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

expectations china vowed to retaliate against u.s. tariffs set to go into effect september 1 we're now on track for a higher open lighthizer said it's not possible given your past behavior so an awful lot to absorb today. >> very interesting that the futures are up exactly the amount they are right now. they issued a very strident set of words toward us at the same time, announced stick l stimulus for hong kong where is what the president said on twitter what happened and without that, i think they're going to view the olive branch of moving back to december as an ill-advised move because the chinese aren't

playing ball we're going to have chuck robbins later on this hour the chinese derailed their outlook. asking them not to bid on business things are getting very, very tense. if we let that dominate the headlines and forget to look at what walmart said today, i think we'll have a false narrative because of how bad things are. remember, we are not a big export nation. but yeah, the gloom is pretty palpable >> this morning on "today" show you said we need to dial back hysteria, this does not have to end poorly, we can avoid recession. >> yes, janet yellen had calming words yesterday. basically saying, look, just because we have the yield curve do this does not mean it's etched in stone. this is not a train wreck that has to occur it's manmade if it were involving credit and you and i not being able to credit along with the rest of america, it would be different if it was involving derivatives that we didn't understand, it would be different if it were involving a crisis of

confidence that made it so no one wanted to spend, different but we have high employment. we are still spending. i'm getting that from numbers that came out today. so i absolutely don't like the tenor of the discourse, but i also am not oblivious. i called it chernobyl yesterday in a talk i gave on the street we don't know. there are people who said chernobyl had to spread to sweden and therefore germany then there's what happened, which is that somehow the bumbling soviets stopped chernobyl, but it was scary. fukushima, scary it got under control this is one of those thing where is it can get under control, but it doesn't look like it. i was talking to some bond traders last night they said, you know what, jim, we don't know what it is, but it's bad that's how people are reacting when you see bonds doing crazy things and the bond market is twice the size of the equity

market wow, i don't know, but i'm going to be nervous. >> do you think the 30-year below 2 is crazy >> yes >> you do? does it not deserve to be below 2? >> no, it doesn't because there's got to be money coming in from overseas janet yellen talked about that i do think that what it does say -- let's say it is so-called for real because it is a trillion-dollar market then jay powell should come out today and say, i see these things i'm going to take back what i said about midcycle adjustment as long as he's being taubtntedb the president, it's hard to say, you know, i'm going to give him what he wants. i'm going to protect the institutions but if he came out right now, as alan greenspan did october 8th of 1998 and said, you know what, i've got your back, then i think a lot of this hysteria would go away there are people who say it doesn't matter what he does. that's total false narrative of course it matters i think this would be a once in a lifetime opportunity for the united states to take advantage of these

i remember, a hundred-year russian railroad buy we want a 50 year. we want a 50 year. give it to us. >> how does he say, i've got your back, when we've just had the biggest jump in retail sales in four months you have got productivity 2.3. philly fed double the estimates. whose back does he need to have? >> he needs to react to what the bond market is saying, not to that data. or he could come out very easily and say, okay, look, the data looks really great right now, but we don't know what's going to happen. i'm a student of the bond market i'm wary i like what's happening right now. but you look at walmart and walmart had amazing numbers, but i have to tell you, i think walmart is responsible responsible for the lack of inflation in this country. >> of course >> and it's a broad base hundreds of millions, people go there. i say, look, there's no inflation. so it's no harm if powell comes out and stop the rhetoric we may

tighten, we may not. just say, look, we're cognizant. we like the numbers, but we're cognizant things could go off the rails. we certainly don't think they will, but we're ready. you've got to say those things if you're just quiet -- speak softly and no stick, i don't care for that. >> well, jackson hole is around the corner, but we'll see if he needs to speak before then >> my daughter went to jackson hole it's an instagram -- it's heaven for instagram. if the fed chief were a little lighter, he could also deal with the criticism of the president he's a little too -- and i don't want to give him acting lessons, but he's like the early fonda before he got his game >> there's some performance to the job. >> you know. he's not olivier for certain >> jim mentioned walmart one of the bright spots today on better than expected quarterly earnings, revenue, and comps company also raising their full-year guide for u.s. comps and earnings

jim, the economic health remains strong some discussion about obviously security in their stores given the events in the last couple weeks, the degree to which they're a supplier of guns and ammunition too >> dramatic guide up, really strong same-store sales. a refutation of what happened with macy's yesterday. remember, every day low price is a winner when you're running full price the way macy's is, who's a loser, it's a shame. this kind of quarter where you see amazing e-commerce growth, 37%. i mean, that is a rival to amazon i would call my team and say, we got to step it up. we're not going to let them beat us of course, walmart is still behind this was a remarkable quarter. a reminder that the hysteria that some may want to spread, which by the way is happening in

some quarters. they should look at this they're looking macro. to look at walmart for some of the people who spread hysteria is to say, you know what, i'm not going to look at that. i know better. let me tell you, walmart's numbers are more informed, quicker, and more on point than anything we get from the government this is a very good report i want them to concentrate on the no-inflation component there are many people who say with tariffs, there has to be inflation. this company uniquely is able to battle inflation because of how good its supply chain is and how good doug mcmillen is. it gives powell the cover to say, look, i'll do what's necessary. he didn't say that last time do i want him to say, i was a knucklehead and shouldn't have raised in december no, that's for me to say he doesn't have to have that >> so you're going with walmart's quarter is a signal of consumer strength, not of the consumer searching for bargains or graduating down >> it's consumer strength.

as a walmart shopper, i can tell you they've got some things that are inexpensive that are expensive in other places. so the answer is the consumer has this, okay, and knows value. this is producing walmart. you press -- i've got my walmart app. when they started the walmart app, it was like best price for cheez-its and velveeta it was a suboptimal site now it's gotten much better. it's a go-to place just like amazon americans have to recognize, they should check the app. it's a good app. >> it would be better, obviously, if macy's had a different print and if tapestry today did not have -- >> kate spade. >> revenue below >> specialty stores are doing quite bad. mall-based stores obviously terrible that macy's quarter was really a shocking, shocking quarter

you also had bad execution urban outfitters has always talked about this. if you get fashion wrong, you're really finished. they got fashion wrong, inventory wrong. it was really hard to -- unfortunately, i'm going to say this really hard to do worse and yet still might have to cut your earnings that much that was a false hell. but those big box department stores are not in favor. look at nordstrom. remember nordstrom said they didn't want to pay more than $50 to be private. well, that was -- where are they nordstrom -- >> by the way, of the list of s&p names off from their 52-week high, it's in the top ten. >> oh, yeah. so is kohl's i thought kohl's cash, not being facetious, was good, but they're not every day low price. they have a really good deal with amazon where you can return goods there. that's not mattered at all you need to deliver a walmart-like quarter i think target is going to have a good quarter because the stock is so down, that may be the opportunity.

they've got a good yield stores are beautiful but right now, we're looking at a market that is certainly better than we had, with the exception of our interview with chuck robbins. chuck has some explaining to do. chuck knew china was weak. i think we're going to hear chuck's explanation that china did fall off a cliff even if it's only 3% of your business, that's 3% too far. >> it's down in the premarket. current quarter guidance below expectations at this level, it would be the biggest gap down on earnings since 2013 according to bespoke. you mentioned guiding below for the quarter. china down 25. >> right they have a lot of business in telco. there's a moment in a conference call where they were told to not bid. the chinese said don't be id we're going to unbid you

that was a breathtaking moment but the rest was very strong and i think they're practicing -- i think they're underpromising so they can overdeliver. i think anyone who thought china, even at 3%, couldn't hurt them was, let's just say wrong i was part of that i didn't think that -- i didn't anticipate china would just basically end for them but the reason the stock isn't down more is because i think people are starting to look and say the jpmorgan piece, which is very good, just says, okay, look, they have an abundance of caution. kelly cramer had so many good things there were a hundred words that were wrong, i mean, a hundred words that were negative chuck had this amazing moment where he said, hey, listen, what are you doing? i thought china was small. china is small, but it's small on a big mosaic. >> we're going to talk to chuck in a moment. >> and i think chuck is going to illuminate things. >> when you point to things about the bidding process over

