imagine. >> if there were a trial there would be on action and i would be sustained >> there would be an objection, thank you, joe look, secretary mnuchin made it very clear over the weekend, we will use sanctions and we may use more sanctions to keep turkey in line can we just get, look, here's a point, fellas, i know we don't have all day we're seeing a lot of the head winds that held down the economy this year may wind up opening the door to next year. one of them is the china deal. you all haven't mentioned that >> your old partner, larry, i apologize, we got to go to cramer and his friends, carl and david. we got to go, thank you, larry sorry to cut you off, but it's straight up at 9:00. we got to go make sure you join us tomorrow "squawk on the street" is next [ music playing

good thursday morning, welcome to "squawk on the street". i'm carl canton? eua. news is solid and question is can johnson sell that to parliament as early as this weekend. sterling has had a big mix housing starts disappoint. our road map begins with netflix soaring despite the miss, the streaming giant warning that increasing competitive head winds could weigh on growth. it shows morgan stanley to be rallying, this on what looks like a strong quarterly result the bank's cfo will join us this morning. >> as we said, futures rallying on new brexit hopes, uk's parliament, approval, though, remains uncertain. let's start with netflix subgrowth did mix. rebounded to almost 6.8 million thanks to international

strength on the earnings call, reed hastings did talk about the competition with disney and apple, set to launch their own services next month. >> fundamentally there is not a big change here. it is interesting we see both apple and disney launching basically in the same week after 12 years of not being in the market and i was being a little playful with whole new world in the sense of the drama of it coming but you know, fundamentally, it's more of the same and disney's going to be a great competitor apple is just beginning, but you know they'll probably have some great shows, too >> i did count about six first cutting their targets today. >> yeah, i think it's not fang, it's famg. i'm trying to think out to substitute the n we obviously have to take fang out, the n it just doesn't belong anymore last night's call was one of those calls where they talked

about a lot of interesting programing the stock's up, simply because it didn't blow up and because international is good. but the idea that this should be a sfang just -- i mean, we can change the g we can make it gee i got a chance to do this. the "new york times" credited me with fang the other day. >> congratulations >> i think that was pulitzer prize winning. we have an f, we have a, we have a, okay. we have m. >> microsoft what itself m? >> microsoft all right, m, microsoft. got it making sure i under stood. >> microsoft means fine tobacco. but we have a choice here. it's a kind of a scramble. it's a jumble. >> why >> why should i take netflix out? >> yes >> how many quarters -- look this was a miss. okay it's kind of a tree is a tree is a tree a miss is a miss is a miss so one line was good,

international. i mean, the guy talked mostly about how you can have international programing basically making it sound like the disney apple any kind of domestic nothing >> by the way, just putting disney and apple together an insult to disney i mean that apple thing, he said it starting out. i get it the disney -- >> why did eiger -- >> for what you are getting disney plus is a very significant offering apple has 14 programs. >> you saw the thread that disney plus tweeted all of the content earlier in the week. it took all day. >> yeah. netflix has more than 100. >> god bless apple they even aren't included in this conversation. warner pedia launching october 29th is going to giver us the specifics of their streaming it's going to be far more robust >> what does reed hastings do on sunday night >> i don't know. >> hbo was that a funny moment on the call obviously, game of thrones

versus bingeing. >> it's succession >> this i think -- >> i don't think they have been watching that. >> my sister says it's good. >> good. >> but there are programs they mentioned this morning, last night that i got to watch. didn't you feel like there was a lot of water cooler talk >> that's the bulls argument this morning is market expansion. >> right >> baking composition into the q4 guide, the downside says the competition is not here yet, it's barely begun and pricing power is basically - >> you call it modest head wind to our near term growth. >> he admitted a price increase perhaps. >> a little. >> that's why i say it doesn't belong in fang we don't hear that from microsoft. >> revenue per user. >> he has been talking about microsoft. he needs to skate it past the justice department because they have already been reviewed help obviously thinks facebook is tobacco

i got the sense he thought microsoft was juul >> what does that look to do with netflix >> i'm looking for something to replace the n! >> why not get rid of it and make it faam. >> i think it's magga. it's make. oh, geeze, that's taken. >> that was kudlow. >> well, larry he was out of it today, andrew, he was talking about andrew's address i think there. >> that hits where it hurts. >> i know, look i just thought that the call, there was one number that was good, carl, the international. every other number was disappointing. >> isn't that a significant number, what the growth story is about? >> yes >> isn't the domestic place going to one in there is no ways e place they will grow significantly. they added 2.6 million not bad. the growth opportunity is doing okay >> they are. they got local pro language

programing italy stuff they're going there. >> yeah. a lot of the, say, for example, upgrades of roku lately have centered around increasing the user base and some arguments two-to-three times in international. right? it's a big world >> it is and that's one of the things when you talk about -- they're talking about. one of the things i thought was great on the call, listen, facebook has billions of people. becomes. >> yes >> why can't they have a fraction of that i like that, that was a good part of the call i guess what i didn't like about the call is you have these estimates people put out, when you miss them all, the stocks should go down but they did have international. i don't think that was enough to make them rally other than the fact the stock was down so much and looked up to me. >> it was down 22%. >> it has been down since disney world, dis fiplus. >> 6 niep was such a compelling price. it comes out at 11 or 12. >> you are getting me down i need an upper.

ch >> we got plenty of those, jim this is the argument about earnings season right now. >> right >> is that the bank calls were good from a macro standpoint. >> no, fabulous, fabulous, fabulous, fabulous >> the industrials printing well are coming out of execution. >> honeywell execution. plus arrow csx, remarkable operation, they showed almost every line was down union pacific, sadly disappointing. but don't give up on a big buy . yeah operating. you know, the operating number union pacific has a fashion license. all right. >> unp shipment volumes down, but not a big surprise. >> how about taiwan semis saying they will spend 15 billion on equipment who does that say about a plot of materials what does it say about land research what does it say >> david, it's a podcast.

>> i know that i don't know what it says, jim here i'll speak for the podcast listeners. i know we've got a lot of other earnings to cover as well. we want to get to ibm. >> that's positive and negative. we need a positive right now >> how about talking to larry kudlow, economic council director, on "squawk" a few moments ago, larry, thanks for joining us again >> ply great pleasure. thank you -- my great pleasure, jimmy, appreciate it, fellas >> larry, one thing you guys been get to with a "squawk" crew, china. >> and ag. >> can you specifically talk about that 40-to-50 number and the degree to which this is actually going to happen >> well, it was something that was agreed upon. i think it's a real number it's not, by the way, just going to be ag purchases, although, that's going to be a huge boost to our farm sector there are also going to be

various market access openings with respect to agriculture products and agriculture standards that the chinese seem to be loosening up on. it will be great pleasure. so that's a huge piece of it it's not the only piece, but between the market openings, they're lowering non-tariff barriers on agriculture. by the way, they started buying. you know, i believe i was on cnbc when i said maybe ten days ago that people shouldn't be so pessimistic about the china talks and that some good things could happen and i think this whole phase i is a good thing that's happening and for the skeptics out there, i appreciate that and i respect that but i'm telling you. there is a lot of momentum and there is agreement on both sides. >> larry, jim, great having you back thank you for coming back. >> my pleasure, jimmy. you know, can i read, jim?

