how did mark carney vote on qe? we'll find out today at 10:30 cet as bank of england minutes are released. this will be key for gilts and the sterling trade. a revenue slide for yahoo! but internet company sees profits rise. so is marissa mayer's turn around on track? jon fort will go through the earnings at 11:30 cet. federal reserve chairman ben bernanke is set to testify before the house financial services committee later today as part of his semiannual presentation to congress. he will likely face a grilling over plans to wind down the central bank's bond buying program. on may 22nd, bernanke rattled markets with his first indication that tapering could begin if economic conditions stabilize. >> if we see continued improvement and have confidence that that is going to be sustained, then we could in the next few meetings we could take a step down in our pace of purchases. again, if we do that, it would not mean we're automatically aiming towards a complete wind down, we would be looking beyond that to see how the

if the qe is over, look, it's not a matter of the qe being over to me.e tapering talk is kind of overblown. because you will still have 3-and-a-half or 3.8 trillion reserves in this system. how are you going to un -- remember when the qe'01 start and qe2. the fed put in place, we will raise the reserve requirements or possibly raise interest on overnight reserves, or reverse repos. we will drain this liquidity out of the system. now the words out of bernanke and others is that, well, we can let this stuff roll off if time. so this is going to be the interesting part of the lab experiment as we go forward. how do we remove those exception reserves? believe me, if it was not a qualitative reserves of removeing them the gold will go substantially higher. >> so china doesn't dictate the commodity supercycle, jim? . >> it will for chanos. >> i think it will. i think the dollar is being in there, too. i kind of think that commodities have bottomed. >> you think they've bottomed? . >> i do. i have. >> then they'll go up in tandem with financial assets? >> i thi

we are dialing back on qe.rong to take that as a tighter stance than what we have seen in the past. >> i guess my point is is the chatter move directions by a small amount. that's what markets do. at the end of the day, we are back to where we were before this chatter started. it comes back to what to the fundamental also, what are our earnings going to be nextier. i think that's the change, is it basically the chairman managed to put the jeanie back in the bottle he unleashed. now we are back focusing on the fundamental also, with i is quite good. >> i think the fed wasn't very worried about the overreaching bond market. i think this took some of the air out of it. if you had a strong hand, you met mark paris, he was a retail investor that went for the exits. if you were a strong hand and sat through the marks since may, since the initial taper chatter you are in fairly good shape. i think the reality is there is a lot of liquidity slashing around the markets. you got to do something with it. >> we all have kn

it was because the hawks wanted to tone down the qe, to be sure. he himself, i think, began to look at the data and say, hey, this sequester is really not slowing down the economy. by the way, i agreed with you 100%, larry. god help us if our federal government can't find 5% in his budget a fact to cutting financial services. i think it's a very, very positive factor and definitely a pro growth factor for the long run. >> is that's the thing. that's my take. actually, spending has gone down from about 25% of gdp to less than 23% of gdp. zane, i come to you on this because we are issuing -- we, the u.s. government -- is issuing fewer bonds. the price is going down, and the rate is going up because the federal reserve policy adjustment. the reality is we are borrowing less and the debt burden is a wee bit less. >> let's hope that lasts a longer time. the expectation is that is only going to last until october, and we did do some good things in terms of raising some action at thats -- taxes, at least from a budget balancing standpoint, the payroll tax

most of the damage was priced in when qe infinity became qe for a little while.more thing from john riding. a friend from "squawk box" says they are not monetary in nature t. feds should tapir more quickly. guys, i'm back with the deficit a. big change here. is eight problem? is it not a problem? can you read all about the cnbc fed survey on line at cnbc.com. joe. >> you were not around yesterday. >> i was not. you know where i was? >> fishing. >> no? my other passion. >> playing in the band? >> no, saratoga. really fun. >> i didn't get to talk to you, i'm sorry about that. about who was the biggest. you are the greatest predictors of, you know, basically, anyone who was predicting inflation gets cut through, right? >> that's right. >> but i like fisher's point i thought it was great. it was like having all these qeers, qe perpetuals, having them all say the economy is not going to recover while they're doing all this knowing what they are doing isn't going to help. actually seeing all this stuff is ineffective. that's even worse tan predicting. >> in other words