there, do you think it's a canary in terms of the qualitative measures chinaing sti -- china could still take in retaliation? >> yes on the conference call, you had hints of the idea that they're getting what we used to call the heisman. they're really being told, look, we're going to use all commodities made in china, even if it may not be the best. commodities are supposed to be, what's the difference? i think there's a qualitative difference between a lot of chinese equipment and american equipment. >> obviously >> but they'll switch to chinese. look, they're not just doing the rhetoric they're saying, hey, listen, we don't want you so it's kind of if you're over there, they don't want you and the president doesn't want you vietnam is open for business 100 million people, but vietnam is, they're getting there. >> you've talked about the logistical capacity, worries these nontariff countries still have >> they just don't have the supply chain to get the big ships there and send them to san

francisco. vietnam is anamazing country anyone who remembers certain operations they did during the war -- and i know a lot of millennials don't even know this they can accomplish great things, greater things than the chinese. >> what you're saying reminds me of tom friedman's call this week quote, i suspect china's leaders are drawing up a list of industrial products for which they'll never allow themselves to depend on america for again think that's true? >> i think if they don't care about quality of materials, yeah there are instances in the steel they've sent us that was subpar. they seem to not care as much about precision. if you decide you're not going to use emerson, a huge business over there, 3m, if you're not going to use honeywell, what are you going to do? yes, maybe you can make it why? because you've stolen so much of our intellectual property. if you steal it, then i guess

you can make it. but i think that the rhetoric -- i think in its entirety, people think that china is equal to us. it's an economic power i think the chinese are doing many things that projects power, not unlike -- people don't like it, but i use the analogy. not unlike the soviet union. it was 28 million people in world war ii a lot of people would say they won the war, even though we know the great sacrifice our country made people should remember they had the h-bomb not long after we had it thank you, some americans who gave it to them. >> we're getting strul production as we speak rick santelli, let's get that number >> we had a lot of really solid data unfortunately, industrial production isn't one of them industrial production a minus sign, down 0.2 we're expecting a number up 0.1,

up 0.2 however, we have a mitigating factor here. last month was technically zero. really, it was a minus number. if you rounded it off, it was zero here's the part i don't like utilization, i guess we shouldn't be surprised at this considering what's going on in the world. 77.5, carl that is the slowest rate of production since october of '17 when it was 77.3 so want to pay attention to that unlike industrial production, utilization actually had a downward revision in the rearview mirror but only subtle. 77.9 to 77.8 so that didn't match up with some of the earlier stats, and the bond market itself is holding the tens to twos rates barely above where they were yesterday, not reflecting the fundamental move they should have had on earlier data carl, jim, back to you >> all right, rick >> aerospace >> yeah, big piece >> and look, a shutdown of the

line of the 737 max is something that would impact. we are a great exporter of airplanes. >> they're delaying the latest 777 long range today >> i emphasize there are a lot of people who think boeing skimps on safety i'll take every one of them on >> we'll get cramer's mad dash, countdown to the opening bell. obviously we've got to get to ge this morning on this report from harry markopolos we'll do these s.e.c. filings, buffett on amazon. we're back in a minute hey! i'm bill slowsky jr.,

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i'll pass. ♪ cramer watching some new takes on apple's phone cycle >> two positive reports. i'm going to do the headline despite china worries, iphone demand cycle looks stable heading into fiscal year '20 that's rev la story, actually. then a good piece by davidson. lots of people cover apple lots of people do quality work here's a review of their 10q, which is a statement they publish for the s.e.c., talking about how it's a very good projection for gross margins and talking about authorization of more buybacks. one of the things i think these

reports are explaining again is that there is that service revenue stream i do think that they have to -- when the card -- and we've seen the card -- comes out, we need to know if people are using the card we need to know about other streams they've added. if they can get more of a razor blade model, they can do the unthinkable and take out this level. it is amazing that china could be strong for them, and these two pieces indicate it's not bad given everything we hear and it's counterintuitive. when are they going to tell apple get out of china the answer is are they going to take away 2 million jobs the state-owned enterprises there are showing declines in unemployment there's a camp that says china is invincible. there's a camp that says china is falling apart i'm saying there's a camp -- i'm in this camp -- it's decelerating and the party doesn't want it to decelerate. by the way, i think they think that the president uniquely believes that they're the pajama

party. i mean, when you make fun of the party, which i do feel that sometimes he does, when he takes them on, it is discouraging because that should be done away from twitter, i think. it's ill-advised to make fools of them in the public. >> you sound a lot like the journal op-ed page today telling the president to stop with the -- basically call a trade truce. >> i mean, i think that wouldn't be so bad. he should go the way of musk when it comes to twitter we don't talk about musk anymore. you know why he doesn't make stupid tweets. not to say the president makes stupid tweets. it's just not a great way. i think if jefferson had twitter, i just don't think he'd go at it >> jim, we're going to watch apple. obviously in the green along with futures we'll talk to chuck robbins of cisco as well when we get the opening bell in seven minutes.

as you know, coming off not just the worst percentage decline of the year but the first close for the dow below its 200 dma since june futures are green as we're riding the coat tails of walmart. back in a minute

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relieves depression, restores heart rhythms, helps you back from strokes, and keeps you healthy your whole life. from the day you're born we never stop taking care of you. you're watching cnbc "squawk on the street. live from the financial capital of the world the opening bell in just under two minutes. it's been a heck of a week and remains so today cisco and walmart are going to counteract each other on the day today. >> i think that's right. i think cisco gives you a good read of international. there are places, pockets not good initially, i thought europe was good walmart obviously is the country. when we think about walmart -- when i worked with larry kudlow,

he used to talk about 100 million people going to walmart. well, it's a lot more than that now. it's a lot more people who do it online it shows, one, the health of the consumer, and two, a company that's managed to make it so prices don't go up it's still every day low price how can they do that because they're brilliant. that's a brilliant company run by doug mcmillen who's really attuned to the future with a fantastic online offering. i have to tell you that was a quarter that makes you feel that things aren't so bad in this country. it's not dollar tree by the way, dollar tree totally underlooked. dollar tree has a lot of big national brands now. i like shopping at dollar tree >> you're saying this is a good thing. >> dollar tree has got national brands cheaper than walmart. they've just converted my bad family dollar into a good dollar tree i'm going down there to do a segment, to show people this is the asbury park family dollar that no one wanted to go to.

the dollar tree is so good >> but you can hear the people responding by saying, are we in a dollar tree economy? >> i've been in a dollar tree economy all my life. maybe them to wake up and smell the $5 sunglasses. that's five pairs for $5 >> there's the opening bell. on the big board, disaster relief and global health organization americares. at the nasdaq, bio company gossamerbio. >> look, there was a lot of people felt that walmart would miss that was just based on -- this is that fear concept that worries me so much there was nothing in any aspect of what walmart had been saying in the last few months that would have indicated they'll miss then macy's just -- it's really the anti-walmart again, regular prices, which are considered to be high.

and mall, not strip mall weak where we can go in and go out. by the way, walmarts it incredibly -- their online offering is really extraordinary. i think the snobs on wall street, of which already a legion, do not shop at walmart dollar tree, they would rather hang from a dollar tree than enter a dollar tree. >> i think people know what you're saying. others are going to argue the retail sales for july was about prime day and maybe the halo effect on walmart, e-com growth. >> others will argue anything. i'm on twitter today, and people are arguing my basic existence, not unlike what elon musk did when he was convinced i might be a hologram if you prick me, do i not bleed? but i think people can take the same day it and spin it negatively i'm not going to play that when it comes to walmart. that's the health of the american consumer and a great company keeping inflation in check. >> which is contingent on employment you're going to wait to see if employment changes then the walmart quarters will change too

