♪ >> 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 andrew is off today. he is a cnbc contributor and it's great to have you here today joe. >> great to be here becky. >> check out the u.s. equity futures, they're in positive territory. dow futures up, nasdaq up by 7 this comes after a down day for the markets yesterday. the s&p has been down three of the last four sessions a lot of that has been because of concern not only about the trade war but what shaping in the treasury markets let's check out treasury yields.

dropping below the s&p 500 dividend yield which is crazy. you can make more money on the yield on the s&p 500 than on the 30 year. >> unfortunately the algorithms are utilizing global yields as the correlation to equities and that seems to happen from time to time. remember prior to that it was the chinese currency any time that traded above a 7 point equities move lower. so you're looking at global yields and you're basically understanding that protectionism doesn't exist in global asset pricing. >> what do you mean? >> that's exactly what is going on right now so the united states is blessed with technology. the united states is blessed with low energy. >> zero versus the rest of the

world. >> correct but why is that becky? because we are seen as the best economy globally and that's where i see protectionism doesn't exist in asset pricing the rest of the world is just driving capital here. >> so you can see bond yields coming down precipitously but still see it being something that doesn't drag the stock market down even with this yield inversion at this point, stocks still look like a good place to be. >> it's technical in nature so you ask yourself a question, is it a looming economic contraction or is it just about central banks having to go extremely dovish >> what's the answer >> the answer to me when you look at the economic evidence certainly suggests it's about central bank policy. it's about capital flows wanting to come here think about the entire -- >> this time its different. >> no. >> i wouldn't -- well, everyone is looking at the three month and ten year so let's talk about what insights a recession. >> the ten year and the two year

today. what incites a recession if you go back to the last three recessions, 90, 91, 2000 to 2001 and 2007, energy prices were a critical component of each of the recessions what do they do? in the year prior, each one of those instances, energy prices doubled. that's a drag on the consumer. you're going to get personal consumption today. it's going to print above 4% the consumer is incredibly strong. >> that's what we see. the question is can we talk ourselves into a recession soon. >> or can you say it's the act of the central bankers but if the central bankers are reacting to a looming slow down then it's just one more step. >> joe, the slow down -- the slow down is in the rest of the world. >> i understand that. >> what is the biggest technology company in europe >> sap. >> think about it. >> you try to separate central bankers from whether there's a

looming slow down and a global slow down, we may be immune but that's the point you're making i guess. domestically we can stay strong while everyone else is slow but if china is slow and europe is slow and emerging markets are slow, i think we'll eventually import that slowness as well people are scared. >> no. i believe the evidence is there. there's a way to defend against it listen, china has been slow since 2015. >> 6% slow. >> but okay, what is the shanghai done since 2015 it's done nothing but gone down, okay europe has financial services and autos. to me, the real problem is the u.s. dollar. so think about the gains from the day president trump was elected until the market peaked in january of 2018 it correlated to the u.s. dollar falling 13.5%. since then, the u.s. dollar is

given back about 10% >> but again that makes sense based on what our central bank is doing versus everybody else. >> well, it makes sense from the standpoint of what the rest of the world is doing does it make sense are they doing enough? should they actually -- what's the risk of giving the market another 25 basis point cut if you do nothing to joe's point -- >> i don't think anybody thinks we'll get 25 basis points in september. >> there are people that are arguing that you should not give the market another 25 basis points or give them another 25 basis points in september. what's the risk in doing nothing? the risk in doing nothing is to joe's point you import the economic weakness. you continue to see asset pricing here in the u.s. drive higher the u.s. dollar continue to move higher now what's the risk on doing something? you stimulate inflation? great that's a good thing. so you look at credit

conditions the other thing to keep in mind when you look at high yield and investment grade credit spreads they're half of what they were when we had the manufacturing recession in 2015 and 2016 so taxable fixed income, those credit spreads are not screaming looming recession. lending standards for banks are still okay so you're not going to have defaults if lenders are willing to go out and extend maturities on loans so the economic conditions in the united states are incredibly strong in my viewpoint the consumer is incredibly strong the average price for gasoline over the last ten years is $2.90. in the last year is $2.59. the real issue is that we -- >> we have doubled our oil production in the united states. >> and that's the blessing that we have relative to the rest of the world. we have this technology which we export better than anyone in the world and we have got the increase in production of oil that no one in the world can

compare with so the real challenge for me is understanding asset pricing and understanding you can make a strong argument, think about 2000, they supported the euro, right? you could make a strong argument that the needed action is that global central banks need to be coordinated and support the u.s. dollar, make the u.s. dollar lower. >> lower >> the key is the dollar. >> whenever trump talks about bashing the fed, it really has to do with currency. >> well and it's kind of out of the fed's control. so the fed can give the market a 50 basis point cut but that doesn't mean the u.s. dollar is going to go lower. so we're still going to have that challenge. >> but what you're calling for is for other central banks to stop easing rather than ours to try to play catch up with them. >> you need global coordination to ensure that the u.s. dollar does not continue to appreciate. >> but everybody is -- nobody

wants to be the strong currency on any of these issues. >> no. but listen, i would argue a lot of these economies including china, are not happy about the capital outflows that they're seeing because they're understanding that their economies are so weak relative to the economies that the u.s. is presented. >> see, japan passed china. >> in terms of ownership of u.s. treasuries >> i guess that trump card is -- no pun intended, i guess the trump card -- >> that was last week or something, right >> but the idea that that's a weapon now and we own our own treasury owns twice as much as china. you know, sell a few, maybe we'd invert the yield curve or deinvert the yield curve seeing a big move in the pound the british pound up this morning. u.k. prime minister boris johnson suggested the queen suspend parliament's session for much of september and october. it's seen as a preemptive strike

against lawmakers that are seeking to block a no deal a suspension would give them a shorter amount of time to block the prime minister's brexit push. >> so the queen's actually getting involved. >> and when we say, we have to recalibrate all of our thoughts. >> and purdue pharma these are big numbers. the big number is settlement for 10 to $12 billion. >> that's only 20 times what johnson & johnson just settled with the state of oklahoma for this would be all the states and municipalities and they played a bigger role. they invented the stuff. >> but if you got 10 to $12 billion how much did they sell $35 billion worth of oxycontin basically. >> i looked at that and i thought wow -- >> that's a lot of oxycontin.

>> but i looked at the deal. >> a lot of it made it's way to the family they're worth about $3.5 billion so a lot of them -- >> left the company a long time ago. >> so where does -- i think once, if the company does go into bankruptcy -- >> i don't know. >> it's a lot of money the confidendeal was part of a discussion by purdue's lawyers last thursday. they allege the company's sales practices were deceptive and partly responsible for the crisis much more coming up. >> what's interesting is this settlement was talked about before you heard the oklahoma judge ruling against johnson & johnson and deciding that half a billion dollars. >> there's a lot of blame to go around too we can blame the financial

crisis on the banks, but about ten other parties that you can throw in there and with this, the fda's guidelines were not stringent enough on this the doctors had to prescribe a lot of this and some of it is well intentioned, cancer pain is so horrific. >> you can look at this pharmacy that was responsible for handing out more drugs than there are -- i mean, like 30 drugs per person per day for some of these things if you look at that, there were ways to track where some of the worst actors were and that's what is such a shame is in hindsight. so much of this could have been stopped early on >> you say well this is the kind of corporate ceo behavior, or corporate behavior that's based on greed how are shareholders are going to fair in the end here? >> well. >> it comes around it comes back. >> bad behavior. >> made the right decisions back then. >> shareholders shouldn't profit from people making bad decisions. that's the bottom line. >> but they didn't need to -- i

don't know if guidelines would have helped there. >> j and j got off light the street expected a much bigger fine. >> that's just oklahoma. >> that's just the first. >> when we come back, two red flags for investors this morning. first from trade war to currency war. china's currency falling to new multiyear lows against the dollar and the deeper inversion, the yield curve which is a possible recession warning sign. we'll tell you what it means for your money next. right now as we head to a break, here's a look at the biggest premarket winners and losers in the dow. who says our bank isn't tech enough?

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china's currency hitting new multiyear lows you don't have that -- you don't have that word they use to describe president xi handy do you? i saw it on your tweet. >> oh. >> that's interesting. >> yeah. lin shu. >> it's somewhere between a pope and a -- >> it's very. >> and a president. >> they don't use it for just anyone. >> so the background of this for anybody that did not look at twitter this morning is that -- they should but maybe they're not because i don't know -- but anyway, state media just in the

past couple of days it's been interesting they have started to use a term that we haven't seen used for president xi in quite sometime what is interesting here is the way people are talking about it is how is it going to be easy than for him to make concessions on a trade deal if he is now being elevated to have that level of authority here and this of course comes right before we're going to have a really big holiday on october first and there's a building up of the personalities around him. >> he's against the chosen one i hope he knows that

it's a clash of spiritual authorities. i think president trump is kidding. i mean, i saw him. >> i did hear laughing. >> but this one, wow spiritual authority. i mean, the pope is even -- >> what's the term. >> infallible. >> but he has to say i'm speaking with infallibility in which case he's speaking on behalf of god. >> exactly i will not do it when i am going to -- >> you're not the chosen one. >> there's a couple of other stories in here too. i think some of the producers wanted me to include some other stories. >> let's talk trade. >> this is totally -- it's totally different but it's an update to the costco story so then we can show pictures of the crazy crowds we saw yesterday at costco costco opened the first store in shanghai yesterday and the crowds got so insane that there were lines of cars out the door. you know, about half a mile long, even more than that t. store had to shutdown earlier than normal and the company has

apologized for the crowds. it says that it's going to allow 2,000 in the store at any one time i don't know if that's normal in the united states or not but also this, you know, in china, people get fascinated and crazy about any opening of a new store but people have been totally bizerk about costco. for example, they said that people are -- said that they have been waiting up to four hours in line to get into this store. they have been fascinated that you can buy luxury branded handbags like chanel and prada at the store that you can't buy at say a walmart here and the luxury liquor sold out in ten minutes. one guy was bragging online and it's been reposted a bunch of times that he bought 18 bottles of luxury liquor and walked out the door and resold it all and he made a profit of $2,000

so people are talking about how the discounts are great there. >> go costco we thought they had the american consumer figured out but if this is something that can maybe bring both sides back together, discounts, luxury bags, and pastri pastries. >> that's right. everybody loves a discount. >> thank you it's great to see you. >> let's talk trade talk and risk and the recession and the signals coming from the bond market and global investments and welcome to both of you let's talk about this. we have been trying to figure out if the inverted yield curve is something we need to worry about. you say at this point you're not worried. why is that? >> we're not worried at this point. we don't think a recession is imminent yes we have this inversion of the yield curve.

