make sure you join us tomorrow thank you for being here >> you're welcome. >> thanks to us. have a great weekend, everybody. >> "squawk on the street" is next ♪ good morning welcome to "squawk on the street." i'm david faber with sarah eisen and mike santoli we're live from the new york stock exchange jim and carl have the morning off. let's give you a look at futures for this thursday as we head into that labor day weekend. you can see we are set up for a far higher open, at least at this point investor sentiment, well, it may be getting a boost from indications that china will hold off on immediate retaliation for those planned u.s. tariff hikes that of course are going higher

in part because the chinese did respond to our last hike in tariffs. a spokesman for china's ministry of commerce quoted as saying that escalations of a trade war won't benefit anyone two sides still planning to meet in september of course, much of this rhetoric or communication is what we've been seeing for some time. i don't think any of it necessarily means the chinese are not still in a stance that sort of has them backing off from full engagement that somehow would lead to a deal in the near term. >> i think it was a surprise olive branch, maybe, taken as good news by the markets that things weren't going to escalate even further at the moment but you're right, in terms of a de-escalation, there's not much evidence september 1st, this weekend, we're set to have a new round of tariffs go into effect on products coming from china into this country smart watches, bluetooth headphones, flat panel tvs, some footwear

december includes cell phones, laptops, clothes, and toys the retailers that reported today made it clear that was starting to factor into their guidance >> without a doubt i thought that was the most interesting part of reading these press releases from whether it be dollar general or best buy or a few others some actually taking a paragraph, calling it tariffs and the impact i think it was dollar general specifically that went there no, it was dollar tree >> ab rercrombie lowered on it. >> pretty clear and present in the retail industry. the pop timed exactly to when we got that news. so it's a little bit of a signal there's a process. it's not this sort of spiral of hostility on either side i think the setting for it, though, is that the market has been very worried about a variety of things. it's gotten very defensive and clenched up, even though the market has been in this trading range for august i think if you look at the sentiment surveys, if you look

at positioning, if you look at how much downside protection people have bought, if you look at the crescendo of panic over the yield curve, i think it shows you the market was just sort of a little too defensive in the short term. take a little trade optimism, even if it's just a reiteration, and it's an excuse to get a 1% pop in the futures >> let's assume we get -- we're not going to -- in the near term, the expectation for an actual deal between china and the u.s. has got to be extraordinarily small. >> but it's just a don't get too negative too soon type of reaction >> let's assume for the remainder of the year it's quiet. no real progress per se, just kwie elt what do we get back to foe us can -- focusing on? other than looking at earnings reports that have tariff updates. >> if we remain in a 2% economy, the revision of second quarter gdp at 2% this morning, then it seems to me it's like, well, look, dividend yields look good right here let's see if the treasury market can relax a little and have yields go higher then the buyback machine kind of gets turned back on. it just becomes the same old

story. we'll see if it's cyclical stocks that can recover from their kind of losses or it's big tech that just sort of kind of steals all the oxygen. >> hard to read too much into the trading action of today and yesterday. we're talking about month end sort of funky things happening, like pension fund rebalancing, which shows strong o outperformance of bonds over stocks so far this week, though, every sector is higher if you look at some of the beneficiaries, it's groups like energies and financials that have been totally beaten down for the month of august. the question is, is this sort of a new calm, as david said, or is this just sort of profit taking, rebalancing at the end of the month? >> it's getting fixed because again, it's more of a familiar outlook. it's not like an urgent panic that things have gotten suddenly worse. >> i would say within that gdp report, one very good surprise is that consumer spending continues to boom. in the second quarter, yes, it's backward looking, but 4.7% was

even better than the originally reported 4.3% pace of consumer spending the other sort of good surprise in that report was the corporate profit rebound, what we saw from the first quarter. though, business investing was a subtraction from gdp that's something we know the fed is worried about we're monitoring it closely. so the profits are coming back, but the confidence not so much because business investment actually down 0.6% for more on the market, the economy, and the outlook, let's bring in credit suisse economist. jonathan, how are you feeling as we wrap up what was a difficult month for the bulls? i believe you were pretty cautious heading into it >> right, and i've been bullish for the last five, six years i've been more cautious recently i think there's a couple things said here that are key first is if we think that this

trade thing is over with a couple of comments, it's not the market may rally 1%, but we have to assume this is going to be a very prolonged issue. the second issue is one mike brought up this is really all about economic growth. until you see the pmis and the ism and cyclical data improving, they don't have to improve dramatically, but they have to stop decelerating, it's really hard for stocks to do well and then there's this belief that lower interest rates are a good thing if the last month has taught us anything, it's rapidly declining interest rates are not a good thing for markets. >> but didn't the last ten years teach us that they are >> i don't think so. if you look at, you know, on days where interest rates fall, stocks tend to go down that's been really consistent. >> john, how are you viewing what the month has given you as an investor, as an asset al cay

to be? obviously yields, they have two signals. one is it says something about economic growth, expectation, and inflation and fed policy on the other hand, that's the hurdle rate for borrowing and investing. how does that fit into your process? >> matt. >> matt, i'm sorry i thought it was john. >> oh, yeah, in terms of our process, this looks like a regime that's been playing out it's a trade war regime that you have to be accustomed to slower growth, slower inflation, the consumer doing all the heavy lifting as it relates to the economy. positioning is key if you look at this regime really since -- we have 20 months now of trade war data to scrub, to look at a playbook for a multiasset, cross-asset portfolio. if you look at that, it's defensive equities it's u.s. quality stocks it's the dollar, tech stocks these are all things we're leaning into at john hancock investment management. we think that does have legs into the end of the cycle. >> matt, i'll take the opposite

side of some of that argument. this is jonathan we've seen, for now, a full ten-year cycle, weaker economic activity the underlying business investment has really been weak, you know, now since 2009, 2010 you got a little bit of a pickup right out of the gate with some tax incentives from the president. then they rolled over, but i think this is a bigger growth issue. by focusing only on a china trade dispute, i think underplaying the longer term trend here >> matt? >> yeah, you could break down the current administration into two different periods. there was the tax cut period in 2017 2017 yes, you saw global growth acceleration china was doing stimulus at that time as well really, since the beginning of 2018, as we all remember the washes machines and solar panel, the startsiing of tariffs there

has been a hindrance to growth is it all of the picture no, it is not. but it is something that we're starting in the history books, we're going to look back at this period and see that a trade war regime is going to have certain characteristics, certain commonalities. and we think we're well positioned to navigate these choppy days like we're seeing today. we think that's a good way to do it quality stocks in the u.s. and dollar denominated >> but you seem to think, jonathan, this trade war regime that matt just mentioned is going to go on for a long time >> i do. first of all, i'm on the same page on how i play this. i think this defensive positioning is warranted, but i think that we need to start with the assumption that growth is going to be slow for demographic reasons for a longer issue when we had china not letting us access their market or they were subsidizing industries or abusing intellectual property, we didn't seem to be

uncomfortable that as market participants, as long as we weren't overtly arguing. now we're trying to -- the president is trying to right the ship by the way, it's probably the one thing where there's real bipartisan support for this type of activity. we just don't like the bickering over it. but there's no way that we're going to get this in a better place without having to get it uncomfortable for a period of time, and we're in that period right now. >> you can see the president, another day, another tweet, more or less focused on the fed and chairman powell. although, not named here just wanting them to ease. you think we're going to get more easing, right >> i think the market is forcing the fed to ease. not because we need it for growth but because the yield curve is just way too inverted at the short end there's no way that the fed is going to allow that to stand >> when we talk about, matt, defensive allocations right now, what do you have in mind are you talking about within the equity market? i noticed today that high-grade corporate bond returns for august, 3.3%, best august since