>> i will tell you that i will start agreeing with the naysayers the moment that we see sefr several weeks of bad claims numbers. >> up to 220k this week. that's obviously amazing >> yes, the big issue in the country remains trying to find people to work, not trying to find people on the unemployment line it's finding people who are willing to work and paying them more small business really hasn't slipped yet into i'm afraid because of what i hear about the yield curve. they're still, i don't know if i want to expand because it costs so much money to expand because there's not enough labor that's a different story from big layoffs. we're going to talk to chuck robbins. they've made layoffs according to a filing, nearly 400 jobs, mostly engineers there's lots of talk about big layoffs. obviously marvin ellison at lowe's investment banks, talking about 50,000 layoffs those are people who are highly

paid and may struggle. but then there are all the people who managed to switch to the giga economy i spent a lot of time with the door dashes of the world i know those jobs are not considered to be the cream of the crop jobs. lyft, uber i think a job is what you make of it. those are good jobs, much better than the jobs that existed before that. i'm not saying if you're a vice president at bank of america and you get laid off you necessarily want to work at lyft it's certainly available if you need the income. >> you mentioned amazon, jim we haven't covered berkshire's 13f, taking their stake and amazon to more than half a million shares at the end of q-2, which is a little in the rearview mirror. >> true. i think that amazon had a down tick in web services, but it was minuscule. i think that it's a highly unusual buy for warren buffett, who's spending so much money buying the banks

the antithesis of amazon, they're just slow and plotting they believe in america's stories. he's got a barbell thing going there with amazon and bank of america. >> and ackman, of course, new purchase into berkshire. what do you think he's thinking? >> i think he's thinking, i'm having a real good year, i'm going to buy stock of a good man. >> it has been a good year >> yeah, for nelson peltz. by the way, procter does not come down during this period i am -- i'm not flummoxed, carl. i am fluk moxed mmoxed by the rc that says things are far worse it's generating fear because people are looking at a trillion-dollar market -- well, multiple trillion, and saying it acts like a small-cap stock. that is worrisome. my friends who are bond traders are saying, i've never seen anything like it and when you've never seen something like it, you don't react positively my friends in the mortgage bank

business are saying, this is just nirvana are you going to refinance >> i thought -- everybody thought that they were brilliant last couple of years just not as brilliant as -- >> i have a 3.3 i might take a crack at if someone were to offer me a thousand-dollar fee refinance, i'm there. >> what do you make of some technicians, chartists who are arguing ten year needs to go back and retest 1.3? these 2016, 2012 lows. >> i think that's true >> really? >> yeah, i do. >> well, that's not good >> look, i'm not -- i think the market can come down >> you said this you've been responding to people on twitter >> up a great deal it certainly could happen. i think we're taking a breather, but i think that the ten year is going up in price and down in yield. i think you look at the nasdaq where the real damage is occurring. yet, the nasdaq up 17. there are wags who say, yeah, but if you look at it year over year -- no, as a fund manager, you look at those numbers, and

the nasdaq has a lot to give up. if people were to take chuck robbins' view of the world, i think they would do some selling. that's not ill-advised i think this makes sense if you're nasdaq companies. it makes no sense to sell companies that are yielding a three, which by the way cisco is -- >> when you can get a yield at five, six, seven is that your point >> i met with dow chemical this morning. i felt dow was not a good stock to own are you really going to look at dow chemical and say, you know, jim doesn't know what he's doing, which is untrue he knows a great deal what he's doing. and say, okay, 6.3 yield, of which he has the cash flow it might go to seven you would buy it it's at 44 if it got to 41, would it be a gift is that dividend trouble no, because it's got giant cash

flow jim will pull this out it's got auto, and auto is what's choking the system. if you have a lot of auto, you really got -- you're not making the playoffs >> basf and a bunch of other companies going to test it out >> oh, geez, basf. >> let's cover ge, down this morning after this madoff whistleblower, harry markopolos, releases a report that ge has masked the depths of its problems in fraudulent financial filings. ge saying it has not been contacted by him and the report was produced to help short sellers profit by creating volatility in the shares we're going to talk to harry markopolos in the next hour of "squawk on the street. he is working with a hedge fund whom he refuses to identify to the journal today. >> that's not cricket. i would say in the times i've met with larry cole and with the previous administration, i have pointed out over and over again that it is really hard to quantify long-term care policies that were written when life

expectancy may have been just 75, and now people are living to 86 my father had long-term care, and he paid -- he bought the policy, and the policy was very little he had full-time, round-the-clock help we priced out at $200,000 a year believe me, he did not spend $200,000 and he was not unusual because those policies, those were poorly written and i think it's fair to say that ge did not disclose them properly, but that's not larry larry has done his very best, the ceo, to put the long-term care in a way that everybody agrees is as kosher as it can be carl, the problem with long-term care is that until a generation of people die off, it is going to be called into question because of the incredible cost of health care >> so when markopolos argues that the insurance unit needs to boost cash reserves by 18 billion, do you think -- i mean, do we know if that number is anywhere near legitimate

>> it's very fungible. i once used a similar number to john flannery. they were doing their best at all times to agree with what the regulators say now, the rap that a lot of people have is, well, the regulators don't know either i agree with that. but i think that the idea that larry hasn't been transparent and forthcoming, i think, is unfair >> i don't hear you saying that about any of his predecessors. say, the past two. >> i think that the previous one didn't understand the depth, and that's fine because it was really incredible. and the one before that i think was whistling past the graveyard. not necessarily trying to obscure everything i told larry the first thing he should do is fire the orders change the audit group on the board. they were way too rosy but let's just back up so was aig so was genworth.

everyone who wrote these policies, because the life expectancy who knew that health care would go up so much? who knew life expectancy would be as good and the policies were totally written wrong. it would be like -- let's say you wrote a policy for a very expensive boat and you paid them 20,000 and they had to pay you back 200,000 there you go that's that policy john hancock, again, everybody wrote the policies wrong it wasn't like they were glib, and it wasn't like they were dishonest. it's just that they mispriced the merchandise. it happens and ge mispriced a lot and didn't disclose it properly. they had a little footnote i'm a student of footnotes because i'm a little, let's say, a.d.d. about footnotes it was in immelt's queue but not in a way it would stick out. >> we'll address all of this in our interview in the next hour

obviously we've lost our gain on the dow. we're down 14 points >> there we go >> let's get to bob. >> morning, guys it's a mixed open. walmart is a big, big help overall. let's take a look at the dow components we'll start here walmart is a nice help here. there you got a nice move up jpmorgan, banks on the upside. consumer stocks generally on the upside staples. industrials are mixed to slightly down. general, caterpillar, and what else, the energy stocks are down this has been a head-spinning morning. 40-point high to low in just a few hours. futures, at 5:00, we had that comment about china retaliation potentially coming moved down 40 points in the next hour or so around 7:30 or so, we had china's comments from the ministry of foreign affairs saying meet us halfway on trade negotiations we started moving up 8:30, we got better economic data, we started moving up you get the point here it's a head-spinning morning 40 points from the high to the low. that's what you call a v-shape,

folks. it's little wonder people are confus confused about what's going on it's difficult to have an opinion on the market. i keep hearing, bob, we're going to be range bound. what's your opinion on what's going on is there going to be troops in hong kong, or is there not going to be troops in hong kong? is there going to be progress on trade talks, or is there not going to be progress on trade talks? how about the fed getting more aggressive are they going to get more aggressive or are they not going to get more aggressive? and most importantly, what about the global economy is it going to be more stable at end of the year, or is it going to be less stable? this is an awful lot to deal with, and it's impossible to model. so little wonder everybody in the last week has been talking about, oh, we're going to be range bound at best. remember, most of the strategists were at 2800 or so most of the strategists are 2800 to about 3,000 this is year end that's what everybody is looking at, where are we going to be at year end look at some of the strategists out there. citigroup, this is walmart we're talking about. most of the strategists are 2800 to about 3,000 so we're right in that

particular range that we've seen right now. that's where the debate is going to be. do we need to lower those overall estimates? put back walmart i want to show you the tale of two different companies, two different countries. the health of the american consumer, walmart. very importantly, they had very good commentary on their guidance they raised their comp guidance. instead of 2.5 to 3, they're talking about the high end of 2.5 to 3 that's a lot the american consumer is very important here then we had alibaba, the health of the chinese consumer. did you see the alibaba numbers here revenues up 42%. those are absolutely amazing numbers. they said we have 300 million chinese consumers in the middle class now. and we're selling to all of them so just remember here, 42% and 34% gains on a company of alibaba's size the chinese consumer is still fairly healthy two different companies, two different economies. guys, back to you. >> thank you thank you very much.

