whatever needed to be said i don't hear enough to be able to say that kind of thing. >> waiting for that. >> other than the fact the fed is behind. look, if jay powell said right now, look, i see it, i smell it, i'm not going to let it happen, this would most likely become a very different and pivotal moment but he's not president's right. >> thank you, jim. awesome. thank you. we'll see you in just a couple minutes. "squawk box" will be right back. johnson & johnson is a baby company.

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it's been a wild ride, and things are just getting started. make sure you continue to follow with "squawk on the street." see you back here tomorrow ♪ good thursday morning. welcome to "squawk on the street." i'm carl quintanilla with jim cramer david faber has the morning off. there's a lot of chop today, following the worst day of the year we watch the 30 year below 2 overnight, china signaling tariff delays are not enough to stop retaliation europe is red but good u.s. data, productivity all beating