i just want to read this i came out, i believe yesterday morning, this is from the chinese foreign ministry okay so that's the top of the heap. it's like our state department here's what they said. and i say this to the doubters here's what the foreign ministry said the two sides are unanimous in the issue of reaching an economic and trade agreement there is no difference this economic and trade agreement will be of great significance to the united states and the rest of the world global economies and world peace. in other words, the two sides are unanimous in the issue of making an economic and trade deal now, that's from the foreign ministry, a very important part of the chinese government

infrastructure we've never had a statement like that, jimmy, from them never. so i think all the phase i subjects i hope we get into. this is for real for real >> well, look, i awaited and i sure hope it happens, because they let the united states down after argentina. let's go back to strong versus weak economy larry, i've got to tell you, the manufacturing economy needs help it needs a rate cut. it needs a rate cut now, maybe two rate cuts. but the consumers, the numbers yesterday from retail from commerce indicated weakness, i have a good read on the consumer both from banks and retailers that says it's strong. what do you say to the people that say, listen, we're a consumer-led economy, why do we need these rate cuts >> well, look at, i'm getting anecdotal evidence one of the lovely part of my jobs i get to meet a lot of ceos on a constant basis, pharmaceuticals, drug, bankers

they have a bird's eye view. one of the things i've heard from the big bankers, loans are booming, jimmy, particularly middle market loans. i've heard that several times so that's a terrific thing. i really don't see i think the retail sales number was sloppy but if you smooth it out on the three-month change, it's growing about 5% at an annual rate that's a good number on manufacturing, no question the gm strike has hurt us. the boeing problem has hurt us the absence of demand from europe has really hurt us a lot. but i will say this, margins are numbers. but the third quarter is actually coming in positive. manufacturing in q3 looks like it will be up 3.1% at an annual rate and q2, it was a negative number and business equipment which is

important for investment and capital spendings, q32.1, q2 is minus 5. i think, jimmy, if you look at that you look at the housing improvement, you look at the strong retailers and, look, let's not forget, you got a 3.5% unemployment rate, 50-year low, with revisions last month payrolls 180 that's a huge number and households and i want to emphasize households, which picks up smaller business. the last four months or the last five months, the household survey from which unemployment comes, that thing has been growing 400,000 per month. so. >> but larry -- >> america is working and america is getting paid. i think we are in an improving situation. >> i know, but i listen, if i were jay powell, fed chief, i would say that there is no

reason to cut. yet yoan we're going to remain competitive, particularly with the dollar the way it is, then there must be a cut. how do you rationalize a cut given all that great news you just said? >> look, the great news may be more of a forecast i don't know the actual numbers i think still in the third quarter. you know, it's going to be a softer quarter than we hope. the money markets are predicting another rate cut jim bullard of the st. louis fed who was a thought leader he has been kind of a leading indicator as a fed he wanted 50 basis points cut last month he got 25. i think he's pushing for 25, maybe 50 yen this month. so, jimmy, i'm saying the markets are telling me, at least, you and i used to do this a lot in the good old days the markets are predicting another fed rate cut i agree with that. i think it would be entirely

appropriate. one last point on the feds before we get too far into the weak the yield curve is now finally beginning to normalize a month ago, every media outlet, including media outlets that never girded the yield curve before were all predicting recession, because the curve went negative. and short rates were above long rates. that's changed now as you know. now the ten year is above the 2s and above the three-month bill that's a good sign my reckoning is monetary policy will go at least for one more -- as you put it, i think it's worthwhile i think it's a good thing. >> hey, larry, really quick. just a couple things from me this remarkable meeting last night between the speaker and the president in the cabinet room, does that bury any hopes of usmca >> reporter: well, you know, carl, i don't think so now, i was not at that meeting

i have been at many other meetings some are good. some are not so good look, what i'm hearing -- speaker pelosi has her disagreements with the administration no question about that i understand e. having said that, speaker pelosi has been accommodative and accessible and helpful regarding u.s. mca which is a big boone for farmers, manufactures, high-tech, finance and services, currency stability it would increase american economic growth by half a percent of gdp and a couple of hundred thousand jobs over time. i think speaker on that subject -- even while she disagrees on others -- i think she has been helpful. my friend, trade ambassador bob lighthizer is working the hill democratic side senior key

democrats are heavily engaged with ambassador lighthizer, talking about key issues and so many people in the democratic and republican party understand that usmca, which is a template for future trade deals, would be a legacy, a great legacy for the united states, a great legacy for republicans and democrats and workers and manufacturers and auto makers and content. this is such a big thing, i still believe it will pass we may have disagreements on some matters but i think usmca has a lot of momentum i think it will pass and i think it will pass before thanksgiving that's my own personal view. >> larry, you know you are making a lot of news a lot of people feel this spat between speaker pelosi and president trump is irredeemable. but you are obviously saying

that's not the case. are you also saying that we should stay tuned for some buys. maybe they open up a j.p. morgan or citi to open business in china. larry, these would be two very bullish things i want to be sure if that's what you are saying, because they're both very newsworthy >> number one, let me repeat, the trump administration, the president may have his disagreements with speaker pelosi, this is not unusual. but i still believe on usmca, that's a separate track and i will just tell you high level conversations with senior democratic committee chairs and subchairs are talking to ambassador lighthizer, who has conducted -- mr. lighthizer has put together a brilliant

non-partisan trade deal that helps manufacturing and farmers. it also helps the new economy with ip protective it also includes currency stability. this is a template this is an american legacy second point, second point, jimmy, you were asking me about china -- i >> yes, i wanted something new maybe something hot like an ag buy but also saying letting j.p. morgan in, letting citi in let us compete, larry. they won't let us compete. >> you are correct now, here's a very important point. we have made great progress and this is a key part of phase i. this goes back to last spring. treasury secretary mnuchin had successfully negotiated financial industry openings in

china. so that the ownership, the ownership of any joint ventures will switch to an american majority you follow me? instead of 49% so if an insurance company or a bank or a securities firm gets a license from the chinese government and enters into a joint ven schur or something like that -- venture or something like that, instead of 49%, that number will go to 51, 53 and 100% ownership in a couple of years vice premier has been talking about this for many months not only is that provision still on the table, jimmy, it's gaining favor. >> that whole chapter on financial services the currency transparency and stability. >> that chapter has gained great credibility. the protection of international

property rights. >> that chapter has gained great credibility. >> right >> this will go on phase i may not be all together finished all right. you may go to phase ii on some areas. but on things like conflict resolution, it's deals getting dealt with at the highest levels of the u.s. and china. the highest levels and there is a desire and a willingness, i read this foreign ministry statement. i urge you all to get ahold of it, look at it yourselves and you will see now i cannot predict the future here all i'm saying is, take phase i seriously. i said on this network a week or ten days ago that we might be surprised at what came out of these talks last week. we are surprised at what came. both sides have the desire to do business

it's got to be the right deal. it's got to be right for america. president trump says that all the time it's got to be enforceable there has to be ways to deal with disagreement and the resolution, but nonetheless, this is front and center it's going back to china we are going to paper, clip the papers in the documents and the translation together maybe it will be signed in apex in chile by the middle of next month. maybe not. but the momentum, the issues, they're all on the table both sides have agreed in other words, jimmy cramer, we have come in, we have come further than we ever have before, so the president lifted one of the tariffs we will see about other tariffs being lifted >> that might be a part of the deal i don't want to make a prediction but both sides see this as

beneficial for each country and that is know rememberous progress as i said a while back, the mood music has improved now the actual negotiations has improved these are tough guys this is tough negotiations the president will always defend america. no question about that he will always defend our economy. but people shouldn't overthink this this is real and it's going to be negotiated. >> while, before we let you go, larry, while we have been talking, industrial production for negative year on year, first in three years some of that may be gm but you did say in may that the american economy, you said we were killing it with the economy. are you still saying that today? >> well, look, we've had some softness in the spring and summer quarters. again, the aftermath of severe monetary tightening. the slump in europe. the strikes at gm.

i'm not going to call it a strike, but the problems in boeing >> that stuff cuts into manufacturing. but if you look, carl, i don't want to go through the numbers again. the third quarter as a whole, if we smooth these things out, manufacturing will be a positive in the third quarter it was negative in the second quarter. business equipment positive in the third quarter. it was negative in the second quarter. i like the low interest rates. i like the zero inflation. i also like low taxes, consumer incomes are booming right now and so are jobs. so i will say, i'm looking for a big improvement in q4 and i'm looking for a continued, continued economic boom in 2020. >> larry, let me ask you yesterday mark benefitiac was on from salesforce. he was talking about it being

dead the other night there was a democratic let's say referendum by candidates which said capitalism is dead but they need something else to replace it one wants government to replace it, we know it's the democrats the other was business replacement. is capitalism dead, larry? >> capitalcism not dead. free enterprise is not dead. economic opportunity and freedom is not dead. look, in another interview, which i would love to do with you fellas, we can talk about some of these policies come mg -- coming out of the democratic side i don't want to do politics. i love to do policy. i would just say this. the president said this at the u.n., he will never permit the united states to become a socialist country. he will never permit the government takeover of healthcare he will never permit a rollback of energy and fossil fuels,

which has not only created jobs, it has made america so strong on the international arena. we will never have the kind of government that actually encourages people not to work and pays them not to work. there is no way americans are going to vote for plans that would be a government takeover at the economy with a price tag of $100 trillion or more, which would be paid for by enormous increases of middle class taxes that's the only way you can do that this is not the american way we are free enterprise we are not socialists. we are going to protect a tremendous durable economic prosperity cycle with low taxes and deregulation and energy and getting trade barriers down. socialism is in venezuela. socialism is in china.