1982 those blue chip bonds. so where are you recommending investors allocate >> we do actually have an overweight to invest corporate bonds. the best we have right now is infrastructure related equities. what we're seeing globally is that central banks have done as much as they can the ecb doing more quantitative easing really, what benefit is that going to bring governments are going to have to start stepping to the plate and doing fiscal stimulus. the best way to do that often is infrastructure we believe that's an under owned asset class, undercovered. it provides good, steady cash flows with growth potential. we like that in your equity part of the portfolio we think that could provide defense with a kind of barbell of technology in quality stocks for global equities. >> what do you mean, stocks like k caterpillar? >> that would be more on the industrial side. think more utilities, utility

companies around the world so dividends, defensive cash flow, things people need verse what they want they need to get on their cell phone. they need an antenna to get that data those kind of businesses are really what we think are defensive and secular growth themes in the next couple years. >> american tower maybe. guys, thank you. >> thank you >> matt and jonathan all right. when we come back, market reaction to retail earnings. we're going to go through a bunch of them. best buy, dollar general, dollar tree, williams sonoma. where tariffs also fit into the picture, since they did figure prominently in some of the conversations. also ceo of columbia sportswear. he's been very outspoken about tariffs, the impact that will have on the economy. another look at futures. we're going to open in a little less than 18 minutes we are going to be higher. for farmers here, this is our life's work. but when a recall happens, perfectly good food goes to waste.

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♪ a busy morning on the retail earnings front best buy shares falling premarket. quarterly profits did beat estimates, but revenues and same-store sales missed forecasts. they also lowered guidance and comps for the full year. but different story for dollar general and dollar tree, each rising on better than expected earns, revenues, and comp store

sales. david's read every retail press release this morning >> i read those three very carefully. wasn't much else to do this morning. not like there's a lot of people around to talk to. i mean, best buy looks fine, except they did lower the top end of their enterprise revenue for the fiscal year '20 by 300 million. they also lowered comparable sales growth from a high of 2.5 to a high of 1.7%. interestingly, their nongap diluted eps range, 5.60 to 5.75, is higher than their previous range, but it appears that's because of a benefit in their tax rate, which is coming down to roughly 24% from 24.5 so investors seem focused on the slightly lowered guidance for overall comp sales and earnings in terms of the top end of the range. the dollar stores both very strong dollar general did note profit

rate increase was attributable to reduction in markdowns but partially offset by higher strength increased distribution costs and greater proportion of sales coming from consumables. interestingly, dollar tree, which also is going to be up rather nicely, they're at 28.7% gross profit margins so less than dollar general's. they cite higher freight costs, markdowns, and also stealing as well >> i'm trying to go through some of the guidance numbers. i think the cherry on top for dollar general is they raised guidance for 2019, which also includes now the impact of the higher tariffs on certain products imported from china usually we see lower guidance on that as far as best buy guidance, the sort of narrowing to lower numbers that they provided, it looks like the analysts are saying even though executives on the conference call are playing down the tariffs, it does reflect the impact of the new tariff announcement because, remember, best buy is impacted by list three going to 30% if,

indeed, that happens and they're impacted by list four going to 15% on a lot of the electronics. it also, they sary, reflects uncertainty about the back half buying behavior, frankly not knowing how consumers are going to respond if price increases get passed on. >> dollar general, the fact it's been a strong stock already, up 30% this year, it looks like it's going to tack on to that. if you think about what's working in retail, scale, domestic, every day spending, not so much big ticket obviously a very direct take on wage growth throughout the middle of the country. >> and not apparel they said everything went up except for apparel basically >> both dollar general and dollar tree have their calls -- they began at 9:00 a.m if we get anything more, we'll let you know, particularly in terms of tariffs i should point out dollar tree also saying they're going to try to mitigate almost all of the effects of those various tariffs. so they've negotiated price

concessions, canceled orders, modified specifications, and diversified venn dor diversified vendors, all in hopes of not passing that on so we'll follow those. before the opening bell, we'll get art's take on the market as well back after this. how do you gauge the greatness of an suv? is it to carry cargo... or to carry on a legacy? its show of strength... or its sign of intelligence?

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on trade, stocks close higher. if you want to get that message to the oval office, that will be helpful. on obviously the comments out of china dispel the concerns everybody was arguing about, whether chinese phone calls or not. now we've gotten an overture >> i don't know that i call it an overture. it just appears that they're not going to respond with retaliation. >> but they did say -- >> and it's the same language they've been using and the same language used last week by the vice premier when he said we don't want an escalation the market seems to be taking it as a positive. i'm not quite sure it's a real change >> well, i think the market is seeing it as an overture to resume talks you're right, much of the language is the same, but the very thought that we were not nose to nose and gun to gun has given the market a little bit of relaxation it doesn't take much i don't think you need extra you just need no negative news, and the market responds.

you saw it in the rally yesterday that they went after all the things that had been beaten down very badly the russell was a big performer. so the market knows it's a little bit oversold on this stuff. if we don't go back into the tariff and trade war situation >> yields are up >> i was going to say, we've been talking about how the market is actually kind of absorbed a lot this month in terms of the concerns about a recession and what bond market yields have done without necessarily falling apart. where does that leave us we're kind of maybe going to get up toward the top end of this august range today >> yeah, i think that would probably be the reaction that you see here if they can hold these overnight gains -- actually, they started about 3:00 this morning. if we can hold those gain, i think you'll be in relatively good shape the inverted yield curve is slightly suspect because this time it's for a separate reason.

usually before a recession, the fed has been tightening rates so that the short end moves up above intermediate to the longer end. in this case, the longer end moved down to go under the fed that's why you have a lot of people calling for a 50 basis point cut just to deal with the yield curve. not to deal with anything else >> right we've had a lot of people make that point, art. thank you. >> my pleasure >> always appreciate it. art cashin joining us. opening bell about six minutes away stay with us a lomo "uat resqwk on the street" coming up.

you're watching cnbc, "squawk on the street. we're live from the financial capital of the world we're going to open trading in about three minutes from now certainly one focus has been retail we went through a number of the earnings we'll revisit them momentarily we'll see how some of the stocks open this morning. anything else that you're keeping an eye on? >> the market is up 1.4%, the s&p, so far this week. this is a bounceback week. we're coming off four week he declines the news today is china says it doesn't plan to retaliate or escalate the trade war with more tariffs, helping the market sort of get to the optimistic case that the talks are going to go

on in september. remember, we were expecting high level talks between washington and beijing earlier in september. as long as there's talks, the market can retain some sort of optimism despite the fact tariffs are set to go into effect on products that have not been taxed before. we're talking everything from cell phones to apparel, starting september, culminating in december and yes, retailers giving a mixed view on how that's going to impact consumer spending, their margins, and their sales in the back half of the year overall, it's a glass half full approach jobless claims came up a little bit today, but still, very low a lot of people see that as a leading indicator that says we're not going into recession if we were going into recession, we'd see more layoffs. we'd see corporate confidence declining. we got another affirmation that gdp is growing in the 2% range so we're kind of in this zone of thinking maybe not the worst by the way, we're getting higher bond yields today. that's a plus. >> it changes the story a little from the bond market is urgently

telling us that a downturn is on the way. the rest of the evidence doesn't really say so. just for a look at how tightly we've been trading in this range, we haven't charted the s&p month to date. this moved today preopen, almost 1% we get us toward the upper end of it, basically back to where we traded last thursday. but that's your range, 2930 on the upper end, 2820 on the lower end. that arrow on the right is basically the preopening pop in the futures this morning so that really shows you it's been this very obedient market for all the news thrown at it. on the one side, you have a lot of the retail and energy and financial stocks that have really gotten pressured. meanwhile, the yield plays have supported this market and the idea that dividends -- >> it doesn't feel like this it doesn't feel like we've been going nowhere. it feels painful for a lot of people >> mostly just kind of biding time >> okay. well, here you hear the applause building as we get ready to start trading.

