hi, everybody. welcome to "the wall street journal report." i'm maria bartiromo, today coming to you from the american century golf tournament in beautiful lake tahoe. a dire warning about americans' debt. will the country lose its aaa rating? as earning season gets underway, what does it all mean? which way will the markets go? and the economy ahead, next. >> i really like this interview. and yes, that's me. my avatar, any way. the latest in cool gaming technology from microsoft. >> maybe i don't even have to come to work to do it. no kidding! my discussion with jason kidd on the nba dallas mavericks about the business of basketball. "the wall street journal report" begins right now.

>> this is america's number one financial news program, "the wall street journal report." now maria bartiromo. >> here is a look at what is making news as we head into a new week on wall street. a warning about america's debt from two key rating agencies. both moody's and standard & poors threaten to downgrade the rating of america's bonds if congress does not raise the debt ceiling and address the deficit. that would mean america would have to pay more to issue bonds and borrow money, which would in turn raise the deficit each further. talks to raise that ceiling continued today. the bears ran on monday on wall street, the marketing falling sharply on european debt concerns. this time the focus is italy. but then the markets rebounded later on in the week. federal reserve chairman ben bernanke testified before congress this week and left the door open for more intervention by the federal reserve. should the economy need it. but he stopped short of saying the fed would be there with more quantitative easing, or qe3.

oil giant conocophillips announced it is splitting the company in two, dividing itself into two publicly traded companies, a refining business and an exploration country. i talked to ceo james mulvihill about how this should ultimately be for investors. >> the value of the integrated structure no longer creates the value that we've seen in the past. so we believe the marketplace hikes. earnings season underway. jpmorgan chase beat expectations for revenues and profits as did city group and google. profits were in line with expectations. a huge and risky battle being played out in washington right now as the country teeters on the brink of not being able to pay bills. the fight over raising the debt ceiling and deficit cuts to go along with it. what it could mean to your money and markets. joining us now, jonathan thomas, ceo of american century investments and michelle girard,

rbs senior economist. thank you very much for joining us. great to see you both. >> thanks for having us, maria. >> let me ask you, jonathan. you are running a major investment firm and here we have the headlines, s&p discussing whether or not to downgrade, moody's threatening to cut america's credit rating as the fight goes on. how does that impact your decision making and where to allocate money and where to investigate? >> obviously one of the things it has done is the whole debt ceiling issue has captured the attention of the united states and the investors. what it's doing is raising people's awareness in a very healthy way about the real problems we have in this country. in turn we're seeing investors have much less conviction about the markets. >> michelle, what about you? this feels like washington really had a hans the get something done, and chop away at the deficit, and yet once again politics got in the way. would a temporary deal to raise the debt ceiling be a bad things? temporary? >> i think it depends on the size of the increase that we're talking about. if you actually only raise the

debt ceiling by a trillion dollars, that's not going to take us past the november 2012 presidential elections, which means we could be back to doing this all again, barring a different approach like has been suggested with the mcconnell plan. but i do think unfortunately right now, the uncertainty associated and the news flow out of washington is really as we saw with those consumer sentiment numbers, it's really having an impact on consumer and business confidence. and right now for the u.s. economy, it's all about confidence. because businesses certainly have the wherewithal to hire and invest, but they're just hesitant to do so because no one is quite sure where this all ends up. >> well, in his testimony before congress, you have ben bernanke this week leaving the door open to more help from the fed if the economy stalls and then at the end of the week he said not right now for qe3. initially he suggested the central bank would be ready to

provide additional stimulus. what's your take on that, michelle? >> i thought his testimony was pretty even handed, and i was surprised the markets were as enthusiastic about qe3 after the first day of testimony as they were. and i have to say i wasn't really surprised perhaps to see the fed chairman sort of tone down some of those comments, set the record a little bit more straight. because the truth is the fed is in a very difficult position. >> here we are at the beginning of corporate earnings. what are you hearing from clients? you've got big money clients putting money to work. the corporate sector still strong? >> you know, this is one of those dichotomies that has existed for a few years now, where the markets and the economy itself are on slightly different paths. following the financial crisis that we had in '08 and '09, there is a lot of expense taken out of the corporate side of the equations. and really strong earnings since then. originally just bottom line earnings, but in the last year or so some top-line improvement