socialism is in a lot of places around the country jimmy cramer, you and i started as partners on tv. i don't know, 20 years ago we didn't talk socialism then. we ain't talking socialism now america loves freedom. and a government-dominated repressive economy is not freedom. and by the way, why, why creating 3.5% unemployment rate with median incomes 65,000, it's up about 6 or 7,000 in two years. why would we want to destroy a pretty darn good prosperity cycle? why would anybody in their right mind want to do that >> no. socialism x. check the boxes. >> larry >> check the box >> i like the old days >> check the box for free enterprise jimmy cramer. boss, you know, wealth creation

in the stockmarket benefits what 100 million people i could go on and on maybe we'll have our own show. >> like the old days >> we can't rap you any more like we did in the old days, but we can thank you >> good seeing you >> good sees kudlow outside the white house. that's a good 15 minutes of television >> on that we agree, we had many differences, but we pro capitalism, pro putting food on the table! >> the market is overlooking the data today as we said with larry, industrial production negative again for september philly fed, starts were much worse than expected claims a little elevated back up to 214 >> but it's larry's right, i mean, holy cow, if larry is right, we will see high level talks from china and nancy pelosi, speaker pelosi agreeing with the president this is huge >> let's go to the opening bell, the s&p 500 at the exchange, at

the billboard celebrating the maker of power bar snacks spinning off from post holdings at the nasdaq global, providing educatio education. >> david -- do i detect a little skepticism from your silence >> larry in terms of predictions. it's squarely the same do you >> yes, look, i left this morning -- >> when it comes to trade, it's been fair it's been virtually impossible we've spoken many times about it he sounded certainly positive on china. reading that statement i think from some ministry there, but again i think many people have a very hard time sort of really understanding exactly what the issues are and what is going to be resolved near term and what's going to take a long term. >> and speaker pelosi saying the other day that the government is

in true chaos and the idea that she might agree and drive through usmc -- that's news. >> yeah, that was a more positive spin i guess than we've heard. but that's larry >> well, larry is the chief economic adviser to the president of the united states, he's a chief economic adviser. he's not a "kudlow report." he's the chief economic adviser right? he wouldn't say this stuff unless we're about to hear good news >> do you think we will? >> i was surprised i didn't think we will you know, my wife lisa, we know nancy pelosi because of a relationship at georgetown, where, by the way, mark zuckerberg is speaking this afternoon. we both felt it's the end between any hope for cooperation between the president and the speaker avenue the things she said yesterday >> i mean he did, he did not say that this deal would be signed in chile he said maybe, maybe not. >> right >> but i've got to tell you, that was the most positive

i know david's right larry is a positive person but you know what, when larry and i were together, the dow has tripled. >> it has been good to be positive over the long run >> right he and i, we had many disagreements, democrat, republican but we both felt that the market could go much higher and it did that so, yes, he made me more positive than people like to think. but light haaser is a very tough guy. heels not going to contradict lighthizer he's not going to contradict him. >> some people have been noting that the chinese, for example, do not use the phrase phase i, the very statement that kudlow is referring to, so some of that may be lost in translation. >> maybe but i can tell you the chinese need, not using -- i'm going to say this word. hogles they need them we got ones that are healthy they need them i can't believe that they're cutting off their nose despite their face i would love to see a big buy that could really show that they

meant business and how about letting master cashed and visa in how about a 51% j.p. morgan joint venture? how about admitting they stole from micron, which by the way should be up for bmc. >> how about these >> those would be significant things they would some of them are at the top of the list are possible. i think others are not as much when it comes to ip, when it comes to state-owned enterprises and support that they get from the government to be able to compete unfairly, many would say, i think it's a much more difficult lift i think many would agree we'll see. the market has been reacting positively the last few sessions and the prospects of at least some sort of agreement maybe the president wants to call it phase i, the chinese may not. it remains to be sceneeen what n overall be acome plished and how long it will take, but certainly

those things, jim, if they were to work will be seen as a positive >> again it would be gigantic. that's why the market is up. i did not expect anything to be positive from gsmc >> the financial services firms, getting back to some of the news this morning in terms of earnings. >> right >> we didn't get a chance to talk about morgan stanley's third quarter results. >> wow. >> we mentioned at the top of the program up almost 3, 3.5% this morning, carl overall a decent quarter i guess. >> look, when have you low expect -- it's navigated -- >> it's also up 10%. that's different than the quarter. >> remember james gorman missed a couple quarters ago, was horrified by his own performance. he's back. i hope he speaks with the cfo. he has a good handle at morgan stanley. >> yes >> that would be a good thing to speak to him. >> we will talk to the cfo later

on leading this morning, dover, csx, honeywell, napon? >> well, honeywell was horrific. he never ceased to surprise me, he damned with praise, tusa, anything tusa likes, it is golden here. i like the honeywell quarter i think the united reynolds is the story of the market. >> that stock was down five, then four, now it is up, united rentals did not predict a single line in 2020 was going to be positive look at this in is naba, naba being not as bad as fear i have to tell you united rent also, i thought that was going to upset everything. look at that soaring soaring! it's a good time a larry kudlow sign. very optimistic 2020 >> 2.5%. could be better.

>> i don't know. hey, listen, i was down and then larry made me feel better. i started think, where, where is the buy from china well, maybe -- maybe there's going to be one? maybe there is going to be fundamental change on some issues >> it does sound like if you put together china phase i, if brexit passes, we got a gm deal, who knows about the 737 max. southwest today says they're extending cancellations through february 8 now for the plane you'd want to get that back in the air. those are four incremental positives which to your question to larry, jim, makes you wonder why do you still need an insurance cut? >> well, i, look, i think the manufacturing economy is weaker than larry says, but those stocks have been crushed they have been crushed there has been a bifurcate -- look, brian moynihan would tell you that, the ceo of bank of

america. look, the industrial economy is not that good. ibm. we haven't mentioned ibm >> no. >> ibm is talking about the global services business i have to tell you, they see genuine weakness in the economy. >> ibm is down over 6% red had was up 19% they didn't consolidate all of it for accounting, obviously, a key part of the strategy here is relying on red hat in terms of the attack on the cloud, with the hybrid strategy of those corporations we will keep some in-house and use some in the cloud as well. jim, it's the older lagging businesses. >> legacy businesses >> that continue to just hamper their ability. it's been quarter after quarter of lack of revenue growth and in fact declines. >> it's been tough i mean, look if you ask me what the best thing that happened is that they generated so much cash that they absolutely can still do well. this global tech services was down horribly. these are big businesses >> enormous amount of employees,

too. >> and the dividend's safe geeze, that's standing isn't it >> i suppose, but it's important. as we say, it's safe it's better than not. >> they got us they got to get this one, the revenues up. >> fifth quarter of falling sales. market cap in 2012 was 214 today it's 127 >> i got a 1 europe18 now, almoa half. >> warren buffet, the sale looks pretty rough now >> a small swath out of ibm into apple. >> that alves a good call. >> i know berkshire has not done well my friend, he sold all his he used to come all the time and say warren buffet is great meantime, warren buffet is buying america, wells fargo was a bit of a tough one >> well mentioned yesterday you don't want to har it berkshire is up trailing