i've got to tell you that i listened to what bob just said i find it calming. honestly, puts it in perspective. not that bad here's one where it's not great. we're talking about shares of cisco, which are down 10% in the last two days after issuing current quarterly guidance that was below what i was looking for. cisco has slower demand from china, among other things n wake of the trade dispute they did beat both of the top and bottom lines handily so we have a tale of two stories. chuck robbins, cisco ceo, welcome back to the show >> hey, jim. nice to be here. thanks for having me >> all right, chuck. i know there was, to me, puzzle element in the sense that this was a blowout quarter. as you said, strong end to a great year but then very abruptly, you talked about this quarter really not a shining at all maybe you can explain to our viewers how a juggernaut like cisco can turn into a company

that is really kind of fretting about this next quarter. >> yeah, jim, first of all, i appreciate you acknowledging the great performance that our teams put forward last year, particularly in q-4. they really did a great job. we had a phenomenal year and a phenomenal quarter you know, as we look at what happened in the last quarter, you know, we saw two things really we saw our service provider segment continue to be weak as many of those players contemplate 5g architectures and thinking about how they're going to build that out over the next few years, and then we did see some weakness in china i think carl mentioned it earlier in the show. i think kelly said on the call that we were down greater than 25% in china and you made this point earlier, while it's a small part of our business, when it falls off that precipitously, it creates a challenge. the rest of our business, if you look at all our orders, which is the vast majority of our business, is outside of service

provider, those orders were up mid-single digits with public sector occupy 13 and commercial up 7 we saw strength in other parts of the business, but during july, we felt a slight change in sort of the overall macro versus what we'd experienced in the prior months that gave us a little caution. when we finish our quarter, we know how that feels. it just felt a little different. that just gave us a little caution. >> chuck, also, there was a moment where you could hear a pin drop on the call where you described -- again, only 3% of your business -- but what the chinese are doing when you went to bid for business. fill us in on that >> well, jim, in china, i think as we have been operating there, clearly there's a lot of tension between the two countries. i've always said that the trade tensions and the tariffs can impact us in three ways. it can impact us on our business in china we can have direct impact from the tariffs. or we can, you know, obviously

be impacted if it bleeds into the global macro environment we certainly saw an impact on our business in china this quarter. a lot of the state-owned enterprises, i think where they have optionalty, they're choosing local manufacturers you know, we're just being told in some cases that they're going to favor local vendors that's just the way it is right now. we don't know if thstat's a short-term thing, a locker room thing. we're hoping it's temporary and once we get to some resolution, we'll gain more robust access there, but that's what we're experiencing right now >> before i let carl have the podium, let me just say you've got a gigantic buyback you put the limits on about what you're going to spend, but was last quarter you spent a lot stock is down 10% very quickly if you were to be your corporate treasurer with a 3% yield, is this a good level to start coming in and buy? >> well, i think kelly would tell you if she were here that we're going to be very opportunistic, meaning looking for opportunities where we think the stock is at reasonable

price. so i'll leave that with them, and the team will do a great job as they always do. >> buybacks are an interesting point to jump off there, chuck, because there has been some discussion of the pace of buyback growth this year slower than last year, obviously. we're farther away from the tax cut. but if, in fact, margins or profitability are pinched in the second half, how less likely are you to want to play in the market >> well, i think, carl, what we talked about yesterday relative to our guidance, we actually took up our q-1 operating margins. we guided strong gross margins so the health of our business is still very good. again, as we think about the markets, we focus on what we can control. we're focused on our innovation. if you look at what we've built over the last few years, you look at the successful transition we've made relative to our software portfolio. we talked yesterday about the fact that 70% of our software business now is coming from subscriptions, and that we're on track with what we laid out at

our financial analyst conference relative to the transition of the software and content of the software our teams are executing really well our portfolio is better than it ever has been. these short-term issues will come and go, but long-term, i feel very good about where we are. >> chunck, i got to prez yoss y this you say you continue to see strong performance with broadbased growth. that just does not jive with a zero to two growth pattern you're predicting. i come back to a jpmorgan piece that i think is excellent, which i'm sure you've seen, where this was regarded as being overly cautious guidance. chuck, this is more cautious than i've seen you, and it makes me feel like maybe i'm too optimistic about the future of cisco. >> well, jim, if you think about it, we just came off a year where we grew revenue 7% we're talking about one quarter. as i look at my level of optimism about the next year, the next two years, the next three years, i feel very good about where we are we're going to have these short-term blips

we have huge customers when they pause, we may see a short-term issue but this doesn't change my outlook about where we are it doesn't change my outlook about how i feel about what we've accomplished i remain very optistic we're not going to do anything crazy because we have a short-term blip from a certain set of customers we are going to keep executing the way we have been. >> i wish you said it like that last night i would not have felt like, holy cow, down six. now, here is something i know we think alike here is one that, you mentioned it, some slight early indications of some macro shift. can we get a sense of what you think is the reason why that's occurring? is it tariffs? is it political division is it the fed? because i know that i have felt that july was pretty good, but maybe things are less rosy overseas or even in the united states >> well, jim, i mean, your show actually spiends a great deal of

time talking about the dynamics that could be impacting the global macro i said for the last year i have been amazed at the resilience in the face of brexit and in the face of other european political issues, in the face of the trade situation that we have, you know, the fed is another issue we've got, you know, uncertainty that arose this week in germany. as mohammed said earlier, singapore. we have the argentina issue. so there is a lot of things going on that are creating a complicated environment. i am not declaring we have a major micro shift going on we had slight headwinds in july that we hadn't felt prior. i don't know if it's a temporary thing or the beginning of something bigger but we saw it, we called it, and it didn't feel like the normal end of a year for us. >> well, certainly understandable i like your largest security company in the world buried within cisco, and i like the fact that you have got a great

voice activation kind of zoom business, web x. these are great secular themes, as is 5g you did not discuss any of the secular themes that could override short-term blips. is that because of caution because i think that people should see through this 3% yield value you give them and recognize that 5g beckons, zoom beckons, security beckons, so maybe they should hold on. >> well, jim, if you look at our portfolio today, our core networking business is going through the biggest transition with our customers that we have in the history of the company. we have every product in that portfolio which is our biggest business that's going through a refresh at the same time we have never had that before. we added more catalyst 9,000 customers last quarter than in any prior quarter. we are in the second inning of that transition. our collaboration business is doing great.

our security business continues to perform in double-digit growth again iot is coming 5g is coming that's why over the long term i am very optimistic we are not going to get too wound up about these short-term situations we feel very good about where we are and the opportunities ahead of us. >> chuck, let me go back to macro one more time. i know you go to the white house and you are very attuned overseas i know you travel too much, frankly. i wanted to get your view whether there is anything that could change it, rhetoric, decline, less tweeting, a belief that businesses could be force for change if they were allowed to be more unfettered and governments would step back and be so interfering. this is i believe a man made moment of negativity can the man made moment of negativity be undone >> well, i think that everything that we have accomplished over the last decade relative to the interdependencies we have created around the world are

super critical to how we solve this problem today that's what i think we are seeing as that unwinds mohammed talked about it earlier. and what we need to do is we need to get some of these issues resolved we need clarity. you guys said it markets hate uncertainty our customers don't like uncertainty. and so however it's been created, thii think it's importt to get to the right outcome. we need to get to the right outcome and as expeditiously as we can i know that's stating the obvious. but i think that's where we need to focus we need to try to get that done and hopefully not allow the political system or the political processes to impede our intent to get to that outcome as soon as we possibly can. >> excellent, chuck. i don't think that that is stating the obvious, unfortunately. i don't know how that's not obvious anymore. chuck robinson, chairman and ceo of cisco down 10% i think is an opportunity. i am a little more bullish thank you so much.