as well. we think that will probably continue through this upcoming earnings season. >> so you think the second half looks okay? >> we do, yes. >> michelle, what about you? we're still seeing overseas events really play out here, whether it's what happened this week in europe, now new concerns italy in the crosshairs, concerns about its debt. 120% of its gdp is debt. >> well, you know, and i think that's something we all need to be obviously watchful. the situation in europe doesn't impact the gdp of the u.s. directly. it isn't like we're worried about not being able to export to europe. it would be through the financial market channel. if, for example, the equity market were to be hit because of the developments out of europe, it's companies here, financial institutions started to have here having access to liquidity and obtaining funding, this is what we saw actually in 2010 when these words first erupted. >> you had big news on friday, announcing that cibc, a leading

canadian financial institution is investing and buying 41% of the firm. >> j.p. morgan has sold their 41% stake in our organization to cibc. we are absolutely thrilled about it. it does tether in very nicely with our international expansion efforts. a few years ago we opened offices in london and hong kong. those are really launching pads to service the adjoining regions. they share growth ambitions with us. so we'll continue to leverage that. and the canadian banks, as you know have done exceptionally well. >> one thing people don't know right away is more than 40% of your profits go toward charity. and that is toward curing cancer. that's pretty extraordinary. and it's up to 45%, that right? >> that's right. it was 40, and now it's 45% of our profits go to fund research for cancer and cancer and other gene-based diseases. and in fact, over the last ten years, that's over $750 million that we have directed to fund a

cure for cancer. >> and michelle, final question for you on the economy here. do you think a weak economy is priced into the market, or do you think that it will be a surprise if in fact we see disappointments, if we see housing continuing in the mud, stuck in the mud, and this european situation continuing to persist? >> no, i think it would be a surprise. i still believe that most people expect a re-acceleration and activity in the second half. we do. i think the consensus forecasts all point in that direction. if that doesn't materialize, if we only get 2% growth in the second half of the year, like we've seen in the first part of the year, that has not been priced into the market, i think that would be a significant disappointment for investors. >> all right. we will leave it there. great to have you both on the program. thank you so much. >> thanks. >> my thanks to jonathan thomas and michelle girard. coming up next on "the wall street journal report," i am the controller. my sneak peek at the latest technology innovations from microsoft and how the software giant hopes to change the world again. >> i think you're going to find

that computers become more like us. and lat getting down to the business of the american century golf business. back in a moment. i got mine in iraq, 2003. u.s.a.a. auto insurance is often handed down from generation to generation, because it offers a superior level of protection and because u.s.a.a.'s commitment to serve the military, veterans, and their families is without equal. begin your legacy. get an auto insurance quote. u.s.a.a. we know what it means to serve.

software giant microsoft is saying look ma, no hands! a $150 kinect controller for the xbox gaming system was launched before christmas last year. 8 million units were sold in the first 60 days on the market, a guinness world record. after changing how the world changes computers once with the dominant windows operating system, can microsoft do it again? i spoke to the company's second highest ranking executive, research and strategy chief craig mundie about making personal computers feel more natural. >> kinect is really the first mass market introduction of what we call a natural user interaction technology. in the past, people had to use a mouse or a keyboard. but here we essentially have gotten rid of all that stuff. you're the controller. >> how does it work? >> the camera is able to see in

three dimension. we map your sound, your facial feature animation, and your movement on to your avatar, and you can send your avatar out to meet other avatars. >> xbox kinect. >> when people meet in real life, there is a social component to whatever they do. you go have a business meeting. what we're trying to do is bring some of that into this remote action environment. there you are. >> we are talking to craig mundie today from microsoft. there is craig. >> there i am. >> hey, craig, how are you? >> i'm great, maria. good to see you. i'm sitting here essentially in my living room. you're really in your living room. and yet you can see as far as you and i interacting, it's quite natural. i look to my left, and i see you. and you look your right and you see me. and you get all the gestures and facial animation that makes this a fairly life-like interaction. >> and when you say interaction, there is a whole host of interactions.