>> berkshire's performance over the last ten years >> we all have incredible respect anded a many iration for mr. buffet it's truly extraordinary it's been a not particularly stellar period >> i'll go out on a littleb and say america's best and coca-cola two of his holdings report tomorrow >> it's funny, if i were to put to you guys and sigh a company i know under performed a long period of time as an 87-year-old or 88-year-old chief executive, we don't know the plan in terms of who is going to take over and they have about 120 billion in cash they have been sitting on >> bye buy, buy, buy, that's fantastic. >> hey, triend, you should get involved there >> never going to happen >> you should be an active ittist right? -- activist? >> nobody is going to go up against him. >> elliot, elliot is not going to be -- >> no, i don't think so. it's a battle though for this to

occur. >> can we think a little longer term i said the other day, mark benniac was here dave, what have you done for me favor, wait, he was very nice to you. but what did you do? you talked about under performance. >> i tell you, i didn't talk to him about his under performs >> no you waited you talked buying back to his face. >> that is not true. i only talk to his face. the only thing i said is what is the shareholder's reaction >> i know. >> when they hear him talking so much about all those other stake holders. they alienate people who are earn canned. then you take a look at salesforce, he obviously talks about the incredible performance since they went public, which is true >> he didn't talk about the head and shoulders pattern. >> the last couple of years. >> look at work day. homily cow, work day slow down, look at it don't be -- wow work day is bad. oh, geeze, look at adobe i mean adobe, some of these

companies are really rolling over >> by the way, guys, yesterday i had mentioned we were going to get the proxy on the cbv-viia com deal -- viacom deal. both are down slightly as i can tell it may be the forecast they include in the background of merger and the long back and forth and how viia com viewed -- via kocom viewed cbs. they have their belief hoff what would really happen in terms of showtime, a lot of different things they came up with a 3.14 and a ' 3.7 ebitda it's run through their own model, well below the street forecast for consensus on what cbs' ebitda would be in '20

arouand '21. you know what, add those together for '21 right. we're still at let's call it 7 billion in ebitda for the combined entity on a 19 billion dollar current market cap. >> yeah, but i bought this stock for my charitable trust. >> what's wrong, 13 and 8. so 21 billion. that's three times, three times the earnings >> this is my charitable trust for all that stuff this thing trades like occidental petroleum it does. i'm trying to search for a chak. >> what changes? >> me and my trust sells it. that's the bottom. >> these are seemingly conservative estimates internally, they have so low what analysts have been predicting for cbs three times ebitda >> worst pick. >> really? >> worse >> yeah, it's wow it's kind of

like a bengals might meet miami dolphins >> interestingly, they are trading identically in terms of the -- >> it's the redskins, for heaven's sake. honestly >> they won one, so did the jets c'mon. >> c'mon, david, that es guys haven't won anything they must be going, are they going for a first round -- are they tanking i think he wants the first pick. >> you are being very conservative >> i can tell you i'm being very conservative, i'm not tieing a noose around my next. >> a board member would not let them go in higher, it's the lowest number. >> this is the worst >> aienello didn't want to buy lyons gate he should have sold that thing the minute anybody was interested >> only via com is like playing hunger games it is, i'm like in district 12

here over this dam thing remember the other day when elizabeth warren said that something sucks, zuckerberg said it sucks >> ohing okay. >> zucker berke speaks this afternoon. hoya hoya. >> strucker berg >> ahead at 1:00 ahead of cbs is awful. that's a two for one split wow. >> it's going down >> what? >> cbs >> yes, because my trust owns it it's the kiss of death >> why don't you sell it, stop talking? >> because i believed, i believed yes, he said we'd be safe in philadelphia i was wrong. what movie, quick. >> >> a witness. >> with all of that, we are holding snp 3k by the way in less than an hour, uaw leaders will gather to discuss and vote on the union's tentative agreement with gm with a strike in the middle of its

fifth week jane wells has all the latest. good morning, jane. >> reporter: hey, carl, yeah, wait until you hear the eye popping estimate of what this strike is costing the economy. the uaw will meet in that structure behind me with about 200 local presidents and try to sell them this four-year tentative deal f. they find it, that i will send it out to the rank and file which could take a week or two and they have to decide whether the workers can come back before the vote or wait three idled plants will close, jobs in mexico will stay in mexico as for the union, its big wins, billions in investment from gm, including converting a plant in detroit to build an electric truck. pay increases of at least 3% per year, a ratification bonus of 8 grand per employee keeps one of the best plans with workers paying 3% of the costs, temporary employees. however, the lordstown plant is going away

>> i'll have to see it as a whole, but it's very discouraging that job security is a huge portion of this agreement for a traditional employee such as myself. >> reporter: at 31 days, this is the longest strike in gm in nearly a half century and the costs, well, fasten your chevy silverado inteshlths according to center for automotive research, each with the strike cost gm $450 million the union 12 million in spike i strike pay, combined lost wages is over 850 million a week lost paychecks, if that's true, add it up, that's over $1.5 billion per week times four weeks, $6 billion plus so far and that doesn't even take into consideration, guys, the loss of shareholder value. back to you. we'll let you know when that meeting happens and what comes out of it. >> i was going to say, the tick tock today will be important, jane it's good to see you back covering the story, jane wells

in detroit today. dow is up 66 >> good morning, carl, dow back around 27,000. in fact. futures did move around 5:00 a.m. on news of a possible brexit deal. you combine that with that industrial production down, which was bad. it does reiterate calls for the feds to cut rates once again the s&p 500 and the dow now just about 1% away from record highs. let's talk about what's moving this morning the banks, take a look at morgan standly up sharper, higher beyond revenue, offset weakness and that stock is up over 3% it's been a relatively upbeat session season i should say for the big banks. we also heard from the zirs industrials to report earnings >> that is honeywell, it also reported earnings that beat street estimates sales of 9.1 billion for the quarter. down 16% it did see strength in its aerospace division the stock is up 2% here in early trade. let's pivot, though, to that

alleged brexit deem. stocks are certainly moving on it european collision president jean claude younger sa yunker sa deal whether it's coming together stocks in europe still flirting with 52-week highs, the possible beneficiary would be the uk stock market it has significantly under performed its peers in europe. if you look at a one-year chart, you see the footsie up 1% sitting on gain office 8 to 10%. other possible beneficiaries would be the uk currency, it has been outperforming, down slightly today and the footsie 250, that is a basket of domestic stocks that benefit when the uk economy is strong and when the currency is strong. plus the uk banks, world bank of scotland, royal bank sitting on guidance of 2% if today's rate we should also take a look at the big et reit, biggest real estate investment trust in the

uk china expecting third quarter to come in around 6.1%. back to you, carl. >> thanks. when we come back, union pacific down after missing on earnings, better efficiencies. we will talk to the ceo who is also pushing for passage of the usmca. dow is up 81 don't go anywhere. >> ♪ [phone ringing] how are we doing? fabulous. ♪ i wonder how the firm's doing without its fearless leader. ♪ you sure you want to leave that all behind? yeah. stay restless, with the icon that does the same. the new rx crafted by lexus. lease the 2020 rx 350 all wheel drive for $439/month for 36 months. experience amazing at your lexus dealer. it's the idea that if our mothers were diagnosed with cancer,

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take a look at netflix today. it gets to 308, but backing off just a touch after that second miss on subguidance in a row we're going to watch that osg. w is up 100. we'll get stock trading with jim in a moment. i see best-in-class platforms and education. i see award-winning service, and a trade desk full of experts, available to answer your toughest questions. and i see it with zero commissions on online trades. i like what you're seeing. it's beautiful, isn't it? yeah. td ameritrade now offers zero commissions on online trades. ♪

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all right. time for stock trading >> i usually don't care about new additions, but this is different. the former cfo of home depot, maybe arguably the best ceo in our generation joined the board of cisco cisco stock has been struggling. chuck robbins knows what he's doing. i think the stock is a buy >> tomei is the best >> cal tomei is the best worshipful she understands the economy better than anyone she will be missed from home depot, but now she's in cisco. >> indeed. so tonight >> i have a lot of people have called me on arrowhead it's up 180% it does gene silencing against

diseases i cannot wait. these kind of companies fascinate me endlessly thank you, larry kudlow, for bringing us a ray of sunshine. >> he did deliver that >> yes >> rather optimistic, about q4, at least of next year. >> for members of the podcast contingent, david is saying nothing, because he doesn't, i think, concur with me. he's nodding oh, my david is a podcast nightmare >> yes he's a ghost a podcast ghost. jim, we'll see you tonight when we return, morgan stanley, one of today's earnings standouts. we'll talk with the cfo in a little bit s&p now 0.6 away from a record high ♪