that's more of a signal that investors think the fed is not acome day tif enough but there's a lot of stuff going into that mostly being the uncertainty this consumer is still strong. the fundamentals are good. yes we had a slowing in manufacturing and we have seen that globally with the euro zone pmis and here domestically i don't think we're on the verge of a recession i wouldn't trade on the headlines or trade on the inversion at this point in time. >> a big question is will we talk ourselves into a recession? will we bring confidence down? and you do a lot of research where you talk to management teams across the country you have a real good feeling for what management teams are thinking right now are they starting to lose confidence based on what we see? >> no, there's a widespread between what we hear between ceo

and cfo and what i hear in other publications i'm closer to the opinion that the underlying economy is strong i'm not going to put the other two. but the conflict between what i hear between ceo and cfo and what i read in the paper is dramatic i think the inverted yield curve is strictly phenomenal. >> what companies are we talking about. are you talking small injuries >> everything from large cap names, the top 50 so i see the same trend in their rhetoric some are using the china trade as an excuse to say our earnings didn't meet expectations and we have a short fall but most are saying, we have to solve the supply chain dilemma >> capital investment has been a huge issue it hasn't been as strong as

expected this year. >> i think that you see some caution there. it's just the m&a trend that you thought might occur with interest rates this low, it's easy to bolt on a new source of earnings that softened a little bit but i can't predict when that would retool it's about manufacturing if you look back and think about, look at the steel industry and where it is and auto makers. the production cost for auto makers and production cost for the oil and gas industry and declining specifically in manufacturing and manufacturing you can argue in a technical recession some what similar to what we saw in 2015 to 2016 and it seems to be isolated right now to manufacturing in the steel industry for me is in a perilous condition and the elements of the economy are in a capacity that

technology and the consumer looks phenomenal and on the other side of it, how do you heal the pain you're experiencing in the manufacturing sector there's got to be a form of relief >> we see a significant transition to new technologies whether it's in automobiles or other machines that you might use, robotics, things of that nature but there's a gap right now, a transition that has to take place. >> go ahead. i was just going to say in regards to the cap ex too, we have to look at where the fed is sitting. i don't think another 25 basis point cut is going to effect that i don't think they're not investing because they think rates are too high they're not investing because of the uncertainty going on it puts the fed in a more perilous position because they want to lower. >> that's not the reason that corporations aren't investing at this point. >> you don't think they're

reaching a recession point what stocks do you like. what sectors do you like >> that's more of a conservative play and we have been looking at that and looking at core names and value names to do. we also actually last week actually went into the home builders we have seen the home sector start to come back a little bit. i know that the monthly number -- >> mortgages. >> exactly we have seen, the number was lower last month but there was a big revision to juneso i think the underlying strength was better than what people anticipated and it's the lower end housing where we're missing the supply so i think it's a good play. >> thank you for being with us today. >> my pleasure. >> coming up, we're on ipo watch. peloton go public but revealing disappointing numbers. she will join us next right after the break.

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go public on the nasdaq and lindsey joins us with more. >> good morning, on page 3 peloton describes itself as a technology media software product experience fitness design retail apparel and logistics company. you may know them as the maker of bikes and treadmills that allow users to workout at home about half a million subscribers in the year through june the filing last night showed a company that raked in nearly a

billion dollars in revenue in 2019, double that of the prior year nearly 80% of that revenue comes from selling the hardware bikes and treadmill. another 20% comes from selling monthly subscriptions to access to the content gross margins are about 43%. but that growth isn't cheap. losses quadrupled in 2019 on sales and marketing expenses and like most ipos these days, peloton says there's no guarantee that it will ever maintain or achieve profitability. it does not appear to be too much of an issue for the company at this point. peloton says of all the interactive fitness equipment that has ever been sold through their platform, 92% still had an active subscription attached as of june and our parent company comcast is an investor in peloton, guys. >> what mentions me the most is that their sales doubled but i

think the losses were up five times. five fold. >> oh, yeah. >> largely on the sales and marketing expenses they also said that they're paying more for licensing agreements for the music that is used on their platform if you recall, they're currently involved in this litigation regarding copyright infringement where people were alleging that by using music for their classes. >> they get profit off of it by doing it. >> and they didn't have appropriate licenses in order to do that. >> fitness stocks are difficult. for every planet fitness which was 15 in 2016 and now sits somewhere around 80, there's a weight watchers, there's a vitamin shop, there's a gnc. joe, did you guy nautalis back in 2040. >> i didn't. >> what is lifetime? did it get bought by someone. >> that's yours, right >> but huge. >> fitness is tough.

>> this is the razor and blade sort of thing. you buy the bike for a coup of grand but what keeps you in is the subscription that you're paying, $40 a month or whatever. >> currently they're making 80% of their revenue on the bike they're not making as much on the subscription you would think overtime as more people make the bike it would be a bigger proportion. >> that's if you're making 80% of your revenue on the actual product of the bike, there's a ceiling there and when you look at the marketing, most of the people that are on the bike in the commercial look like they don't need the bike. but the reality of it is there is a ceiling to it fitness is tough. >> what's interesting about this company is that they are vertically integrated which is a choice by the ceo right from the beginning. they're in charge of the logistics and delivering the bike they're in charge of making the content. they manufacture the bikes some of the manufacturing facilities are in china and they said in the risk factors that they could be exposed to tariffs

due to components in those bikes. it's some what of a different model because they don't outsource as much. it will be interesting to see what valuation they can achieve because they are involved in so many businesses. investors will have to say, is there like a software company and media company and logistics company and technology company which is i'm sure like every ipo they want. >> the tread mills are actually better than the bikes. >> the treadmill is good. >> that's why you bike but then there are, what is it called >> it's a similar type of treadmill structure. >> do you know what i really need i need a sauna that's helpful that i have something to look forward to

>> that's the case. >> i need someone to really whip me and to shame me into doing it and get this guy, he's going to show me paying up to $80 once. >> you're never going to do it again. >> i can't believe how quickly it comes up. >> those guys can whip you into shape. >> they could. i'm afraid of them when we come back including earnings reports of software companies is next. plus much more on the settlement offer from purdue pharma in a massive opioid lawsuit squawk box will be right back.

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welcome back you're watching squawk box live from the nasdaq market site in times square. >> good morning. u.s. equity futures. this hour are -- not a whole lot

to talk about but let's do it anyway the dow up 7 >> never stopped us before. >> this purdue stuff we're getting into it. nasdaq got a little over $2. there's stocks individual names to watch. reporting a drop in profit and revenue but both beat expectations companies also warning of softness in the computer storage market saying trade tensions lead to uneven demand. the ceo will be on squawk on the street today at 10:00 a.m. eastern and shares were above expectations but the software maker cutting it's outlook for the year it's being conservative though and keeps an eye on trade tensions and macroeconomic uncertainty. >> when we return, new developments surrounding purdue farmer and the family. we'll bring you the latest news

in the lawsuits against the company and it's involvement in the opioid epidemic next later, bethany mclean will have the latest on that case and her piece in vanity fair stay tuned you're watching squawk box on cnbc this is the couple who wanted to get away who used expedia to book the vacation rental that led to the ride

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>> offering to settle more than 2,000 opioid lawsuits against the company. and start us off and give us the latest. >> good morning, guys, the potential 10 to $12 billion settlement could be the first step toward a massive global

settlement accusing the pharmaceutical industry of causing the opioid epidemic and it seems as if states have their own tracks here rather than join from the 2,000 cases of cities and counsels and others that can be consolidated. the potential settlement reported late by nbc news marks a turn here and public benefit trust from which any profits from oxycontin or opioid drugs. also part of the 7 to $8 billion totalme total discussed in the settlement. >> here's more opioids >> here's drugs to fight the addiction. now news of the potential settlement sent stocks of companies involved lower yesterday. both manufacturers and

distributors moving on the news that they're involved in litigation many on wall street had been allocating for a single drug company but some thought purdue's settlement would be even larger given it's history in the opioid epidemic momentum is accelerating johnson & johnson after the loss in oklahoma on monday night said all the options are on the table for the massive set of cases in cleveland including a potential settlement and some companies are saying they're only going to do a settlement if it's with all the parties, the states, cities, coun counti counties. >> that makes sense and you could wrap it all up and say okay instead of saying you're going to litigate every one and a bunch of them afterward. >> that's where it would be similar to tobacco if they could reach that kind of thing. >> where else could they go? could they go to middlemen could they go to doctors >> doctors have already been kind of prosecuted individually. >> what about the fda? >> well, some people are saying they should look at the fda and

dea but they're not going to get a lot of money that's a different side of this. they're looking at drug companies, drug distributors and pharmacies. >> and farm sis. >> and in that order. >> in that order because that's where the money is in that order too. >> yeah, some of the drug companies don't have that much money anymore. some companies already lost quite a bit. >> what is shocking again, we were talking about this earlier, is in hindsight it would've been easy to find some of the worst players. far more than you could ever reasonably be doing. >> right, as part of this massive case in cleveland we have gotten to see the data that's come out from the dea the washington post and west virginia paper fought to get this unsealed and we got to see that information but it's from 2006 to 2012 and talking to these companies, yeah, looking back at it and when you look back at it you get a different view and comprehensive picture

and we as drug distributors were only looking at parts of the data the dea had all of it. who should have known, who should have done something >> how are we in getting the drug that's not addictive. a new way to treat pain. >> that's really important companies are working on it and there's really interesting targets. >> we're not there yet. >> we're not quite there yet but there are some new things on the horizon and probably more investment needs to go into that. >> how do you find something that makes you feel great but not addicting. this makes you feel awesome. >> you don't want it to make you feel good but you want the pain to end. >> but if you're living in pain and it makes the pain go away. >> the problem is that opioids also add something else. >> people that don't have pain. >> you're lifing ving in chroni pain. >> more on the family behind purdue farmer. how many -- i mean, you need a family tree. they're all over the place.

