>> live from new york, where business never sleeps, this is squawk box >> good morning, everybody welcome to squawk box here on cnbc we are live from the nasdaq market site in times square. i'm becky quick along with joe kernan and mike santoli. andrew is off today. you'll see now that things are in the green we did see gains yesterday dow up 230 points. made progress but didn't make back half of the ground we lost on friday. this morning, green arrows now s&p futures up by 3 and the nasdaq up by 7 overnight in asia, take a look and you're going to see that the nikkei ended the day up by 1%. the hang seng was flat and then in europe where there's early trading takes place you'll see a mixed picture. a little weaker for the ftse down by .4% and the dax up by

over .1% treasury yields, this morning we're taking a look and you'll see that it's trading at 1.5%. 1.543% to be precise the two year a little higher than that in terms of the yield. 1.518% >> this is no way to run a business, obviously. i'm talking about torte reform and things like that when one judge can say yeah, 17 billion -- >> he didn't. >> no, he didn't but he could have that's what we deal with in today's -- with trial lawyers. now to get to a developing story this morning, i got my editorializing out even before. >> started at least. >> that's what the story was major court ruling this is just one state too this is oklahoma we know about the opioid crisis. it was against johnson & johnson. the judges ordered them to pay

$572 million for country bouting to the opioid economic in oklahoma under the public nuisance law there's 50 states by the way. >> there's also municipalities. >> think about it. it says j and j and it's unit repeatedly down played the risk of addiction doctors were targeted as key customers. it covers one year of abatement of cost to tackle the crisis through addiction treatment and overdose prevention programs but the number that people were worried about was 17 billion half a trillion -- or half a billion versus 17 and it had been seeking between 500,000,005 billion and others are also trading higher what was the 17? >> for 30 years.

they thought it would take 30 years to fight and turn around what's happened with the opioid crisis the judge said no, you can have one year but not 30. >> estimates were a billion and a half to two billion which is why shares are getting a little bit of a bump because it was not as bad as some were bracing for. >> johnson & johnson has been the one that dug in it's heels and said we're not going to settle >> i said adds when i'm watching for round up constantly on this -- >> that's bayer's problem now. >> they will appeal. they plan to appeal saying the decision is flawed and the state failed to present evidence that it's products or actions caused the crisis closely watched by plaintiffs in nearly 2,000 cases against j and j and other opioid manufacturers.

they have been consolidated into one case which is spending before a federal judge in this case it's in ohio and we'll get a live report from oklahoma later this hour >> president trump has returned from the g-7 summit in france and his take away message from the memorable meeting, flawless unity. eamon is getting ready to return home what would you say in terms of how you wrap all of this up? >> look this is a much different g-7 than we saw in canada. that one ended in frustration. the president tweeting angrily on the airplane on the way out this time that flawless unity message. the president tweeting thank you france on the way out the door this was a president of the united states here in france in deal making mode such a contrast between what we saw from the president on friday to what we saw from him on monday the president went out of his way to suggest that he was willing to negotiate with the chinese and suggest the chinese were willing to negotiate with him. we went around and around yesterday on the issue of phone

calls and never quite got to the bottom of that but the president sending positive signals to the market and the chinese government that he's ready to get back to negotiating. the chinese sent another one back saying they'd like the u.s. to stop it's wrong actions before they get down to negotiating but the rhetoric continues to improve on that from where we were on friday on the iran issue, another bit of a thaw there. the president signaling that he would be willing to meet with the leader of iran even as the foreign minister of iran was actually here in france during this session the president putting out the idea that he is willing to float some loans to the iranians for lines of credit secured by uranian oil to get them back on their feet if they do come to the negotiating table. maybe an opening there finally on the issue of russia, vladimir putin not here in france this time but ultimately a big subject of discussion as the president wants to make the g-7 the g-8 again. you remember that russia was

kicked out of the g-8 in 2014 because of the annexation of crimea he would like russia to be back in not clear that that idea met with a lot of enthusiasm from the other world leaders in france the president in deal making mode on that front as well so a whole lot going on here but now it's all over, the diplomats are gone and this beach town gets back to what it does best >> maybe a little shopping. >> soon. >> what's that >> enjoy enjoy the swimming. >> there was a suit. there was a suit, right? swim suit. >> swim suit. >> there was okay okay good. because you know -- >> swimming naked. >> exactly he's already on record as saying that was not the case. president trump has said recession fears are overblown and the ceo of starbucks would

agree. kevin johnson told cramer, jim cramer, what he said last night on mad money. >> we have not seen signs of, you know, in the u.s. of anything related to a slow down. but we do know these things go in cycles but right now we're firing on all cylinders and consumers seem to be doing well. >> shareholders likely share johnson's optimism stocks up more than 80% over the last year. so when you -- do you say take a listen >> i try to avoid it actually. >> what does that even mean? folks at home if you ever become a tv person, whenever you toss to a sound bite, it's just, if you say take a listen, you feel so anchor like but it's so common, it's so sad to see good anchors that i respect say take a listen, every time. >> no way to tee up -- >> could you start going slow?

>> it's a signal to the control room to roll the sound bite. >> but if you start going slow and they know it's coming and then just stop and then just deal with the silence there. >> go like this. >> no. >> i have sometimes said listen here. >> you're telling people that. >> here's what he said here's what they said. come up with something this is interesting. whatev whatever. coming up, new word from china overnight on the potential for new trade talks. we'll take you life to beijing going forward. and then later the analyst that scores predicted recent ipo stumbles and will reveal his grade for the wework ipo you can only see it on squawk box. here's a look at the biggest premarket winners and losers in the dow.

clarifying two phone calls eunice joins us from beijing and has more on the story. eunice, it's good to see you >> thanks so much, the foreign ministry declined to comment and declined to confirm for a second day that the two sides held high level phone conversations between the trade negotiators. the foreign ministry said that the two teams were in contact and also added that the trade dispute should be resolved through dialogue the u.s. needs to stop all wrongful actions and should create conditions to talks based on mutual respect and equality so there's two ways to interpret the ministry's remarks from the very beginning china has been trying to paint itself as the one that is responding to the trade war, that the u.s. is the one that's the instigator so what we could be seeing is beijing trying to show that it didn't initiate this phone call

even if it did and then the other point and that really important in the statement is that the message in the language of the text. so this is all very boilerplate and and the language that's been used since the talks stalemated in may so the message and the takeaway is that beijing officially isn't changing it's position on the trade talks. so that suggests that any optimism that you could feel about the trade talks could be a bit premature. also one positive story is that costco opened it's first store today in shanghai and this opening has been all over social media because the store had to close early. it was so crowded with traffic lining out the door by one kilometer. i don't know if that's normal in the united states but it's been

getting a lot of attention here. and chinese consumers love discounts. and particularly popular, the muffins. i've never had a muffin at costco. >> their cakes are really good i've never had a muffin from there. >> are they? >> we can mend all fences as long as we have good pastries. >> i was feeling very half full yesterday thinking about, you know, how did it get to this point with china and then thi thinking both countries have so much to gain

and it could be really good with what we could do together. it just seems like it could be a relationship where both parties benefit and i'm hoping that that is where we finally get it in the end. >> i think the chinese would agree with you they'd want to see a win-win situation between the two sides. especially because they know consumers do like a lot of these products from the united states. but yeah, it's difficult because, i mean, now i'm going to play your role but, you know, because over years and years there have been so many complaints that the chinese have been -- why are we changing our

hats >> i felt like what you were saying again, it's easy to want to be a win-win when you have been stealing stuff for 40 years. >> much more comfortable with you in your role. >> but they felt like that was necessary and justified and when you're trying to catch up, maybe some day it will be not quite as awf often as it is right now here to talk about the trade impact on the market is catherine, head of global research and chief investment

strategist it's crazy in august it's thin and is there noise or can we derive something from the future action that we're expecting? >> no, i don't think it's noise at all it's 19 straight days. >> plus or minus 1% premarkets i think it's real news we're over the top of the total fiscal stimulus for all of 2019. we have $125 billion of fiscal stimulus the tariffs are about 110 billion so we're going to zero out fiscal stimulus. >> wonder if taken how much it's going down though that hasn't hit us directly. it's not apples to apples. >> well, it is apples to apples in the sense that it's fiscal

stimulus is not to china that's insulating their exposure. >> and consumers haven't felt it and haven't lost it and hasn't subtracted that stimulus it is in the economy consumer spending. consumers remain robust. >> you are -- your case, what you're saying now is that the tariffs have actually cancelled out. the benefits of tax reform. >> without rolling back those tariffs at some point, they're going to be there in 2020 and be there until we keep moving forward. and it's the currency with the yuan now it's to tariff the consumers and a conversation last week the

president eluded to, he made sacrifice and economic recession for national security. and now we're beginning to start having conversations about directing companies to stop doing business in countries. we're crossing red lines and they're going to make it hard to walk back. >> do you think tariffs are having this much of an effect? >> that's what makes tv fun and a debate the fact is that a trade war is not showing up in real economic data in the united states. the u.s. is doing pretty electrical wit well. import prices are declining. they're not even rising because of the tariffs that we had for many months. we're 25% on 40% of imports for 6 to 9 months. the u.s. consumer confidence is

still extremely high and you have not seen the flow through to inflation in fact if you really think about it, this is something that i encounter quite a bit with our clients and a lot of people that i talk with. people have the impression that when you increase an import, a tariff, then the equivalent impact of that import tariff is what you're paying atw walmart that's not the case. 20% of what we consume in this country is imported, of which 20% is from china. so the numbers are pretty easy to do. the impact on the additive, which we know not everything is always equal, but the net impact on core pc over a period of time of one year, joe, is 0.9% on 25% of total tariffs so the impact that we haven't even seen in inflation and it's not a direct impact on usgdp the u.s. economy is a consumption based economy. the export or trade is 10% of our gdp. china is far more relevant

it's about a third of gdp. so certainly i'll agree with you, i think incentives are aligned and i do think that we get to some framework terms by the end of next year. >> wow bull tick, not bear tick. >> there you go. >> i know that you love that name, joe. >> they do but it might be because you're in miami too. in miami i'm happy >> how can you not be? >> where do you live >> here in new york. >> siberia >> you do? okay darryl thanks. catherine. thank you. we'll move on. >> my pleasure. >> i'm going to sneeze. >> when we come back -- bless you -- [ sneezes >> new applications for artificial intelligence in the medical field. we'll talk about how a.i. can improve heart health next. and we're watching the yield curve this morning right now we are inverted.