you just heard from sara and mike what we may expect today. realtime exchange, going to be a lot more green on that board here at the big board -- [ bell ringing ] >> we kept an eye on retail this morning. moving on to some other areas. so this is an interesting note from the ubs evidence lab. we always laugh about that, on disney >> why what's evidence lab? >> they have a little stamp on their things, evidence lab we love them but they did do a survey i have absolutely no idea to the statistical validity of said survey but it's interesting because it's focused on an area that we're certainly focused on, which is what will be the success rate of disney's direct

consumer offering, disney plus, and what conceivably will it mean for the other entrants in the field. netflix, of course, chief amongst them others as well, such as amazon not to mention entrants that have not yet made their way in, such as hbo max. they surveyed 1,000 people 79% of them said they'd heard of disney plus. 63% either were very or somewhat aware. 43% of respondents said they were likely to subscribe to disney plus. the point ubs is making this morning from their potentially insignificant survey, no idea, is nonetheless that it's above what disney had targeted over the next few years as what they thought the available number of consumers in the -- or households in the u.s. was disney had been looking for 20 to 30 million u.s. sales by 2024 if they get above that at 43%,

obviously you'd have a lot more subscribers. >> i also like this one. overall, the ubs evidence lab found that the majority, 67% of respondents, noted they would add disney plus without eliminating any of their other current video services because that's always a question for netflix and some of the other streamers. >> yes, however, of those likely to subscribe, sara, 57% noted that they would cancel at least one other service, either pay tv, 33%, or a streaming service at 33% you have to wonder whether netflix is worried or not. >> the stock has struggled it's down more than 20%. >> worst f.a.n.g. in august. >> i don't think it's the market saying this is a zero-sum game we're going to credit disney with basically taking a piece of netflix. i think the issue is for years, netflix has been the only way to play internet tv it got a market cap that was based on so much excite inspect this area, so much growth, so much development and really, the only pure play was netflix. now disney is a viable option as

a number two, adding market cap to disney. i don't know that the market is saying, well, they're going to lose a lot of subs dmomesticall for netflix. there are just more players. >> well, netflix's growth rate in the united states is not particularly strong. you do have to wonder whether, in fact, it is going to mitigat to a certain extent their expectations they've got to be thinking about this i know they are in terms of what it's going to mean and what they might want to do, if there's anything to do, to have a better hold on their future >> when netflix is trading at $400, what's the membership base you needed to assume they were going to get to to justify that valuation? it's a lot higher than where they are right now if disney slows thepath to whatever number you think makes sense, if it's 400 million, i don't know what the number is, that's an issue for the stock in the short term >> then you can get to some of the other entrants, including our own parent company, comcast.

time warner's entrant, which people are wondering if it's going to have great traction in the market they're calling that hbo max, pricing it above an hbo streaming subscription at this point. that's going to include tbs and tnt. we'll be following these streaming wars closely but thanks to the ubs evidence lab, we got a market rally here. >> it's pretty broad everybody is up. netflix, disney, every member of the communications services group, technology, trade sensitive stocks like the semis are actually leading this entire market and we've got a dow up 302 how about the retail names, being warmly received despite some mixed numbers, mixed guidance let's look at dollar general that's the biggest winner. that's up 7.5% that was on a best in comp show, right, in terms of retail, up 4% and continuing a string of actually beating comp estimates nine quarters in a row for dollar general

>> net sales up 8.4% you're talking $7 billion for the quarter. and gross profit, 30.8%. not a bad business you know, the conference call is under way. we'll see if there's anything to add in terms of their view of tariffs and what that's going to mean they did buy $185 million worth of common stock during the last quarter. that's about 1.4 million shares as well. best buy is getting hit though down almost 8% on that again, reduction on the top line of their sales guidance and comp sales store guidance >> williams sonoma also down we saw that report after the close yesterday. >> that was a good one >> it seemed to check all the boxes that they had a decent quarter, comps better than expected, guidance was okay too. it has held up somewhat better than the group, but there's a little bit of skepticism that they can continue this >> it's also the margin story. went into the results a little deeper and the forecast, and that's where they're feeling the impact of the tariffs. they, too, have been trying to shift production outside of

china in terms of the home goods stores but they're exposed. you see it in the margins. as far as the comps, though, tremendous out of west elm up 17.5%, which is usually the bright spot. but that's actually better than it's been. and importantly, pottery barn has turned around, up 4.2% >> it's mostly china most of that stuff comes from china. >> supply you mean >> yeah. >> a lot of it is. they've been shifting like everybody else a lot of these retailers, they say -- a lot of them don't break out the exact exposure in china, but you can read into it, gross margins. a lot of the analysts talking about it i don't know exactly the williams sonoma numbers, but yoe s -- you see numbers like 20%, 25%, which is still meaningful >> very much so. abercrombie & fitch, only a billion-dollar market cap, but it's going down. down about 11% they didn't really have a lot to say in terms of giving a specific impact from china tariffs. obviously apparel and footwear,

as you pointed out, many times are going to be part of what we get either in september or december 15th. they say the impact is based on the starting rate of 15% for list four. they're talking about not -- well, not giving us too much that stock overall done. comparable sales are flat. they had been looking for as much as 3% >> that's one that makes you wonder how much retailers can use the tariffs as an excuse yes, they're going to raise costs. they're going to hurt margins. they're going to have to pass on to consumer, whatever they do. but abercrombie has been, to your point on comps, not the fastest grower kind of caught in this nether region of trying to turn around sales. how about that report of a bankruptcy from forever 21 on the same day where rihanna manages to raise more money for her lingerie brand it tells you where the money and where the consumer is going in

terms of retail right now. celebrity works. reese witherspoon has managed to raise a lot of venture capital for her clothing line. goop and gwyneth paltrow, not just clothing, but it's an interesting juxtaposition here >> right, as opposed to forever 21, which is kind of, you know, low-priced, fairly generic -- not generic, but they're just trying to stay on trend, but it's not really branding, not really attached to celebrity or personality often. >> yeah, and at one point, it was growing like crazy, a few years ago. fast fashion was threatening all the specialty brands in the bloomberg article on this, they took an interesting angle, which is could be very painful for the brookfield asset managements and the other sort of big real estate mall owners because forever 21s are huge footprints they had been really big tenants, growing like crazy over the last few years >> yeah. >> if they have to shut stores >> one name that if jim cramer was here he'd be shouting about, burlington stores. i don't know if you have seen