>>. >> thank you, guys. >> you have to appreciate chuck's candor and how he brought this to the street. >> what's extraordinary is that 3% of the business, which is quite small because he moved a lot out of china, was enough that part dropped so precipitously. mid double-digit what happened is that it was a shutdown they said, listen, you're done you're done in china and china is a big market. you listen to fred senamith fro fedex. he says it's too big to ignore there is a difference between a trade war and deciding there should be no trade with china. i think we have to keep track that our country will be weaker if there is no trade with china. >> i think everybody understands that dow's up 80 points, jim. you want to talk about tonight >> well, yeah. i mean, i have a -- how did this hour end, for heaven's sakes

jim fish, i know people don't understand waste management is a construction play. susan salka, temporary employment in the health care industry, let's find out about it you have to have a big mosaic, carl, to be able to determine how bad or good things are and you have to focus less on washington no sooigt on kash. i wish they would take a vacation play some golf. >> he is on vacation. >> play some golf with some world leaders. play a little golf president xi, what's his handicap >> jim, see you tonight. "mad money" 6:00 p.m dow is up 71 when we come back madoff whistleblower harry markopolos says ge has masked its problems with fraudulent filings. back in just a moment.

♪ welcome back to "squawk on the street." i'm carl quintanilla with leslie picker, wilfred frost. sara eisen and david faber have the morning off. wild swings today as we're now back up almost 90 points more data crossing the tape. we start with santelli in chicago. >> the june read on business inventories, up changed. we were looking for a slight rise no big revision gdp issues there, but there is breaking news in the housing market for that we turn to diana olick. >> builder confidence for single-family homes rose one point to 66 in august according to the national association of home builders.

that's one point more than expected but down from 67 in august 2018. sentiment has kind of swayed between 64 and 66 for the past four months. anybody above 50 is considered positive sentiment the index has three components current sales up two points. buyer traffic up two points to 50 sales expectations the next six months fell one point to 70. falling mortgage rates are boosting builder confidence. single family housing starts in the first half the year 6% lower than last year rob dietz says it is due to trade concerns one other piece of data. mortgage applications to buy newly built homes in july jumped 31%. a sharp jump likely due to that drop in mortgage rates back to you guys. >> our roadmap today, stocks coming off the worst day of the year how you should be protecting your portfolio.

plus, a bigger fraud than enron? madoff whistleblower harry markopolos calling out ge in a new report he will join us later this hour. walmart spiking on strong earnings we will dig through those numbers coming up next. back to the markets this morning. we are up 100 points on the dow. reacting to comments out of china on trade today eunice has that for us live from beijing. >> we got two conflicting statements out of different parts of the chinese government today. one sounded belligerent and the other one conciliatory so the foreign ministry said we hope the u.s. side will meet china halfway. but just for some context, we hear this phrase quite often from chinese officials this is boilerplate standard fare when describing beijing's position so the other statement that we heard was through the finance

ministry website, and this one warned that china would take countermeasures for the u.s. september tariffs. the authorities said the u.s. move seriously contravenes consensus at g20 meetings, that the u.s. deviates from the correct tract of dialogue and china must take necessary countermeasures. there are no specifics of the two, this is the one that's more meaningful because the point is that even though president trump had decided to partially delay the tariffs past september, that at the end of the day the chinese don't believe this was a concession to them in fact, ways speaking to a source who advises policymakers, and he said that the view is this was more of a concession to u.s. business and not a change of the u.s.'s position there is also a feeling here that president trump's position is becoming much more precarious because of the concerns about the u.s. economy and also about the u.s. elections so the approach will continue to

be, i'm told, that china should just continue to wait. that they are in no rush guys >> thank you very much for that. let's dive a little bit deeper on what this means for the markets. joins us from first republic private wealth management, christopher wolf and from bank of america, travis wood ward. good morning >> spoken like a closing bell anchor. >> good morning to you both. chris, to start with you, can the u.s. consumer with the data we have seen this morning, the water main numbers, offset the global growth sentiment we have got? >> up to the point where sentiment is affected by trade, where jobs start being lost. that's the key, job numbers. that's driving sentiment and the income we see the average hourly earnings a change in percent that's helping to boost the

income and spending. there also a trading effect. some of the higher end stores, muse mee macy's, for example, really light. >> the inversion that we saw yesterday and the ongoing kind of bearish sig false from the bond market, do they concern you? >> yes we call it the great divide. so that's a symptom of companies doing two things one trading robots for people, keeping their profit margins high, they benefitted from the tax changes recently on the same side, the bond market is pushing yields lower $16 trillion of negative yielding debt. it's going to be hard we think to escape the gravity of bond yields going lower, stock markets trading off high margin, high profitability i think the recession is off to 2020. >> what are you looking out for to see more meaningful reprieve in markets as opposed to a short-term bounce? >> we think we are two-thirds of the way down to however deep

this correction gets the catalyst will be some kind of policy easing from a bigger cut from the fed, from xi, from trump on trade, or number two, that macro data and markets will sort of force the issue on a much sooner timeframe. key things to watch in the calendar are the jackson hole meeting coming up. the decision about huawei exemptions the bank of japan and the fed not too far away obvious catalysts for investors in the next few weeks. even if you can't close your eyes and buy today, you are getting near that point. within the next few weeks it will be a great entry point to what should be a much more bullish period later this quarter. >> and to that point, chris, since 1978 the s&p 500 has risen on average about 13% from the time that the yield curve inverts to the beginning of a recession according to dow jones data does that mean now is a buying opportunity, or is that a risky strategy for investors >> i read it a little bit as the

stock market parties right up to the end. that's typically what happens. one is the profit story is still pretty good. companies are doing a great job managing their margins for all intents and purposes, the u.s. is a big market the big multinationals will suffer in the trade situation. if profits turn up 5% next year, that's not so bad. we think it's prudent given the political dynamics, you have to see a 50 basis point cut in september, that's big, and noise around budget battles. time to take a little bit of risk off the table. >> why isn't russell having so many issues? >> index comp compositions they have realize, banks, financially sensitive companies. the yield curve is punishing the financial sector at this point you need a positive slope. we don't have it it will be a tough time. >> not as much of an issue of domestic versus international? >> the domestic story is pretty

good some of the discretionary names, those doing pretty well. the banking sector dominating the profit story. >> even if some of the bigger companies have more international exposure, you like them provided they have market power, is that right >> that's right. i think -- i will give you two ideas, ways to position. number one, i think you want to look for what we could call the sort of quiet monopolies, large firms that have pricing power, low political risk like national defense, waste management, even global beverages and some of the more defensive sectors if you screen for quality, that's a great way to position right now. number two, you can barbell that with income. cyclical value stocks, especially outside of the u.s., those have been bombed out our survey this month showed you how -- >> apologies we are going to interrupt to get to this tweet from the president saying, quote, if president xi would meet directly and personally with the protesters, there would be a happy and

enlightened ending to the hong kong problem i have no doubt. clearly, having tried to strike a tone on trade of late, guys, to be a little bit more amenable this is probably not going to be the same tone. clearly, the chinese messaging of late is whether it's to europeans or to the u.s. to stay out of hong kong issue they see this as totally separate and unrelated to trade. the president trying to stick his paw in, as it were. >> yesterday, people weren't sure who he meant. clearly now we know he means xi and protesters. >> right, as opposed to xi and rump. >> yeah. >> sticking to twitter, to intervene as opposed to actual political intervention at this stage. of course, i think the u.s. response is most as long as there is no violence, bloodshed, they are kind of monitoring that situation. >> certainly a long way from formal intervention from the u.s. nonetheless, this will be seen by the chinese as giving the protesters hope that they can

get a big democracy on their side i don't think this will help the tone of negotiations chris, how important that the market doesn't see worsening tone on trade negotiations again? >> we think it's very important. there is a lot of conflicting signals inside the u.s. and inside china we have seen that clearly over the last couple of weeks the market hates the uncertainty, number one. number two, a simple way to think about, you have two elephants fighting in the forest a lot of trees are going to break. a lot of damage comes from the two biggest trading partners having incongruous discussions with each other. we think that is the central issue that needs to be resolved. that probably puts a bit of calm back in markets. we think that's a ways away. for clients, stay close to their advisers this trade by tweet, you know, market volatility by tweet means you can overreact. and that's a pretty important message. >> we'll leave it at that. thank you very much. shares of ge, meantime, down on this report released by madoff whistleblower harry

markopolos stocks down to the lowest level in a few months of the dom chu has details. >> 7.5, 8% on the downside if you look at what's being alleged by markopolos, he is saying that this team has found one of the biggest insurance frauds he has uncovered, bigger than what he says is the size of enron and worldcom he says this is the ninth insurance fraud case this the past nine years. bigger than enron and worldcom combined the analyst community fell for ge's accounting tricks by priding themselves and coming one methods to allocate ge's corporate overhead he says the long-term business are under reserve and liabilities will persist and cost more down the line. ge has responded to these allegations by saying that, again, we have never met, spoken to, or had contact with this person we cannot comment on the detailed content of the report the allegations are entirely false and misleading

it's widely known and the wsj reported that he works and is compensated by unnamed hedge funds. i point this out, on a stock for ge down 7.5% we will continue to monitor this, guys back to you. >> thanks. in a few moments, we will speak with harry markopolos about his report that's coming up on "squawk on the street." still ahead also, a day after shares plunged on the company's first quarterly results before going public. major averages here. dow's up 90. back to 2855 "squawk on the street" is back "squawk on the street" is back after a break. you have to know the individuals you're serving to understand their needs. working with ibm watson we can bring together data spread across dozens of departments. that gives us a fuller view of the people we serve. dear tech, dear tech, we need to look after everyone in our community.