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there's a new study released this morning that shows how artificial intelligence can determine a person's physiological age that could be

years off from their chronological age. what this might mean is dr. paul friedman he's the chair of the department of cardiovascular medicine at the mayo clinic. when you say physiological age versus chronological, i started thinking about age is justa number and we're all as young as we think is that it or is it different >> sort of can we use an ecg to see how old somebody is? so we fed a number into a computer and essentially the computer guesses it first. you say how old is this person, it may guess 35 and you say no, 50 doing that over hundreds of thousands of times it starts to learn to read subtle patterns that our bodies are giving off and then following that, they did a test to say all right. now, let's see if someone whose age we don't tell the computer can identify their age and it turns out it was a very powerful

test we measured these with something called an auc. a perfect test is a one, flipping a coin is a .5. this test was a .94. very good for predicting age. >> what's the use of that? what do you do with it in medicine >> it turns out there's a couple of uses. it's turns out if let's say you're 50 and the computer says you're 65, odds are high that you have a medical illness your fizz oage is higher than te number of years you have lived if you are in that category and you get treatment, we saw a number of people where their age got younger again. in fact, we have a pretty dramatic graphic of one of the types of cases. >> their ecg changed where they were manifesting they were younger. ecgs don't seem that interesting. where is it -- how do they differ >> it's amazing, actually and because neuronetworks are black

boxes we don't really know what they see, they're just given a lot of information, they make these very subtle correlations that if we were able to remember the patterns for millions of hundreds of thousands of ecgs we could pick up the fine details that we just can't see clearly our bodies are giving off signals that reflect our underlying physiology. >> let's look at the chart you were just mentioning this is a chart, if we have it in the control room that shows a person's age overtime. r so, their age izontal axis looks to be by the ecg, 50 and it keeps getting older until they're about 54 and at that point, they're like 70 by the ecg age and then something dramatic happens they get much younger and you can see they continue to get younger even as in time they're getting older. >> so what happened in the circle. >> that's exactly it this was somebody that had a heart transplant got the heart of a 16-year-old got progressively younger and

then lost weight, blood pressure and diabetes go away and then they get progressively younger so the main reason that we're doing this sort of thing is trying to make health care more widely accessible by identifying people that need care. >> so if you saw it on an ecg a decade or two decades older you could get them in and try to figure out what's wrong here. >> that's exactly right and ecgs are no widely available from a watch, from a smartphone that people can be tested even if you're in a rural community and if there's a discrepancy then maybe you should be seen by a doctor. >> you don't know precisely what a computer is picking up in terms of determining age, what is the first steps in terms of investigating if somebody seems older? >> that's a great question so first we go back to traditional medicine and do a general history and physical check blood pressure, check sugar, check weight to see if there's something specific find. >> apple has talked a lot about

this have you worked directly with any companies? >> increasingly, we're in the process of talking to a number of potential partners because our goal is to identify the tools and build the tools and then we have to work with partners to make them widely available. >> did you ever see somebody that looked like they were decades younger? >> you have to figure out what they're doing. >> you have to get him and take him to the mayo clinic he will do it. he was out in space. he would probably donate his time to see how he became -- he's 88 and he's like in the amazing race or something. could you study him? >> we'd love to. broadly speaking the second potential use of this is there are lots of treatments being developed, studied, to see if we can prevent aging. some of my colleagues are actively working on these. how do we know if they work? we need a way to assess your

age. if we further validate this and say the ecgs are a marker of your age and we come up with a new pill, therapy, regimen that makes that age get smaller then we're on to the right track. >> perfect of nature versus nurture because i would argue a lot of it is genetic and then a lot of it is how you treat yourself and your body as go a >> they do there's certain things we're handed and certain things we can control. >> doctor, thank you very much for coming in. that's really interesting. >> thank you it's been a pleasure. >> don't vape. coming up, stocks to watch today including some bad news for boeing one customer losing faith in the grounded 737 max we'll tell you what they're doing about it next. plus an update on the case against carlos ghosn that story is next as we head to break, here's a look at yesterday's s&p 500 winners and losers when it comes to your customers' expectations,

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welcome back, you're watching squawk box live from the nasdaq market site in times square

>> good morning, everybody let's take a look at the u.s. equity futures it's tuesday monday was a big up day. the dow was up by more than 230 points still didn't make up for the losses of more than 600 points on friday. you're seeing green arrows again. dow futures up by 58 points and the nasdaq up by 16. an update on the former nissan chairman that faces criminal charges in tokyo the wall street journal says ghosn built a parallel business as an investor in silicon valley with his son using millions of dollars he received from one of nissan's business partners the journal says it comprises the most serious of the criminal charges against ghosn that's been released on bail awaiting trial. he stole nissan money through a kick back scheme he maintains his innocence a spokesman said he would be vindicated if given fair trial. >> time now for the executive

edge we'll start with a couple of stocks to watch in today's session. confirming the air leasing business has filed a lawsuit to cancel an order for boeing 737 max jets >> really? the financial times reports that they want it's $35 million deposit back plus $75 million in lost profit of more than 100 million in compensatory damages and several times that amount in punitive damages boeing has declined comment. would you rather fly on a fixed boeing 737 max or a russian made jet? >> boeing. >> yeah, me too. keep your money. i guess -- but they'll probably go to airbus. >> yeah. >> this is the global battle between airbus and boeing. boeing has been winning for so long. >> it looks like maybe they are owed that. i don't know the details of thes

like they're trying to take profit from the whole situation. >> well, every airline is going to be doing that. >> trying to get more than they're actually entitled to from the set backs that they suffered i guess. >> part of the issue is airbus you're in the back of the line there's some value to actually having an order with boeing. >> but the list price is not the list price in any of these scenarios. >> part of the new brt guidelines for what companies should be doing. >> sure it is. >> to try to get more than you're owed. >> they're not part of the brt. >> no, they're not papa johns is reportedly set to name arby's president rob lynch as it's new ceo as soon as today. he would replace steve richie. i wonder if arby's will still have the meat. >> we have the meat.

>> do you think they'll still have it after the guy leaves i don't know and speaking of meat, we're watching the shares of beyond meat after the stock surged more than 5% yesterday. the company is partnering with yum brands to test plant based chicken nuggets at kfc and boneless wings at kfc. mike says why put any chicken in there. use the batter fried batter. >> if you're worried about not having meat, you might as well -- >> there's a lot of batter. >> it's the best stuff though. >> original or crispy. >> so the meat is optional in the first vacation movie cousin eddie would make hamburger helper with no hamburger. >> just the helper. >> yeah. >> when we come back, is the run of technology stocks over? we will debate that question with granite investor advisers stay tuned you're watching squawk box right here on cnbc

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best moves is tim, he's principle at granite investment advisers add to that list perhaps, you know, just investor preferences change and sometimes the big winners on the way up are not always the ones that continue to do well. now that being said, faang stocks, the nasdaq holding it's own. has anything happened that's caused you to rethink some of the core holdings that you have in the big tech stocks >> i'd say nothing significant has changed in the huge secular tail wind that many of the companies have i think you had to separate the fundamentals of companies, economic growth, and perhaps some areas where there's been overvaluation and consumer sentiment or call it investor sentiment might change evaluation of netflix. but most of the faang stocks and across broader tech, a move toward more and more online advertising or basically advertising media companies and they're very domestically focused so as we watch the trade

war go back and forth, it really doesn't hurt the core technology companies. certainly the device makers and some of the more cyclical areas of tech might be impacted. >> well, yeah, so if you like advertising based companies that are not participants in china, i don't go for facebook and alphabet except that you have other issues in terms of exactly that advertising model and whether they're going to be able to pursue it as properly as they have in the future valuations have come down for those reasons. what does that leave you with? >> you're getting to perhaps a fair evaluation of the future stream of earnings from those kinds of companies you're a full year and a half since europe installed the kind of restrictions that we expect that we're going to see here and it really hasn't changed their european advertising growth so even if we have economic slow down, which we will every once in awhile, it's not like these companies are carrying excess inventory or have tremendously high costs they're going to continue the secular move toward online

advertising and just gain from the more traditional media outlets. >> speaking of device makers apple had a pretty good day. street analysts saying they're going to get a break on component costs that's an offset to potential tariff head winds and seems like the market kind of embraced that at least for a day but the stock does remain, 10% below it's record high what are you thinking in terms of apple valuation wise and then expectations for the next generation >> you can't pick a more sensitive company to everything that's going on with the trade war and global tensions and global economic slow down than apple. you have, you know, if you open up an apple phone and try to figure out where all the components are coming from in a global supply chain, it's not that flexible a supply chain so apple would like to see a resolution to the china issues but it's been trading at a reasonable valuation

they have a ton of cash and they have the kind of margins domestically and internationally that they could soak up some of the increase that they might see in tariffs and particularly, you know, certainly as currency changes have reduced component costs that probably offsets to a small disease. apple has a good supply chain business that's what tim cook did before he was ceo of apple. i don't think the world is that worried about apple's ability to compete in whatever new world order we end up with. >> it seems to be betting tim cook can figure it out thanks a lot talk to you soon. >> thanks for having me. >> coming up, look at the shares of johnson & johnson giving back some of the gains following yesterday's ruling in oklahoma we'll bring you that story coming up next still up about 2%. we'll go to a quick break. first let's check on the european markets and what's happening over there right now a big move one down, two up, gains and losses

welcome back, forcing the company to pay $572 million. meg terrell was there wfor the verdict. good morning, meg. >> reporter: good morning, joe the judge here saying j & j was responsible for causing the state's opioid crisis saying essentially what it caused a public nuisance by aggressively marketing to doctors in his decision he said the opioid marketing was false, deceptive and misleading causing exponentially increasing addiction and overdose deaths in oklahoma they must pay $572 million toward remediating the problem in the state the state had asked for $17 billion so that was quite a lot less than what they wanted

wall street said j & j could be forced to pay $1 to $2 billion you did see their stock rise as well as stocks in other cases that could go to trial companies like teva and endo in particular a lot of these cases are still pending and we'll see them start to accelerate this fall, including a massive case in ohio a federal lawsuit that's consolidated thousands of ha suits around the country this one is not over for johnson & johnson. it said it plans to appeal it said in that federal case in oklahoma, there shouldn't be a read-through from this case but they're not opposed to potentially settling there we talked with j & j's attorney right after the decision and she talked about the potential read-through from this case. here's what she said. >> the cases that are consolidated in the mdl proceeding in cleveland, ohio, are under different law, they have different parties, different theories, and so we do believe that those are very different.