sectors i agree with the overreaction of the bond market to qe tapering fears.k at sectors that have been overly punished from here to the end of the year. that is where your best risk/reward is in our view. it is clear that the fed statement bernanke mentioning higher mortgage rates they're concerned about higher interest rates. so they have a vested interest in keeping rates low and being market friendly. tracy: you guys were terrific. our all-star panel. doug cote, scott brown, michael cox and anthony valari. thank you all for being here today. >> thank you, tracy. ashley: we're watching the markets every move in reaction what we heard from the fed. a live update from the new york stock exchange coming up next. tracy: plus a strategy session for president obama and democrats ahead for the next spending battle. expert and former ceo director don marron will tell us how this will play out ahead. apparently he has a crystal ball. let's look at oil and other metals. we'll be right back. with the spark miles card from capital o, bjorn earns unlimited rewas for his

does it mean qe forever? is it $85 billion a month forever? very cautious here. i'm worried about premature monetary exit. you know, i think we've had two quarters of below 2% gdp growth in the united states. it looks like we're going to have a third quarter, the second quarter i'm projecting 1.3% gdp growth with consumer spending below 2%. we've got pce deflator, core inflation at the low end of the fed's targets. so i'm a little surprised at the hawkishness and the sort of discussion we're hearing around taper given where the economy's at right now. there's a lot of confidence in their forecast that growth is going to accelerate. and i do think it will exc accelera accelerate, but there's got to be some cautious, i think, here. >> jim, talk about the exchange that investors need to weigh, which is on the one hand, i'll have $85 billion a month of fed quantitative easing. or if i get growth, i'm going to trade in the qe for growth. what is ultimately better for investors and for the economy? >> well, there's no doubt growth is, steve. i perso

i think qe-2 has worked, the quantitative easing.ised bernanke has said what they said, they're going to back off. i think the trend is going to continue. it's going to take a while, but at the end of the day -- >> thank you for being here. >> this guy doesn't give up. >> great having you. >> great having you. make sure you join us tomorrow, "squawk on the street's" next. >> all right. >>> good wednesday morning, welcome to "squawk on the street," i'm carl quintanilla with david faber, kelly evans, the new york stock exchange, cramer is off again today. the stocks are up four straight days. the best four-day run for the dow all day long. pi

europe is going to have to deal with qe, an sterilized qe, starting to print money. u.s. has been in it for well over five years. brazil, india, inflation problems. i think we're still in the beginning innings of a global qe at the end. >> bob, more earnings as dani was pointing out. netflix tonight. >> yeah, and having julia moderate, a tremendous move. that's somewhat historic. looking forward to hearing that exchange of what's going on there. the industrials are really going to be big this week, because if we continue to get fairly good numbers, like we did from honeywell last week, that will offset the weakness in technology, and it will add fuel to the idea that financials are not the only thing out there. remember, the baron's cover talking about europe making a comeback. i'm skeptical of that. i'm certainly hopeful. china stabilized. japan is looking better. portugal has a stable government now. if you get stability through the summer, you may not get a summer sell-off. we haven't had it yet. we're still no indication that it is led in that direction. >> dani, the

look, if you don't like qe the way it's being structured, there are other ways you like qe, maybe more, maybe have a big tax cut paid for by the fed. you have a fed-financed tax cut, if you're looking for a more kind of populous version of quantitative easing. >> let me ask you about the impact tomorrow might have. you know, rick just said a minute ago we're going to have a tough market if we don't get a schedule, and from what we hear tomorrow. what is your best expectation, jim, in terms of what we hear tomorrow and how the market reacts? >> again, i think the market -- his testimony, bernanke's testimony will be out early, so i'll have time to sort of focus on that. again, i think it's going to be repetition and focus and stress the communications part here. listen, it will be the q&a again. especially this is the house, you'll get real curveball questions and how he reacts to that q&a. that will be the driving moment. those are going to be the headlines coming from his testimony. >> you have real expectation and opinion about where this economy is. where is it. >> rick's wrong, i d