>> there's the company and it started with ear wax and laxatives. and so, part of the issue with this whole fight is that you have two branches of the family that have been fighting together but you mention the plaintiffs going to where the money is, this is a family that has a network estimated in bloomberg of around $13 billion. they have 4 billion from after 2007 so they got that 4 billion. the rest of the 13 is from their holdings in a company which is actually a network of drug companies that have been selling opioids overseas as part of the settlement they'll get the 3 billion if the sale price is above a certain

number they'll pay an additional 1.5 billion so that's 4.5 plus the 75 million that they contributed in the oklahoma case so that's possibly over 4.5 billion more than they allegedly took out of purdu purdue pharma from the ten year period but again they're still going to be left with something like $10 billion after this settlement and the question is, you know, universities, museums like the metropolitan, have all said that we're not going to take donations anymore and, you know, for this family, they have wealth what they want to restore is their reputation and they're feeling that they have been targeted and demonized unfairly for what they say is -- >> really? >> what money safe. >> that $13.5 billion. >> well, they're hoping this will refence them from the claims. >> sacrificing the company they lost the company. that's a lot -- would you refer

to them as ill gotten or not >> that's not what -- massachusetts is leading the fight against directly the sacklers that's what they claim is these are opioid profiteers. they're not on the board anymore. >> when you see mortimer >> but they actually hated each other so much that one of them tried to punch the other in a board meeting and they didn't talk for years >> half the family left the company. >> that's right. >> arthur which was the third, he died in 87 so his branch has nothing to do with it but there's more than 20 family members and a lot of disagreements among these three generations of how to deal with this so the fact that they could come together and agree on anything

will be amazing. >> thank you both. >> thank you. >> when we come back, luxury retailer tiffanys out with earnings reporting strong growth in mainland china. that sck itos up sharply we'll get you the report right after this break

welcome back tiffany and company released earnings moments ago the number came in at $1.12 a share. move the consensus of $1.04 and revenue was below estimates. however, tiffany did maintain the full year sales and earnings outlook and the stock is up. joining us with some instant reaction is brian nagel an analyst from oppenheimer brian, looking through this report, what would you say >> i think it's mixed. you know, just like you said, becky, the stock is up here premarket. i'll see if it holds i think it's better than feared but as i dig through this report to me it highlights a real problem for tiffany. and that's weaker sales to

foreign tourists >> because there are fewer tourists, chinese tourists in the united states. >> that's right. the tiffany model is really -- it has been built to cater to the traveling tourist with the big store in new york. stores in paris, elsewhere. >> but ralph lauren told us that, macy's told us that. so you see the weakness here the gross margin is light as well when we look overseas is there any confidence that you could have that a lot of the weakness that you're seeing here in the u.s. will be able to be off set? i know they did the deal with -- i think it's reliant brands. gets them into india are you going to be about to off set it >> to some extent. tiffany -- to their credit they made a big portion to build a bigger presence in main land china. i think tiffany's behind the curve. that helps to capture that -- the chinese consumer shopping locally as opposed to traveling

but it's going to take a while for tiffany. they have been focused on hong kong and other type of partners. >> inventory is higher too. >> i don't know if that's problematic, but tiffany's will be launching new products. they have been building the inventory in anticipation that's probably a positive. >> we did talk about the strong sales in china they talked about double digit growth in mainland china so maybe the tourists aren't traveling here but they're selling some in main land china anyway can that make up for what you talked about the weakness in the model. >> it's a little bit i think it's an offset i think the bigger positive it's not totaling offsetting to weaker sales in new york but it still suggests that the tiffany's brand is resonating well in china. >> so any concern about nationalistic tendencies, not liking the u.s. because of the trade war, you see it at costco, you see it at tiffany. >> that's how i read it. >> the ceo said sales came in below net earnings exceeded but

when it comes to the second half, they did have some tough comps that are going up in the first half behind them so it will be easier in the second half. but they're concerned about some of the business disruntions they have seen -- disruptions they have seen in hong kong. >> if you look at the guidance, they did temper it a bit i think tiffany made a mistake by not getting more cautious in the second half of the year. >> stock is up 2.8%. nice to see you. >> thank you coming up, the latest numbers from housing the housing sector we're watching the impact of low rates but the recession fears and volatility are kind of offsetting some of that. we'll take a look when we return at synchrony, we're changing what's possible every single day. but what does "changing what's possible" mean anyway? ♪ well... if you run a business, it means a lot. for starters,

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the most glaring recession signal if more than decade but is now the time to worry or is it something else at play? purdue pharma offering billions to settle opioid claims that story and other corporate headlines straight ahead. a tale of two economies. while the middle class is flourishing, the 1 percenters are seeking shelter. robert frank has that story. the second hour of "squawk box" begins right now >> live from the beating heart

of business, new york, this is "squawk box. >> good morning, welcome back to "squawk box" here on cnbc. i'm joe kernen and becky quick and joe terranova. joe is also a cnbc contributor in so many ways. >> "halftime" member as well. >> is that -- we're claiming you as our own today. >> "halftime" favorite show. >> you're not on "fast money?" >> you know that. >> equities -- even less going on the last time we checked. the s&p is down -- that's -- can we even call it down, now it's up. >> down. >> no tweets. >> the dow jones is down three. >> i have tweeted. and the -- oh, you're not talking about me. >> you're not the chosen one if you look at the bond market

there is stuff happening there. >> yes, there is thanks for saving -- >> a reason for watching. >> it's august there's purdue i'm not talking about the chicken. bonds are a big focus this morning. the inversion in the 10 and the 2-year-old deepening to levels not seen since 2007. it's weird because we have kind of gotten used to the idea and if explanations of why it may not be quite as much of a forecasting tool this time around because of the rest of the world. we heard what has -- why has it to close with an inversion and i guess the other parts of the yield curve have been inverted for a while and we got past that and it seems like we're getting sort of used to this at this point. at least we don't think, you know, 2008 is right around the corner anymore. >> no. you want to say this time is different but every time you say those words -- >> i know. >> leave you feeling jittery. >> what's encouraging though is

that the ten year is 146 german ten year is negative, and the equity market is not sensitive to that remember this correlation that they have had those cross assets that's actually somewhat encouraging. >> yeah. maybe it is different this time. we'll see. mortgage applications just hitting the wires. diana olick has the numbers. what happened? >> well, becky, it didn't take much to turn the light off at the refi party and that pushed it down 6% for the week. the refinance application fell 8% for the week. but take a look for the first time since the middle of july, mortgage rates stopped falling and inched a tiny bit. the average rate with conforming loan balances increased to 3.94% from 3.90% the rate was 84 opinion beens lower than the same week one week ago 14 basis points lower than four

weeks ago but i guess we're very sensitive to every little move mortgage applications to purchase a home fell 4% for the week and were just 2% higher than the same week one year ago. that's more about a lack of listings on the low end where demand is strongest. on the high end, where there's plenty for sale, buyers are much more concerned about all of the volatility in the stock market and talk of a possible recession. back to you guys. >> all right thanks that inversion of the ten year and two year deepened overnight as we have been talking about. joining us is mike santoli with more on what the bond market is signaling. gabriela santos from the jpmorgan funds is going to tell us what to do with all of our investors. >> that's right. >> and paul is going to help that -- paul hickey from bespoke group. and joe terranova is here as

well as a cnbc contributor what -- did you hear joe earlier saying don't worry about it, it's - >> i'm not sure he said don't worry about but i agree with joe. i'm trying to make that point as well that these macro factors first it was the chinese currency tipping above 7 and now the yield curve. we have loosened the sensitivity to it in the stock market. i don't think you can say, we figured it out it's fixed we've setting it aside but it's note -- it's not a switch that gets flipped when you have the inversion on the other hand as becky alludes the history of saying the yield curve isn't forecasting anything this time is not particularly illustrious. because in the mid 2000s people were saying that because of the global savings but i think it tells us what we sort of already know we have a scarcity of the yield in the world deflation seems like a bigger risk than inflation and the markets are saying the fed is too tight. given the global interest rate structure. >> one thing we don't ever want to do here is sort of instill

complacency to a great extent either though. >> right. >> some people like wilson was on yesterday, he was saying it's staring you right in the face. what's happening in the bond market is staring you right in the face in terms of a global slowdown. >> but he's speaking specifically to the ability of the s&p 500 to move higher and we're looking at the other asset classes and the credit conditions which i would argue are very strong. looking at the consumer which when we get that personal consumption is going to come in very strong once again to me, the dollar is the conversation that's a tightening mechanism. as i said to you before, as long as that remains high - >> wilson was talking more about an earnings recession. maybe not a recession. back-to-back - >> well, plus year, yes. >> but he instead of being at 180 for 2020, hiit's the

average thing. so where are you earnings disappoint or will they be flat next year? >> joe, what we try to do is take the yield curve as one of the pieces of the broader puzzle that we look at. and what we see really is that there are pockets of strength and there are clear pockets of weakness as well when we put them together our base case is still positive economic and earnings growth but it's going to be incredibly moderate and it's also going to come with a lot of downside risk and volatility but for earnings for next year, we're still expecting 3 to 5% positive earnings growth. >> that would put us at 170 or something? where would that put us? >> about 175. >> about 175. >> that's right. >> what kind of multiple do we deserve? if we have rates this low we should be get to 17? >> rates put a floor, they help. otherwise we would have had lower multiple but the

uncertainty puts a cap. >> right. >> so if we do maybe 17 times does sound reasonable. >> 17. >> what's 17 times 175 what is that >> it gets you to around -- a little bit below 3,000 for the s&p 500. >> but 17 times where we were in 2017. >> recession plans are playing out. we see it right now, but what will - >> do you have comments? >> i think what you're looking at as gabriela was saying, the uncertainty puts a cap on things the biggest thing is the uncertainty and the yield curve and what mike was talking about the yield curve isn't just a switch that turns things on and as joe said we have to watch the credit marks and watch signals in the market. we have to watch as close to realtime indicator of the the economy as we can. jobless claims haven't seen a spike. they're right at generational lows and this low interest rates as we see the rates come in, what

you have to remember it's very stimulative for the consumer and for businesses the average mortgage payment would be down based on where it was prior to the year. it's down by over 15% year to date and borrowing costs are down by over 100 points for corporations so those moves are stimulative. when you see big moves in the treasury market like we have seen this year, actually it's the strongest year since at least 1987 for treasuries for the remainder of the year, equities have -- every time we have been up at least 15% in treasuries we have seen gains for the remainder of the year in the equity markets i think you have to weigh the pros and the cons as we always try to do and the pros are still outweighing the cons by a little bit. but the yield curve and uncertainty are certainly things that are capping. >> how do you know that the bond market doesn't have a better feel for what happens with the trade war than the rest of us? i mean, we haven't seen the worst case scenario for the consumer or for import prices,

none of that stuff have we seen the armageddon that a lot of people were hoping for or talking about. maybe the bond market sees that china -- this is not going to turn out well. is that possible >> the consumer is far more relevant to the story here in the u.s. >> so you don't worry the trade war could get out of hand? >> i worry about the trade war iworry about the messaging of the trade war. >> i mean to the economy in terms of uncertainty, in terms of people pulling in - >> it's already -- >> you can talk yourself into the recession. >> it's impacting manufacturing. unquestionably it's impacting the manufacturing. >> does it go beyond that? >> i think we're entering a different phase of these trade tensions with this next round of tariffs which are going to start impacting consumer goods and the issue is more that we have never been here before and we don't know what the tipping point is eventually when it starts impacting business and consumer confidence so much that it starts impacting that 70% of the economy that's the consumer. >> i mean, my thought on it is

that it was never about consumers having to pay more at retail it was about does this tip the world into a real pronounced slowdown so if it's a hard lands in china, emerging market currencies are at their lows, right? that index is at the lows it creates the conditions for more of a global financial accident it's not about the frictional costs of absorbing the tariffs. >> even if we win the trade war and we inflict more pain on the chinese we still lose. >> maybe lose less but it's not a great environment for the s&p 500 multinational companies trying to make profits around the world. >> an interesting interview yesterday on "squawk on the street" where hasbro has been moving out of china, they're happy they have been able to do that but they're down from 90% of manufacturing in china back in 2012 to two-thirds to today.