♪

good thursday morning. welcome back to "squawk on the street." i'm carl queeintanilla with davd faber and courtney reagan. some data disappointments, but larry kudlow on squawk today with an optimistic message about

china trade and usmca. >> and here we are above 3,000 for the s&p 500. still, our road map starts out with an earnings parade. netflix, morgan stanley, union pacific, all reporting their quarterly results. we're going to speak with the cfo of morgan stanley later this hour about their quarter >> plus, brexit boost. stocks are up as the eu and tuck reach a tentative deal but major head winds and uncertainties remain >> and later, first on cnbc interview with the new imf managing director on global recession risks, trade tensions, and a lot more >> well, some earnings movers that we want to get to this morning. let's start with morgan stanley. it is rising after beating expectations on strong trading and advisory results shares higher by 3.5%. we're going to speak with the cfo. that is in just a few moments from now plus, two major rail operators reporting, starting with csx those shares are higher by more than 4% on an earnings beat. now up double digits for the year on the opposite end, union pacific missing expectations on

the heels of weaker shipment results. ceo lance fritz will join us first on cnbc later this hour to talk about that and more for the company. >> big earnings winner of the day is netflix the shares are up after topping expectations they did miss the mark on domestic subgrowth this is reed hastings last night addressing the slowing of new subs on the call >> we're incredibly low priced compared to cable. we're winning more and more viewings we think we have a lot of room there. but this year, that's what's hit us and we'll just stay focused on just providing amazing value to our members in the u.s and i think that gives us a real shot at that continuing to grow long-term net ads on an annual basis. but we're going to be a little cautious on that guidance and feel our way through here. >> joining us this morning, needham's laura martin good to see you both laura, we were told, this is a make or break quarter. if they miss subguidance again,

look out below why the reaction today >> you know, i think expectations have been reset lower, and they did hit their aggregate subnumber. they hit about 6.8 million subs total globally and had guided to 7 million. it was a lot better from a reported basis we would note that they added $3 india subs, so we actually think they would have made a bigger miss in total and offshore if they hadn't had the $3 new product in india >> and what do we make of their q4 guidance now? >> you know, i mean, i think it's better -- we thought it might be a negative guide. nair saying that the reason that their u.s. subs are weak are because of the price increase last june. we think -- our stoouudies show that people are already disconnecting netflix in anticipation of the disney bundle and buying new iphones which gets them the new apple bundle, which is essentially for free if you buy an apple device. so if we're right, we'll continue to miss their u.s. subestimates and if they're right, their u.s. ads should stabilize >> brian, what do you think

about what reed hastings had to say about the competition in saying, look, actually, it could be good for us, because for a long time, there was that switch from broadcasting to cable everyone went in that together and now we're moving from linear tv altogether to streaming we could be in this together >> i do agree. at least in the united states. i think that the amount of time people can devote to what we call television is relatively limited and netflix and all of the new services are going to be competing for that time. i don't really think they're competing with "fortnite," as indicated a few quarters ago outside of the united states, though, and this is where i think the opportunity could be bigger, tv consumption patterns are very different they're usually a lot lower than they are in the united states. and in many countries, pay tv as we know it in the u.s. never had the same kind of penetration levels that it has in the u.s. and so, this is like adding basic cable in some respects, which could cause an elevation in consumption and in that sense, it's a greenfield for an opportunity.

>> brian, i'm trying to understand how investors are going to view the stock from here, in terms of what the most important metrics are. typically has been subscriber growth, particularly internationally, which was the bright spot. is that just going to continue to be the key metric >> well, you know, i'm no longer an analyst covering the stock, but i have to say, the thing that always befuddled me when i looked at netflix was how the cash burn was always going to seemingly be a problem, you would think. but it hasn't been and i think that, yeah, as long as, as far as i can tell, and laura would be far better to opine on this, as long as the subnumbers keep going up, i think that investors will be happy. >> lauren, go ahead, take a shot at that, laura >> so i think the issue is going to be that arpu is going to come more into focus as you start adding $3 mobile-only subs in these developing companies i think the street will make granularity about what kind of subs offshore netflix is adding. and i think a stock that trades at seven times, which is what

netflix is down to, can't sustain that so i think as you get increasingly bundled sub adds, it's going to be harder for netflix to maintain a positive subscriber growth in the u.s and importantly, the arpu in the u.s. is 40% higher already than international, and as i say, they're adding $3 subs in india. so that's going to bring down the arpu offshore. and i take brian's point, that they had sort of guided us before this quarter to a cash flow break-even in '21 and now it feels like they're pushing out to '22 or '23 and i think it's going to get worse and worse as you get more and more competitors with aa balance sheets and cash hoards which netflix is required to compete against now going forward. >> which means what? they're not going to be in a position to spend as much as they need to keep the platforms as robust as they need to? you could imagine it being a negative cycle, can't you? >> you can

a negative fly wheel if this company's growth slows from 15% growth from 30% growth, a growth investor can no longer have this in their portfolio, which means that netflix would have to trade on an ev to ebitda, and that would imply a downdraft. because netflix is well below its revenue maturity >> brian, when you're looking at the pricing -- go ahead. >> no, this is the bigger point. the cashbur burn issue is the point. if they can find a way to keep the sub growth going and investors along for the ride, they'll be fine. but the reality is because everyone else is coming up -- if they're willing to step up with money to pay for content, that's not a given, apple had $1 billion of content that's a nice kind of entry point. st it's not clear that everyone else that's playing will show up because if you're not with $5 billion, you're not really a player >> no, i give it given the cost of one show

alone. that will get you a couple of shows. finally, laura, last time you were on, mid-september, you did say because the marginal cost of streaming to the consumer is basically zero now, you thought they would have no choice, eventually, to go to a $6.99 service supported by ads you still stand by that? >> i really do i really think that netflix -- our survey data shows that they're going to lose 10 million subs in the u.s. if their only price point is the one they have today, which is a $13 standard price point compared to apple at $3 if you buy a new device, disney at $5 a month if you buy three years in a row, and amazon for free when you sign up for amazon prime i think those standard price points of $5 to $7, netflix must have an offering there or it will lose subs if their only choice is $13 a month. >> all right, guys we'll watch it back below 300 session high was 308 laura, brian, thanks, guys >> thank you

well, meantime the eu and the uk reaching a tentative brexit deal, but major political challenges at home do still remain our wilhelm marks is with us for the latest >> reporter: what we found out this morning that the eu and the uk have signed a deal between the executive branch of the eu and the british government under prime minister boris johnson both sides calling it fair and balanced prime minister boris johnson arriving here in brussels just a couple of hours ago, pretty mystic about the fact this has finally happened >> i do think that this deal represents a very good deal both for the eu and for the uk. and it's a reasonable, fair outcome and reflects the large amount of work that's been undertaken by both sides >> reporter: and of course that hard work hasn't entirely ended for the prime minister and his team back in london. because once the leaders have arrived here in the last couple

of hours, endorsed this deal, it will then require the parliament in westminster to also approve it you guys will no doubt remember, three times in a row, theresa may tried that with the previous version of this deal and failed. so on saturday, for the first time since 1982, the british parliament will sit on a weekend, they'll be asked to approve this agreement without having had a huge amount of time to digest the details. there is a chance, because boris johnson doesn't have a majority in that lower chamber of the british parliament, that they will not approve it, and then again, at that point, you could see an extension or a delay of brexit of up to four months. >> wilhelm, as you pointed out, the theresa may tried this three times, didn't really get anywhere they're not going to have a lot of time to digest the details. how close could they really be or how far away could we still be from actually seeing all of this resolved once and for all >> reporter: so it's all about the parliamentary numbers, right? the dup, a very small northern irish party that has traditionally worked with the conservative party to try to

maintain a majority, they've come out and said this morning they're not happy with the deal as it stands that means that prime minister boris johnson is that much further away from the necessary majority to get this through you've got opposition lawmakers saying they would like to attach a second referendum to any legislation to pass this deal. you've also got some members of his own party still raising questions about the details around northern ireland, the relationship with the republic of ireland, and the rest of the uk a lot of uncertainty leading up to that vote on saturday and i'm not going to promise you any certainty after that either, i'm afraid >> i can understand that wilhelm marx in brussels, thank you for the update when we come back right here, we're going to speak with the cfo of morgan stanley. it's a first-on-cnbc interview, and it is, of course, about the company's quarterly results. we'll also talk about the economy, maybe a couple of other things jonathan pruzan joining us shortly. and later, the next imf managing director, it will be her first tv interview