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shares of starbucks rival luckin coffee rebounding a bit following the first quarterly report since going public. they had seen their stock tumble after a wider-than-expected loss currently up about 4%. joining trust hong kong the ceo joins us appreciate your time very much i wonder if this strategy of aggressive spending and aggressive discounting on the product is paying off or not >> thank you, first of all, for having me on the show. good morning i think, first of all, we reported yesterday our second quarter results. i think across the board we are very happy with the results. you saw that revenue was up close to 700%. very importantly, i think we reduced our store level

profitability significantly. you look at our strategy of acquiring customers, retaining customers and increasing the effective selling price, i think we have done a very good job in q2 and we are very happy with the position we are in today. >> what's happening with share between you and, say, starbucks? obviously, that's the rivalry everybody is watching. are you, in fact, taking share from them in china >> yes, that's an interesting question i think china is a big market. we have 300 million sort of middle class consumers it's a big market. the coffee penetration is underpenetrated. it's a market big enough for two players. i think our position is slightly different than starbucks we are very focused on quality coffee for take away and also delivery, and i think that is the market where we play and gain a lot of share. i think overall the market is growing quite significantly ad i i think we are doing pretty well today. >> have you been surprised by the way that the trade war between the u.s. and china seemingly thus far at least

hasn't hurt starbucks' image brand in the eyes of the consumer >> yeah, look, i think again china is a market that is, in terms of opportunity, very big we are talking about 300 million sort of middle class consumers it's a resilient market. i think sort of the impacts of the overall macroeconomic situation are starting to be felt more. i think with our model and we are focused on our model a combination of convenience, quality, and also affordability. i think the point around affordability will help us a lot in sort of gaining moehring market share going forward >> you told reuters you believe you can get to ebit break-even next year. in doing so, cutting costs and relieving some of your discount opportunities, does that sacrifice your ability to take on starbucks in any way and are you looking to do this at a time

when the chinese economy could be facing a confluence of other factors on a macro scale >> yeah, i think the position we have is slightly different because we are focused on convenience, affordability and quality. i think it's very important for us that some of the price points that we are looking at is going to be maybe half of the price point from some of our competitors, including starbucks. i think that will true a lot of the consumption, mass market consumption for coffee, which we're seeing today as well in terms of our forecast for profitability, i think what we have been guiding the market is to get to store level break even by q32019. and for us overtime we want to increase the store level profitability and also reduce the sort of further operating expenses i think in q2 we spent a lot of money on sales and marksing. for us it's important to continue to build that strong brand. i think the ipo helped us a lot. these are expenses which are

discretionary that we can dial back once we have sufficient scale. >> could you expound on the christchurch macro environment clearly, we have seen the data slow done a bit in china are you suggesting that the consumer remains pretty strong regardless of the trade war? >> look, i think china, again china is very resilient. i think overall there will be a bit of softness across the markets you will feel. it will hit sort of consumer confidence at some point, i think. again with kind of our positioning, which we are very focused on is making sure sort of that people need to drink coffee, will need to drink sort of tea and have their lunch. what we're trying to to is help people save money. so they come to our stores, which are very, very close to where they are working, and drive that consumption going forward. so again eastbouven if there is little bit of softness in china, which i think everyone will expect, i think with our model

and positioning i think we are in a very good place. >> next time i look forward to talking to you about the situation in hong kong, too, where you are joining us from. thanks for your time. >> sure thing. when we come back, walmart shares surging and tapestry getting hammered we will dig through those results. shares of ge falling on a report claiming them to be a, quote, bigger fraud than enron. madoff whistleblower harry markopolos is with us at post 9 when "squawk on the street" returns. is your daily commute. you should be mad at people who forget they're in public. and you should be mad at simple things that are unnecessarily complicated. but you're not mad, because you're trading with e*trade, which isn't complicated. their app makes trading quick and simple so you can strike when the time is right.

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time now for our "etf spotlight. taking a look at the big banks, rallying today after yesterday's massive selloff. the kbe up today, on pace for the third negative week in a row. also down 7% in just the past month. speaking of banks, warren buffett's 13 f revealing one-fifth of berkshire's market cap has financials, including

bank of america, wells fargo, jpmorgan compared to 12% in 2010 bill acman taking a stake in berkshire hathaway b shares buying nearly 3.5 million of berkshire hathaway's shares, guys. >> coming back to the acman point in a moment. warren buffett, it's a vote of confidence for the long-term shareholder and where they stand for valuations we have heard him talk about this to our becky quick in a recent interview if you are looking at a three or five-year view, it's not so much whether or not you are going to get a recession. it's to say if we get one, the banks are going to fair a lot better this time than last time. you are not going to have them as the epicenter for the cause of the recession their capital levels coming in are much higher than last time and you are not going to get the same level of regulatory kickback afterwards. i think buffett, with his time horizon, that's one of the factors he thinks about.

the other is valuations. again last time becky asked him about this, trading around book value depending which stock you are looking at with double-digit roes after the crisis, roes fell to single digits. you are trading alt book value if you look through whether or not there is going to be a recession, which would clearly drag the stocks down, it's cheap. >> in a previous quarter he has been a much more aggressive buyer of bank stocks than this time around. this time we saw small incremental increases in bank of america and u.s. bank corp he has a wide spectrum of bank holdings he pretty much remind his position this time around. previously, you can see that from the change over time, he has been a much more aggressive buyer of bank stocks i think we should take that as a signal that perhaps taking the approach of let's wait and see what exactly happens on the macro side. >> the other point i'd say, all

of these are the money centers if you are arguing, oh, those exposed to net interest income are the ones that will be hit worst by the yield curve those are the ones he is buying. he is not buying goldman sachs and morgan stanley. >> going back to the acman point, he charged 2 and 20 to buy somebody else's hard work. ironically, someone that criticizes hedge funds for charging that. >> if you recall, there was that infamous forbes cover where he was on it. they called hip tm the baby buffett, saying he was trying to turn pershing squaring, his hedge fund his returns have not proven to be in line with where about you have fet's returns have been he is up about 50% to your point, no, he doesn't charge two and 20 anymore. he hasn't reached that high water mark in order to pay an

incentive fee in some time because of those negative returns he has had >> we are getting solid reporting regarding the degree to which potus and a halfaro are driving the bus on trade and the fed. let's get to kayla >> well, carl, i did some reporting this morning about exactly what the white house's view is on the market volatility and whether this anti-powell, anti-fed view is widely held within the white house what i learned is it is not, most white house advisors believe that trade uncertainty is the culprit of the market volatility here, but the general understanding is that the president will not back down from his hard line on china, and the phrase that two different senior administration officials used in a conversation was, it is what it is. that being said, president trump and peter navarro both are very, very critical of the federal reserve and chair jay powell they continue to truly believe that he is at fault and they want to see rate cuts. they believe that previous rate

hikes were a mistake that being said, that is not the widely held view within the white house. i am told next week there are meetings on the calendar about gun control, student loans and drug pricing whether i asked why there wasn't a meeting about the economy, one official said the schedule fluctuates on an hourly basis and there almost certainly will be a discussion about this. >> that is good color, kayla certainly the market is attuned to every bit of reporting you bring us. >> i look forward to jackson hole even more next week. now over to sue herera for a cnbc update. >> good morning, everyone. here's what's happening at this hour the big moving parts right now. jib ralter has just moved to release the iranian tanker grace one, which was seized on july 4th on suspicion it was shipping 2.1 million barrels of croyude i

to syria that goes against the u.s. move which was to halt the release of the iranian supertanker, which was detained in gibralter. in other news, a law enforcement official has identified the suspected gunman who wounded six police officers in an hours-long standoff last night as 36-year-old maurice hill he has a criminal history that includes firearm charges >> i did not think that this guy was going to come out alive. after several conversations with him and hearing a bunch of information throughout the afternoon, he cwas indicating h was not going back to prison. >> former colorado governor john hickenlooper is expected to drop out of the democratic presidential race according to sources close to the campaign. there is talk that hicken luplor is considering a run for the gop seat in colorado up for election in 2020. >> that's the news update at this hour.