that stock up sharply on better than expected earnings per share as well as comp store sales they're crushing it. >> when other retailers complain about weather, they say weather was bad, which is good for us. that's not the whole story here. >> no, there's a lot more there. >> i thought you were going to say pvh, which is actually having a pretty good day on wall street, even though they were one of the companies that warned on tariffs and cut guidance as a result i think the sales numbers for the quarter were stronger than expected europe has been a bright spot for this company tommy hilfiger europe was the highlight of the quarter trends in north america, which is a little more than half of sales for pvh, a little light, and greater china were a little light. overall, it's been an underperformer, like so many of these specialty retailers, the ralph laurens of the world so now it's getting a big boost on some positives that are inside this report >> just going to mention banks are lifting again. they're outperforming this morning. they had a little bit of relief

yesterday. obviously yields are just a little bit higher. we're not really talking about a big move in terms of treasuries, but at least they're not making new lows in terms of yield that's helping at least at the outset you have the big banks group up 1.3% as a category >> some of the proxies for the china trade war in terms of negative or positive are having better -- or outpacing the s&p apple is up 1.6% ah will baa b alibaba, which we always focus on, is up 2.8% tech has a pretty good bit to it as we watch the s&p up over 1% >> dow transports had a really good day yesterday having another good day today, up 1.6%. some people saw that as warning signal in the month of august because they had underperformed in t the russell with a decent day. looks like it's having another strong one back to the original question,

which is how much is reversing the month-end trends today >> and the sense that at least in the short term, this idea that we're surely headed for a sharp global downturn in the economy, maybe we've overanticipated that maybe it's still the economy we knew we had. if that's the case, if it's just a scare, not a real slide into recession, then something like a fedex down tremendously in a few months and near two-year lows or three-year lows is going to get a bounce within the transports, up 1.7% today. >> intel, the biggest winner right now on the dow down about 8% still for the month. >> man, burlington stores has almost a $14 billion market cap. all right. bob, other than that, i know you got a lot of other things you want to get to >> so what's the trade talk worth? well, about 20 points on the s&p 500. 3:00 a.m., nobody's here too much noise people want to go to bed remember the rolling stones

song 20 points. of course, that's where we had the comments out of china. a lot of cynicism, although there's new new here wait a minute. i thought there was something new. nothing about any retaliation. that's kind of news. there appears to be talks going on about face-to-face meetings in september that's kind of news. don't be too cynical about this. in terms of sectors, same thing happened yesterday all this stuff that had a tough time in the month were up. and all the stuff that was defensive was flat to down this is again happening today. semis, transports, banks lousy month. all rallying going into the close of the month so we're sort of flipping around here this is great. remember that old rotation story? a lot of people were afraid that was going to go away it's been coming back in the last couple days retail, i want to note an awful lot of people raised guidance for the full year. dollar general, burlington, five

below, williams-sonoma down a little bit here, best buy down a little bit they raised their numbers here, but their revenues and comps were a littlebelow forecast. and generally, they haven't had as bad a month as some of the apparel makers apparel had a horrible time and horrible year overall. so a lot of discussion on recessions yesterday, when will it come. my issue is what does it mean for the stock market overall in a typical kind of garden variety, quote/unquote, recession, you'll see earnings in the s&p drop about 20%. you'll typically see the s&p 500 drop 20% to 30%. again, this is all over the place, but this is not unusual 2008 was like a three sigma event. that was really unusual. we saw 50% drop in the s&p 500 and a bigger drop in the earnings again, that's a real outlier this is very typical for a kind of recession and the debate now is, so are we going into one, and are we experiencing now peak earnings per share? so remember we talked about for the last four or five months earnings are essentially flattish for 2019. that's still the case.

there are some sectors coming down overall the bad news is the confidence in the estimates are not very high at the top of the hour, i'll show you numbers for specific sectors and where the confidence levels are very, very low. that's why there's so much uncertainty in the market right now. we're very concerned about the direction of tariffs, but we're also concerned about europe and the asia economy, independentliindependently of trade and tariffs is cutting rates always the right answer there's a big debate finally, just a note before we go back to you, if you're concerned about recessions, you want to watch the vix here this was 40 in december. there was concerns that we were going to have a recession in late 2019 that never materialized that's why we went down. look here. 24 in may when everybody started getting concerned about the tariffs. and we're back up here in the mid-20 levels in the early part of august. not anything close to the real true recession concerns we had back in december david, back to you

>> yeah, i can vaguely remember all that, bob. thank you. let's head to the bond pits now, check in with rick santelli at the cme group in chicago rick >> good morning, david you know, the two-year note yield is up a couple basis points ten year is up one basis point 30z a 30st a are holding really underscores how we're just kind of surfing along the bottom of cycle lows, but it does seem to be firming. remember, with the big rebalancing, just consider the huge yield drops for the month of august. conventional wisdom goes, remember, when you buy treasury yields, buy treasury yields go down so the thinking is there's going to be rebalancing semiing treasuries, moving into stocks seems pretty apparent yesterday that that is going on. but maybe the counterfactualists, if this

pushes up treasuries, it's not making a whole lot of progress, even though it may be coming in. we'll monitor that closely look at a two-day of bunds they continue to extend their historic loss. minus 73 came close to a new yield close yesterday for the entire run of bunds. we want to monitor that. of course, the appropriate response of a weaker currency, the euro verse the greenback, as you see on this chart, going back to may 17 so a 28-month low. i base everything on a close finally, let's look at the inverse of that, the opposite, the dollar index that chart starts on the second week of july july 31st, they made their high going back to may, just like the comp for the euro. maybe the real story is how close we always have been over the last several weeks, even with all the market volatility sara, back to you. >> all right, rick thank you. just bringing you a headline here president trump is speaking on fox news radio

he was asked about whether trade talks are going on with china. he says that there are talks scheduled today at a different level. that is the direct quote, whiching very well mean to say that talks have been going on all the time between the u.s. and chinese delegation at lower levels we'll wait to see whether the high level talks that were scheduled for schedule, as soon as possibly next week, actually happen but it feeds into the positive narrative in the market that the talks are ongoing and for now there's a pause in the escalation between the u.s. and china. dow up 282 points. we are staying on top of this morning's rally for you. pretty broad base. we have every sector in the s&p higher we have more than 1% gains across the board for the nasdaq today, 1.5%, led by trade sensitive stocks like semiconductors and technology. more "squawk on the street" straight ahead delivering alpha, the most important investor summit nine years running.