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shares of morgan stanley up nearly 4% this morning the last big bank to report, delivering stronger than expected profit and revenue. joining us this morning is the cfo of morgan stanley, jonathan pruzan jonathan, thanks for joining us. >> thanks for having us. >> we talked a bit this morning about what drove the quarter in terms of color out of the commentary, it seems like the themes are controlling expense

growth and remaining cautious. maybe some seasonality in there, too. does that sort of describe where we are >> well, yeah, kit does. we had a really nice quarter $10 billion of revenue strongest third quarter we have in over a decade the results were really strong across all three of our businesses, as you said. the institutional securities business had nice results. we have a constructive market backdrop a little uneven, but constructive equities, number one our investment banking business did very well on the back of debt capital markets, as well as m&a, and our fixed income business continues to gain share. wealth was more around expenses, a really nice story there with over 28% margin. and im just continues to growth. the growth story is in tact. good flows we surpassed half a trillion dollars. so nice quarter, generating 11% roe. so we're pleased >> when gorman says he's maniacally focused on making

sure revenue growth outpaces expense, what does that mean >> i think it means what it sounds like. we're very focused on expenses we have been for quite some time we've committed to our investor base that we will be disciplined when it comes to expenses. and we'll take the required actions that we need to take to make sure that we maintain a good expense base. >> typical -- what's the word here typical summer slowdown. was -- was seasonality anymore pronounced this year than in past years >> probably not. we did see real slow august, which is pretty typical, but i think what we saw, which was a little bit different than last year, we saw a nice pickup in september. people came back from the holidays, the markets were constructive, and people wanted to do strategic things and we saw a lot of activity a very strong september. >> i noticed, jonathan, on the call, you've got a number of questions about the online broker's rapid move to zero commissions and whether that's going to impact any of your guys

out in the field why wouldn't it? why wouldn't that be something that perhaps the morgan stanley customer would at least come to their financial adviser and say, hey, why am i paying >> yeah, i mean, listen, it's a fair question, but i think we have a different business model. we also have a different client segment, right our clients are looking for more than just zero-dollar execution. they're looking for financial planning they're looking for advice and service. that's really the value proposition today. so, you know, it's not helpful that the execution is going to zero, just as a macro backdrop, but we don't think it's going to significantly impact our business today >> and when it comes to costs overall, noncomp, the reason gorman said we're maniacally focused is because, i guess, non-comp expense had risen a bit more than had been anticipated this quarter is that just a quarter-to-quarter thing people shouldn't read into that at all >> that's a quarter-to-quarter thing. and as james said, our

efficiency ratios are about 72% year-to-date it was a little higher this quarter. that was really driven by a lot of client activity in some of the execution costs related to that activity, but i, you know, again, we're very focused on the expense base and delivering on our commitment to investors. >> you know, on the big macro questions, jonathan, obviously, there's brexit news today. we just talked to kudlow about china. who knows what will happen i guess the question is, are you seeing uncertainties resolve on large questions, even at the margin, and the implications, you think, that might have specifically for rates >> sure. well, listen, there's lots of uncertainties. and you just highlighted a couple and anytime any one of these get resolved, it's generally considered a positive for the market clearly the brexit news today is good news. hopefully that will get approved and get done but there are still a lot of uncertainties around china trade. that seems to be the one that investors are most focused on.

clearly, some sort of positive outlook or resolution of that in the near-term would be a positive and i think if you listen to the fed chairman, that will have an impact on how they think about rates. the u.s. economy is still healthy. labor market is strong, wages are growing. and he's talked about global developments impacting their view on rates. so if we can resolve some of these issues, presumably that will be taken into consideration. >> and when you look at the overall worldwide rate picture, i mean, we still have conversations here, given we've got, what, $15 trillion or so in sovereign securities negative, that it could come here. what do you think, jonathan? would we ever see negative rates? >> well, i certainly hope not. and i don't think we will. based on, you know, what we're seeing here, clearly, the negative rates have not really been helpful to spur the economy in some of these markets and we'll have to just see how it plays out, but this negative rate dynamic continues to have

investors searching for yield. and i think that's the trend that's going to continue, because not only are there a lot of negative rates. if you look at the stack of debt products out there, there is not that much inventory that's yielding over 5% on the one hand, you have a lot of negative rates, on the other hand, not a lot of places you can find yields. >> zbicand given all the connecn that morgan stanley has on the retail front and the corporate front, and you're connecting to all the different people at the firm, what is your sense right now overall of confidence out there and just generally speaking, what do you think in terms of the economy >> listen, from our perspective and my perspective, the economy here in the u.s. is quite good we certainly don't see a recession as a base case in 2020 growth is going to slow a little bit, but it's actually quite healthy. the consumer is quite healthy. and we're pretty positive overall on the u.s. economy. you know, in terms of confidence levels of ceos that i talk to

remain very confident. they want to do strategic transactions they want to implement strategic initiatives. clearly, if you had less uncertainty, that would be better but it feels like ceos want to get along and initiate some of these strategies and i think you're going to continue to see that the retail side, a little bit more cautious. last year, we saw a big rotation into equities, as we had sort of global synchronized growth and the tax cut. this year, we're seeing less of that new money is going more into fixed income product and short-term securities. but, you know, the investor still invested, they're just a little bit more cautious >> i don't want to throw mike wilson back at you, but your own macro strategist offers a daily diet of reasons why ceo confidence is at a three-year low. capex slowing, labor rolling over, inventories are bloated. do you ever have discussions about why he says, even today, we're in the midst of an

earnings recession >> we have a lot of discussions, as you would expect. good dialogue between all the different people in morgan stanley. listen, i think, we are seeing the focus on earnings season we'll have to see how earnings play out here. the banks have basically reported and they look pretty good across the board. we'll have to see how the other sectors do people are very focused on earnings but, again, as i say, i see strong u.s. economy slower, but still expanding. and mike and i probably have a slightly different view on opinion here >> finally, jonathan, what'd you guys buy back this quarter in terms of stock how much was it? >> we bought back $1.5 billion, about 36 million shares. >> right, is that -- we can expect that to continue in terms of your overall return of capital to shareholders? >> yeah. coming up out of c core this june, we announced approval to do $6 billion in buybacks and

raise our dividend and that's our current plan >> jonathan, that was a great discussion really appreciate your time. thanks for coming on hope to see you again. >> great thanks, carl thanks, david. enjoyed it >> cfo of morgan stanley >> thanks, john. well, a quick programming note as we head to break, you're not going to want to miss a cnbc exclusive with the ceo of goldman sachs, david solomon that's later today on the "closing bell" at 3:00 p.m. eastern time squa"squawk onhetrt" t see," th, will be right back after this break. don't go away. no two patients are the same. predicting the next step for them can be challenging. today we're using the ibm cloud to run new analytics tools that help us better predict and plan a patient's recovery. ♪ ♪ ultimately, it's helping thousands of patients return home. and who doesn't love going home.

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now to our etf spotlight today we're taking a look at the industrials. the xli getting a lift this morning. it's up more than 21% so far this year, slightly outperforming the s&p 500. honeywell is one of today's catalysts. the company posting a quarterly earnings beat and raising full-year profit and margin guidance however, it did trim the top end of its sales forecast for 2019, but not putting a damper on shares too much, shares up by 2.6% all right. when we come back right here, we're going to hear from the new imf managing director. it will be her first television

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welcome back, everyone i'm sue herrera. here's your cnbc news update at this hour. vice president mike pence heading a u.s. delegation, which includes secretary of state mike pompeo and white house national security adviser, robert o'brien, to turkey they are facing the task of pressuring turkey to accept a cease-fire in northern syria european commission president jean-claude juncker and british prime minister boris johnson reaching a brexit deal juncker said that he thought that the people of northern ireland would be content with

what had been agreed to, but declined to say whether he thought that deal would actually be ratified by britain's parliament here at home, maryland congressman elijah cummings has died at the age of 68 of complications from long-standing health issues. he was a key figure in the trump impeachment inquiry, serving as the chairman of the house oversight and reform committee >> he was an amazing man he was not just a great congressman, he was a great man. and he had a combination of being strong when he had to be and had to be quite often, but also being kind and decent and caring and honorable >> you are up to date. that's the news update this hour i'll send it back downtown to you, courtney? >> thank you, sue. uaw leaders meeting right now to vote on a tentative agreement with gm. our phil lebeau joins us now with more. hi, phil >> reporter: and courtney, we'll learn more in the next hour or so so let me bring you up to speed, exactly what's happening with the uaw in detroit

about 200 of the local leaders from around the country, they are being briefed on the proposed tentative agreement right now. if they approve it, then they will send it on to the rank and file and decide, hey, how long will you stay on strike? until they give the word to stop picketing, the strike continues. and we've talked for some time that this is a deal that gives a little bit of something both to the uaw and to general motors and it's all about job guarantees well, the uaw didn't get everything, but they did get commitments from gm for 9,000 jobs, approximately, to be created or retained over the next four years. what did general motors get? they're going to be closing down three plants they get the plant flexibility and they are not bringing back production from mexico, which is what the uaw wanted. again, we should here within the next say 45 minutes to an hour if the leadership approves of this deal, guys, and if they do, then they'll make a decision as to whether or not the picketers stop picketing, the members stop picketing, or if they go back to work, what exactly will happen

guys, back to you. >> phil, thank you still to come, do not miss a first on cnbc interview with the ceo of union pacific, breaking down the company's quarter, trade, and a lot more. we did have a triple-digit gain here despite that drag from ibm. "squawk on the street" is back in a moment.