one area that is being talked about in terms of usage is health care. >> one that i've seen recently is actually using this system to help autistic kids learn how to get better command of their motor skills. and it's difficult to get them to do that. but interesting when you stand them up in front of this game, and they see their avatar, there is this immediate feedback mechanism. >> fascinating. talk to us about the revenue opportunities for this, throughout the targeted advertising or the development of applications. >> well, in the gaming environment, of course, this thing has been a home run. but when we start to integrate it with these online components, there is obviously the future opportunity for promotions in that kind of environment too. i think that there are going to be lots of alternative applications. one of the things we've already done is we've released a developer's kit for the kinect camera. and so now people are starting to write their own applications.

some kids in germany in a school put one on a helmet, put the backpack, the laptop in it and created a braille belt, and they created a system that sees for the blind. and so, you know, these are the kind of things that you say wow, hadn't thought of that. >> do you think that the bigger opportunity here is for individuals, or do you think the bigger opportunity here is for business? >> well, i think personally that we're going to see applications in both domains. we decided to start this with avatar kinect because we knew two things. first, we were going to get the cameras out there first on these gaming and entertainment environments. we also knew that this was shifted primarily to a younger audience. in fact, there is probably 200 million avatars of one form or another that people have already created over the years just for their xbox games and interaction. we're giving life to those avatars through this camera there is a lot of focus on this

general idea of natural user interaction. the idea that people want to be able to get things done with their computer without mastering the technology itself. so for 20 odd years, we've been well served by pointing and clicking and typing. as computing becomes more diversified, i think you're going to find that computers become more like us. that the way you interact with a computer will be more like you would interact with another person. >> what is your take on the state of innovation in the u.s. today? >> the ability to innovate, the intrinsic desire to innovate is as strong as it has ever been. in fact, if anything the rate at which new technologies are being brought forward is as high or higher than it's ever been. but the country more broadly i think is struggling to figure out how do you really bring these things forward in an aggregated way to ultimately improve the economic condition.

and to create jobs. i think today there is a lot of focus on efficiency. but less focus on trying to take these innovations and make radically new products out of them. certainly even 35 years ago when microsoft started, it was the individual who made the choice to go out and buy a personal computer, put it on their desk, because they wanted the spreadsheet or they wanted the word processor. i think what has happened now is we have a society in the united states where the vast majority of the public is now being offered a very broad array of these advanced technologies, and they're buying them. the problem is that businesses are not embracing them at the rate that the public is. it's not merely about improving the functions that we always had. it's about using new technologies to do things completely differently. >> so are you surprised when you see some of these valuations that we're talking about? it seems like every day we see

another technology company either going public at a huge valuation, or lots of buzz around companies within this space, particularly in the social space that has created all this investor interest. does that surprise you? >> well, it does a little bit. you know, i'm getting to be an old guy in the technology business now. and we saw the big, you know, tech bubble back around the turn of the century. and i think we're starting to see it again. i do think that some of these valuations really price these companies at a level of success that may be hard to sustain, and certainly hasn't been realized yet. >> craig, this has been such an informative conversation. thank you so much for joining us. >> it's great to see you again. thanks for being such a good sport to have your first ever avatar-based interview. >> well, i really like this avatar-based interview. and maybe i don't even have to come to work to do it! >> okay, thanks. i'm going vanish here.

>> okay, see you later. craig mundie joining us right here, or should i say craig's avatar, of course. stay with us. coming up next on "the wall street journal report," we'll take a look at the news this upcoming week that will have an impact on your money. stay with us. and around on the links with jason kidd of the nba [ male announcer ] where'd you get that idea?

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welcome back. from lake tahoe, where talk on the golf course is on the business of basketball, among others, and the two-week-old nba player lockout. working on his swing here is jason kidd, fresh off the dallas mavericks championship season. the veteran point guard discussed what he really thinks of mavericks owner mark cuban, and how it felt finally getting that championship ring. >> it's a dream come true. as a kid growing up, you always dreamed about winning a championship. and i thought i would do it after i got drafted. but it took me 17 years to do it. and i'm happy that i did it with the group of guys in dallas, the team that drafted me that. >> is just terrific. has it changed your life? >> unfortunately, no. i'm waiting, though, i'm waiting. i think it changes once you get the ring. and so hopefully that is soon. >> wow. as one of his players, describe mark cuban's style of ownership. he has been on the program many times. do you think his distinct style is good for the nba sports or not? >> i think cuban's the best.