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♪ ge shares down sharply on a scathing report alleging the company masked problems with an accounting fraud bigger than, quote, enron and worldcom combined ge responded saying ge stands behind its financials. we operate to the highest level integrity in our financial reporting. joining us this morning in a first on cnbc interview the author of that report, harry markopolos morgan brennan also joining us on set definitely making some waves the journal piece this morning, this would go a lot farther if you would say who you are

working for and what the positioning is on the stock. >> i can't i promised confidentiality it's a midsized hedge fund, u.s. based. >> do you want to talk about how you first came to realize this issue? >> everybody would talk about g and how they were cooking their earnings they mefr missed earnings under jack welch. >> and then? >> everybody said 3% of the s&p 500. we should benchmark it if we have 1%, we are short 2% and we would underperform because ge took off like a rocket on fake numbers. >> here is the thing we have had two different executive teams come in, take over they said they lifted the veil, there is more transparency here. what you are essentially alleging in this report is that there is still issues here, there they are still not reporting correctly raising red flags around the current executive team what are you seeing right now that no one else or most other

people on wall street have missed i mean, everybody has been looking at this stock and the numbers. >> the numbers are missing they report top line revenues, bottom line profits and nothing in between like expenses, research and development it's all missing, including cash flows. they don't provide working capital. it's the only kp in that industry that doesn't provide working capital. ge's capital is minus 23 billion. their current ratio is 0.67. if you research it, it doesn't appear name a company that does that. that's accounting 101. >> how severe is the problem that you are alleging? is this a question they need to raise a bit of capital or if everyone was aware of the issue they would go bankrupt >> they took a $15 billion reserve hit in january 2018 for long-term care they have another 18.5 billion in immediate cash needs for reserves we proved that in our report they have a 10.5 billion

non-cash reserve hit they need to take on the garoppolo books that's going to desstery their equity ratios. they need to that by the first quarter of 2021. >> you say this is akin to an enron and worldcom combined. obviously, a lot has changed since those two scandals what do you believe is the role of the public company accounting oversight board? what's the role of their external auditors? all were all of these people missing the mark >> yes the gatekeepers consistently failed wall street look at the financial crisis all the big banks got a clean bill of health turns out they had hundreds of billions in toxic assets sitting offshore that no one saw, including the rating agencies. >> you didn't speak with the company. why not? >> i prefer just to use the financial statements i didn't want them to know what's come, have them engage in a cover-up and destroy documents. >> there is going to be criticism out there that given

the fact that you are working with an undisclosed hedge fund, the stock is 6% lower today, even if those allegations don't turn out to be true that there is a conflict of interest here how do you counter that? >> i needed to get my team engaged and i put a team of experts on this. the public deserves to know. the shareholders deserve to know i am an advocate for investor protection i did cases against many ponzi schemes, including bernie madoff and several billion dollar plus hedge funds. i put a lot of people in prisons over the years i have a family to support i need to get paid. >> in terms of the long-term care business, that has been raising eyebrows a huge skeleton that came out of the closet in march they had their quote/unquote teach in it was seen as something of a turning point for the stock. how did you get to your numbers and why do you think the current numbers are wrong? >> we wasn't to the statutory filings of eight ge parties for

long-term care and pulled the regulatory filings for the years 2013 to 2018 and we saw all of the losses falling on to ge's books and we saw how much premium dollars they were taking in and what the loss ratios were they are losing $5.27 for each dollar of premium income they are taking in. those losses are unsustainable and growing at an exponential rate it's growing exponentially and it's going to make this company probably file for bankruptcy. >> two things. the dynamic is not specific to ge, right? it's an industry dynamic, the way people live longer we have been over this already they telegraphed this to a large degree how is it durn than unu m&a ig why wouldn't you be able to take a charge of that over time >> usually you reserve in advance so you can invest the money in the bond market and earn returns on it so you have the money to play claims when

they come due. ge hasn't done that. if you want to compare it to unum, their loss ratios for 2018 were 90% they took in a toller and paid out t90%. prudential 81% ge 527%. many times grater. it's unsustainable and growing. >> did you look at gen worth as well that was a company sfpun at of e in 2004 and some of that lt esurance business is stied to there. >> they took a $600 million reserve increase the difference between the garoppolo filing numbers and the statutory reserve requirements are now zero that company came clean a year ago. they took the best long-term care off of ge's books and the toxic stuff remained back at ge in 2004. >> one of the things that's surprising to the street right now is the claims you are making around money and the way the company is accounting for baker

hughes. >> baker hughes is a veritable interest and accounting requirement. ge owns 54%. they control the voting. they don't control the cash flows and assets ge put it on their books on a consolidated basis they should not have they should have taken a $9.1 billion non-cash hit to earnings in 2018 they need to restate they are not allowed under the rules to consolidate those cash flows they do not control the money. >> stepping back to the initial findings, you mentioned it started in the '90s. were jack we will everybolsh in? they started to find some of the problems given the write-downs we've seen, given the adjustments we've seen >> anybody who signs the financials as a ceo or cfo a culpable. >> you are coming after the current management team right now? >> march 7 they had a teach-in

they could have come clean they did not it would have been easy to do. i did. the losses increased 60% year over year and they are growing rapidly. >> your relationship with the hedge fund manager, why promise confidentiality? what's the point in keeping that secret >> it was their request, not mine. >> how much of a benefit >> we are letting wall street vote on our research they can read the report, decide for themselves. >> what's the percent ang of profits? >> it's decent a good size. >> if they release you from anonymity, will you disclose who is paying you? >> of course. >> awill you be taking your findings to the authorities? >> all right done. >> what's been their response? >> i prefer not to comment it's been favorable. i do a lot of good cases for the government. >> so what do you think happens next in terms of the timeline here is it a capital raise on the offer? what do you predict? >> worldcom and enron lasted

about four months once their accounting frauds were exposed we will see how ge does. are they going to come clean provide usable statements to the financial community. >> you are looking for a broad reinstatement of years going back how far >> at least the last three, preferably the last five with transparency a totally clean set of books with lots of details like expenses, r&d, sg&a, everything. >> a big part of your complaint is the degree to which they changed their reporting format over the years, right? it makes it difficult to go back and have comps >> they don't provide things like profit percentages for the aircraft leasing unit. they don't provide the off balance sheet financing in t leasing unit there has to be tens of billions that aren't being taken into account. >> ge came out with a long statement explains why they don't agree with your assessment one of the things they point out is liquidity i want to get it on the record

as well that contrary to the allegations ge continues to maintain a strong liquidity position committed credit lines, several executable options to monetize assets. 16.9 billion of industrial clash, excluding baker hughes, in the second quarter. 12.5 billion in liquidity. 35 billion in credit facilities. it goes down the list. are you saying those numbers are wro wrong or fudged? what are the allegations here? they don't agree with your assessment here, obviously. >> if ge had cash in january 2018 when they took a $15 billion reserve hit with the kansas insurance department, they would have been able to fund 15 billion at once. they had a request of special forbearance from kansas to pay that money over seven years. they couldn't afford 15 billion. i don't think they can afford 18 18.5 billion i think they are cash poor. >> you think thur going bankrupt >> i think that's going to happen.