>> asset light they didn't own a single factory. >> but it's taking them seven years to the point down they're from 90% to two-thirds and they hope to be down to 50% production they have been doing this for seven years. >> i would say toys is a pretty specific case. in other words, very much dominated by chinese production. and also toys don't exactly have pricing power. this is not a category that's been growing. >> does in my house. >> in a very strong way. >> yeah. >> google is going to remove the production of pixel out of china into vietnam but that takes a lot of time. >> there's the point you can see that okay, there's a way that you can do it they even brought play-doh back to the united states but it doesn't happen overnight. >> it costs a lot of money. >> they're still impacted by the trade tariffs for the holidays >> right what you have to look at here is we have seen a lot of headlines over the last several weeks about tariffs, no tariffs. the tweets from the president.

but if you look, we have been in a range of 28, 29 to 40 ever since august 2nd from august 9th to august 19th we were down 1.2%. up 1.2%. down 2%, down 4%, up 4%. it's a lot of noise at this point and when you see the market break out of the range you'll have more clarity as we get out of august and what's the deadest time of the year. >> if it means tactically that news flow has gotten pessimistic and they're praised for something. >> at that point on sunday night, everyone you talked to how much is the market going to be down on monday. we were up 1% at the end of the day. so i think there's quite a bit of fear in the markets >> think of a cat -- the first time you go to a cat like that the cat jumps. but by the tenth time the cat is what >> you know this from personal

experience >> there's a term for it in science. that's what happens with the two year and the ten year now. get desensitized i don't know if that'sgood or not. anyway, mike, gabriela, paul, joe is going to stick around. when we come back, your top corporate stories that are making headlines this morning. and a quick viewer note. delivering alpha summit is back. we'll explore the critical issues impacting the markets with proctor & gamble's ceo, and nelson pelts and the apollo cofounder. and vice president pence will sit down for a one-on-one with our very own joe kernen. you can get tickets at alpha.com. be right back. "squawk box" is sponsored by franklin templeton reits for better

on my second and fourth deployments there were tsunamis in the world. and once they happened, we were in a major hurry to get to those regions to provide aid and support. it was very humbling to be able to help out all those people. it's my dream now to go into clean energy and whatever the next new fuel source is, that's where i want to be. i want to be on the front lines of implementation.

purdue pharma and the owners the sackler family are apparently offering to settle more than 2,000 lawsuits against the company for 10 to $12 billion. it was part of a conversation

last tuesday and the lawsuits allege that the sales practices were deceptive and at least partly response responsible for the opioid crisis. tiffany peat estimates with $1.12 a share. the comparables were below what the street was expecting but tiffany maintained the full year outlook. as a result, you can see that stock is up about 2.8%. costco is now implementing a limit on the number of shoppers allowed at the new china store the shanghai location was mobbed earlier this week, causing massive traffic jams near the store. some people say they waited online for over four hours and selling out of lots of goods in the stores peloton has filed to go public they did not say how large the ipo might be but it plans to list on the nasdaq that filing did reveal that the company's losses had been

growing. cnbc parent nbcuniversal is an investor in peloton. coming up, making sure your kids are taken care of on the mind of anyone who is parent from around the globe. now, there's a new way to save and it's designed for those who have children with disabilities. sharon epperson has a preview. >> hi, joe it is being described a a game changer. an account that lets families save substantial amounts of money without losing critical government benefits. we'll bring you the details on how they work when "squawk box" returns. time now for today's aflac trivia question. which country has the most acveti volcanos in the world the answer when cnbc's "squawk box" continues coach saban we have health insurance. did health insurance pay for everything? no, we still have bills. aflac gives you money directly to help with those. aflac! and your deductibles, knee brace, whatever you choose.

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now the answer to today's aflac trivia question. which country has the most active volcanos in the world the answer -- indonesia with 130. parenting comes with lots of joy but also lots of responsibility for children with disabilities there's even more to think about, especially making sure they have money to last their

entire lives and now a valuable tool can help. it's called an enable account and cnbc personal finance correspondent sharon epperson visited one family to see how they're using it >> rain or shine, brian quay is hard at work, caring for his friends in massachusetts the 25-year-old who has autism is feeding horses and his bank account. he works three jobs and saves over $1,000 a month with one goal in mind. >> i'm saving my money to buy the farm i'm going to name the farm -- the farm is going to be the little patch of heaven. >> as he saves money, brian and his parents hope he has enough to pay for day to day expenses down the road and together they're putting money away in a special savings vehicle designed for people with disabilities called an able account. >> it was a bit of a game changer for folks because for so

long you were told you can't save, don't have any assets. >> until the able accounts were created in 2015, individuals with disabilities had to have less than $2,000 of savings in their name to qualify for federal program like medicaid and other services able accounts remove that cap. allowing those with special needs and their families to contribute up to $15,000 a year in an able account and still receive benefits. >> this gives us more elbow room and gives brian the ability to save and to plan and do what he needs to do to take care of himself, just like everyone else has to. >> few who qualify are taking advantage of the accounts. the able resource center estimates 8 million people are eligible for these accounts, yet as of june, just under 46,000 had been opened. financial advisers say many families don't know about the accounts or understand how they work. >> with an able account, if you

go over that $100,000 maximum contribution you're going to start to lose your governmental benefits so you have to manage that account to make sure it stays under $100,000 throughout the life of the account. >> great farmer that's you. >> for brian his able account gives him a chance to save for his dream. but also the reality of being able to help provide for himself when his parents no longer can. >> there's an expression in the disability community i can't die, i have to be here forever. >> them powers brian and gives him more freedom. >> that's what i love about this and i hope it will help other families think about it sooner rather than later. >> brian's parents say that this account has given them comfort and peace of mind knowing their son will have some degree of financial independence the money they're saving can be used for a variety of expenses

including education, transportation and job training. and they really wanted to tell this story, guys, because they wanted people to understand there is a new way to save and if you don't know about it, at least look into it and see if it works for you. >> shocking what a small percentage of the families who would be eligible for this signed up so that's why it's important to get the word out. are there complicating factors to think about to make sure they're eligible >> you have to know that a beneficiary can open it for themselves or it can be a parent or a guardian or the power of attorney designated in that position can open it up. you have to have a designated disability by the age of 26 to qualify and social security has to say that you meet the criteria for functional limitations in order to qualify as well. but if you're getting social security benefits already, and you had that disability at 26, you're going to be probably eligible for this account. >> the able account, what's the difference or the benefits versus a special needs trust

>> you save a lot more in the special needs trust and you can put different types of asset in there. property and other things but it's much more expensive you probably want to get a great attorney to make sure you set it up properly. with the able account, you can go online and sign up. >> i did talk to an attorney about this at one point though i think there was some sort of a thing that you needed to be careful with you needed to make sure that you -- >> you want to make sure that you have the power of attorney over the estate. that you're the -- not just the person, that you're the guardian of the estate. make sure that you have that legal designation as well. >> which is weird because most of the time the child wouldn't have an estate because they wouldn't have property or other things associated with it so it's like a legal situation that you need to make sure that you pay attention to. >> just make sure and also make sure that you check with various states you want to make sure you understand how they're working and what kind of benefits you're

going to get but the overall greatest benefit you won't lose the government benefits that you would have before able accounts if you saved over $2,000. >> if you have a special classification in high school, school, that will pass muster with - >> as long as the social security administration says it's a disability, according to them, then you're able to contribute to this account. >> and it's -- it covers a wide range? >> it covers a wide range and it covers a wide range of expenses that - >> but a wide range of different disabilities >> yes yes. >> on the spectrum, anyone on the spectrum on the - >> well, it's various disabilities. >> i know that, but specifically on the spectrum, if you're very high functioning are you still -- >> it depends on what the social security administration says in terms of the limitation. >> sharon, thank you so much coming up a former google engineer being charged with taking self-driving trade

secrets and giving them to uber. we'll break down the story and discuss the impact on both companies as we head to break. look at the u.s. equity futures. actually in the red now. down about 41 now. 12 on the nasdaq the s&p indicated down about 4 we trust usaa more than any other company out there. they give us excellent customer service, every time. our 18 year old was in an accident. usaa took care of her car rental, and getting her car towed. all i had to take care of was making sure that my daughter was ok. if i met another veteran, and they were with another insurance company, i would tell them, you need to join usaa because they have better rates, and better service. we're the gomez family... we're the rivera family... we're the kirby family, and we are usaa members for life. get your auto insurance quote today.

still to come on "squawk box" -- a former google engineer charged with stealing self-driving car technology shortly before joining uber. the details on the fallout straight ahead. and why working and middle class families are feeling good and 1 percenters are facing a recession. also the latest on the china trade war. former ambassador to china max backes will be our special guest. a note to viewers in an era of technological advances, how companies adapt, innovate and evolve you can join united ceo oscar munoz and greg brown and many more at the return of the cnbc

evolve summit. visit cnbc events.com/evolve to learn more and register. we'll talk about that when we return right now the dow is down about 80 points. ries. ♪ higher expectations. ♪ the light beer you've been waiting for has arrived.

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all right. welcome back, everybody. time to sit up and pay attention. the futures have turned weaker we have been sitting around the flat line most of the morning but now they're indicated down by about 82 points s&p down by over 8 1/2 points and the nasdaq down by 28. a lot triggered by what we have been seeing in the bond market the ten year is now yielding 1.461% joe terranova is here. you said it was triggered by a technical move lower. >> well, below the italian ten year reached a record low yield and i think we have to think of it this way many have suggested what would happen to germany if you brought back the deutsche mark if you took germany out of the euro currency and you had the deutsche mark, we all know the answer. >> they didn't have the currency being weakened by the southern -