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it's a sea of green. you see it there see it everywhere. back after this.

the fei hraided the home of president gary jones this part of a probe regarding alleged corruption in the u.s. auto industry phil lebeau with the latest on the story. >> good morning. and the video from yesterday shows that this is an investigation that while it's been going on three and a half, four years, it is starting to widen out to involve more uaw officials. some of the fbi officers leading there. this is gary jones, the president of the uaw the question becomes what does this investigation, as it expands, what impact will it

have on the uaw contract talks those talks are centering around three main issues. it basically comes down to this. the time needed to reach full pay for new hires, the uaw would like to shorten that how many temporary workers, the automakers hire. they would like that lowered or reduced. and what are the health care costs? the automakers want the uaw members to pay more. the uaw members say we think we should stay about right where we a are. the negotiation is really what people are focused on. these stocks haven't done anything over the last four years. that's the timeframe for the current uaw contract, guys coming into september 15th, the focus will be on, a, if the saber rattling and tough stance we have seen from the uaw, does that continue, or does this probe by the fbi, this corruption investigation with

uaw leadership, does that start to weigh on members a little bit? so this is the dynamic we will be focused on leading up to the september 15th end of the current contract >> phil, thank you interesting story there. coming up, we will have more reaction of course to this strong rally that we have got going in the first 25 minutes of trading. keep it here

uber u ♪ ♪ good thursday morning. welcome back to "squawk on the street." i'm sara eisen here with david faber and mike santelli live from post 9 at the new york stock exchange carl quintanilla has the week off. let's look at the markets. opening sharply higher the s&p 500 up 1.2%. the statistically relative dow up 300 points. most stocks are higher the nasdaq the highest among the three, up 1.5% europe is rallying and treasurys are actually selling off with yields higher the dollar remains near a nine-month high. >> let's get to the roadmap this morning. it starts with of course stocks rallying on optimism about trade. we are a few days away from those new round of tariffs

hitting on september 1st how should investors be preparing? >> plus, quote, don't tank the economy. the ceo of columbia sportswear warns about the looming china tariffs. and later former u.s. treasury secretary larry somers with his latest thoughts on the vltility, the fed and more this new op-ed dividing the economics community written by former new york fed president bill dudley. economic data. >> july pending home sales down 2.5% month to month and down 0.3% year over year. that is weaker than expected and a reversal after strong gains in may and june pending home sales measured signed contracts to buy existing homes, so there are future indicator of closed sales in august and september they are also an indicator of how buyers are right during the month of july. they are looking at contracts.

now, the chief economies from the national association of realtors says super low mortgage rates have not consistently pulled buyers back into the market rates began falling in may, fell sharply through june, and ticked up ever so slightly in july. this may show just how sensitive buyers are to the small rates. they fell again more sharply in august the declines were across the board, across the nation, town 1.6% 2.4% in the midwest and south respectively they were down most sharply in the west, 3.4% a pretty big miss on pending home sales in july back to you, sara. >> thank you. stocks rallying sharply after china's commerce ministry says it wants a calm trade resolution meantime, treasury is weaker the 30 year yield below 2% the two-ten spread still inverted joining us jim lacamp and bonnie

is a portfolio manager at western asset management good to see you both jim, the headline of the day that seems to have sparked the rally overseas and here in u.s. stocks is that china indicates it's not going to retaliate for now and talks are ongoing with the u.s. on some sort of resolution as a portfolio manager, does that give you confidence where do you see the trade war >> sara, nothing is really changed here we have a lot of these head fakes, lel ebbs and flows on trade. sometimes it's a tweet sometimes it's something out of china. until they start addressing intellectual property threeft a technology transfers, nothing is going to ainchange here. the market has been trading in this range between about the 150-day moving average as support for the s&p 500 and the into-day moving average as resistant, kind of trading in that band. we have had some violent consolidation going on at the end of the day, nothing's

really changed there beyond that, when we get to the economy and the yield curve, because the yield curve has gotten a lot of language here lately, the yield curve may be a reflection that the u.s. government bonds are yielding higher than they -- almost anywhere in europe, higher than japan, almost all of which are negative rates in these areas. so the u.s. treasury may just be a bargain relative to the rest of the world i think what we have got is seasonal trading here, august/september is typically a little weak here we should settle down by the fourth quarter you should see the markets start to rally again. >> bonnie, you guys are a big bond at western asset management how do you see the move in august, this flood into treasurys, the inversion across the yield curve? how much is flashing red to you guys >> right so as bond specialists are clearly watching the yield curve very carefully, all parts of it. we are looking at that as one of many factors a western asset we

think it's really important to step back and look at the fundamentals and what the market is pricing in versus the fundamentals and not get too caught up in the many headlines that are barraging us these days when we look at the fundamentals, what we are seeing is an economy with consistent job growth with modest wage growth, with positive earnings growth at corporations, and economy growing at 2%. most importantly, a federal reserve that is very willing to support that growth and maintain the financial conditions to extend the recovery. so we're not seeing the recipe for a recession. notwithstanding what the yield curve is saying, which of course is important but when you look at it against the other factors, it's not dispositively flashing red i think the other thing to mention with respect to the yield curve is that negative rates globally have really had an effect on treasury yields here there is $16.7 trillion in negative-yielding debt globally. that is a big deal

and something that we hadn't seen historically. in fact, the fed put out a paper last year, and members of the fed have been looking at this effect, and it showed that the probability of inversion does go up because of these negative yields even if the risk of recession doesn't go up. so how we've played this is that we think that because a recession is not imminent, the treasury, ten-year at 150 is pricing in too much negativity so we have been sellers of duration into this rally and we have been holding credit selectively. >> all right yeah, you've got to the very end there in terms of what you are actually doing, which was going to be my question. is there any expectation on your part that negative rates we are seeing, the 16.7 trillion you just referenced, is going to change any time soon in so much of the world >> unlikely because we think not just the fed, but global central banks are all very cautious here

they want to maintain accommodative monetary policy. they are very cautious they don't want to have to come and rescue again so they want to maintain positive conditions. it's unlikely that yields are going to rise from here not just because of the central banks, but because inflation is really remaining low. until we see inflation rise, which we are not expecting due to structural courses, we are not going to see any rate hikes by central banks. >> jim, you have referred to how we are in a little bit of a neutral spot in terms of the overall market the index is going sideways for a few weeks now. within the market there has been a lot of divergence. where would you look to position in terms of whether the kind of more beaten up areas, energy, financials, some consumer and industrial, or do you think this sort of quality defensive trade that benefits from very low yields is going to continue? >> that's a great question i think you are going to want to focus on quality growth. why growth because we have had ultra low interest rates for ten years now. they don't appear to be going up

anytime soon that's drink up real estate prices that's driven up stock prices, driven up bond prices of course. so you are going to have a harder time getting that growth moving forward that we have had in the rearview mirror if that's the case, and i like companies that can grow in this environment. i like companies also with a bit of a dividend because the dividend yield now in the s&p 500 not only is higher than the ten-year treasury, higher than the 30-year treasury i think dividend stocks will be okay i really want to focus on growth areas. you can use the volatility that you have right now to buy on support and get rid of some things maybe you don't like on rallies. a lot of people are focusing on the financials here saying they are cheap, but look, with a really, really flat yield curve across all durations and no expectation of rising rates any time soon, i think it's going to be very difficult for the banks to have a sustained rally. i am not too crazy there would rather focus on growth and/or stocks that have a

potential to consistently raise their dividend here. >> bonnie, the treasury secretary has floated this idea that the administration is again considering the prospect of a super long bond, 50 or maybe 100-year treasury. do you guys think there would be demand in something like that could be a successful way to handle the deficit and take advantage of lower interest rates? >> well, clearly it makes sense for the treasury to investigate this given the low interest rates and locking in that financing. it depends on the va uations so when and if that bond issuance comes, with he will take a hard look at it and make a relative value decision. >> all right something i guess we will continue to talk about larry summers, bonnie, thank you. stocks continue to rally the major indexes holding 1% gains this morning amid the volatility, what stocks hold the key to investor confidence going into september?