>> reporter: we also spoke after the decision with oklahoma attorney general mike hunter, who spoke directly to j & j's ceo. here's his message for hem >> i challenge the ceo to put his money where his mouth is the business roundtable, of which he's a member, has made the very daring statement that they're going to start looking out for people outside of their shareholders this is a responsibility put action behind his words. >> reporter: now, j & j saying it will appeal saying it is not responsible for the crisis here. it's going to ask to stay that $572 million judgment until it gets through the appeal process which it expects to take through 2021 back to you. let's bring in josh jennings, managing director, senior research analyst at callen $572 million to j & j is not that much, i guess, josh, but it's been pointed out that some of these smaller companies, they see that, that's a lot to them

this may induce them to settle some of these other pending cases. do you think settlement talks will be more in earnest at this point, josh? >> good morning, and thanks for having me on i do i think this could be a catalyst for some deeper settlement talks. my understanding is that the judge in charge of the multi district litigation in ohio has been pressing for a settlement for that litigation. it's still unclear johnson & johnson said last night they are open to settlement as long as it's on negotiable terms but this is a relative positive for johnson & johnson. expectations were potentially as high as a billion or multi billions so for the decision to come up at $572 million, that is a relative positive. >> josh, you've heard that johnson & johnson is potentially looking at a settlement? i thought their whole point was they didn't want to do settlements. did they feel like they made their point enough with this and

now they'd be willing to say let's make this go away? >> no, that's a great question, just to clarify that i think they just mentioned and stated that they're open to settlement i think that is relatively new i don't think that this is going to be a catalyst for them to move forward directly with settlement talks, but that has been one of their comments post this decision yesterday afternoon. so we're not anticipating a settlement it does seem like johnson & johnson has put the message out there that with reasonable terms a settlement could be in the cards. >> josh, should there be punitive damages here? i'm just trying to figure out the whole sequence of events, because the fda initially didn't have a strong feeling about how addictive these were, these substances were, and maybe the drug companies didn't know, or did they know at the time? because chronic pain or cancer pain, things like that, i mean a drug company is trying to do one

thing in terms of that you know, they're trying to meet a patient's need did they know for sure that that wasn't going to be the use of the opioids at that point, josh? and did the fda know it was going to be abused to this extent >> you know, i like the line of inquiry here because i think one of the fascinating elements of this case in oklahoma is that j & j was on the hook for the total abatement program. if you think about all the layers of responsibility within the whole chain, everyone from the manufacturers to the distributors to the pharmacies to the physicians to the fda to the politicians, i was a practicing physician, as a resident in 1998 to 2002, i kne opioids were addictive i don't think anyone can look in the mirror and say opioids weren't addictive and it wasn't known clearly. all you had to do is practice

back in the mid-2000s, in emergency rooms 40% of my patients were coming in seeking opioids. the fascinating element of this case is that johnson & johnson was put on the hook for the entire abatement program if you also look at the settlements prior to the case with teva and purdue selling for $350 million, you have johnson & johnson paying for the first year of abatement the full boat of $572 million. that math doesn't clearly add up we think there are some holes there. johnson & johnson will try to roll it back through the appeals process. that appeals process won't end at least through the supreme court of oklahoma until 2021 so they're not going to be on the hook for this specific penalty for a couple of years. >> so even the fda >> potentially, potentially. again, i think the initial label for oxycontin was that it was

less abusive potential. >> what's the best way if you're an addict, to just take the pill or what do you do with it? do you crush it up did they not know it was going to be abused that way or something? >> you know, i think there may have been some misunderstanding about the potential to crush it up and use it in other forms besides oral iioralingestion. but i think the longer term opioid with controlled release oxycontin those will cause problems clearly. >> it's a slippery slope for people -- josh, thank you -- for people that have pain. i broke a couple of ribs and pretty good drugs, those things. >> you get addicted in three or four days. it's crazy >> although i told you about the problem, the constipation. >> enough. >> i mean i can't even -- i can't describe it. >> our guest host for the rest of the show is sarat sethi

futures are volatile after a positive day on wall street. a look at how the trade war is impacting your investments, straight ahead. is the president's tough trade talk working we debate the negotiation tactics and whether or not a deal can get done. and a landmark decision. an oklahoma judge finding johnson & johnson liable in that state's opioid crisis. it's been ordered to pay more than $570 million in fines that corporate story and other names on the move are straight

ahead. 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, everybody. welcome back to "squawk box" here on cnbc i'm becky quick along with joe kernen and mike santoli. in studio with us, sarat sethi he's a cnbc contributor. are you going to walk us through some of the ups and downs of the markets? >> absolutely. >> check out the u.s. equity futures. after an update yesterday you'll say green arrows this morning. dow futures up by 51 futures, s&p up by 4.5, the nasdaq up by 15. here's what's making headlines at this hour shares of johnson & johnson are on the rise after j & j was ordered to pay $572 million for

helping spark the opioid crisis in oklahoma. that was far less than the $17 billion the state had been seeking and certainly less than some analysts had expected so j & j says it will appeal shares of other opioid manufacturers also higher, including teva, endo and mallinckrodt costco opened its first china door in shanghai and had to close early after thousands tried to get in and traffic nearby came to a stand still local residents said they came because milk and meat were cheaper than at the average supermarket. a company is being sued for patent infringement. this is significant because apple is among a customer along with qualcomm, google and nvidia. we are joined now with the

big takeaways from a memorable meeting. a nice shot -- it's nice there, eamon. i know you can't wait to finish these reports and go do something. anyway, just bear with us. what are the highlights? >> let me give you the report first. well, look, this was the g-7 where europe figured out how to let donald trump be donald trump. they abandoned the idea of a communique, the idea they'll come up with a 14,000-word detailed agreement like they did in the barack obama era. that's not happening under donald trump emmanuel macron hosted the traditional press conference with the president but left the stage and let the president hold court with the u.s. media. the president was more comfortable here than he was last year and it ended up on a much more positive note. as a result of that the president tweeting to france, thank you, france, on the way out the door such a contrast between this year and last year but ultimately this is a president who came here in deal-making mode he signalled he wants to make a

deal with the chinese, he wants to bring vladimir putin back into the g-7 and make it the g-8 again. he's signaling that he's willing to sit down with rouhani of iran so the door is open for negotiations and this is a president who doesn't thrive in these multilateral organizations. he wants those bilateral face-to-face negotiations. he's found a way it seems to take these multilateral weeks where you have the family photo and all the diplomacy and all of that and turn it into a series of unilateral bilateral meetings one-on-one with his counterparts that seems to work europe seems to have understood donald trump now and they got along much better. the message from this, joe, was one of unity really politically and diplomatically. >> no communique means there's no big sticking point as far as disagreements. that's usually what you can read into one of those. that's the way it is where do you fly out of, eamon >> reporter: we're flying out of

bordeaux so we're in st.-jean-de-lus. a beautiful tourist town there's a really nice wine and cheese shop just behind me here. we're going to spend some american dollars there in just a couple of minutes. >> going through bordeaux, i was going to ask you -- but you're probably -- you don't want to bring a bunch of stuff on the plane probably. >> reporter: we're going to stop. >> not for you. >> reporter: i don't want to violate any smuggling laws we'll figure out what we can put in our carry-on. >> where's the hat >> reporter: bottle of red maybe a bottle of white. the hat store is just beyond the camera i'm not wearing it on tv there's only so much i can do. >> eamon, don't do it. things last forever onth. >> reporter: i need this job, yeah last time i had something weird on my head, joe played it for two years on television. >> a mohawk from the wind. >> reporter: if i wore a red beret on tv, you would play it

for the next decade. >> yes. >> raspberry beret. >> reporter: right that's why i'm not doing it. >> i'd play it for the next 30 years. i'd live long enough for the next 30 years just to play it. so bordeaux, then where? >> reporter: yes bordeaux, then paris and then home. >> so a connecting flight to paris. >> reporter: we're going to go overnight. it's two hours from bordeaux to paris or an hour we'll drive from two hours from here to get to bordeaux. this is a rough assignment somebody had to take it, my name was in the hat >> in the hat, so to speak we're going to photo shop that hat on your head >> we'll expect you back and you should be in a really good mood because you have a really good job. >> reporter: okay. >> and you did a good job. let's talk more about trade negotiations and what it's meant for the markets, the tweets, how it's impacting fixed income and the equity markets joining us is kathy jones from

schwab center for financial research our guest host, sarat sethi, who is managing partner and portfolio manager at douglas c. lane and associates. let me start with you, sarat just in terms of the crazy volatility, what we saw even just friday and monday, coming out of it how do you feel? >> it feels more of the same i think after friday night, it was a little bit different and then kind of backtracking sunday evening when the futures were down big so it seems like this is another way of negotiation it's unexpected but now expected so given kind of what we've seen the last couple of days, it seems at least in my view that we will get some resolution. the question is when that happens and how the road along the way there. >> we haven't made up all of the ground that was lost on friday yet. would you tell people to buy here >> we haven't made up a lot of ground since about two weeks ago. the areas that have been the most hurt but i don't want to tip your toe into them right now

are financial services i think a lot of them has to do with the 10-year going to 1.5. if you do look in that area, companies like blackstone, those are companies we like or jpmorgan really good, high quality companies that will do well no matter what happens in the economy. those are some that you could nibble on, especially in the area where we've got some valuation issues there. >> kathy, we've been paying a lot more attention to the yield curve in recent weeks and months are you worried about this slight inversion that we're seeing this morning? what does this tell you? what happens next? >> yeah. well, a yield curve inversion is obviously a reliable indicator of recession down the road the trouble is it doesn't give you much in the way of timing or depth and it can be a false signal we've had a couple of false signals over the years i think what it signals is that the market thinks the fed is too tight and the fed needs to ease. if they go ahead and signal increasingly that they're going to cut rates, i don't

necessarily think that that does damage to the economy or to the market it's now the market waiting and saying we want easier credit conditions. >> is the market waiting for signaling or an actual cut >> at this stage it's waiting for an actual cut. and not only is it because the economy is slowing down, inflation is below target, the yield curve is inverted, but the plumbing of the fed is a little clogged up at the front end and if they cut rates, that eases it up. >> would 25 basis points do it or do you think it needs to be 50 >> in september we're expecting 25 i think it would be a high bar to get 50. it might backfire because it might signal what's the fed see that we don't know it may signal alarm, so i think 25. >> i think watching too much of a cut then signals that things are much worse and nobody else is seeing it except for the fed. on the other hand if they don't cut and we get this inversion

you'll have technical factors that individuals can't do anything about once the machines start selling, then selling begets selling and you start losing the worst thing we can do is lose consumer confidence and industrial confidence and that kind of -- we end up in a recession because of something like this. >> so if you see selling start to pick up, you wouldn't necessarily look at that as an opportunity to buy, you'd wait and see what happens with consumer confidence before >> i think if we get december selling, then i would pick up like we did in december. i think there's an opportunity there where good companies are being sold not because of fundamentals just because people are reallocating again. >> are we not past that idea that the fed has some magic window into what's going on? because if the fed really did operate -- in all fairness, powell has refused the opportunity to say we're making technical adjustments to the short end of the yield curve we just need to fix this thing and that's the reason we're cutting. >> when has the fed ever

forecast anything effectively. if they think things are worse than they are, they're probably better than they are. >> but there were times they could detect financial stress in the system. >> you would think why don't they have a better forecasting record if they know something the rest of us don't know. >> because it's an impossible job, i don't think. >> i don't buy that anymore that we think the fed knows something because we know they know nothing, right >> i think it would be taken as an overreaction and that would trigger more overreaction in the market. >> so if it's 25 basis points in september with signals that, you know, we remain open to further cuts. >> yeah, i think so. it wouldn't surprise me -- i think the market is pricing in two to three cuts between now and early next year. that wouldn't surprise me if we continue to see the global slowdown, if the trade issues don't get resolved in some way that will boost investment spending and confidence amongst businesses i think a couple more after that would be reasonable expectations. >> i mean it is really

staggering that we're in this -- we're talking this way now because there was a consensus that we needed to march back to normal. >> a year ago -- >> and that was five or six. there was the crisis, we came down from five or six. >> nobody thought five or six was -- three would have been a stretch. >> eventually, eventually back at the very beginning of the -- why wouldn't it? >> okay, maybe ten years ago we thought that. >> that's what i mean. but there was the idea that the financial crisis caused us for ten years to stay at zero. not where you turn back down at 2%. >> you've also got $60 trillion of negative global debt. >> that's part of the whole thing we're witnessing but that's when powell -- even powell when he said we're a long way from normal, he was still in that old mindset back then we thought we had -- how many cuts did we have on the way down 30

what did we do on the way back up, nine and the world almost ended because we did nine? that's why people still worry we built some kind of house we can't get out of here too, a roach motel. >> stocks to me are looking ahead to see if fourth quarter, first quarter earnings are plausible or not. >> yes >> we're talking about a big uptick in earnings growth on paper in the first quarter. >> to maintain the multiple we have today, we're going to have flat to up earnings the next couple of quarters if consumers stay strong, i think you can do that and i think the market can bear that you also get the other aspect with interest rates at 1.5% for the 10-year, there's no other alternative so you've got support for valuation there whether you think you're paying 20 plus earnings for consumer staple stocks, those two offset each other. >> we have this guy wilson on today. did you look at the notes?