>> correct there's an analogy to what's going on with the united states. it's the same thing. and germany wants to be within that euro currency why would they want the currency to appreciate? that's the dynamic as i said before, protectionism doesn't exist in asset prices and you're seeing that with the u.s. dollar and with the yields. >> yeah. i mean, it would be a lot of -- a lot of things in the eu if they really did -- i mean, right now it just -- it doesn't seem like it's a very tenable situation the way it works with all of those -- like southern italy. or southern europe versus germany and some of the other economies and they have no central fiscal authority they all have the same -- it makes no sense germany benefits everyone else has interest rates probably too low. >> right. >> should have a ten year below 1%, does that make sense at all? do they have a government right now? >> listen, any crisis though

that the germans have to step in it's to their benefit to step in and to assuage the situation. >> well, we'll see you know, see what bow joe is doing here he will do a no deal brexit and he says october 31st is the date do you think that's a coincidence, halloween a former google employee being charged with taking self-driving trade secrets and i guess giving them to other people deirdre bosa is joining us now. >> that engineer is anthony levandowski and one of the most important, most well known and controversial people in the race to develop autonomous vehicles yesterday, he walked out of a courtroom after being charged on 33 counts of attempted theft of trade secrets from google. there he is now. to do so, to walk out he had to post $2 million in bail and he had to wear an ankle bracelet after it was argued that he was a flight risk. >> we will have an answer to

each and every one of these allegations point by point on the evidence at the appropriate time in the proceedings, but for today let me say this. for more than a decade, anthony levandowski has been an industry leading innovator in the field of self-driving car and truck technology and the evidence in this case is going to show conclusively that anthony did not steal anything. >> now, guys, this is a long fall for the once star engineer at google who left to start his own self-driving trucking start-up which was then bought by uber. when google's unit now waymo sued uber claiming he stole the technology that cost uber precious time in the ambitions key of course to the long term profitability. now, the civil case was settled in early 2018, but the criminal charges against levandowski could be a new twist that could open up details that were not

previously disclosed in the civil case putting uber and travis kalanick who was ceo at the time in difficult spots. >> thank you so much for more on the story, let's bring in the former white house chief technology officer under president obama and our own phil lebeau, he covers the auto sector network let's talk about the significance, what this means for the industry first what's important here the department of justice is looking at criminal responsibility what is this signaling to the industry is this a sign that the government is going to start paying attention to how corporate espionage has been changed by the advances we see in technology? >> well, for sure this is the case one bit of context, you know, intellectual property is the cornerstone of the economy something like a third of all job are tied to employers with

strong intellectual property assets nearly half of our exports are tied to it in the world of digital assets it is often hard to see what exactly is the asset back in the day, criminal justice might have meant if you physically stole a computer the computer itself had value. even if the software or the information stored on the computer might not have been seen as having value so we have come a long way now to establishing sort of the legal framework for protecting that intellectual property i think the main story here is to understand who are the winners and losers in a world where there's now more legal protection, if you will. more enforcement opportunity for companies that hold some form of intellectual property that puts a little bit of an edge on those that have already built the teams and build the assets a little bit harder for the start-ups and the entrepreneurs looking to disrupt. >> because the implication is they're all stealing their ideas? >> no, no. in an area like california human capital is the center of this whole industry. >> right. >> and obviously, a big part of

this is there's a ban on noncompetes in california so you can leave company "a" and join company "b" and god bless america. you can put your brain power to the highest and the best use the difficulty now is a little bit of a gray area of exactly what were the assets that are -- you know, the trade secrets, if you will, that a company holds and how do you demonstrate the line between what's in your head and what might have been an asset -- >> you can't print 28,000 documents and take them with you. >> right well, the big question in this case is going to be the value of those documents that's the more detailed question about the case. >> phil, what does this mean for uber because obviously it's a different uber today than when this all happened. this was travis kalanick and he'll be embroiled in these things and it puts uber in a difficult position. >> it does but remember they have settled the lawsuit over this issue involving levandowski, the intellectual property that may

have been taken, et cetera they have settled that suit so to a certain extent, i know that dee was talking about travis kalanick and the issue that may come up, whether it's in court or et cetera, for the most part waymo and uber have settled this so that's been taken care of but i want to point out one thing, becky what's interesting -- i just went back and i looked atta tap we had in september of 2016. that's when we were called to pittsburgh for a demonstration with uber self-driving vehicles that were being developed there. and there was an interview -- we were allowed to talk to levandowski at that time and it was just when the stories were starting to come out about whether or not he had taken some intellectual property and they were all like no no no that's irrelevant. you know, nothing to do at all he was, you know, the work on auto that's the reason that uber bought that company and he's the secret sauce my, how things have changed in the last three years

it wasn't long after that he was fired by uber and then obviously there was that court case. >> so phil, other companies in the auto industry sitting up and paying attention to this or is this something that you think is just going to have a much bigger impact on silicon valley >> i think it's more silicon valley than specific to the auto industry this is a trade secret story this is whether or not employee "a" levandowski took the secrets or the documents or schematics and used it in company "b. that's what this is all about. this is not unique because it's self-driving vehicles. that just happens to be the industry where this case unfolded. >> what else can we extrapolate about what this means for technology innovation in this country and potential government regulation >> this is the tension that we'll be seeing. for those economists who believe that we need to put our talent including human talent to the highest and best use this might

mean that more people might be stuck in a company that's underinvesting and making the most out of the intellectual property they have so we might not see as much innovation in the economy, so that's one fear. on the other side this is rightful, you know, legal protection for an organization that's invested to build up an asset so i think that the legal precedent on what the bar is for what is deemed a trade secret or not may be the most important piece that comes out of this i will point out in an area like self-driving cars it appears to me -- i'm not an expert in the field. the software layer is a heck of a lot more important to the success of that program than particularly designing a sensor. which this particular trade secret is about. for the folks who are looking at the technical implications of this, well, the real power of this should be in the software teams. i'm wondering what the hardware innovation does to that. that's why there's some concern about what the bar will be for what is deemed to be a trade secret on the overwhelming share of the value may be in a different part of the innovation chain. >> it's difficult not to -- it's difficult to talk about

intellectual property theft without getting into some of what we talk about every day when it comes to the trade war with china. >> oh, yes. >> these are just things we're doing inside the united states, but what's the government doing when you start looking at intellectual property theft that comes from outside our borders >> we need to do more. this is a priority in the obama administration, this is a priority for the trump administration it's a difficult issue. if you're a graduate student sponsored by a foreign country and you have to pay back your functional equivalent of student loans, one of the criteria might be that you have to work at companies, maybe collect intellectual property and bring it back home so we can build up our innovation ecosystem these are serious threats to the american competitiveness position i don't want to suggest there's -- you know, widespread abuse around these areas but we need to have more vigilance and more enforcement and some negotiated settlement on how we handle protecting intellectual property in the u.s. this is why you're seeing more beefed up policy process in the

u.s. government called cfius, which is a boring acronym but limits how much capital comes in from overseas. we need to figure out a way to protect our assets to continue to thrive in the decades ahead. >> thank you for joining us and great to see you too when we return, the economy is splitting in two. robert frank joins us with a preview of what he has coming up robert >> are the rich signaling a recession? spending at the top is slowing from everything to real estate to jewelry what cant anorhe lur ime f tuxy stocks and the value of your home that's after the break hey! i'm bill slowsky jr.,

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today's xfinity service. simple. easy. awesome. i'll pass. it's a tale of two economies. that's the premise here anyway the wealthy are signaling a recession, but the 1 percenters are hurting. >> that's our viewers. >> i know they are but the stock market is almost at highs. >> yeah. >> and $700 bottle of wine has been replaced with the $500 bottle of wine that happened once the wealthy are signaling a recession but the economy -- the middle class worker remains strong robert frank joins us now with more even if this were absolutely true, we have been trying to narrow income inequality

so would this necessarily -- i don't -- i would like to lift everyone up. like to lift the bottom up and not bring the top down, but this is not the worst thing in the world if the $500 bottle of wine was $450 >> let's put up some numbers for most of the past decade the wealthy consumer was the strongest and the working class has lagged behind. now the high end segments of real estate, retail, our cars are now the weakest. the walmart economy is the main driver of u.s. growth. so luxury real estate is having the worst year since the financial crisis sales of homes priced at $1.5 million or more falling by 5% in the second quarter there's a three year supply of mansions and luxury homes in aston, miami so barney's of course filing for bankruptcy earlier this week. >> that's it. >> nordstrom's posting three

straight quarters of declines and neiman marcus seeing the first sales drop in seven years. and tiffany's dropped. art auctions are down between 10 and 20% this year and at the annual pebble beach car auctions recently more than half of the cars priced over $1 million failed to sell but cars priced under $75,000 so those are what i call the blue collar collectors, those all sold quickly and for a - >> blue collar collectors at 75 grand? >> a lot were 20 grand, but spending is below 2017 levels and the total share of the top 10% that has fallen and the middle class consumers are picking up the slack so the top 10% still account for nearly half of the consumer outlays. so if high income consumers pull

back any more it will be a significant threat to the economic expansion. >> that's where the -- >> what drives the two segments. so the wealthy are driven by the stock market growth and they're the most exposed to overseas growth and the middle class consumer -- let me finish this the middle class consumer -- if that were true, miami would be doing great. it's not aspen would be doing great. >> miami are from here >> what about texas? joe, it's the entire segment. >> texas can be tied to the energy prices. >> you thought of that immediately. >> let me intro our guest. thanks, robert. >> you're welcome. i'll leave now. >> no, stay here stay here. >> we always talk about moody's, very rigorous, they -- >> mark zandi -- >> they bought him he's - >> zandi has over the years and

done a good job at the segments of the consumers. >> some other places in terms of forecasting the end of the world. anyway, let's bring our guest into the conversation here now, a senior economist and founding partner of rdq economists. i think we're supposed to have five hikes in the interest rates according to zandi and conrad, it's salt, salt. >> on the housing side it is clearly salt i have to say -- >> how can you say that when it's florida and it's colorado and it's other states that have no impact on salt? what's happening >> all of the rich people go out there. >> but that should be helping miami but it's not the top segment of all these industries is the worst. and the bottom is -- >> miami they don't pay florida taxes. >> but if it's all salt to your point why is miami and texas - >> it's not all salt, but partly

salt so i have to agree with you, joe, i'm sorry >> thank you. >> but i think - >> don't feel bad. you're sorry to robert >> this is a good development. what we're seeing is the normal rotation in the economy that comes late in the business cycle. the beginning of the cycle is great for the wealthy. get huge profit gains, get a roaring stock market collectibles go up in price dramatically late in the cycle, joe six pack gets money you get rising wages, the unemployment rate for minorities and low educated people goes down more than for other people. so the economy is in a natural rotation and a good development to see income distribution less skewed obviously, you know, if the stock market were to go down a lot i would be quite concerned because stocks are wealth and they're being -- they are being held as a way of creating wealth and in effect consumer spending

but collectibles, wine and stuff like that to me that shows people have more money than to know what to do with and it doesn't drive the economy. >> of things like that, we heard from tiffany earlier today their sales were down because you don't see as many chinese tourists that were here today and i would think art would be impacted by that. >> absolutely. so the -- so there are two cross currents one the art market was clearly impacted in the first half by the lack of asian, particularly chinese buyers what's happening with tiffany and all of the luxury retailers is that china has repatriated luxury spending. so they have cut tariffs dramatically on what it costs to buy an hermes bag or - >> but sales were up. >> in china. so a lot of the stores were ahead of tiffany's, rather than relying on the tourist coming to new york or london that's increased the sales in china to

partially offset what's happening here to a degree you're a company that has a lot of stores in china you're doing well for now. i have been surprised at how well the luxury consumer in china -- hong kong is the big question because they're the largest market for wine, watches, a lot of luxury goods and that has yet to show up in the data but i think it will - >> tiffany's ceo mentioned hong kong in his comments >> but here in the u.s. -- >> if it's president bernie or president liz we'll look back on these halcion days and -- right? >> salad days. >> i think this foreign argument is partly because of what explains the salt argument on housing. there's probably a lot of foreign demand in places like miami that might not be coming in anymore so that's hurting there. generally speaking, they focus on the consumer as a driver of growth it doesn't drive growth, it's the business side that drives growth so i would be far more concerned

than any pull back of spending of richer people if we see the profit margins and the labor market comes under pressure and then the larger segment of the consumer does. >> i don't think we move away from joe's point on salt it's inarguable. if you give relief for salt, if the president tweets right now that he's going to give consideration to relaxing salt you're going to see the wealthy consumer engaging once again and it will be a benefit. >> maybe you know - >> you need to make up your mind whether you want income inequality to narrow or whether you want these rich people to just get richer and richer for your - >> i'm impartial. >> i know. i'm kidding. >> i don't have to make up my mind i can just report on the numbers. you make up your mind. >> i mean us collectively. >> i agree you should be mad at forced camaraderie. and you should be mad at tech that makes things worse.