>> what is the level of leverage is properly stated and have you been in touch with the banks that they have - >> i don't work por to tfor thei work for the american investor fwe is leasing aircraft. they are showing profit margins 24% over the last three years. you can't do that without a lot of off balance sheet -- i think the numbers are very fudged. >> what has the reaction been with these numbers coming out? >> very favorable from the wall street community that i know the people in the hedge fund business i have been getting a lot of texts. i shut that off. i want to answer questions for the american public and educate them. >> people paying you, let's be honest about that. but the question, i mean, some will ask how you outsmarted analysts on the buy side and sell side who have had access to a lot of this information for years. >> i think the difference is i'm a certified fraud examiner i'm trained in forensics i have studied the big cases

like enron and worldcom, afell fee a. i have met the ceos that dookd the books. i studied under them i know what questions to ask and what to look for in the balance and income statements. wall street, the analysts, many of those guys and gals cover a dozen or two dozen stocks. they don't have time to spend seven months studying one company. >> if all of this is true, when we don't know if it is, with all due respect, is a failure of the research community >> it is a failure on the part of the he can external auditors and acuaries and the rating agencies. >> just coming back to the timeline, you said you got into this in the '90s this has been a seven-month process more recently. why the time gap in between? what catalyzed you to work on this in the last seven months? the sin tentative from the hedge fend >> no, they completed a move in

2018 when you move to my hometown and you are running a scam, i am going to come after you. it was that simple >> because they moved to boston? >> it was that that was the imp u us to for me. i like to take a personal interest into my cases. >> so but with all due respect again, harry, you framing it this is the work done for american public at large, american investors, and then you play theburn caboston card and getting renum rated, there are mixed messages in terms of what your ultimate mow vagss are. >> ge was the biggest employer in pennsylvania where i grew up. i have relatives that work there and are on pension from general electric i have a lot of friends as well in my hometown getting those pensions there is a million people that rely on ge for a paycheck or pensions or health care benefits they need to know. >> what is your message to them

right now today? i mean, we know quite a number of people, cnbc, nbc used to be owned by ge. we know a lot of people will be impacted by this report as well and the allegations in it. what would your message be to them as we see the stock fall 6% right now? >> read the report and demand accountability >> you will come back and update us >> definitely. i am happy to be on your show anytime. >> harry, thank you. we continue to work on getting a response beyond the statement out of ge as well. as we go to break, take a look at shares of cisco sinking after current quarter guidance below estimates. slowe they beat the top and bottom line stock closer to session lows, down 7 plus percent. the dow up 46. don't go away. - [spokesman] if you've tried college but never finished,

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recession fears hitting stocks one top economist says that's

not the only storm cloud on the horizon. find out nor on resqwkn e re" cnbc.com mo "ua othstet coming up.

in the last 12 hours, a number of back and forth headlines regardingregarding cha and the united states on trade, on tariffs, and now the unrest in hong kong our brian sullivan is on the ground there help us make sense of what's turning into a bit of diplomatic ping-pong, brian >> reporter: have you ever been to the u.s. open, carl wimbledon, something like that >> yes >> reporter: yeah, that's how it feels here i'm doing this i think our neck hurts i was going to ask you to help make sense of it, because i know you've been in this region recently in vietnam. by the way, great stuff, carl. it has been a crazy 12 hours the protests have actually accustomed down, but the politics has actually ramped up, right? 12 hours or so ago, you had president trump saying that he hoped there's a humane or that

president xi jinping will answer the protests humanely. then, of course, this morning, you had china saying they were vowing to regulon those 10% tars then the hong kong government said they were cut tharg economic forecast. you saw futures move that was pre-markets future move on this. then you had the headlines coming out of china, where i know that kala tauchy and others the dow is still down about 8% since trump announced those tariffs on august 1st. now you've got less than an hour ago president trump coming back out and saying if president xi would just meet personally with the protesters, that it would be -- what did he say? it could be a happy and enlightened ending so it either, carl, feels like the calm before the storm or the storm before the calm. i don't know, because there's

still the underlying protests. there's still the macro trade war. there's still talk about, you know, chinese army vehicles just over the border in shenzhen on the other side of calloo nyet the two sides are kind of talking. and that's where we stand round. oo >> wherever these types of things break out, we always see the most evaluated flashpoints here on the other side of the world. how representative have those extremes have been from the environment you've experienced in getting on the ground is that a focal point or representative of the broader environment? >> reporter: fair point. we know the media does like to go to things that have pictures and video. i get that and i fully -- i completely accept what you're saying i guess in some ways, it's a little -- and listen, i've only been here 12 hours it's a little bit like occupy wall street in the sense that if you were down in that region,

you couldn't escape it but if you were sort of, you know, on the upper west side of manhattan, it's do was down the. we obviously got to the airport. the airport had been closed -- we were surprised we took off, will, out of newark airport. we landed. there were a few hundred protesters they had established a protest zone but our fantastic producer, justin solomon here had pointed out to us that there was all of this orange tape all over central, which is kind of their wall street or the city of london all of this orange tape around the sidewalks. i mean, miles of it. and he said, that tape is where fences used to be and the protesters had removed the fences literally come in like socket wrenches and drills, removed miles of fencing so that they could put it where they wanted and kind of use it as protection for themselves so you don't see the protests everywhere, but you see sort of the remnants of it and certainly the posters and the signs. >> okay.

brian, we'll leave it there. thank you very much. great reporting. we'll see you again later in the day, brian sullivan for us in hong kong. let's get to the cme group in chicago rick santelli has the santelli exchange for us. hi, rick >> hi, wilf. thank you. it's been a very interesting morning. a litany of data in the form of industrial capacity utilization, everything was solid. maybe even a little better than solid. the retail sales numbers, the control number, these were all very good metrics. but yet, markets didn't seem to pay a whole lot of attention we had knee-jerk reactions in treasury rates that popped up a little bit, but basically, they can't escape, even into the bottom end of yesterday's range, which was an historic low point. but something did happen today look at some charts. look at the intraday bound chart. about a half hour ago, boom, really takes a nosedive. the euro versus the dollar, also

a bit of a nosedive. and treasuries were affected, because, we all know, all stimulus is fungible what does that really mean i'll tell you what it means. ecb meets on the 12th of september. and ali ren, who is a member of the ecb rate-setting committee and a governor of the bank of finland just did an interview with "the wall street journal" and basically what he says is, whoa, i'm paraphrasing wait until they see this stimulus package we unveil otherwise, they're going to be surprising well, listen, it's all about follow the leader. and in this case, this is the leader we're following ira harris and i have talked about this for a while we heard a very eloquent mohammad say much of our market's controlled by the ecb, because it's front running, not the illegal kind the whatever it takes mentality kind everybody is going to jump in front of what they're going to buy, hence all stimulus is fungible but the problem is, the more that dynamic occurs, the more

untethered markets get to the reality of the underlying economies. just like ours and the inverted curve and oh, my god, that means a recession. i'll tell you something. every day the s&p 500 closes at an even number on a wednesday after a snowstorm. within 15 years, you're going to get a recession. think about that for a minute. carl, back to you. >> rick santelli, what a day today is turning out to be major averages obviously hanging on to gains. dow's up 55 and we are stuck right at 2850. "squawk alley" starts in just a few moments.

good morning it is 11:00 p.m. at alibaba headquarters in china. it's 11:00 a.m. on wall street and "squawk alley" is live ♪

good thursday morning. welcome to "squawk alley." i'm carl quintanilla with morgan brennan and jon fortt at post 9 of the new york stock exchange the dow is coming off the worst day of the year. the fourth largest point drop ever interest rate concerns, trade tensions, and global concerns are worrying for everyone. >> not good you have me on >> i disagree! >> okay. don't backtrack. so we've got a rally, but it's pretty darned tentative, let me look at it i look at some internal numbers. very high put/call ratios. investors are definitely buying a lot more put and calls than normal that's usually a good sign usually a sign of short-term bottoms. we don't know for sure the yield curve is not inverted today, but we're also not getting much of a rally in yields at all, which is what we need obviously, we move in relation to the yields and if