>> he's the pessimist. >> but his mid-2020 target, he's got a bullish, a neutral and a bearish case for it. in the bearish case, the multiple is at 16 for all three. what's changing is the earnings, the eps. he's got a number for a 2400 target on the s&p that the earnings is unheard of that would be a recession. we'll get to talk to him about that anyway -- >> kathy, thank you very much. sarat will stay with us. we've got lots more to talk about today. >> you'll be here for that, sarat. you can help elicit some information from wilson. coming up, a former nasdaq chairman and ceo bob greifield joins us to discuss shareholder value in terms of the brt, the trade war and some of these wild market swings. he knows something about shares, shareholders and then low mortgage rates boosting home building stocks despite recession anxiety. we'll finding out which names in

the sector could be a buy right now. atin tuned, you're wchg "squawk box" on cnbc when i lost my sight, my biggest fear was losing my independence. mmm... good. so i've spent my life developing technology to help the visually impaired. we are so good. we built a guide that uses ibm watson... to help the blind.

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welcome back to "squawk box. take a look at the equity futures right now. they have been modestly higher all day. actually pretty much at the highs of the morning

the s&p 500 up one-third of a percent, dow up 95 points, nasdaq up 31, looking to add to yesterday's gains which won back about let's say 40% of friday's losses we're right in the middle of an august range here for the major indexes. when we return, former nasdaq chairman and ceo bob greifeld is our guest. and later is the president's tough talk and tweets helping or hurting the markets? we'll debate that and whether a r e ump al is considered a win fothtradministration "squawk box" will be right back.

the business roundtable out with a statement last week redefining the purpose of a corporation. the updated definition includes a commitment to all stakeholders rather than just shareholders. joining us now to talk more about this pledge, robert greifeld, former chairman and ceo of the nasdaq. bob is also a cnbc contributor i've weighed in on this a lot already, bob you know, there's a time and place for being a little bit cynical, but i'm exhausted from how cynical i was about the whole thing. i read your comments and you're just going to get me going again, so i think i'll just let

you opine on this. i'm just wondering, if you were still active at the nasdaq and you had to answer to pr concerns more than you do right now and if virtue signaling was something you could still benefit from, do you think you'd be able to speak as frankly and as bluntly about this? because you think this is kind of -- i don't know, i'll let you say what you think of it but what do you think of the whole idea of the business roundtable with this new idea? >> well, joe, one, good to be here and i don't want to get you worked up this early in the morning. but i would say this, there's certainly to me an element of pandering to the press with respect to what the business roundtable said. i would also caution everybody to think that if the socialists are in power, this statement is not going to change the focus on for-profit corporation that being said, i think

corporations today operate in a very principled way and they really operate in what i call enlightened self-interest. there's a lot of comment about what milton friedman has said with respect to what corporations have to do but i like to think about what mazlow said who was born before friedman and he talked about the hierarchy of needs when you get up that hierarchy, after you have profit, you certainly think more in enlightened fashion. a lot of what business roundtable is doing is self-contained in the operations of corporations today. i certainly get worried when we see business roundtable trying to codify this i never want to be in a situation where i have a public company ceo saying that we had a bad quarter financially but we had a great quarter because we had different esg goals or other aspects that are not financial that's a wrong way for corporations to operate. >> that was a new sort of a wrinkle that you introduced me

to, that these guys could actually use it instead of -- you know, instead of, well, we had some currency headwinds or weather, they could say, well, we're doing a lot of great esg stuff but it's okay because we didn't do as well but we were certainly feeling good about ourselves. i mean there's so many different ways you can look at it. number one, if you say to elizabeth warren and bernie sanders you've been right all along, we've been profit mongers and now we've seen the light, do you think that's going to satisfy them and now they're going to say, now you're good corporate citizens it continhas them continue alon false narrative they're preaching right now. and after the ceos did this, no one said kudos, guys, they all said now you guys that caused the financial crisis, you've got barbarians at the gate so now you're seeing some religion they just -- they're asking for it it's just -- and milton

friedman, the other thing, see, you did get my going i wish you hadn't. >> joe, you said you weren't going to get going that didn't take very long. >> do you know how long it was to make the case that the free market profit incentive causes accountability so that you do things that eventually with your profits -- you need profits to keep a business running and to hire people that pay taxes and to satisfy customers all the things that you do as a corporation are positives for society. you don't need to -- you know, to -- go ahead >> joe, we're in violent agreement, but i'd also add what milton friedman said is you have to maximize profit within the confines of the law and most importantly the moral ethos of the time >> you want to hire good people and people that are -- i mean unless you just assume that everyone is going to be martin

shkreli, the pharma bro, unless you give him guidelines, normally you're hiring people that you hope in addition to doing things for shareholders, they're going to work within the confines of the community and try to help their employees and give employee raises but if there comes a time where you have a bloated workforce and you need to cut back because of a slowdown in the economy, you can't all of a sudden not do what you need to do or else the whole company goes bankrupt and then everybody is out of a job >> i can't disagree with that. and shkreli certainly did not in any way, shape or form conform to what milton friedman was talking about. he did not follow the law. >> and if you continue to rape, pillage and plunder as a ceo, it's going to come back eventually and haunt you i'm not going to use j & j as an example, but you need to think long and hard about how you affect the environment and what you do because eventually if you're doing things that aren't productive for society, for your

community, for your employees, you're eventually going to see it in the shares anyway. >> right so we're saying the same thing i think corporations have to maximize profit, but that by itself is not enough you have to have an enlightened self-interest how you run the corporation. you have to build it over a long period of time and that's your enlightened self-interest. i think that's how things essentially work today and they work within the confines of the law. if they're not, there's structures in place to bring the martin shkrelis to justice. >> do you think you would have said this when you were ceo -- >> i think when you look at the brt thing you can say this they're just changing the ordering of the words, that the actions are not that much different. no, i have very -- very deep degree of difficulty with anything that gets away from actually the fundamental mission of the corporation you have to do other things. you cannot just maximize profit

exclusively, as we said friedman talked about, but you have to make sure that's first among equals you cannot be there at the end of the quarter saying i didn't hit my targets but i have these number of good things i do that doesn't fly >> what about some other topics to talk about. marco polos and ge what do you think, is there anything to that >> what i said on cnbc a number of months ago, when you look at the fact that ge said they were making $2 a share, then they're making $20 a share, one of those numbers is fundamentally wrong and i think what you see when you release quarterly earning numbers, it's subject to u.s. gaap let's say ge has 100 different businesses in each one of those businesses they take the most optimistic accruals, the most optimistic viewpoint. multiply that by 100 times and end up with $2 if you take a pessimistic

viewpoint you endi up with 20 cents. with respect to long-term care we hear very good points with respect to how they did accruals if you take that culture and philosophy, multiply it across 100 different businesses, you'll come up with a result that misleads investors what i had the last type, it's important to recognize myself as a long-standing ceo and the cfo, you sign that document you know if you sign that document, those numbers are wrong and misleading, there's criminal penalties coming. so it's going to be interesting to see how ge plays out over the next several years. >> what do you think of the trade war and the way it's being handled by president trump >> well, i want to give the president credit for taking on this task as somebody who tried to sell software into china for a long period of time and found it basically impossible. this had to be fought. with respect to the trade war, i think both sides are losing.

but to me what's interesting is the losses on the u.s. side to me are temporary on the chinese side it clearly can be permanent supply chains are moving today, right, not just to vietnam but to other places. when they move, they will not come back. so i think china is at longer term risk with respect to this trade war and when the trade war is basically resolved, i think the u.s. will get back to where it should be so i look at how that plays out. i think if i'm the chinese, i'm very conscious of that all the ceos i talk to, they are diversifying supply chains when they do that diversification, they're not coming back the way they were in china before >> are you on vacation or something out there? >> i'm here having fun with you, joe. that's vacation to me. >> yeah. but that's a nice backdrop i know all of colorado in the summer is -- you wouldn't live

anywhere else really if you try that. >> the weather is spectacular, i have to admit it it really is, yes. >> in boulder, you know, it's 300 days of sunshine, no humidity perfect. >> you've got to love it. >> you do. thanks, bob greifeld. >> thank you. >> good to see you, thanks. coming up, a look at names on the move this morning in the premarket. as we head to a break, take a look at the futures again. dow set to open up about 90 points autnehi obo o-trdf 1%

still to come, elevated recession fears and market woes. we will tell you where you should be putting your money to work right now. is the president's tough trade talk working with china? we'll debate his tactics and the possible outcome. and will the oklahoma opioid ruling against johnson & johnson give the green light to other states for lawsuits? we will talk about that. "squawk box" will be right back. what about him?