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the bond market flashing the biggest recession warning signs since just before the financial crisis we'll show you the move in yields overnight. a potential settlement in the opioid crisis. purdue pharma reportedly offering 10 to $12 billion we'll tell you what's behind the offer. plus, the story of the

u.s./china trade war the impact on the u.s. businesses if things escalate. the final hour of "squawk box" begins right now >> 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 kerning with becky quick and our guest host today is joe terranova from virtus investment partners and a cnbc contributor. the futures right now have indicated -- they were indicating a flat open and now down almost triple digits as yields continue to fall around the world. you can -- >> 30 years at one point. >> figure out your own reason -- nothing to see here.

couldn't be anything bad but some people think it does. it remains to be seen. we'll know in a year, i guess. >> hindsight is 20/20. >> all right to the other stories that investors are talking about today. earnings just in from spirits producer brown foreman, the maker of jack daniels. it earned 39 cents a share, 2 cents better than expected, however, revenue was below wall street forecasts they did note a drag on sales from tariffs amongst some other factors. but it also maintained the full year outlook that stock right now unchanged $58.99. earnings out this morning from tiffany tiffany beating estimates on the bottom line. revenue and comparable store sales were below expectations but tiffany did maintain the full year outlook. and the company reported double digit growth in mainland china that helped to make up for the lower than expected sales in the u.s. up by 2.25%. then fitness bicycle maker peloton which has filed to go public it did say that it plans to list

on the nasdaq. the filing revealed that the company's losses have been growing and that it may not achieve profitability in the future by the way, cnbc's parent nbcuniversal is an investor in peloton. the futures have gotten worse from where -- now down about 115 points on the dow. the nasdaq down 43 this is after that session yesterday that turned around and ended pretty negatively yesterday, down triple digits s&p indicated down about 13. let's look at the yield curve. the 30 year is under 19. the ten year 1.45. so the inversion is increased. >> we don't show the three month chart but yesterday the three month and the ten year, was it the three month and the ten year that inverted for the first time since 2007. >> right. >> here you're looking at the

two year. >> three month to ten year is negative 54 basis points right now. two year to a ten year is negative five basis points listen, the market will get the 25 opinion beens cut we need more than that we just talked about s.a.l.t., s.a.l.t. relief could be part of the equation there has to be more of the messaging and more of a lifting of the regulation, more than the president meeting with the apple ceo and there has to be better messaging more than let's get a 25 basis point cut. >> if you bought something in 1982 if you look at what it's appreciated to now, if you index the capital gains to inflation it would cut your tax bill by about 70%. >> what happens if the regulation -- the lifting of regulation we don't hear about that anymore positive or negative >> other stuff is happening with the china trade war. it's the three month to the 30 year that inverted yesterday.

>> and below the s&p yield. >> that's crazy. >> it could the -- >> you can get more yielding in the 30 year. >> let's bring in the cnbc contributor, what happened i mean, you're in the pits what happened in terms of in the last hour that caused us to -- you know, sentiment to weaken so much >> it's august there's not many players yeah, doesn't have to be a lot we gap lower on just worries and there's plenty of worries, but when you boil it down there's only two players in this drama, there's the trade talk and the fed. if you look at both of those things the trade talk could -- that could resolve itself relatively quickly i don't think it will going to becky will said we'll look back on this a year, and that happened with brexit and that drags on and on and this could do that as well but the fed is not going away the fed is there and they will back stop and i think that's the

most important thing when you talk about something you guys just mentioned that the dividend yield on the s&p -- because normally i look at the earnings yield at a ten year for what are my indicators of value, to me that blows me away where would you rather have your money for the next ten years it's absurd. normally in this sort of environment, wow, rates are low. but we're worried about this boogie man of the inversion. everybody is geeked up about this so nobody wants to come in. now, if the s&p goes below the 2800 level, my confidence might be shaken at that point too. but so far it hasn't so i still think it's pretty good story. >> so how is this going to play out for the rest of the session do you think like so many days we get used to the idea of some of the yields >> i think -- to me, yes, there's a lot of getting used to i think that the day is going to be negative. what would change that today, i watch price more than anything else if we go above call it 2885 on

the s&p to me that's a notion that we'll try the upside of the range. the range is 2950 to 2800 we're in the middle of it which shows the fundamental struggle between the two factors we talked about. at times we'll try the upside and at times we'll try the downside we probably stay in the range. >> yeah. >> i don't know, jimmy who is on vacation we keep blaming people being on vacation come on. they drive the market down and up their not on vacation. >> sure. the volumes are low so it probably exaggerates the move. again, we talked about this on monday here. i can't produce counterfactuals as to what would happen if all the players were in place, but august is sometimes prone to these kinds of gaps just because there's not as many players there. >> all right thank you, jim see ya. when we return, who's going to blink first in the trade war?

and could the conflict push china to a point where it doesn't need so many u.s. imports? after a break we'll ask former u.s. ambassador to china max baucus stay tuned you're watching "squawk box" on cnbc cargo... or to carry on a legacy? its show of strength... or its sign of intelligence? in crossing harsh terrain... or breaking new ground? this is the time to get an exceptional offer on the mercedes of your midsummer dreams at the mercedes-benz summer event, going on now. lease the gla 250 suv for just $329 a month with credit toward your first month's payment at the mercedes-benz summer event. mercedes-benz. the best or nothing.

welcome back to "squawk box. the futures right now indicated down 120 the nasdaq indicated down about 42 or so the s&p indicated down 13 right now. and we have been waiting, joe, got your wish. >> your tweet. >> here it is. >> president trump just tweeting, so interesting to read and see all of the free and interesting advice i'm getting on china from people who have tried to handle it before and failed miserably in fact, they got taken to the cleaners we are doing very well with china. this has never happened to them before in the meantime, we saw new multiyear lows for the yuan, it is trading at 7.16

let's get over to eunice yoon. >> thanks so much. the chinese are sending a signal to the white house that they don't want to provoke the trump administration, at least when it comes to the currency. the central bank for a second day in a row set the value of the currency stronger than people had expected. and because of that a lot of traders are reading that the government here wants to make sure that the yuan is stable now separate of that, one of the big talkers here has been the opening of costco. so costco yesterday -- we were talking about it this morning. but costco opened its first store in shanghai yesterday. the crowds got so crazy that the lines created a traffic jam that were more than half a mile long. also the store had to shut early so the store has apologized and today sanity was somewhat restored where the company said

that they were going to make sure that there were only 2,000 customers in the store at any one time so what was also interesting is that online, the customers have been sharing tips. so costco's shoppers have been sharing tips with each other saying that you should expect to wait for two to four hours if you want to go to the store. they also said if you want to get a luxury handbag such as an hermes bag, buy it quickly because they sell out fast finally, there's been a lot of discussion about maotai, that any businessmen who came here to china they're familiar with the drink. the liquor is half price and limited to two bottles per person so the tip that's going around is to make sure that you bring as many family members as you can to the store so that you could buy as much of the drink

as you can at this discounted price. that's probably one of the reasons there's been an overcrowding problem. >> do kids count or do you have to be a certain age to be one of the bodies standing there claiming your two bottles? >> that's a good question. they weren't that specific online. >> yet yet. >> but it would be a little strange if a 2-year-old put it into the -- exactly right. >> eunice, thank you good to see you. for more on u.s./china trade tensions let's welcome in max baucus of course he served as u.s. senator for montana and ambassador baucus, thank you for being here what do you think so far things escalated over the weekend and then calmed down a bit on sunday. as president trump seemed to indicate that there's some potential movement between the two sides. where do you think we stand? >> well, i think there are some pretty good deals at costco.

frankly, i kind of chuckle whether president trump wants costco to come back to the u.s. too. i don't think so costco is doing pretty well in china. we're frankly in kind of a lull here to be honest, i think that the chinese are beginning to take trump's measure. they see him flailing about. they see him ordering, you know, corporations to leave china. he's attacking fed chairman powell consistently. he's changing his mind a lot and the u.s. economy is weakening. they're kind of in the driver's seat at least they think so at this point. i think when i was over there and served in china and when i talk to my chinese friends and it's still the same. the chinese respect strength more than any other people than i have ever known and they can smell weakness so i think you'll be seeing a lull here and basically we near

a situation where trump is going to make a decision does he want to do a deal or not and if not we'll be in this situation of probably no deal until the election. >> we could be in a no deal situation i guess, but are we going to hear all the rhetoric around that or could it be a quiet no deal? i guess the market would differentiate between the two. >> yeah. well, my sense is that the markets are beginning to understand trump i hope so. because often the markets would jump around way too much they need to settle down a little bit but frankly they're beginning to realize that all of this rhetoric isn't from the president isn't really getting the result however, in the back of my mind let's not forget, you know, donald trump is in a certain since very smart almost brilliant and maybe in the back of his mind he's going to wait a little bit and then maybe, you know, six, eight, ten months from now, okay, let's just do a deal here and the deal is we'll suspend tariffs both

sides. agree to a little bit of a fig leaf on structural reform in china and then the stock market is going to zoom up. it will rocket up and maybe help him get re-elected i have a hunch that's in the back of his mind he's playing a waiting game. but the question is how long can he wait until something else goes south >> you know, i think about this over the longer term and how corporations executives kind of react to some of this as well. the president tweeted out that he was ordering all companies to leave and that kicked up a lot of controversy but in reality, companies have been looking for ways out of china since these trade talks really began since things heated up it's not easy to do but a lot of them are moving their sourcing and diversifying their sourcing so they're not reliant on china. those are things that don't go back, even if there's a trade deal, let me get to 90% of

manufacturing in china. >> that's very, very true and in fact farmers will tell you they're losing market share and they won't get that back especially with the soybean producers and frankly some farmers are so upset that they're no longer going to support the president. it's not just the farmers but anyone who has a significant market in china, if that company has to leave to come back to the u.s. or most of them are not coming back to the u.s most are going to -- >> vietnam, india. >> vietnam or some place india. they're not coming back. it's going to be very, very hard to get those back. this is an unfortunate -- this polarization that's developing between our two countries. it will affect us in many ways and the net effect is a lower on the margin living standards than otherwise would be the case if we were robustly trading with