our bob beyond burger bob pisani. >> i will show you what flattish looks like for the s&p 500 here. that's flattish. 3%, down 1%. that will be flat. probably 2%. for the year we will be about 2% overall. what happens in the recession? everyone is trying to figure out what sectors get hit most of the s&p 500 is down about 20%. a typical garden-variety recession that you see here, earnings down about 20%. put up the next full screen. down 20% the s&p 500 price drops around 20 to 30%. earnings drop 23% in 2008. what's going on? the problem for the stock market is simple right now. if you look, we don't know about the good news is that earnings are flattish the bad news, we don't have a lot of confidence in the outlook overall. we don't have a lot of confidence for three reasons number one w he don't know about the direction of trade and tariffs. we don't know what's happening at the european and asia economy. we don't know the right policy

for weaker growth. so let's look at specific sectors quickly. here is the ones getting big declines energy stocks and materials like freeport mcnamara. these sectors are exposed to the global economy most of the time this is bowing and caterpillar -- boeing and caterpillar. if it wasn't for that, these would be smaller if you look at consumer sectors, consumer discretionaries down to 5% this is compared to july 1st, i'm talking about how numbers have changed, not the absolute numbers. zblan has had numbers reduced. consumer staples modest declines here so if you are talking about key sectors, amazon is a key one to watch. also the technology space basically has been down about 1% since july 1st that's a very, very small move overall. guys, i think the key here is to watch what we are seeing in the semiconductor space. back to you.

>> bob, thank you. bob pisani going over all those earnings retailers, speaking of earnings, we have gotten a bunch of them this morning they are warning of price hikes days before a new round of tariffs will take effect the ceo of columbia sportswear says that could devastate the economy. he will join us next to explain. later, you are not going to want to miss former treasury secretary john allison he is calling that op-ed the least responsible statement by a former official in decades. >> that's not larry summers. we will have him, too. >> we got them all coming right up on "squawk on the street. through the at&t network, edge-to-edge intelligence gives you the power to see every corner of your growing business. from finding out what's selling best... to managing your fleet...

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that the countdown to september 1st. 15% tariffs are set to go into effect on an additional, well, a lot of chinese imports retailers will be disproportionately impacted. among those raising the alarm is the ceo of columbia sportswear he says let's not tank the economy with the misguided conception thattives are fun you have been outspoken in the past what are your expectations in terms of what it means for your business and others who sell apparel and footwear to the american tsunami wiconsumer whe

tariffs take effect? >> well, our product commodities have been among the most heavily tariffed since the '30s. we are very adept at operating in a tariffed environment. but this basically rogue application of tariffs coming at a very bad time in the united states is going to be really, really difficult to manage especially when we really don't know what's going to be happening. so the president has put tariffs, additional tariffs on products which we're going to be importing from china and other countries, and we are trying to manage how we distribute that product inside the u.s., how we divert it to other countries outside the u.s. you might remember colombia's revenues are about 40% outside the u.s. so we have the opportunity to divert these things, and some

product categories just won't be available for retailers. then other product categories and product-specific items which will, after the tariffs are imposed, be about 50% of the retail price paid by the consumer will be in tariff and tax. >> right what do you say to those who say somebody had to stand up to china at some point? they have taken many of our jobs they steal our intellectual property they don't treat our companies fairly in their home market. the consumer remains strong. yes, this is a tax, but one worth paying because it will enable us to get the leverage we need to get the chinese to play fair >> we have done business with china for 20 years the intellectual property issues we have this in china have greatly diminished the last several years. so i don't see the issues that the president talks about. i think it's easy to point fingers at a quote/unquote china

as a big bad market, but frankly it's a big market for us it's one of the biggest geographic opportunities for our company. i don't see why the chinese consumer needs to be focused on, as a bad person or a bad entity. we have had great relationships with china and, frankly, if you think about how the american consumer goods have been sourced since world war ii, most inexpensive goods sourced for the u.s. market came from japan right after the war. that production moved to korea and to taiwan when prices in japan elevated the psalm thing happened when prices elevated in korea and taiwan, moved to china and it's difficult for us now to source product in china not because necessarily the tariffs, but because the pricing there is

at a disadvantage against other markets. now, when we throw tariffs on, of course there is a big focus on fleeing the chinese market to other sources in southeast asia, including vietnam, indonesia, and others, and those prices are going up there so ultimately the consumer is going to be paying a significantly larger component of the cost of the goods that they buy in tariffs and in taxes. and there is elasticity in this product as there is in everything so we are going to see, you know, the risk of a reduction in revenues on these product commodities based on their pricing. >> that's what i wanted to ask you, tim a lot of indications late i have told us the u.s. consumer is in great shape, including a second look at second quarter gdp this morning. do you feel you have the pricing power that consumers can weather a price increase as these tariffs go through >> we will be raising prices on

products to accommodate the tariff we have prices built in for tariffs and have had, as i said, since the '30s but the u.s. consumer is not an all-strong, has tremendous strength there is volatility there. and if they see that the business that they work for, if they are making john deere tractors or selling soybeans or if they are a farmer, they don't have unlimited capacity to consume. these people are fragile in many cases. so i don't think we can expect that the u.s. consumer has the unlimited ability to continue to buy products at any price. >> tim, you mentioned that looking elsewhere to source products in asia is something that might incur higher costs simply because pricing has moved in those areas the impression given by some is it's a relatively fluid process. in other words, not too difficult to reallocate manufacturing. what is your experience with

that as a general matter is there capacity outside of china that could accommodate this type of activity? >> well, as i said, production for consumption in the u.s. is naturally moved to other countries over the last, call it ten years. this is not easy to do, to move these product categories they are highly technical. they require significant investment in education for the employees making these products. there is structures around the engineering that go into the garments and the footwear. and then there is the raw material components that are required to build these garments you cannot just flip a switch and move these products around you know, there are other issues, including logistics of ports and roads that exist or don't exist in some of these markets. to think we can just flip the switch and move it around is just ludicrous. >> but you do obviously, as you pointed out, you manufacture in

almost 20 different countries already. can't you just move some of the workload from china to other countries that are already producing similar products >> we've made moves over ten years, but not in five minutes it takes years to get these things up to speed and now we have got competition from other brands and other suppliers that are running away from china to try and capture space that we have been using. >> and what about the market in china for your products? obviously, we have indicated you import to the united states from china, but you also are a major seller in china itself how is the chinese demand these days and the consumer there? >> the chinese market is growing more rapidly than the u.s. market, the economy. we have had a few challenges in china, mostly of our own making, but we think this is the biggest opportunity for the company. the biggest geographic opportunity is china >> so totally separate topic, tim. a few months ago your big

competitor patagonia cracked down on the popular corporate logo vests we see all over wall street and silicon valley. have you taken that as an opportunity? i mean, they were concerned about the values and environmental standards and all sorts of things of these companies. is that something that you can pick up? >> well, you know, we don't have the kind of thought process in terms of who we want to have wear our products. we're a very democratic company. we'd like to have everybody wearing our products individuals who have particular political bent or particular economic bent, that's their own business if they want to wear our stuff, we'd love it if they'd rather not wear someone else's, that's okay, too. >> finally, have you cut investment or are you cutting investment in some ways as a result of perhaps trying to save on margin, getting prepared for

the tariffs that are coming? >> well, here's what we are doing as it relates to investments. we focus on where the rule of law exists when we look across the globe we're very concerned about the rule of law here in the u.s. and making investments that may be, you know, a waste of money for our investors. so we are looking, when we are getting ready to invest in places where we can have surety that the business environment will be the same and that the rule of law and not the rule of twitter will be running the business >> mr. boyle, we appreciate your taking time with us as you have in the past as well. look forward to speaking with you in the future. thank you. >> thank you. >> tim boyle from columbia. whether we return, other big retail names to watch after reporting their earnings and preparing for a new round of tariffs. we will go through the numbers and the mixed reaction on wall street when "squawk on the street" comes right back what about him?