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all right, welcome back to "squawk box" everybody three names that dominate bond investing have employed the same investing strategy and they have all fallen short when compared to their peers thanks to the

monstrous rally we've seen in u.s. corporate bonds and treasuries obviously this came as a surprise to a lot of people, but the three all tell reuters they're not worried, saying they can live with the underperformance because of the greater damage they see coming for corporate bonds. it's been an odd time in bond markets all over the place. >> dom chu joins us now with more hey, dom. >> good morning, joe it's a bit of a mix this morning. we have one big earnings report to tell you about, first of all, and that's smuckers. that stock is down almost 6% you can see in the premarket trade although on relatively thin premarket volume so far. this is the company behind folgers coffee, jif peanut butter they miss on earnings, miss on revenues and cut their full-year 2020 sales growth as well. they cited deflationary pressures on coffee and peanut butter those shares off they had been on a nice uptrend and downtrend for the last four or five months now. also watching what's happening with comcast shares.

relatively stable premarket, nothing really going on just yet. however, that stock just got reinitiated with an outperform rating by analysts at wells fargo. they have a $50 price target on the shares comcast up marginally here and near those record high levels that we saw a couple months ago. comcast the parent company of course of cnbc and nbc universal. and we'll ending with what's happening with wti crude it's trying to snap a multi-day losing streak at this point. up about a percent and a half so far in trading today as softened rhetoric from president trump and his administration out of the g-7 meeting is helping to buoy some of those prices a little bit of a tick higher but still a massive move lower we were down there 30% in wti crude since its highs last year. wti crude also a focus, mike, because later on this afternoon after the closing bell, i know you'll be watching it, the american petroleum institute's weekly private sector inventory data coming up for oil at about 4:30 this afternoon.

back over to you. >> that will keep be going through closing bell appreciate it, dom chu. joining us now, cole smeed, manager for smeed capital management good morning, cole. >> good morning. >> we've got kind of a split market here, right everyone can acknowledge u.s. consumers in very good shape for all the reasons we know. the industrial economy having some hiccups and a lot of defensive-type stocks, growth stocks, quality stocks so to speak have been doing well to the exclusion of many others so where is your stock picking process bringing you within all of those factors >> well, it's not dissimilar to where buffett has been sitting he's been the buyer of financial stocks en masse, more so than really anything else he's had in the last six to 12 months with maybe not talking apple. there's a huge opportunity you were talking about the three bond managers who have been kind of roughly short the treasury market or thinking yields are going to climb

michael hassenstab is there too and everyone on that side of the boat has got punished. that is something that people -- as you mentioned in the quality safety trade, they perceive that's just not likely in the interim and the question is who's going to make the money, the people betting for safely and low rates or people betting that the world will change at some point. >> so what sort of financial stocks -- essentially just looking at the banks, which as you say have been punished not just because of where yields are but as a general sense of we're getting toward the end of the cycle maybe they're not the place to be. >> yeah, we own bank of america, wells and jpmorgan wells is the most contentious just because they need a ceo, they're coming off of all the woes they have had as a bank interestingly, we've been looking back we've been an owner of bank of america since 2012 brian moynihan might be the most understated ceo we've seen jamie dimon is the noted banker

on wall street and moynihan is this lawyer by background, came from fleet financial and has just done all the right things, produced fabulous returns, and finds himself in a position where he was on your show saying the fed does not need to lower rates. here is the insurance cut and moynihan thinks the economy is plenty strong. so we're in the brian moynihan camp as it pertains to the economy. the biggest risk is that corporate america is borrowing a ton of money it's great for wall street as you were talking about the prior segment as you look at executives looking to a greater good in society, well, they're doing that with the lowest rates and the most confidence they have ever had and the cheapest money talking about doing good things to society. they're funding most of their buybacks with purely debt. so i think it's more symptomatic of a late bull market arena, not here's the next great leg up in five years more of this game going on the insurance cut was good for wall street and good for keeping

stocks at ease, but it doesn't really change what's going to happen the next five years for people waking up to what could be a tough market. >> so i agree with you on the financial side and i think bank of america, jpmorgan are good companies there. one of the fears of everybody looking at this is credit quality and being in the eighth or ninth inning. our view on that, and i don't know if that's how you look at it, that's baked in given the valuations you're trading at price to book, one of the lowest multiples and great balance sheets as well >> well, look at the earnings multiple if you want to find cheap valuations in the s&p 500, if you want to go to the lowest pe quintiles, you'd have to end up in financials. there's no way around it looking at price-to-earnings ratio, for example. if you look from '07 to today, theoddity is the most expensiv pe quintile of the s&p 500 has done the best. that's the opposite if you look back at any other period of

market cycles. the cheapest stocks have done roughly the worst. so the irony is the banks find themselves in the cheaper quintiles of the market. they have everything to do with exactly what people have been instructed with to not think can ever happen. we're contrarians by nature but have owned this for a long time. we think people will be punished in the bond market when retirees will think how will that happen. buffett thinks bonds are so terrible over the next ten years. >> so you say as a firm contrarian by nature, where else does that take you i know you've owned and spoken about disney. >> they're in a little spat with sony over spider-man yeah, two years ago espn was dead, what's disney going to do, netflix is going to win the game

and the world is going to be ending with netflix and amazon now you wake up at 35% higher stock prices in our opinion not much has changed in their business. people are just more excited about a higher stock price ultimately is what i would tell you. that on the margin is not good it looks like people are just running out of ideas to pitch on the street ultimately. as it pertains to other places that i think are more compelling discovery communications with hgtv and the food network, travel channel, when they brought in scripps, that's how we got into that deal from the beginning. we got john malone there trading at great valuations with great franchises chip and joanna will be as big as they were at target when they get their channel. other places -- you're talking about oil. oil skipped a 10-year bull market you want to talk about depressing we've been long-term oil bears and find ourselves being the biggest buyer of oxy out there. >> cole, thanks a lot. talk to you soon. >> thank you, guys.

when we return, as the trade war continues, is the president shifting his tactics and tone to get a deal done? we'll talk about that after the break. in the meantime, check out the futures this morning been in the green all morning. dow futures up by 82 points so we have been building those gains. s&p futures up by 8, the nasdaq up by 96 "squawk box" will be right back. (bang) good luck with that one. yes! that's why i wear skechers slip-ons. they're effortless. just slip them right on and off. skechers slip-ons, with air-cooled memory foam. you still have service? call the insurance company sfx: [phone ringing] it's them, calling us. it's going to be a week before they can get through on these roads shhh, sorry, i didn't catch that. i said ask how soon they can be here right now? what's now? he says they're surveying our property now they're probably at the wrong house i don't see any hovering his name is hovering? look up? by automating claims with machine learning and analytics, cognizant is helping insurance companies advance how they serve even hard to reach customers.

cool ♪ i decided that i wanted to go for electrical engineering and you need to go to college for that. if i didn't have internet in the home i would have to give up more time with my kids. which is the main reason i left the military.

everybody wants more for their kids, but i feel like with my kids, they measurably get more than i ever got. and i get to do that. i get to provide that for them. china fixed the daily

midpoint rate for the yuan at levels not seen for more than a decade eunice yoon joins us now with more not what i was talking about not what i was talking about where we're supposed to be getting along here, doesn't include devaluing your currency over there in china, eunice. >> well, actually the central bank set the value of the yuan stronger than people expected. and so that was being taken as a sign that the central bank wanted to stabilize the currency, so that's a good thing, right that's to stabilize the currency it might be because of all the confusion going on over the trade talks. the foreign ministry was trying to clarify beijing's position which is they haven't heard of any of these phone calls at high level between u.s. and china trade negotiators. this comes after president trump had said that china had initiated the phone calls to the u.s. to restart the trade talks. so the foreign ministry said that the two teams are in

contact but it also went on to say that the trade talks -- that the trade dispute should be resolved through dialogue. the u.s. needs to stop all wrongful action. and the u.s. should create conditions for talks based on mutual respect and equality. so there are two ways to read what's happening here. one is that beijing could be -- because from the very beginning beijing has been trying to avoid looking as though it's an instigator in the trade war so it could be that beijing doesn't want to appear as if it's initiating this phone call, even if it is the other way is probably more important in that that beijing could be sending a signal here because it's been using a lot of the same boilerplate language that we've seen since may when the trade talks stalemated we could see beijing is sending the message that officially it hasn't changed its position at all and that would suggest that investors might want to be careful about being overly

optimistic that a trade deal is going to happen because it could be premature separately, the state counsel has now unveiled a 20-point plan to try to unleash the power of the chinese consumer that includes easing or cancelling restrictions for auto purchases, setting up free trade zones to try to get greater sales of foreign goods and also attracting famous brands, including international ones, to open stores. so, joe, if you're feeling half glass full today as you said that you were, this could mean that beijing is trying to get more consumers here to buy american products. or if you're slipping back into your usual glass half empty mode, then it could mean that the authorities here are worried about consumption not boosting -- not being a big enough driver for the economy and that consumers are getting worried about the economy and the trade war and are doing what a lot of chinese people usually do, which is save instead of spend. i don't know which mode you're in right now. >> i'm only half empty about how

much we can really fix with our relationship, our trade relationship with china, i'm half empty i'm half full about everything else usually and completely full of it about a lot of other things but i was just thinking at one point how it really would be nice if -- it just seems like both countries, that we could really go into the future together if we could find some common ground here you know, china has a lot of people they'd like to bring up to the standard of living that we enjoy in this country and other western countries. i don't know what -- the gdp, do you know now in china per capita gdp, is it, what, $10,000 to $15,000 or something, eunice >> i can't remember. i haven't checked. >> it's 50 or 60 here, so obviously -- anyway, we all move forward. >> no, it would be good, but we're seeing the positions harden, right?

>> yeah. >> i think it all depends on which side is -- how much each side is willing to give. >> right. >> and so from the chinese perspective, they're feeling like actually, you know, that the u.s. needs to also give in as well. >> right. >> i don't know. it's going to be tough. >> we're in the -- we do a lot of really good -- we're not the one stealing things. anyway, we better go you don't have to answer that. >> yeah. we're running out of time. >> eunice, thank you. right now let's welcome mike fuque, also racer bogard rachel, what do you think, are we setting ourselves up for success or failure here? >> i think we're setting ourselves up for success donald trump is holding china accountable to international standards of trade everybody calls it a trade war but what it is is realigning the

trade relationship to international standards. it is well known that china is a trade cheat. for years america has been the patsy of china's ability to manipulate our markets and donald trump has simply said no more so that's what we're dealing with right now. >> mike, we had sarat sitting in for you at the moment but what do you think about this? is there progress that's going to be made or are both sides going to dig in? >> unfortunately i'm a glass half empty kind of guy on this i think the problems with this trade war n manifoare manifold i don't think anyone understands what the end game is here for the trade war that president trump has launched we've been on an 18-month-long roller coaster and the whiplash is intense right now just afew days ago, obviously, president trump was talking about ordering all u.s. companies to get out of china, which of course he can't do anyway then a few days later we're talking about signs that maybe there's some progress in trade talks. i think the reality here is that

we're in for the long haul the chinese are settling in right now for the long haul and i think the question for the united states right now is what are the goals of this trade war right now and do they think that they can realistically achieve them. >> rachel, do you want to answer that question? >> i think it's just what i said, it's rebalancing the china trade relationship it is comporting them to international standards. and you know who's not glass half empty here is american farmers. just two surveys in the last two months in july and august out of iowa university and purdue university show a 57% support for trump's trade war among farmers and 78% of them see a long h long-term good solution to this. so the people being most affected by it understand what donald trump is trying to do and that's take this relationship with china, which has blossomed over the last 40 years and rebalance it and say, hey, we believe in free trade but only when the other person is playing by the rules as well we don't want to be the patsy to china anymore. that's what he's doing so the goal is very clear, i

would dispute that to have freetrade. >> will we get to those solutions? >> i think trump has committed america to that. i think china -- it's hard to see what effect this is having on their economy because they straight-up lie about the numbers but it looks like it is impacting them to the extent that it continues to impact them, they will be forced to come to the table. donald trump has been very clear about that he's unpredictable to the chinese, which i think helps trump and gives him a little leverage in these negotiations so i don't think it's as dire as everybody thinks it is i think china will be forced to come to the table. >> mike, do you agree? >> unfortunately, no, i don't agree. i agree that there are obviously significant challenges that everyone believes we need to confront when it comes to china's economy and it's unfair trade practices. that's not in dispute here the question is what are the priorities and what are the best strategies to change those economic practices. >> well, rachel, do you think the president will say, wait a second, if it looks like the

economy is turning down before his election he'll say we'll get a deal but not everything that you laid out >> it's a give and a take for sure but china is dealing for the first american president in years that has actually been strong on this issue right now the american economy is doing great all economic indicators are strong job growth is the highest it's been in 50 years we're doing well so to the extent that this is working, i would say yes. >> rachel, mike, i want to thank you both for your time. >> thank you. >> thank you coming up, the analyst who predicted lyft's ipo stumble, zoom's pop and other spot-on predictions will reveal his grade for the wework ipo. as we head to break, take a look at u.s. equity futures. looking to tack on to yesterday's 1% gains the dow up 83 points, s&p up 8, nasdaq ahead by 27 we'll be right back.