each other. >> as someone who has watched the relationship where the united states, obviously the trade talks are things that are going to drag out over a long period of time but how do you see our relationship with china? is this a new cold war >> it's moving in that direction. frankly, i don't mean to be partisan at all. but our president -- but whoever he or she might -- >> okay. i'm sitting here and listening -- go ahead. >> yeah. whoever he or she might be has to settle down and engage china much less publicly seriously. and figure out -- and figure out with china where's our bottom line, where's the red line and tell china privately i'm sorry, you can't go there and know that we're backing it up too and china knows we can back it up. then we'll start -- once we settle down a little bit here, stay away from the tweets and

the public denunciations we're in a better spot, we're more likely to start getting some agreement here and a better relationship so it's less of a cold war. >> ambassador, even chuck schumer at least gives the slightest credence to the notion that something could have -- maybe you don't like the tactics, maybe you think it's going too far or he's in a weakened position, but that's why i was laughing you're not going to be partisan you don't see any benefit to trying to bring china into the current world order in terms of how they treat their trading partners, in terms of intellectual property and in terms of trying to do business in that country? you don't see any benefit to trying to draw the line there and for the next 50 years you want to let china behave as it has behaved for the past 50? >> no. clearly, china is a bad actor. clearly trump's on the right path, by trying to bring china

around maybe i have said this before, but the point is his tactics are not working, these tariffs are not working. >> well, nothing else worked and the tariffs -- we don't start the tariffs. and it hasn't worked for 30 years, max i mean, where have we gotten in the last couple of years in the last decade or two? >> well -- >> that's the manufacturing sector you know, they keep their currency low i mean, there are egregious things that stealing intellectual property. what tactic has worked besides what he's trying right now maybe it was worth a try even if it doesn't work. >> well, it's very difficult to deal with china because china is a territory and not democratic and it is -- they're not transparent. and they're so large it is very, very difficult the best way frankly is to talk straight with them but also get our allies working in concert with us we have done that in the past.

when i was serving over there, a small example but china back in 2014 promulgated the banking -- which would have frankly frozen all foreign companies from providing to china we got together, the european commission, japan, south korea, we were very, very firm in saying to china don't do that. one time i have seen china back down they suspended the regulation. why? because they knew they couldn't get away with it they couldn't divide and conquer. they faced all our western countries together they backed down the way to deal with china we have to -- i don't say gang up, but i'm saying you have to work in concert together to get china to do what we want them to do. >> ambassador baucus, thank you for your time. >> you bet thank you. coming up, details an a

possible multibillion dollar legal settlement from purdue pharma one of the companies at the center of the opioid crisis. next we'll talk about a text place in your portfolio. is now the time to buy into the sector stay tuned u' wchg quk x"n cnbc

welcome back to "squawk box. tech companies from chipmakers to device giants like apple sit in the line of fire coming from the trade war. so it's probably a good idea for investors to be checking the tech sector allocations right about now. now to talk more about this we're joined by a partner and chief investment officer at albion financial group that would be a good thing to know where the most vulnerable companies -- if the tariffs do go on which is which because there are some people pointing out with rates this low it might not be a bad thing for some stocks. how do you see it bifurcating from here? >> if you have a short term lens, what's happening with the trade or china might dictate with how you approach the stocks but we take a bigger picture, longer term view these are still dominating the markets in which they operate. they have strong business

fundamentals we like to evaluate each on their own merit. they're all unique assets and we still think that they have a place in one's portfolio if you take a long term view and then you realize that this is still tech 2.0 in today's world. >> all right do you have -- can you give us some details on how we should adjust our portfolios right now, what do you think? >> well, again, if you're a long term investor you shouldn't be adjusting your portfolios. >> let's say you don't want to -- if this really gets out of hand, we're the most -- what are the most vulnerable? >> in technology or faang? >> either way. go across the board. >> i think if we see trade goes sideways they have more to lose than a google which doesn't operate in china you can go through individual names and find exposure. that's fairly easy to say what's the exposure to china, oh, trade

war is a problem i don't want toer that i don't think that's a robust analysis so we look at what's happening globally and within their markets and how the businesses are operating around pick accordingly then also like you said, valuation is important a lot of these leading technology stocks in faang aren't trading in expensive valuations and it's fairly cheap to the history and it's a secular growth story in e-commerce and cloud. that's how we evaluate this. >> jason, when i think about it, i'm a global investor, i want technology exposure. we know the answer you and i, the only place is the u.s. to get that technology exposure there seems to be dispersetion that they have to run for the faangs, there's other areas where you're able to get proper exposure but walk me through how i should be thinking about the buy back story in particular as we see cooperation -- seeing a relaxation in borrowing costs.

they're able to issue debt as apple has done over the last couple of years. alpha bet is committed to increasing the buy back. will we see an acceleration because of the fed actions over the next six to nine months which is specific to technology? >> i think that's a great point. we very much could these are cash rich companies. the bathtub is filling up quicker than the drain is going down in terms of free cash flow. they have a lot of capital as we look at the businesses that we want to own, we want management teams that are good stewards of the capital and looking at buy backs and dividends, apple is great example as you mentioned this is probably the best capital returns program on the planet coming from tim cook and company. so as shareholders we certainly celebrate that and we want to be owners there so there's a lot to like about cash return to shareholders with the large technology companies we want to be clear. we want to make sure we're seeing the companies still investing for the future we want to see them doing

strategic m&a and r&d and all of them are growing the percentage of r&d relative to sales so those are good things. to your point, interest rates are low so if you're going to take on some debt, cheap financing to buy back stock if it's attractively value and that's key, i think that's a good strategy and something that investors should look to as a component to their investment thesis. >> jason, stay the course i guess is what we're hearing. we appreciate it thank you. >> yep, you're welcome thank you. when we return, a potential resolution in the opioid crisis. we'll bring you the latest on what could be a multibillion dollar settlement for one of the major players. we'll talk about the impact on other drug companies as well. stay tuned you're watching "squawk box" on cnbc i don't know what's going on. i've done all sorts of research, read earnings reports, looked at chart patterns. i've even built my own historic trading model. and you're still not sure if you want to make the trade? exactly. sounds like a case of analysis paralysis. is there a cure? td ameritrade's trade desk. they can help gut check your strategies

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welcome back to "squawk box" on cnbc. live from the nasdaq market site in times square. let's look at some stocks to watch. autodesk reported quarterly

earnings of 65 cents a share that was below estimates however, the maker of computer aided design software cut the full year forecast pointing to trade and economic uncertainty down 12% awful. papa john's shares are adding to yesterday's gains. several have upgraded their ratings on the pizza chain stock after the company named former arby's president rob lynch as the new ceo. they have had some management changes in the past couple of years. the second ceo - >> i know. >> i don't know whether they have the meat yet. >> got the meat. >> wendy's has the beef. >> yeah. where was the beef was it arby's? they have the meats. >> they have the meat. wendy's where the beef >> got it. all right. jetblue shares are higher after they got a buy recommendation deutsche bank has a buy on the stock. the firm says the recent 15% pull back provides an tractive

entry point and they have a good balance sheet and a solid market position. a potential turning point in the fight against opioid abuse oxycontin maker purdue pharma is offering billions of dollars to settle thousands of lawsuits related to the prescription pain killer we have more on the story. >> the potential settlement would be 10 to $12 billion and it would involve purdue pharma declaring bankruptcy this was reported on yesterday by nbc news and this is an acceleration toward a global settlement for thousands of cases brought by states, cities and counties against them and others for the role in the opioid epidemic. it would see them restructured as a benefit trust and the money would go to the municipalities for the settlement and would donate $4 billion in drugs including those used to treat s addiction. the news affected the other

companies involved in the opioid litigation which were on the move after johnson & johnson lost the case in oklahoma. it is notable about this news, purdue appears to be close to reaching the settlement with multiple parties until recently it appeared that states were on their own track, separate from the cities and counties that have been consolidated in ohio and the judge has been pushing for a global settlement among all the parties. the question is whether they can come together. on the defendant's side, you have drug distributors and pharmacies and while the situation is compared to the tobacco settlement for about $250 billion analyst patrick turk owe points out that the defendants are much more dispirit so it could be hard to reach a conclusion altogether. >> yeah. purdue is privately held, but if it was a public traded company where do you think the shares would be today >> that's hard to say. look at teva and mallinckrodt, the other companies that are in the crosshairs, those were for the most part generic manufacturers so this is the

branded manufacturer who is so closely aligned with the opioid epidemic i mean, it would be -- >> to me, i would think that the shares would be up on the idea that you could reach a global settlement that wouldn't take the company apart. but it's early, it's early to see if that would be enough. this is the offer that's out there so i get you see what happens. >> that's right. it hasn't been agreed to yet some folks are saying it's not enough david maris at wells fargo said he expected it would be more given the history. not signed and sealed and delivered. here is the host of the podcast called "making a killing" and she's a cnbc contributor and she interviewed david sackler in june detailed in the "vanity fair" piece. >> thanks for having me. >> what do you think about this potential settlement deal, what it means for the family and for purdue and then the industry beyond >> i think it's a brilliant move because if purdue can be first

ones to settle and sacklers can cut any ties to the opioid business which they would not only by paying the $3 billion and contributing the $1 billion from the sale of mundipharma, it would disassociate the sackler family from the opioid crisis going forward. if they can reach this global settlement it's a way forward out from under this mountain of 2,000 lawsuits plus which could increase any day and there's no end in sight, right? i mean, this is the only smart path forward. >> it just seems like when you talk about these 2,000 potential jurisdictions going after it, it would be great if you could really do that but it still seems like we're a long way from reaching that end. >> from people i have spoken to this is not a done deal. it's a framework for a deal and many of the details remain to be hashed out many really important details remain to be hashed south it's a framework. that's it. >> when you spoke with david

sackler what was your takeaway, what do you think about the family's situation obviously the family itself is splintered to some extent. >> i think the family itself is very splintered and i expect there's some opposition in the family to this deal. there's some who believe if we can tell our story in the courts we might be able to change public opinion i think there's a real sense of righteousness within the family that the news around this has been all wrong and that if they could only get out there and tell their story they could convince the world to see it the way that they do. but there is that belief versus the legalities of the legal system i don't think the discussions of a settlement mean the family believes they have done anything wrong. i think it's just the practicalities involved in this legal morass >> you mentioned mundy, that's the collection of pharmaceutical companies overseas selling the same drugs >> right i think this is part of the way if they settle that -- sell that

entity it gets the sacklers completely out of the opioid business and cuts all the ties >> "the l.a. times" had a fantastic series of investigative work into mundipharma and pointed out it was pursuing the same strategy overseas that we had seen in the u.s. with the drugs. you kind of wonder if that's a part two going global. >> a global settlement doesn't mean going globally. >> meaning with all the different parties here and you have to wonder about the department of justice here because they're not implicated in this settlement as far as i know. >> no. this is purely a civil settlement any criminal charges would be separate from this. >> and so if the family settles or if the company settles it would probably be without admitting guilt in the other situations because that could be used against them? >> it's a civil case so there wouldn't be a admission of guilt anyway but one pivotal point that