one chart suggests this earnings season will buck a negative trend for stocks. find out more on tradingnation.cnbc.com more "squawk on the street" is coming up.

when you woke up this morning, likely you saw the brexit headlines first though maybe, the more important story is how some of these earnings are coming, seeing reaction in the market as netflix, csx, uri, honeywell, guys, are coming what was jim's acronym for better than expected or not as

bad as feared? david, i forgot what it was. >> i have forgotten, also. >> he has so many acronyms, it's hard to keep track of them >> and morgan stanley, another winner this morning. ibm, perhaps the only name that's kind of dragging a bit on things, given another negative revenue quarter from that company, carl. >> yeah, the fifth in a row, i think, of declining revenue for ibm. shares down about 6% in the dow here, pulling that down a little but dow at least hanging on to a gain of at least 0.3%. >> ibm market looking past the drag on the dow. john fort is here to sort of put the ibm print into some context. >> it's complicated, carl, because global technology services is about 37% of ibm's revenue. and that is the unit that really sort of drags down 4%, trouble in the uk and germany there, is what analysts are saying in particular and that overshadowed the pretty

close to 20% growth that you saw in red hat, which is a little bit better than expected so it's that continuing issue of ibm, talking about, hey, we've got some flab, some revenue that's low-margin, we're trying to shed that while building up these businesses that we expect to be higher growth and higher value. cloud and cognitive, that unit is a prime example of that investors have to wonder, how long is that going to be happening, because, remember, back when ibm shed its pc business, that was part of the same story here's kind of lower margin revenue that we don't want at some point, it's got to even out. and we have not seen that yet. some investors were hoping that with this first quarter with red hat, we'd see it now but there will be more and more red hat revenue, based on the nature of that business as we go forward. and i think the question is, can i ibm even that out, especially as systems revenue comps look

better after this quarter. but, you know, it's -- >> you're waiting a long time. >> years and years >> have been talking about this story in terms of the faster growers outpacing these legacy businesses for years and they still haven't come to that inflection point opinion obviously, red hat is a key part of the strategy of the company from here on >> and another headwind that you run into is look at what's happening with work day and look at what's happening with adobe cloud isn't just cloud anymore you've got to differentiate between different types of cloud growth so when you look at ibm and all they're categorizing under cloud, how much of that is going to grow quickly and steadily over time? how much of that is not? i don't know the answer to that, but those are the sort of questions that we and analysts -- >> ibm is down, but so is oracle, salesforce, microsoft, and adobe. is it dovetailing with overall concerns about enterprise spending which we've talked about the last few days. >> i think it is, but at the same time, if you look at where

those other companies are trading -- oracle is not too far off all-time highs microsoft, $1 trillion market cap. a lot of these other companies haven't had the same sort of legacy of struggle that ibm has in trying to shed these older businesses i guess it comes with the territory and being a longtime blue chip company. but, you know, investors have limited patience for this sort of stuff >> and he tells about global i.t. spending and what the outlooks are for what we've heard from some of these companies like ibm and others so far. depressed, about the same? >> i think the plot is thickening here. more and more, we heard last week from morgan stanley about projections on i.t. spending in general. we heard from goldman sachs about hardware in particular and large enterprise now we're looking at workday this week, saying things look a little bumpy so across multiple areas in i.t., you're seeing potential turbulence i don't think the story has completely played out yet. where we fully understand how

broad the issues are i mean, some of this, for example, with ibm, it's regional you talk about germany, you talk about uk you've still got to look at red hat and say, that performed better than expected it's not as if everything is shaky. but it's a story line that we're going to continue to follow, for sure, courtney >> all right i'm just looking at adobe off 13% from the highs we would call that in correction territory. you've got to go back to july, but it's been a pretty steady trip down since then >> on adobe specifically >> it's been a very long trip up for adobe. it was trading over $300 a share. now it's down in the 270 range so when you consider that it's been marching almost unabated higher since about a hundred bucks, in context, that's one thing. and then, you know, ibm has begun to absorb a really huge software company that's going to take some time we'll see where they end up.

>> all right, john, thanks >> two other names we're keeping an eye on that are bucking the overall market trend are cvs and viacom they're trading in unison as you would expect for two companies that very soon will be one yet again. wee we've got the proxy that details so much behind the decision to get together stocks well off the lows of the morning session. we had seen them both down over 4% why? well, one reason, perhaps, because of within the proxy, viacom management's forecast for cvs' ebitda and for its own. the forecast that viacom had for cbs' ebitda was well below the consensus of analysts that follow cbs had, but even then, when you put the two numbers together for what viacom saw for it own ebitda for 2000 and 2001, certainly those who own the stock would argue that it is incredibly cheap but it does at least point to some of the concerns, what was a

low synergy number coming out of the tie-up's announcement, at least low being in the point of those who follow these companies and expected a big number of overall in terms of what they can actually garner there. and continued concerns about the cost of programming, the nfl and things of that nature. earlier, when i was talking to jim cramer, who's owned the stock in his charitable trust and was bemoaning that, i did mention it being as cheap as, what, three to four times on 2021 numbers that was a bit low on my part. it's a bit higher valuation. do need to add in debt we're talking a total enterprise value versus ebitda. but still, the multiple is extraordinarily low for cbs and viacom, which are off the lows of the session but still down on what is a generally positive day for the market with the s&p up almost half a percent >> we've got the tech sector, one of the laggards here, picking back up on the ibm conversation with ibm shares down about 6%, but we are higher

for most of the sectors as we look across here and see the dow is up by about 76 points, though off highs of the session, for sure >> we're waiting to hear from the imf. we hope to talk to them in a few moments, but one of the headlines of the day is this notion that they have seen signs of de-escalation in trade tensions between the u.s. and china. obviously, after those talks concluded in washington last week, which they say could reduce the damage that has been caused to to the global economy so far because of tit for tat tariffs. again, the story this week has been about incremental positives, whether it's gm, whether it's brexit, whether it's china, and you're seeing some of that reflected at s&p 3,002. >> tentative deals and de-escalations, perhaps, but still waiting on a lot of the details to get ironed out for many of these deals we're following. in the meantime, let's talk about coffee coffee caught in the trade war tomorrow, the u.s. is expected to slap $7.5 billion worth of select european goods like

coffee joining us is third generation italian businessman andrea illy. he's the chairman of illy cafe thank you for being with us today. >> good morning. >> you have a lot of cross-currents going on in your business, but i know you also have some big projections, hoping to double revenue by the year 2027. how is business wefrg thith eveg that you're dealing with >> coffee is a positive market consumption is increasing. the u.s. is the number one market worldwide we are global with the presence, the most global coffee brand in over 140 countries, but the u.s. is the first and we want to grow. we want to grow. this is why we launch a research for a partner to grow in our retail, our cafes. we already have 20 or so 2in the u.s. and 250 or so in the world. we want to double and reach 200 of these cafes in the u.s. only. this is why we're searching for a partner. and could be a reit, a luxury,

hospitality group, the synergy also in the food supply and store operations could be a luxury group with synergy in the consumer base and locations. and if we find the right partner, we are open to, let's say, sell a minority of our company in order to create alignment of interests >> but you would only sell a minority in that case. you're not interested in a full-scale sale or an ipo at this point >> not at all. illy has the privilege to be a family company, with 86-year history. and the brand, which is the family name. this is really precious. and has to be perpetrated for centuries. and so we had a managerial company. we got a professional ceo, professional governors so the family is involved more and more like a shareholder. but we want to protect this family control

>> you know, i'm always amazed at the lack of coffee consumption in a company like china, when we talk about starbucks, for example per capita is so far below the u.s. do you also believe that's a key market in terms of expansion >> it is and it will china is our fastest growing, although tiny, is the fastest growing country. we are there with our direct operations in two decades. and we grow. so it's the market for the future but it requires a cultural change, because it's the kind of a westernization culture >> it's all about tea, right >> yes tea, exactly it's coffee represents a special occasion, as a substitute product compared to tea. >> very quickly, before we let you go, you talked about how important the united states is to your business it's about 20%, i believe, and you hope it will grow. what happens when these tariffs go intoplace tomorrow? >> tariff will not, so far, interest italian imported coffee so, luckily. and we hope it will never.