a critical moment, perhaps, in the opioid crisis johnson & johnson ordered to pay more than half a billion dollars in damages the stock is up this morning we'll tell you why. how to trade volatile summer markets. this hour insight into what the pros are doing and how you can position your portfolio for a

win. and a big call on wework that you will hear first on cnbc the analyst who predicted lyft's post ipo decline joins us to reveal his take on the coworking unicorn. the final hour of "squawk box" begins right now >> announcer: live from the most powerful city in the world, new york, this is "squawk box. good morning and welcome back to "squawk box" here on cnbc live from the nasdaq market site in times square i'm joe kernen along with becky quick and mike santoli our guest host this morning, sarat sethi, portfolio manager at douglas c. lane and associates and a cnbc contributor. the futures right now suddenly we're up 77 points you've got to -- if you have one of your online apps where you look at the futures in the morning, you can see it will still say probably down 55 so you'd think the market will open

lower but you've got to factor in the fair value. this morning it looked like a down day i think it was down triple digits when i woke up, the futures -- >> but here we are. >> and now we're indicated that we'll add to yesterday's gains, which in and of themselves was a crazy day yesterday the way we were down so sharply premarket. >> down 300, up 350, all over the place. at the end of the day up 260 plus points. we have a developing story this morning that we'd like to tell you more about. the drug industry and one company in particular looking at a landmark court ruling in a war against opioid addiction it sounds like an expensive penalty, but investors are actually rewarding the company today because it could have been a lot worse. meg terrell joins us with more on that. meg. >> reporter: good morning, becky. it was a $572 million decision here, but oklahoma had been looking for $17 billion. wall street was pegging maybe $1 to $2 billion for johnson & johnson so that's why you saw

its stock go up on that decision it is a landmark, though, because it's the first of thousands pendsing across the country to go to trial seeking to hold the drug industry accountable for the epidemic it's also a notable case because it shows that companies other than purdue pharma can be held liable here in the opioid crisis j & j was not the only original defendant in this case teva and purdue were originally named but they settled for $85 million and $270 million respectively j & j's judgment is $572 million, a lot more than purdue settled for. j & j didn't want to settle here because when you're right, you fight. we did talk with j & j's attorney, sabrina strong, yesterday outside the court house. here's what she said she said -- i am hearing we don't have the sound, but she told us that j & j is not responsible for the crisis

they of course plan to appeal. she pointed out that their opioids were a very small portion of what were sold in the state and across the country we also talked with oklahoma's attorney general, mike hunter, right after the decision and he responded to what j & j was saying last night. >> not surprised at all that, again, they're taking the position that despite all the evidence to the contrary that they are going to take no responsibility for what they have done here i think it's reckless and irresponsible and it's certainly inconsistent with all of the grand statements that they make about being a family company. >> reporter: now, j & j wasn't the only stock to react last night. we also saw stocks of over companies involved in separate opioid litigation rising they are trying to extrapolate what this case means for the

thousands still pending. the next up is that multi district lit dpagigation in ohi. that will start in october unless a settlement is reached j & j said yesterday it would potentially consider a settlement there people are talking about this as maybe $100 billion for the entire universe of companies involved or even more. we'll have to see how that shakes out back over to you. >> just one contest in a series, of course. j & j expected to be a net contributor to the dow this morning. let's get a quick check on the markets. the futures still looking at modest gains yesterday the dow was up just over 1%. it's looking to add to that, up 83 points in the futures at this hour, s&p up almost a third of a percent, about 8.5 points, and the nasdaq up 28 points at this hour treasuries still really not much lift there you still actually have an inversion of the yield curve from the 2 year to the 10-year note 10-year now at 1.51 and the

30-year bond at 1.997%, below 2%. institutional investors often rely on trading algorithms which tend to match and may intensify market swings but individuals may not have access to algorithms and can get caught up with violent waves of trading. let's talk about how regional investors can benefit in these volatile markets joining us now is the chief strategist at interactive brokers, head trader at timber hill, the firm's trading decision it's easy to get overwhelmed by some of the big players, i think, and worry that you can't compete. but if you know what they're doing, it's even harder for the elephants to move around nimbly, isn't it isn't it possible for individuals if they can figure it out to benefit? >> the mice don't always get trampled in the savannah, right? so there are ways to go around it basically i think there's a lot of confusion around algorithms you hear it all the time, the

machines are doing this. the machines let's be real are doing pretty much everything for everybody. the era of the high-touch sales trader and position trader are fewer and farther between except for more specific trades what that means for retail is if there is a herd mentality, that's your chance to be counter to the herd. >> right. >> and that's the opportunity. so what you want to look for is when there's a very -- when you see stocks sell off, they do it in a very highly correlated manner that's usually a tip that there's some sort of program trading, get me out trading of that nature. that's the time where you want to look for your spots and say, okay, here's where i don't want to get in the way of the freight train but when that train stops, there's my opportunity. >> what are the data points that are most important for the algorithms right now is it the 10-year, the 2-year, the bond market? it's everything? >> yes the short answer is yes. basically if you can dream of an algorithm, if you can dream of a trading relationship, you can turn that into an algorithm.

that's really what it comes down to and so what happens is there are certain algorithms that look for correlations you know, the 10-year bond moves in a certain way so we see a correlation with the s&p and you see it go from time to time, especially in the mornings. >> yeah. >> the yen is up this week we seem to follow the yen. you know, there are people looking for the short-term trading. >> oh, i see the yen and then calling their broker, it happens automatically. >> it happens automatically. and these things like everything else, they work until they stop and then they'll move on and find whatever the latest -- we call it a lead in the business. >> scalping pennies or how long are they in these things >> it really depends you can set of algos that are scalping pennies all the high frequently trading has to be done by algorithms because you can't place orders that quickly if you're going to be doing it, you can set up long-term statistical arbitrages so it's microseconds to months.

>> to months. >> yeah. >> so when these algos -- there's always talk about hedge fu funds using algos. has it all moved one side to another and are they all doing the same algos if one program is doing it, another copies it? >> there's not that many ways to skin the cat to a certain extent these are outsourced our platform, there's a number of algorithmic trading tools this isn't meant as a commercial, it's meant as a -- these are accessible to retail investors and small institutions alike. and so what happens is, yes, the bigger the institution, the more sophisticated the algorithm, but there are also sorts of algorithmic type of trading available to all sorts of investors. >> you said it works until it doesn't. can you get pretty badly burned if you're just riding along and doing these brainless trades >> absolutely. and that's the problem

particularly the algorithms that follow a trend or that follow what i'll call a lead. you know, those have -- they end badly. >> let's point to an example. >> yeah. >> a couple of weeks ago we were trading tick for tick for where the chinese currency was it was above 7 the stock market backed away we're now well above 7 and the market is sideways and the yield curve right now, who knows. we could sort of essentially get used to that, so to speak, and all of a sudden it's no longer an edge. >> and remember, there are people involved. so what will happen is algorithms are a tool. they're not always self-directed. so you'll have portfolio managers saying somebody has got to tell the algorithm what to do you've got to set a strategy so what will happen is you might have something that says, all right, let's sell the market every time it ticks over 7 but

then that trade runs out of ammunition and that's how these things end and move on or something else in the news flow takes over and people decide to focus on something else. >> the s&p at the end of each year and what happened in between that and it's a lot of sound and fury but you've got to generate alpha or beta or whatever, and then you've got to try, right, and you can do it that way in a flat market you can make money in a flat year. >> that's really the thing it's a way to profit from the churning we're all -- >> what can investors take away from what you told us? >> what individual investors can take away, if you're an astute marketwatcher, you can see where the big trends are doing and you can either follow the trends, which tends to work very well, again, until it doesn't, or you can be a countertrend trader and say these guys are all doing one thing. i'm going to zag when they're going zig. if they seem to be trading off of microseconds, i'm going to trade off of days and that's your way to profit from that

overreaction in the short term. >> okay, steve, thanks i think i get that so you either go with them or against them sometimes you make money, sometimes you won't. >> sometimes you get crushed. >> yeah. coming up, finding stability and returns in the real estate sector, as interest rates fall and investors respond. we'll show you where there could be above-avege ylds atraieth make sense for your portfolio. stay tuned, you're watching "squawk box" on cnbc ery day, ur latest technology and unrivaled network to work. the united states postal service makes more e-commerce deliveries to homes than anyone else in the country.

welcome back to "squawk box" everybody. we've been watching the futures all morning. they have been up all morning but gains have advanced as we've gotten a little later into the show dow futures right now indicated up by about 88 points. s&p futures up by 10, the nasdaq up by 30 investors have been rushing into real estate lately and valuations have responded accordingly. that also means it may be harder to find steady above-average returns many dominic chu joins us now with more on this sector. >> all right so, mike, as we talk about real estate, i mean technology and real estate vying for that top spot with regard to outperformance in the s&p 500 so far this year. if you take a look at real estate, that run does mean that it's become harder to find some of those heftier dividend yields that some investors look towards

in real estate now, real estate overall, you can see that sector up 25% the s&p is up 15 not too shabby for the s&p, but real estate surging by that much, yes, it's an interest rate play and, yes, it's a safety play and yes, it's a yield play. we looked where are there outsized dividend yields still there with stable returns. we looked at the s&p 500 real estate sector, 32 stocks there how many of them have positive price performance over a year, year-to-date and one-month period, so shorter to longer term then we ranked them by dividend yield. we ended up getting 17 stocks that passed all of those screens. eight of those stocks actually have yields of at least double the 10-year treasury which is 1.5% right now so 3% yields take a look at these three names. ventas, 4.4% yield, hcp and welltower. those are the top three. what's interesting is for those

people not in that real estate side of the business, those three companies are all ones that specialize or have significant operations in senior care or senior housing so if you're looking for places in real estate in have bigger yields, some price stability, it's senior housing that could be a place to look, mike. >> also worth noting in terms of the etfs, a lot of cell phone tower stocks you're really not buying buildings, you've buying cell networks. >> that's a great point. four of the top yielding reets are a mix of technology and real estate and they own data centers and cell phone towers. >> those are proxies, but then on the other side, dom, if you want value in real estate you look at chemco they're being used as proxies for retail stocks. >> there's a reason why retail has been beaten up as much as it has been, right? >> yes. >> dom, thank you very much. let's look more closely at the current state of real estate

and bring in frank notack. frank, good to talk to you let's get back to sort of more traditional real estate sector right now and talk about interest rates obviously the affordability equation has improved. lower mortgage rates seems like it should allow a lot more activity is the market responding in that way? >> absolutely. we've seen a real spur in activity in the real estate markets. we see it in the housing market, we see it in the commercial sector as well it really helps to have rates down as far as they have come. we're looking at home mortgages right now. the rate for a 30-year rate is a full percentage rate lower than where it was 52 weeks ago. >> so i guess it's hard to make this as a firm quantitative assessment, but has activity increased as much as you would expect given that dramatic decline in rates >> well, we have seen a pickup

in home buying activity in the housing sector so we look at home purchase loan applications, they're up 5% from a year ago home sales, whether it's for kp existing or newly built homes, they're up july to july and we've seen a real spurt in refinance activity so there's clearly been a pickup in activity. when we saw mortgage rates much higher, mortgage rates were close to 5% for 30-year fixed rate just toward the end of last year when that happened, that put a chill in the housing market. home buyers backed off from buying homes and we saw time on the market and the inventory of homes for sale really lengthen out. so we saw a big drop in home sales first part of this year. things are finally beginning to turn around. >> you mentioned refinance activity you calculate there that about a quarter of all mortgages right now could be in the money in terms of being worthwhile to refinance? >> that's right.