remains to be seen is if there is this settlement all the documents that have come forward in the litigation which are now under seal never get released. nobody ever gets to know what really happened. i think from what i know it is a point in the settlement discussions whether there should be a giant document repository that everybody would go through, all right, let's excavate this let's see who knew what when and i think that idea of transparency is so critical to the resolution of this it does nothing if all -- i mean it does something but if all the documents get buried, then -- yes. >> so the sacklers think they need to tell their story and they'll come out looking good. why wouldn't they allow the documents to be not under seal >> you would think that that would be the right answer, right? lawyers have -- when lawyers get involved all this stuff gets complicated. but i really do believe in my time with david sackler i don't necessarily agree with him but i think he believes the story he tells. he believes in his family's righteousness. he doesn't think they have done

anything wrong. >> bethany, let's switch gears i want to talk about another story, tesla and elon musk solarcity the company that was brought in, he held before, he was the biggest shareholder in, that he brought in several years ago and what's happened? the title of the piece is in "vanity fair" and called he's full of blank, how elon musk fooled investors, bilked taxpayers and gambled tesla to save solarcity. >> quite a headline. >> it caught a lot of attention and he's a lightning rod he has his people who will defend him to the core and there are others who are detractors who say there's nothing there. >> someone i spoke to for this story described it as a religious war and i think that's absolutely right there's nothing that will sway believers. no facts that will change the belief and there's not much i think that would sway the skeptics at this point either. what drew my attention to the story was the -- i had

actually -- i was not aware that the buffalo factory even existed. i think that's been a hidden part of the whole tesla story and that it's gotten $750 million from the state of new york to really revitalize the economy there and thus far it has been let's use the mild word a disappointment. and the solarcity acquisition while immensely controversial at the time had been forgotten despite the unfulfilled promises to the people in the buffalo area so i thought it was a worthy excavation that maybe told a story that people should know about musk or maybe tesla believers would argue it's irrelevant. >> they have $750 million in incentives and as a result, they were supposed to employ how many people >> they were supposed to employ originally up to 5,000 people throughout the area. they were supposed to be -- almost 1,500 jobs at the factory and then jobs in the buffalo area. >> how many are there?

>> there are now i believe 6 -- around 600 jobs. >> the bigger question is do these solar cells work >> right. >> are they efficient and effective? >> right and there are some details that have come out over the acquisition. alleging that they knew even at the time that the products being produced in the buffalo plant -- that the productsing with produced by solarcity were not what they were cracked up to be. that they weren't to be -- they weren't the miracle best in class products >> that in some cases it was costing 20% more than just the average. >> it was actually costing more. and you'll recall that musk made a big deal out of the solar roof really extraordinarily ambitious game changing product when he was trying to convince shareholders, tesla shareholders to acquire solarcity and it hasn't materialized. if you believe him, this is coming, it's going to be a big ramp up at the end of 2019 we haven't seen it yet.

>> i guess at the time it helped musk because it prevented a company that he was so closely associated and involved with from being a disaster and hurting him pr wise. but is this something that could really hurt tesla longer term? >> that was the catch 22 at the time or at least a perspective on the catch 22. if solarcity would have gone bankrupt, it would have departmented his reputation as a visionary and might have increased the capital that increased the cost of capital for his other enterprises. there are several ways it can help tesla going forward, one is the outstanding lawsuit. one -- another is the penalties they might have to pay in buffalo if they don't meet the employment targets and a third is the solarcity debt and what happens with that. >> $3 million. >> and the narrative is so beautiful. i mean, the roofs were so nice. >> they looked really pretty in the picture. >> really pretty and andrew loved that thing

then the sun goes right into your car so, right? they have you never pay another dime, you have your electric car, the sun coming in take it at face value it's not tough -- that's better than mars. >> incredibly competitive narrative. >> i would hope there's something to the narrative, right? >> i think there's something to the narrative. whether how it's laid out -- >> you don't need coal to power the power plant for the grid for the tesla. >> it saves the planet to boot. >> right just like -- if you got beyond meat, you know, if you having that delivered by someone on a bicycle -- >> it's nice to see corporate governance at tesla. >> and your email and twitter account is for the musketeers that are watching right now. >> oh, man. >> i made a full screen for it is it okay if i show it? >> no. i'm just going to laugh and keep

my mouth shut. >> bethany, thank you. >> thank you. coming up the u.s./china trade war and we'll run down three companies that's upsetting the markets worldwide and try to reach conclusions could be for the world's biggest economy. it's bethany --

the etf industry has boomed with dizzying array of options this is solve it from jpmorgan asset management i'm here at the nasdaq market site here in times square with the head of the u.s. etf distribution at jpmorgan asset management all right, gillian, there are more than 5,000 etf products for investors. how can they possibly need more? >> if you're looking at the etfs in markets to date over three-quarters in 90% of the assets sit in market cap weighted strategies. if you take it to fixed income 99% of the assets in fixed income etfs sit in passive strategies so there's room to provide choice. >> how much do investors really understand what they own >> the core passive exposure that most investors utilize for the fixed income portfolio has fundamentally changed. the corporate component of that index has ballooned to 25% over

the last 20 years to a 35 year high being led by the lowest quality issuers. so issuers selection has become more important than ever so we believe that taking a look at those corporate issuers through the lens of value, quality and momentum can potentially lead to a better outcome for investors when markets turn down. >> great insights, gillian, thank you. to get more from the experts search for jpmorgan solve it online welcome back, everybody.

we have been watching the futures this morning a and while we started off on the flat line we have seen the futures move lower. at one point we were down about 100 points or actually over that, 120. right now the dow futures are indicated down by about 75 points and s&p is off by everyb watch the bond market, and some of the lower yield prices that we have seen this morning. motivating things here. >> u.s. china trade war is taking a toll already on some companies' bottom lines. on the other hand, some businesses found ways to weather the storm. right now, we'll talk about three retail stocks with varying levels of exposure to the ongoing trade conflict and get opinions from a couple different voices joining us for that is jan niffin, not a wrestler and cnbc contributor, but could be. and dana tulsi, tulsi advisory group.

>> usually dressed so well but really has some mickey mouse cuff links on today that look -- >> literally. >> they are mickey mouse let's talk about tiffany, which beat on the bottom line early this morning tiffany missed comp store estimates. we are finding out that sometimes chinese tourists come he here given the decline you had in the second quarter, couldn't have gotten much better we're hearing this for all luxury goods companies that essentially the weakness in foreign tourism is impacting their businesses got to be made up by the local and the locals are a little soft too at tiffany's will be the new product in the back half of the year that's got to work to deliver the numbers. >> i never disagree with dana. what i say about tiffany's

quarter, it was terrible top line was terrible. gross margin was terrible. they made it all up on expenses that are going to come back in the back half of the year. the only reason the stock is not off because expectations were that it might be a real disaster >> the stock is off because now the -- >> street is recognizing exactly what you saw >> this is like good cop, bad cop. dana would never say that. >> always ways to phrase things. >> this is fun >> you can take this on the road. >> think about the fourth quarter, about the fourth quarter when tiffany makes all the money. the first three quarters lead up to the first quarter. >> wasn't as bad as jan said or you think it was -- >> wasn't great at all second quarter for all of retail, the theme of 2019 is margin of flow through and not having the margin flow through >> costco.

>> did you see the lines there they had to close early because of the traffic it helps that since 2014, kirkland's, private label product, was sold on t-mall, that helped. but the traffic was huge and more opportunity for costco to open more stores in china. >> afraid to go to you. >> costco is the best retailer in the world japan opened fabulously. china opened better. you have to shut your store because so many people hawant t shop there i thought it was fabulous. they perfected club ware housing like walmart perfected price amazon perfected convenience and costco perfected the club. they're the best retailers in the world at what they do. >> the chinese export deflation, we export costco. >> exactly and think about it this way, at least we're seeing now, tiffany had good numbers out of china.

costco has this great opening. >> exactly maybe the gap is not as wide as what we think it is. >> i expected tough numbers out of china because we have been seeing reports to say their name is not resonating as well as in the past this doesn't make that look like that's true. >> exactly. >> this was a good number out of china. the rest of the numbers that were a problem. >> you think about costco, they love bargains and value. what does costco deliver, bargains and value. >> best buy. we can look ahead. >> i don't think we'll see much new this quarter can feel some pain going forward out of china tariffs because electronics matters and it is a very competitive business and they're the last man standing outside of amazon. i'm a best buy fan i still would be really nervous about becoming quarters as the tariffs kick in until we see

where they're going to be. >> tranche three is only around 7% of the cost to goods sold it goes up as you get to tranche four some of the service initiatives they put in place have worked for them they have been a destination stocks come down since its peak after they reported the first quarter. so every retail stock, they're down 20 and 25% from their peaks. >> that's what i was trying to say. she says it better >> she does. for years, i don't know if i've ever caught you in an um. >> don't believe in the ums. doesn't work. >> you just said one. >> i know. i said i don't believe -- >> you did >> she had to work at saying the um. >> she did drag it out of her >> thank you >> thank you when we return, we'll get you caught up on all of this morning's market action and get you prepped for the opening bell, which is just about 35 minutes away also today on power lunch, don't miss a live interview with nba legend shaquille o'neal.

he'll talk basketball, working the gig economy and much more. stay tuned "squawk box" will be right back. kevin, meet your father. kevin kevin kevin kevin kevin kevin kevin kevin kevin kevin trusted advice for life. kevin, how's your mom? life well planned. see what a raymond james financial advisor can do for you. when i lost my sight, my biggest fear was losing my independence.

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guest host is joe terranova, a cnbc contributor wear down triple digits, now down 70. yields started dropping again. it is counterintuitive that yields go up and the market actually gets some strength. >> you lose the sense -- i think we're beginning to lose the sensitivity. i think that's favorable for equities >> okay. not going to go down every time yields fall. >> the currency was above -- above the 7 mark, you lose sensitivity over time. >> even when it is a recession indicator, doesn't mean it is tomorrow it usually means 20, 22 months down the road. >> i don't think we want things going below a percentage point >> look at high yield, investment grade spreads, half of what they were in 16, look at

oil, relief to the consumer. about the dollar you get the cuts from the fed. now tell me about what we're going to do about the higher dollar. >> all right thank you, joe terranova nobody gets to do three hours. >> i appreciate that >> got to be -- >> got to go back to scott. >> return to scott now. >> great to have you here. we'll see you back here tomorrow time for "squawk on the street." ♪ >> good morning and welcome to "squawk on the street. i'm david faber with sara eisen and mike santoli, live from the new york stock exchange. jim and carl have the morning off. futures, we start trading half hour from now. here at the new york stock exchange we are set up for what appears to be a lower open for the major averages road map this morning does start with, well, fueling fears of nearing recession. stocks as you saw it, set to open a bit lower this after key