because as a matter of fact, these tariffs are a kind of retaliating this airbus situation and italy is not part of the airbus consortium and i think we had a conversation with our president matarella with president trump yesterday, could be positive outcome. will also depends about what happens with the nato and what happens also in turkey and syria. it's a complex mediterranean situation. >> it is there is a lot of complexities going on right now andrea illy, chairman of illy, thank you for being with us here today. >> my pleasure all right. let's get down to washington, d.c. now our own jeff cutmoore setting down with a special guest. >> a very good morning, guys thank you for that, kristalina georgieva is here with me. managing director of the imf very nice to have you with us on cnbc if i may start by asking about

the brexit breakthrough we seem to have here markets are encouraging, the pound is strengthening, the ftse is higher, yet there are plenty of political opponents lining up to say that they will vote this down at the parliamentary session on saturday. what words of advice would you give those lining up to reject this deal? >> we need to look into the implications of disorderly brexit, brexit with no deal. in april, the front published the analysis it has done, and it is very simple very expensive for the uk. if there is no deal brexit, that would cost the uk between 3.5 and 5% of gdp. and it would also cost the eu much less, some half percentage point. so is it in the interest of the uk, primarily, the interest of the eu, and of course, the whole world, that there is a deal.

jean-claude juncker said, when there is a will, there is a deal now, we have to see whether this will can really hold >> the arguments for investors, largely focus around deferred investment activity by companies and suspended consumption because of uncertainty as you look at the story unfolding, if this manages to survive the saturday session of parliament, do you think there is any prospect for an improvement in the gdp prospects for the uk and an opportunity no ride on the back of a strengthening pound and a stronger stock market? >> well, there are two factors to keep in mind. the first one is that the markets have already absorbed to a great degree brexit. we have been living with it now for three years. so, investors who have been

impacted by the prospect of brexit have already integrated this in their decisions. what is the unknown? the unknown is, would there be a deal or there would be more uncertainty, more chaos? so, we have been patient for three years. i think you need to be patient for three more days. i think the impact on investor sentiment would be a positive, if a deal is reached it would remove that uncertainty of what exactly that means it is also very important to recognize that not only the uk, the rest of the world is looking for removal of this uncertainty. why? because we have plenty of uncertainty, even without brexit >> you have talked in the press conference, just a few moments ago, about progress in the u.s./china trade realm the markets seem to be confused.

there was an announcement of a first step that now seems to have dissipated somewhat. that enthusiasm, at least. and there's a lack of clarity. you have deeper and more insightful conversations with both parties than i do what substantial progress do you believe has been made? >> what we understand from both sides, i actually started today with the government of day, i t with secretary mnuchin yesterday. what we hear is very conservative attitude and commitment to identify remaining differences and then focus on those. in other words, cash what is already agreed on a number of issues there's 100% or close to 100% agreement if the focus is on the remaining differences, that's a good chance an agreement can be reached. the interest in agreement is a

simple common objective. helpful for economies of both countries, more helpful to china for obvious reasons. china is more open towards u.s. and more dependent on the trade relations with u.s but also negative for the u.s. we have done a calculation of what are we talking about, what is the impact, and it is significant. by 2020, tariffs already would shrink global gdp by .8% that's the equivalent of the economy of switzerland so the motivation to find a pathway to a deal comes from the fact that the world economy is slowing down, we are in a

synchronized slow down two years ago were in synch niezed up swing. you can take attitude when the world is doing well, one has to be careful when this is no more the case. >> is there a time issue in your mind here? it seems that we are still waiting for ratification of the mexico/canada/u.s. trade deal, concerned it could be tied up to 2020 election campaigning. if there's no significant progress soon on a u.s./china, that could be lost in the 2020 election race. >> you put it so correctly in your question, the sooner the better and the sooner the better not only because of the political environment in u.s., the sooner the better because we are in a world at the moment that is too much loaded with uncertainty we have not only trade uncertainty in brexit, we have

political uncertainty, we also have technology, creating disruption in the world conomy faster than has been the case before so any agreement close to being reached and move forward, that seems our advice has always been talk to each other, and even better, agree with each other. >> let me flag up two issues around financial markets and stability that you've raised here this week one is the high level of corporate debt as you see it, $17 trillion potentially exposed to recession you flagged up interests for investors that are stretching for yields, parts of the market may be liquid and don't understand is it fair to say there are now more risks in the financial

economy than there were in 2007, 2008 >> that i would be cautious not to go that far i do believe that after the 2007, 2009, period of time of great financial stress for the world economy, a lot has been done to improve the protection of the financial sector and some would argue too much has been done in that regard. i wouldn't go that far either but what we also have to recognize is that we are faced with a rather unique situation of low for longer interest rates and even negative interest rates. that negatively creates two risks. one is the search for higher yield by taking higher risk. this is already materializing.

and two, it is lack of investments that matter most, the financial sector not being able to -- thank you for joining us david, back to you on the point, they're flagging up some challenges that the managing director sees for investors that may be tourists, part of the market they don't well understand back to you. >> jeff, thank you for bringing us that interview live in d.c. want to get to union spask shares, seeing them up this morning. following third quarter results. it missed by a bit on revenue. stock is trending higher

joining us first on cnbc, chairman and ceo lance fritz rain or shine, appreciate your willingness to join us, mr. fritz. let's start with your words from the conference call where you said in relation to this year, you have been a little disappointed in the top line, versus what you were hoping to see, as a result, you adjusted head count more aggressively to drop in volume give viewers some background there. what were you expecting to see this year, why head count reductions are needed? >> thank you for the question. when we first came into the year, we were anticipating very modest volume growth and as we have gone through the year, first quarter was up 2%, second quarter down something like 4%, this quarter down 8% we have seen volume tail off to your point, the team has done a good job getting ahead of that, not just matching cost

structure to down volume but creating productivity. i am proud of the team where in this environment volume was off 8%, we improved operating ratio, operating margin by two full percentage points, which is just really solid progress this quarter. >> specifically to your point ago products showed some weakness, energy as well what do you see now, what are expectations for what's the remainder of this year >> yeah, the economy for freight railroads is weak now. some of that is specific to railroads and our macro economics, fracking sand down dramatically, coal down dramatically, on the premium side of business, international inter modal as we compete against a soft truck market are both down.

there are bright spots, crude oil, petroleum, lpg, seeing bright spots in food and refrigerated, bright spots in construction and plastics. overall, what it feels like to me is the economy, industrial economy is slowing and it is slowing quite a bit. our volumes are off more than industrial economy is, and that's specific to railroad economics. >> lance, your comments are matching with what cast fray told us for september earlier in the week, they went farther and said their forecast is that gdp goes negative before the end of the year are you going that far >> i won't predict recession i certainly hope that doesn't occur. i see some head winds and potential shocks, trade being one of them to the u.s. economy. we have to get those decisions right. the good news is i don't see a significant bubble

clearly don't have a bubble in the housing market, that remains weak don't see it in lending or consumer behavior. so the economy has the opportunity to muddle through this and get its feet under it, but we have to get trade right >> when you're talking trade, lance, you don't just mean trade with china, you mean the united states, mexico, canada agreement, that's critical for your business as well. >> that's right. usmca needs to be ratified it makes all the sense in the world timing is right. trade representative lighthizer did a tremendous job with congress addressing their concerns with the negotiated agreement. so i think he's made great progress i think we're at a place where it is time to take action, that's the right thing to do for the u.s. economy you know, our biggest trade partners by far on manufactured goods, that's where the great jobs are in the united states economy, are canada and mexico

they support something like 12 to 14 million jobs at average wages better than the rest of the economy, so it is critically important we get that ratified and move on to a trade agreement with china ultimately a trade agreement with the european union as well. >> mr. fritz, always appreciate you joining us quarter to quarter. had to cut it a bit short given everything else that's gone on in the show. stock up over 1% trans-fritz, chairman and ceo of union pacific. we had a triple digit gain in the dow, now gone red back to 2994 what's going on, dom chu >> what we're watching, carl, is churning in the marketplace, sector movements take a quick check what's happening with the overall market picture most trading in positive territory sector wise. tech is a notable laggard. we are watchin