about a quarter of all mortgages in the country now appear to be in the money to refinance. the median or average interest rate on the mortgages that are outstanding, home mortgages, about 4% we've got a 30-year fixed rate, 3.5 pgt. 15-year fixed rate at 3% those are very attractive rates. that doesn't mean that all of those borrowers who have higher rate loans can necessarily refinance because you do need to have good credit and you need to have a sufficient amount of equity in your home in order to refinance. but potentially that's the number that we're looking at, yeah, about a quarter. >> and have prices benefited to any measurable degree? it's obviously been a question of affordability as well as supply on some sectors of the housing market for single families. >> and the drop in mortgage rates has really improved affordability. for example, to get a $200,000 loan today compared to a year ago, the monthly principal and

interest payment is $100 lower or about 10% lower than what it was just a yea but what we've seen is home prices, which have been growing at a really good clip, home price growth has slowed dramatically over the last year. so in our national home price index at core logic, we recorded a 3.4% appreciation over the 12 months through june and some markets began to be kind of stagnant or even showing signs of some weakness in price. so, for example, in san francisco, price is flat in the last year. in seattle, seattle prices took a dip of about 1 percentage point over the last year but i do think now with the pickup in home buying activity spurred by low mortgage rates, we'll see that turn around and see some quickening in home price growth over the next 12

months. >> do you think someone should take an adjustable rate mortgage right now? i thought they were crazy five, six months ago but it looks like they were right. >> very attractive rates on adjustable mortgages still a small segment of the market, they account for 6% of the number of loans and 10% in dollar volume because those borrowers are taking out higher balance loans often find the rates on arm attractive. so you can get a hybrid arm where the initial interest rate is fixed for maybe five years or longer you can get starting rates on those at below 3% right now. even as low as 2.5%, if you've got good credit and you have sufficient equity in your home so those are very attractive rates -- >> but you've got to realize you're betting on interest rates not going up. >> that's right. >> frank, i was going to ask you, as the 10-year treasury yield goes down, do mortgage rates become less sensitive? in other words, can they track

10-year yields all the way down toward zero or are there other factors that will keep them a bit higher >> there is a correlation. so as 10-year treasury yields move down, we will see fixed rate mortgage rates become less expensive as well. sometimes the spread does widen out over time when 10-year treasury yields go down really low. we see some widening in that spread partly recognizing the fact that the 10-year treasury yields aren't going to stay that low for that long and there's going to be some uptick in rates, which will affect prepayment speeds on mortgages. >> so just going back to housing values, do you see a separation on states where there's high s.a.l.t. and states where there's the ability to actually get your deductions? >> well, we're still seeing that all play out certainly some high-cost markets where we've seen more of a slowdown in housing activity

i mentioned in san francisco and in seattle we've seen home prices actually be stagnant or take a bit of a dip over the last year in the greater new york metro area, we've seen some sluggishness as well in home sales and home price activity. so that's still playing out. so we'll have to see what the effects are longer term. but some of the strongest markets are markets where they seem to be less affected by the $10,000 cap on the s.a.l.t. deduction. >> makes sense that's what economics would tell us frank, thanks a lot. appreciate your time this morning. >> hey, thanks for having me. coming up, the analyst who called the post-ipo decline for lyft unveils his take on wework as wall street waits for mere details on wework's structure and financials rett wallace will join us with a key call on the coworking unicorn. it's information you'll hear first on "squawk box" and it's

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welcome back to "squawk box. futures right now are best levels of the day, i think 151. 152 points upside.

nasdaq indicated up 56 s&p indicated up 17. i don't know, nothing new happening i don't think. >> doesn't seem like it. >> but it's sort of an upward after yesterday. >> picking up more of friday's decline. right in the middle of that range we've been in in august. a few stocks on the move this morning j.m. smucker missed estimates on the top and bottom lines they pointed to lower prices for coffee and peanut butter as well as increased competition in the dog food category. that is set to open down 6%. facebook is developing a new messaging app called threads according to the verge the app is designed to promote constant contact between users and their closest friends. it is seen as a threat to snapchat, though stock of that company, snap, is pretty much unchanged at this hour. when we return, is wework worth it we have the analyst who may have

lyft's ipo zum ochlo stumble, z and several other predictions. he'll say what he has to say about werkwo and whether you should buy the stock when it goes public. that's next right here on "squawk box.

welcome back to "squawk box" here on cnbc we are live from the nasdaq market site in times square. let's get to some of the stories that investors will be talking about today. papa john's has appointed a new ceo. former arby's president rob lynch is taking over to steve ritchie who replaced company founder, john schnatter last year he has been an executive at taco bell, heinz and procter & gamble. in other executive moves, amazon global treasurer kurt zumwald has left the company according to people familiar with the manner. he has been managing the company's cash, investments and debt financing the last 15 years. and the conference board

will be releasing the august consumer confidence at 10:00 eastern time it's expected to fall to 128.5 from 135.7 back in july amid all the concerns over the u.s./china trade dispute and a declining stock market. investors are currently waiting for one of the most highly anticipated ipos since the likes of uber and lyft went public wework is garnering intense interest but also more than a few questions about its business model. leslie picker joins us with more. >> that's right. it's hard to recall a more polarizing ipo than wework the bulls will point to the top line growth doubling year over year and on pace to have over $3 billion in revenue in 2019 but the not-so-silent bears will point to the bottom line operating losses nearly equal to the revenue coming in the door those two competing forces overlaid by macro concerns of controversial ceo, complicated legal structure and risk appetite will be the driving forces behind investor demand for this deal of the and that

demand may be tested soon. the s.e.c. requires that companies wait a minimum of 15 calendar days from the time they disclose their ipo prospectus to launching their road show. that means wework can technically start marketing to investors by the end of this week but because of the holiday they maywait until next week t get more attentionf but does it command a multiple of a tech company that focuses on real estate or that of a real estate company that has some technology guys. >> leslie, stay here joining us is the ipo analyst whose firm has a strong track record of predicting ipos based on a proprietary model rett, you have rated so many of the ipos that we've watched come out this year. you're here to reveal your score on wework. what is it how did you come up with it? >> i wish i could say it was a

good score but unsurprisingly it's not so terrific you know, if uber was an average score in the scoring system, this one is below uber but above lyft it's a fourth quintile which is surprisingly good given all the bearish behavior and bearish talk. >> you called this a masterpiece of obfuscation when you looked at the prospectus. i'm surprised your score is this high i wonder if you included all the risk factors when i looked through your analysis. >> this is why we do it. this is where the system came from it's very easy to pick your one or two things that you want to focus on and obsess about them to the exclusion of everything else we've all seen reports like initiating with a buy with great market and great management team so our attempt to balance out all of the different things here forces us to look at some of the things that aren't so terrible, like they have really fancy investors. the growth is terrific it's a really great growth story so profitability not so good complexity not so good

obfuscation through the roof these are all bad signs so it balances to a below average but not absolutely the bottom of the barrel. >> did you get all the risk factors in when i looked through the risk factors listed here, you did mention there were things that they bought buildings and leesds them back to the company which sounds at the very best like self-dealing or gives the appearance of impropriety. but you didn't mention that he's cashed out over $700 million ahead of the ipo and he gave interviews that could violate the quiet period. >> the risk factors are pretty rich here as far as things like that are skerngconcerned. so the founder power is very high and that could be good or bad in the sense you have absolute control from the voting perspective of a founder who has taken hundreds of millions of dollars off the table, has a complex relationship with his company to say the least as far as the sale of the trademarks

and so forth so there are a lot of things to not like. the problem with the story is it's not all bad there are things that you can actually like as an investor too and there's a reason this company has been so successful in raising money one of the things that's also interesting is in the growth versus profitability conversation, there is a public hump out there that is not dissimilar and it trades at less than a quarter of the price talk it's profitable but it doesn't grow so what that seems to indicate is investors are waiting heavily the growth and discounting the lack of profitability. from our perspective as far as this is concerned, this ipo raises $3.5 billion and the company loses $2 billion a year and that scales with revenue, then they are out of gas very, very shortly. >> i was going to say even setting aside all the government issues and the noise around it, some of the criticism has been about the fundamental business of taking very long lease obligations and renting them out on a short-term basis and how that's going to weather a downturn in the market.

>> so what's really interesting about the obfuscation and lack of transparency in the document is you can't tell what the internal economics are of this thing in a good market with occupancy rates that are really high as far as what occupancy will do in a less good market, can you continue to grow and keep these places sure when we're not sure what it costs to build them in the first place and fill them. >> you're talking about growth what are you talking about you're not talking about profits. >> for every dollar they make in revenue, time over time, period over period, they spend almost two. so you have a relationship between revenue growth and loss profile. and so -- >> which reminds me of an uber or a lyft. >> it's very similar. >> when you look at an uber and you knew lyft was going to be competition, is there some other competition other than the company you mentioned as a comp? >> this is another thing, i'm so glad you said that because these guys, unlike lyft, which is a distant number two, you can't control pricing in its

market, theseguys are the firs and really only of their type in this category. now, pricing is sort of dictated to them in a way by the market, but at least they don't have predatory discounting that they're up against making their unit economics even worse than they already are because it's totally not clear that they're actually getting paid back for all the sales, marketing and development expense that they incurred just to get these places up and running in the first place. >> when you say 5.82 is the score, we compare it to uber, it's a little lower than uber, a little higher than lyft, where does that match up with maybe ipos that have done very well over a period of time? what does this indicate for what you think it's going to do short term and long term >> sure. so the way that over time the scores have indicated the price performance, we've seen high scores do really well, like crowd strike, like zoom. we've seen low scores that can occasionally trade where they shouldn't trade like a jumia, for example, people remember that in the last year that's now corrected to where it belonged based on its low score and so uber, i think, with an