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reaction best buy sinking after missing sales estimates and bracing for the new round of tariffs to import their core products you have dollar general, dollar tree and pvh higher on results abercrombie & fitch down double-digits. joining us for more on these names is our own courtney reagan good morning. >> hi, good morning, sara. >> a lot of threads through these earnings but it seems like the tariffs are finally starting to be embedded in the forecasts. >> exactly and i think that there are a lot of threads going on. so you have to really sort of drill down and see what's going on in some cases you have a mixed quarter, but you have mixed guidance weak trends now, but hope for the future then again you have an abercrombie, which doesn't see any improvement in the current quarter even though they said back to school was strong. dollar tree, dollar general, they think they have mitigated a lot of the costs of the tariffs. that being said, dollar tree says the guidance doesn't

include the most recent increases that we heard late that friday. that partner trying to figure out. up to this point they feel like they have mitigated things pvh have really good results, but weak guidance. they are worried about tariffs, the trade war, international tourism, protests in hong kong you have to do your homework if you are looking to invest in these games because there is a lot going on here. >> it's been so hard to look at this group, the publicly traded companies, and decide what kind of shape the consumer is in. so many of the businesses themselves are having challenges for reasons beside the fact that the consumer is not in good shape. are there any themes you can pull out, what traffic was good, what categories are working and not? >> yeah, so we keep talking about it but it continues to be true that traffic in the mall is weak we are talking about a possible forever 21 bankruptcy. weakness at abercrombie. those are big mall names of course best buy is doing a little better and they are a last man standing as the singular

consumer electronics player. they had a relatively good quarter. i know it was mixed. if you look into the details, relatively strong. a good online sales number and good margin number with the prime day included in there, which is something some analysts were impressed with. the mall players are weak. >> just to stop you for a second it was down sharply. >> it is. >> we talked about it. they lowered the tp of guidance. is that what's behind this >> i think that's part of it it was the first time that we heard from cory barry as the ceo for best buy i think she did a nice job trying to address, frankly, the uncertainty around the tariffs and impact not just on the costs for best buy, but what it means broadly for consumer spending. she said we are doing our best but it's a moving target if consumers in general start spending less out there, that's going to lead to some uncertainty here going forward for our forecast. >> i think the other thing is both -- i mean best buy versus pvh, totally different setups. pvh down almost 20%.

best buy was up almost that much it distorts it just to look at today's reaction. >> it does last quarter pvh said last quarter we are worried about tourism, but the trade war isn't impacting us this quarter they are worried about it things can change quickly for these companies. >> thanks. courtney reagan. when we cothe larry summerst former fed, new york fed president bill dudley. we will get the story behind that story when "squawk on the street" returns.

well, in an op-ed that has generated a ton of buzz on wall street, former new york fed president bill dudley is arguing that the fed should not cut interest rates further in response to president trump's trade war with china it's drawing sharp criticism from larry summers who called it, quote, the worst case of

trump derang syndrome in the financial world. larry summers joins us now i was shocked to hear your reaction to this, secretary summers, because you have such a consistent trump critic. so i would actually think you would have applauded mr. dudley in him calling on the fed not to enable trump in his trade war. >> look, the fed's job is to stay out of politics fed's job is to respond to the best assessment they can make of economic conditions and to adjust the economy appropriately. adjust interest rates appropriately. you could argue about what the right response is, maybe more tariffs mean more economic weakness, and that causes the fed to ease. maybe it means more inflationary pressure which would point the other way. those are all rational arguments. but for a trusted former official of the fed whose

thinking is inevitably going to be tied to the fed to recommend that they raise interest rates so as to subvert the economy and influence a presidential election is grossly irresponsible and is an abuse of the privilege of being a former fed official so it was the taking of the economic dialogue out of the realm of economics and putting it in a realm of politics and suggesting that the fed was there and was acting politically or might act politically that was empowering the fed's critics that i thought was profoundly disloyal to the fed and profoundly inappropriate given his former roles >> and to your point, thom tillis, the u.s. senator from

north carolina, is now calling for a hearing to look into fed independence off the back of this dudley op-ed. i mean, maybe the last paragraph went too far when he was talking about the election and maybe that the fed should be prudent in how it acts as far as the outcome. but what about the premise that the more the fed cuts rates in a strong economy, the more it does let president trump and empower president trump to put on tariffs which hurt growth and sort of implement this trade policy that you and so many others have abobeen so critical? >> it is not the job of non-elected appointed officials to a technocratic role to decide how they are going to act so as to constrain and influence the behavior of the president of the united states. and the behavior of the remainder of the government of the united states.

that is to misunderstand entirely the role of appointed officials in a democracy you know, the analogy i used in one of my comments was to the military it's not for -- it's for the military to describe what the military can and cannot do, and for the commander in chief to make the ultimate decisions about war and peace. it's not for the military to lie to the commander in chief or mislead the commander in chief or refuse to take the commander in chief's orders in order to pursue what they think is the best political policy for the country. that's why i referenced in one of my tweets the novel seven days in may. and i think the point is a very, very important one, and i -- bill dudley is a friend.

i have admired many things he has done over time, but here i think he was way off base and i think the least he owes is to make clear that this was entirely his own thinking and that it bears no resemblance to his knowledge or he has no basis for believing that any of the kinds of things he is thinking about are being considered or debated or are anywhere in the fed's reflection process >> mr. summers, as for the fed itself, by the way, worth pointing out a body that you were close to potentially running, people may forget that you were almost fed chairman, what do you think the response should be from chairman powell right now, a, to the trade war in terms of how he thinks about data dependency, and b, to the constant attacks he is receiving via twitter from the president on an almost daily basis

>> i think jay is doing the only thing he can do, which is to say that we're going to make the best decisions we can on the economy and we are going to tune out the politics and tune out the political noise. we're not going to be influenced by the political attacks and we are certainly not going to decide our policy with a view to pushing the political process around so i think he's got that exactly right. i think, in general, data dependence is the right framework for the fed. i think in some ways we've gone a little wrong in recent years with our emphasis on forward guidance and pre-commitment of policy and the like. it's an idea that comes out of some academic models but in a world that's extremely uncertain, i think the fed puts itself at risk when it tries to

claim the ability to predict its own behavior down the road when there always are shocks and surprises often of a kind that one couldn't have anticipated even as possibilities that need to influence the path of policy. but i think, in general, we're going to look at what's happening to real activity we are going to look at what's happening to the forecasts and the recession risk we are going to look at what's happening to financial stability. we are going to look at what's happening to inflation on that we're going to calibrate our decisions. i think that's really the only viable way to make monetary policy >> it would seem that were fed officials to come out and reassert their is their focus and that's how they make decisions and presumably if we get hearings in the senate, powell and others, his colleagues would probably say