i think he is by far one of the best owners in sports. and he needs to get more -- he should go out and buy the dodgers. it's hard to pay that, but he would be great in baseball. circumstances that right? let me ask you about what is going on in the nba in the midst of a lockout. what do you see -- how do you see this playing out? unlike the nfl, nba owners are saying they're losing money. so how far apart are the negotiations? >> i think right now we're probably not close. but i've been through this before in '98. so hopefully both sides will come the an agreement, and we won't lose any games. we also had a lockout where we played 50 games in the season and we pushed forward. hopefully both sides come to an agreement, and the fans don't get hurt. >> you've got a lot of players that are considering or either agreed to play overseas or strongly considering playing overseas. what about that? is that the right move? will you play overseas? >> i think it's the right move when you talk about the brand. the company as a individual.

if i was younger, i would look at going overseas for my brand to maybe go global so that somewhere down the liny sell more shoes or sell more jerseys in turkey or in china. >> well, that's where the growth in the world, right? everyone is looking outside the united states for growth. >> right. >> same with the nba. >> same with the nba and same for the individual as players. they've got to look to grow their business. >> let me ask you about the win. so much talk surrounding lebron james and the mavs win the title against miami. how did it feel? did you get a lot of high-fives? is there a lot of competition? is lebron a friend of yours? >> lebron is a friend of mine. and he said afterwards, if there is one person to lose to, it would be you. you deserve it more than anybody. so i thanked him for that. he was first class. and he is young. there has ban lot of pressure and a lot of negative talk on him. but he will win championships and he'll win more than one. it's just a matter of time.

>> this is not your first trip to the american century golf tournament. how are your game? >> unfortunately, i'm not on the leader board unless i bury the first hole. but i have a lot of fun, tahoe is a beautiful play and american century puts on a great show. >> and it's great for charity, raising money. >> it's also great for charity. today we're trying to achieve that, with all the great talent, the players here. not just professional athletes but entertainers too. >> what is next for you, jason? >> trying to conquer this game. >> i have no doubt you would. once again, jason kidd joining us. thank you so much, we appreciate it. as we take a break, take a look at how the stock market ended the week. stay with us. we'll be right back. mine was earned over the south pacific in 1943. vietnam, 1967. i got mine in iraq, 2003. u.s.a.a. auto insurance is often handed down from generation to generation,

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i hope you'll follow me on twitter. you can find me@maria bartiromo. for more on our program and a further look at my making of my kinect avatar, check out our website, wsjr.cnbc.com. now a look at the stories coming up that may move the markets and impact your money this week. companies reporting their second quarter include bank of america, goldman sachs, microsoft, and yahoo, among others. also coming out with earnings apple, ibm, coca-cola, johnson & johnson, mcdonald's and general electric, the part owner of the company that produces this

broadcast. it will be a busy week on earnings. tuesday we find out the number of new residential units that began construction last month. and on wednesday the nation's retailers report total existing home sales, also for the last month. on thursday, the philadelphia federal reserve releases its outlook on manufacturing in the midatlantic region. we'll be watching all of those reports for you. and that will do it for the show today. thank you so much for joining us from lake tahoe this week. my guest next week, investment strategist jason trennert. each week keep it right here where wall street meets main street. have a great week, everybody. i'll see you again next weekend. [ man ] did we get anything good? sweetie i think you need a little extra fiber in your diet. fiber makes me sad. oh common. i dare you to taste one hint of fiber in fiber one. oh, i'd be able to tell. why don't i just eat this bag? and how can you talk to me about fiber when you are eating a candybar. you enjoy that.

i am. [ male announcer ] fiber beyond recognition. fiber one. it's not too well done? nope. but it is a job well done. what are you reading, sweetie? her diary. when you're done, i'd love some feedback. sure. your mom and i read that thing cover-to-cover. loved it. thanks. would you mind if i cut the lawn this weekend? only if you let me talk to your mother on the phone for hours on end. done. [ male announcer ] u-verse brings peace to the family. at&t u-verse lets you record four shows at once from any room and play them back on any tv.