average score is still a little bit out of whack but in general a fourth quintile score like this one is set to return the ipo pop that people expect, although the laws of physics break down when deals are as big as this one is and as complicated as this one is and then the returns will be so-so to negative. that's what you can expect out of a company with a score like this in general looking at five years of data over time. >> how does investor sentiment play a role here, do you think because it's hard to remember an ipo that was coming down the pike where you've seen so many negative headlines, so much concern from the investor community just about whether the way it's structured, the conflicts of interest, the business model itself, the concerns surrounding maybe a potentially risk-off environment in the market where people aren't as attracted to growth as it used to be. do you think that's a concern at all? >> the reason that we score for obfuscation and for clarity into the metrics is because sentiment is obviously a very big driver

of these things. but when investors can have mathematically driven conviction about a name, when the price comes off that might be a buying opportunity. so what we saw with lyft and to a lesser extent uber, when you can't have mathematical conviction in the unit economics, when you don't know what the underlying truth of the profitability story is, then sentiment is all you have to go on unless you have access to information the rest of us don't. unfortunately, i think the guys at wework have set themselves up to trade that way where it's very difficult for people to establish some certainty that, wow, it's a screaming buy at this price if it comes off and i want to back up the truck and buy stock. usually what that means is when it starts to go down and you start to get on the wrong side of these things, the best thing to do is to get out of the way lyft at $51 having sold stock to ipo investors at 72 is a pretty good example of this. >> rett, thank you for coming in it's good to see you leslie, thank you. coming up, how the -- you know how there's "it" people, there's "it" analysts, in new

york there's "it" people sometimes you've it. if there's an "it" stock guy -- >> "it" strategist >> wilson, mike wilson is coming up at morgan stanley kind of the "it" guy who was bearish last year, he's still bearish. people want him, we got him. he's dogoing to tell us what he sees the stock market doing. it's pretty interesting. a lot of different scenarios, i was talking to him a couple of minutes ago off camera we'll be right back with him he's like the "it" guy

welcome back to "squawk box. take a look at the futures right now. looking at further gains after yesterday's about 1% advance in the dow and the s&p. dow now up 130 points, s&p up almost half a percent and the nasdaq is set for a 50-point gain at the open. >> that was quite an intro, the "it" didn't i and i did not mean like the "it" clown that hides under the sewer in your street before he kills your entire family that's not what it means mike wilson, chief equity strategist at morgan stanley institutional securities what i meant was last year you were probably as close as anyone to calling what happened, so everyone wants to talk to you now. and you say you do both sell and buy side also you say things that might run counter to consensus where you can actually get in trouble for actually making a prediction you actually have to live by

your predictions and you're comfortable with that. >> well, look, if you're investing, you have to look forward. you have to try and predict what's going to happen, particularly in stocks. >> you've seen most sell side guys know how to not say anything that's how they keep the job for so long. that's not what you're doing what i said to you out there, we were at 3,050 and i talked to you on "fast money" and i said he's at 2750 a couple of tweets from trump about tariffs and you're back in the game totally for the 2,750 target although we'll get near 2,900 today. we're in the range today you don't know tweets are coming you just base it on fundamentals, get a number and stick with it. >> our fundamental work dominates our targets. part of our call was that we thought a trade resolution was unlikely we thought after the g-20 meeting back in june, it didn't look promising that anything was going to get done, so that was -- we thought a lot of good news was priced for that, number one. but the real reason that last time that we were together that

made me more pessimistic is everybody was too bullish on the fed. if you go back in history and look at the fed, when they pause, it's always positive. when they start cutting rates for the first time after a long pause, it's usually negative what it means is that things are deteriorating faster than what people were expecting and that's exactly what happened. so the market topped the day that the fed -- >> you say the fed put is gone now not for lack of trying, though, right? it's just that they're not getting -- they won't get the response they're hoping for in terms of a fed put. >> they will eventually. so normally when the fed starts cutting, it takes more than one cut. the market was disappointed they didn't do 50 our call was for 50 and we were wrong. we thought they would do 50 and try to shock the market. they did 25 and now they'll have to do more, they have signalled that eventually they'll get ahead of the curve. so our big call, our big thing we're looking for to get more bullish is the curve needs to resteepen from the back end. once the back end starts moving up, that's a sign that the bond market believes that the fed is in front of it and we can look

forward. >> they're using backward data still and that puts them behind the curve. by all accounts, markets are telling you we're not in mid-cycle, we're in late cycle the bond market and the stock market are saying late cycle to you. >> it's saying end of cycle. inverted curve for six months at the front end, you've got cyclicals really underperforming dramatically the last 12 months. >> it's not too late to sell if you think there's more down room. >> we're still underweight cyclicals and overweight defenses i'm not saying it's too late if you're overweight cyclicals, it's not too late to trim back but it's too late to totally upheaval your portfolio. it's not going to be as bad as last year. why? because the fed is cutting now, joe. last december they were still raising rates and talking about auto pilot so the fed is doing their job, they're moving they're just not moving as fast as maybe the market wants them to. >> when you're talking about upward yield curve, when you talking more that the fed cuts and the curve steepens, or do you see the 10-year going up

if that's the case, what do you think causes that to go up at this point >> there's two ways the back ending can move out. the market thinks it will improve or the fed starts to cut aggressively and the market looks forward. i think it's the latter. our call has been for a long time we didn't think this was an insurance cut. we thought this was the beginning of a long rate cutting cycle because the economic growth was deteriorating faster than people appreciated. >> you do have a bull case, base case and bear case the multiple stays about the same, 16.7 on the bull case and 16.1 on the bear case so it's all about the s&p earnings that you're talking about and the one number that really gets me is in your bear case an s&p earnings of 149. that would be down like 10 or 15%. >> that's a recession, full-blown recession, like a bad recessi recession. >> and that could give us -- that's what we'd need to get the s&p to 2,400 it's not that long ago we were there anyway it's not the end of the world.

but we could get there again based on an earnings drop 10%, 15%. >> that's been our call for a year and a half. >> you don't think that's going to happen? >> we are calling for an earnings recession but the 149 would be a worse earnings worse than our base case. we believe the consensus numbers are 5 to 10% too high. >> 166, and the base case for the s&p, that would be kind of flat >> right two years of flat growth, basically. >> for 2021? thanks for joining us consensus. >> 180, the bottom up basis. the top down is always a bit lower. i would compare it to the top down, probably closer to 175 we've been below consensus on earnings now for the past 18 months we're highly convicted in that that's been our main call. the earnings call has been highly convicted >> is that a global slowdown is that a bond market call >> no, this is a call about corporate profit margins

>> margins >> there's three things. if you think about the real mistake this cycle, the policy mistake, it was the timing of the fiscal policy. not the fiscal policy itself, which we agree is a good policy choice but doing it at a time when you had full employment already, you had an economy working really well for most corporations, companies were finally spending. to do a $1.5 trillion fiscal stimulus then, that's not good timing that caused the economy to overheat last year and that caused margin pressure. when you overheat the economy, you have overspending on capex, overspending on inventories, and labor pressure >> those are all the things people complain we haven't seen. >> we're seeing them, joe. it's a fact now. margin pressure is real. we're seeing 100 to 150 basis points of deterioration in margin forecasts at the s&p level for this year. >> capital spending, do you see it being more than it should >> it was. and you see wages rising faster. >> and then deteriorating.

that's why we're getting recession. we're not officially calling for recession, the risk is elevated, about 40% chance if companies decide to start firing people because they want to protect margins, they're already cutting back on capex and opex and inventories they may be able to get through this >> and you're not talking about europe and the global slowdown >> that's part of it >> it adds to your case. >> of course 70% of the pmis around the world are below 50 now, so more than two-thirds that's way worse than 2015, '16. the market pi in the u.s. breached 50 for the first time last week. we get the new number for august in a couple of weeks it's happening it's slowing the only question is does it tip over into full-blown recession the market is already priced 80% of a recession at this point, that's what the bond market tells us, that's what the stock

market has been telling us, that's what the sector leadership is telling us, that's what commodities are telling us. let's not get wrapped around the axle here. we'll well into this correction. it's been a cyclical bear market that's frustrating to the bears because the bottom is not falling out either, okay and that's a healthy development. so longer term, we're actually pretty constructive. if you actually got a recession, it would be a very good catalyst to finally get more fiscal, which is really what we need to do to get out of this secular stagnation >> talking about bear in the headlines. >> we will be able to test whether we do 686 or 182 in the s&p next year. if you're right, you can go to a hedge fund and make ten times as much money and if you're wrong, you'll learn your lesson and not be as specific all the time. >> it's our job to take risks,

joe, we have to make a prediction we're trying to guide client assets, we have a big wealth management arm we need to be early, because we're large. that's our job our job is to keep clients out of harm's way and take risks >> we appreciate it, we hope you'll be back how long do you think before you have something new to say, three months >> it depends on i would stand by our call, 2700 this call. at that point i think there will be something to do for the first time in quite a while where you're now pricing in a pretty good recessionary outcome risk at that point you have to step in >> you actually have places to put money in here too. you actually have some fresh money ideas, right >> that list is done really well because it's been defensively oriented you can see by the makeup of the list, it's either defensive oriented stocks or high quality oriented stocks. >> we should tweet that out. >> i've been taking steno on everything you said over here.

>> thank you very much good to see you. president trump has said recession fierce aears are overn the ceo of starbucks would agree. here is what kevin johnson told jim cramer on "mad money." >> right now we're firing on all cylinders and consumers seem to be doing well. >> jim cramer joins us now do you feel better based on what kevin johnson sees >> you might say, how would he know, he sells $5 something. i would come back and say, he sells $5 coffee, he must know go jeez, manufacturing stocks have indeed been in a bear market you can take it for what it's worth, maybe they're ready for

bounce but i don't think that you can necessarily trade this market. if you own good quality stocks like starbucks, you'll be fine >> can i ask what you think about johnson & johnson after the announcement yesterday >> thank you, becky. it is really a tough own i think that they need a big win in some appellate court. we've lacked anything other than loss, loss, loss for the drug companies in almost every single venue. and i think that the notion that you can just hope and hope and hope that things will work out has not happened >> right >> so i think a lot of the drug companies are in the crosshairs, just very difficult. >> quickly, what do you agree with mike wilson, what do you disagree with? we don't have a lot of time. >> the previous guest? he is right that we're in a cyclical bull market but i think that the bear market only exists in just a few stocks, because there's a lot of companies doing really well and

a lot of stocks doing really well but you have to hit them you have to be in mongo db you have to be in roku and shopify. >> jim, thank you. nus.l see you in just a few mite >> shopify you can find it in tt >> squa prevagen. healthier brain. better life.

pilot tech on the markets, up 150 on the dow. what do you think, we have 2700

or 30 or above >> above 30. longer term, the trends are up these are short term bumps along the way. >> you get the last word >> thanks. we'll see you again. >> thank you guys. >> you're not in tomorrow? make sure you join us tomorrow, either way "squawk on the street" is next good morning, welcome to "squawk on the street. i'm david faber with jim cramer. we're live from the new york stock exchange carl has the morning off you can see we're looking for what would be a higher open, as we like to say here, higher. >> higher, all right >> our roadmap starts with some optimism, perhaps, involving the trade war. stocks are set