that do you think that's enough right now? can the fed get back to a place where people have a presumption that it is politically independent and can operate that way given the pressure having come from the president and now this message from bill dudley? >> i think it's gotten harder than it was. i believe over time credibility isn't asserted it's won through actions and i think if the fed pursues policies in a thoughtful way and explains the decisions its made, i think it will be able to maintain credibility as an institution in american life i do worry about another aspect of the fed's credibility i have been very troubled by

vice-chair quarles' efforts to roll back regulation and roll back protection and be substantially more sympathetic to the banks at a time when many years into a recovery that's always when the dangerous lending starts that's always when the problems set home and we are falling into the oldest pattern pro-cyclical deregulation. and i think it's a serious mistake, and i think the issues, some of the issues he is addressing having to do with capital and permission for risk taking and giving, you know, one of the first things you learn as a professor is you can't tell the students exactly what's going to be on the test or it doesn't really work. and giving the banks so much guidance and so much role with respect to the stress testing that i have to say i don't think the fed's current stress tests have a great deal of

credibility, and i'm disturbed that others within the system are not exerting more pressure with respect to some of the changes that govern quarlgovern the strong encouragement of the president is doing. >> when you were running treasury, did you consider the issuance of a long dated bond as seems to be the case now 50 years or even perhaps as long as 100 and if you did, or even if you didn't, what is your sense in terms of the market reception to something like that or why it might be a good idea or not? >> i haven't fully made up my mind it depends on a rational judgment, depends on a lot of data that i don't have at this point. i would caution in two respects. first, issuing very long-term bonds is quantitative

tightening it is increasing the stock of duration that the market has to hold, which pushes up long-term rates. if the fed buying long-term bonds is thought to be stimulative the treasury must be contractionary so i find it bizarre in the extreme that an administration that is beating all up on the fed for not doing quantitative easing would itself be contemplating an exercise in quantitative tightening. i think the second thing is that there is a fair amount of rather technical sets of reasons to believe that these ultra long bonds are not likely to be very attractive in the marketplace, and therefore likely to carry

high prices, and therefore are not advantageous for taxpayers you know, if you are a restaurant, you have to decide what size the portions are going to be and you'll make the most money as a restaurant if you choose a kind of portion size that fits the sweetspot of your consumers. and i'm rather skeptical of the idea that 50 or 100-year bonds fit that kind of test with respect to the marketplace but i think we need to see what analysis the treasury comes up with look, mark the participants' chatter on this is sometimes wrong. i was honored to have helped introduce the index bond there was a lot of criticism when we did that from market participants saying there really wouldn't be demand for index bonds and the like, and it turned out it's been a very successful program for the

treasury so i don't want to prejudge it completely i do think we're owed an explanation for why we bash the fed for seeking to shorten the duration structure of the debt outstanding, and then the treasury proposed to do something that lengthens the duration structure. >> it's a really good point. one that i have not heard. larry summers, thank you very much for joining us. former treasury secretary. >> thank you >> as we go to a break, let's get a check on the markets down off the highs of the morning. we whackbacked up less than 0.5% the p 2s&up13 nasdaq outperforming -- more "squawk on the street" when we return

one top strategist says if the market returns to this level it would mark a major buying opportunity. adgn out more on trination.cnbc.com more "squawk on the street" is coming up.

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president trump wants lower interest rates and he hasn't been sthie of his criticisms of fed poll sicies. joining us now former bb&t chairman and ceo and current executive in residence at the wake forest school of business, john allison john, good morning good to have you here. not an easy job for the fed at the moment we have a meeting in three weeks. the bond market inverted yield curve seems to be saying the fed is too tight but we also have to, i guess the fed feels it has to filter in current data and implications of the trade war. so what's the correct policy short and long-term for the fed right now? >> well, good morning, and i think that's a very difficult question for the fed i think the challenge for the fed is that they have discretion to kind of arbitrarily decide these things within the context of their models, but their models are

modified to fit what their intuitive judgments are. i have strongly been an advocate of the fed having some kind of rule i personally like a nominal gdp rule or a money supply rule. it's interesting in cases, nominal gdp and money supply growth looking at m-4 have been pretty healthy, in the 4.5 to 5.5% range. and neither one are saying, hey, you ought to be cutting rates aggressively now, a minorrate cut, which i think the fed is going to do, is not really going to make that much difference. so i think we're going to see a minor rate cut, but i don't think the real economic phenomenon suggests a major correction of lower rates. and by the way, i want to emphasize something you were just talking about i think this message from bill dudley is scary. people should think about the awesome power of the federal

reserve. when a recently retired member of the federal reserve decision says, hey, we can influence political elections, and they can! they know that people will say it openly. and i think the fed will deny it openly, somewhere in the back of their mind, they know that and that's one of the reasons we need a rule. we need a rule because it creates less ambiguity in the markets. and also, it puts control in the fed itself human beings are human beings and the temp taitation to get involved in the political process when you're under political attack is pretty, pretty large and i think people ought to be concerned about that implication. >> yeah, that seems to be in most of the reaction to dudley's comments, although i suppose you still need humans to set where the rule was if you think nominal gdp targeting at 4.5% is the correct rule, that would mean maybe the fed doesn't do much of anything in september or beyond or not at least more than a quarter point. the bond market seems to think that's not appropriate right

now. do you think the yield curve does not have implications for this >> i think the yield curve is an indicator. and i'm always concerned about that and maybe you have to have a more sophisticated rule than just nominal gdp you may have to have some additional characteristics to it but i think it -- the rule, within a pretty small range, would be better because markets could then anticipate where the fed's going. and i think there's a limit on what monetary policy can do. i mean, the fact is that it's real production, real goods and services that matters. and you got to look at physical policy so i think it's, you know, when you don't have a rule, when you don't have some kind of controls, the temptation is for the fed to try to do a lot more than it's really capable of doing. and for markets to expect it to do more than its capable of doing. >> john, just curious about whether you're having these conversations with anyone in the

administration i remember when president trump got elected, you were -- your name was out there, as someone who could potentially join the federal reserve board. is that still in contention? are you still in touch with the white house on some of your strong views on this >> i have expressed my views, but i'm really not interested in joining the federal reserve right now, because i don't -- i think it needs more change than the people that are involved with it are willing to be -- to do and i don't want to be sanctioning something that i don't really agree with. >> all right fair point john, thank you very much for checking in with us this morning. appreciate it. john alice >> thank you "squawk on the street" is going to be right back as you take a look at the s, &pup 0.84%. . 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.

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later today on "closing bell," we'll look over the markets as always to see if this rally can hold into the close. we've lost a little bit of steam, but still, almost 1% gains across the major averages. plus, we will speak with one of the reporters who broke "the wall street journal" story about amazon's new new york city burn

book did you see this >> yeah. >> "mean girls." and more earnings rolling in after the bell we'll hear from dell, ulta beauty and marvel. huge show, 3:00 p.m. eastern we'll see you then meantime, dow is up 219. "squawk alley" is up next.

good morning it is 8:00 a.m. at apple headquarters in cupertino, california 11:00 a.m. here on wall street and "squawk alley" is live. ♪ good thursday morning. welcome to "squawk alley." i'm jon fortt alongside courtney reagan and wilfred frost live from post 9 at the new york stock exchange carl and morgan have the morning off. stocks in the green red higher by tech this morning the nasdaq i