before qe-3, then during qe-3 and now at the end of qe-3. don't you get it? none of this matters. >> but andy, the markets are going to react like it matters, right? >> yes, definitely. and i think for tomorrow and the next two days, you're going to look to see whether or not bernanke walks back a little of the easiness that he'd talked about. you know, qe forever, kind of what we got from the last time he spoke. it's interesting that -- to put this in the context the bank earnings because they've been so strong despite the backup of interest rates. so bernanke should feel a lot more comfortable saying higher interest rates are part of the game when we have an improving economy. and the concern it's going to hurt the banking sector or the consumer. >> josh, we've been trading near all-time highs, we pulled back today, but i would think the rise in the markets gives bernanke comfort in some way, right? because now it seems that maybe the market's finally gotten used to the idea that the fed isn't going to feed them sugar all the time. >> i think i agree with a

finally, you see how much qe. you can see what that does, even though it went up here, it makes sense. when you do the math, what they're doing is factoring out $20 billion and continuing to the end of the year. there's that number, 390, which would be 56 billion a month. i think that's high for the moment, though. that could come down. that's the number now expected in 2014. bill, those are the results. 45 respondents just this morning. >> well, hank, i'll put the question to you. if steve's survey is right, and we all have to believe that it is, and september/october is the range we will see the fed start to taper, what does that do for volatility? are we out of the woods for the summer until september? or are you expecting us to have a more volatile trade until then? >> well, i think the theme for the second half is going to be all about volatility, because first, it's when do they start tapering? second, it's how much. and, then, third, and the big question is, who will be the next fed chairperson, because we'

carney is a big believer in qe.f he wants to see easy monetary policy, that might not be his chosen way of doing it >> okay. so he'll probably vote no the to extend qe this week. what about setting out rates will stay low for longer kind of forecast? >> i think the general idea there -- and i think i would subscribe to that -- is that that's not going to happen this week. it's far too early. >> we're going to hear about that in mid-august, forward guidance. >> with the inflation report. >> so don't do anything. he's arrived. he's not actually going to do anything much. >> he's going to party in the canadian embassy tonight. >> that's nice. >> to be honest, i think that's quite reasonable. i think he inherits a huge task in the uk. i think to come in and, what, four days into your term of office to announce huge changes is asking way too much of anybody. >> i mean, don't forget, he's got a pretty full job. he's got to replace two deputies as well. so there is a lot for him to do. most importantly, are the measures--

down the path to qe. once you're here you're here. and this argument about stocks versus flows that the fed seems to be relying upon has proven to be wrong. what bond traders care about, what interest rates are determined by is the flow, not by the fed's purchases. and if you reduce the flow of purchases you're going to have a further backup in interest rates. that's not going to be good for housing, especially with income growth being as weak as it is. it's going to squeeze affordability fairly rapidly and in addition to that it's going to stamp out what's happening in terms of the automobile industry because the steeper the curve gets the higher the costs for -- >> and there's a lot of evidence, i just want to add to that, when you take a look at the weekly applications for mortgages, refis, and purchases that stuff is heading south at a very rapid rate. those things are going down. that could be a function of the interest rate. joe lavorgna, i know you're going to disagree because you're more on the bu

i think it has something to do with qe. also, wealth manage.decide something is going to go up, doesn't it go up? >> at lowest a period of time. >> gold, too. >> you tend to get, obviously, when there is a concentration of wealth. when there is a leveraging, obviously, you tend to see an asset class move one directional. i think over the long term, it will be the fundamental also. >> on the qe piece the dollar is up and commodity prices excluding oil are all down. you know, the whole complex outside. >> something else is going on with oil. >> it's another way. >> the other way. >> let's not forget, a lot of things, this whole issue about refineing in eight years. so the whole notion is part of this demand for oil are high is there is demand for fine products. that's pushing oil up in the short term t. question is, what's the end market for those refined goods, how well will that hold up? >> we had the guy on, $50 like within six months or a year on oil. we're going to 50 again, carl? >> no, no way. the only time we ever gone down when we saw a

they opened the can of worms by having qe and saying they are going to get rid of it. they need to layout a timetable to help markets adjust. to me, it's like good parenting. you've got to be consistent in telling kids what will happen and if you tell them each time they get the picture. there is too much uncertainty in the economy. so the federal reserve -- in part, so the federal reserve needs to be clear about how they will get rid of it. i think clarity is important. go ahead. >> i was going to say i think your point about the fact these are incredible or extraordinary policy measures so it requires extraordinary explaining and signaling to the markets about what they will do and when. david, thank you very much for being with us. chief global strategist at jp morgan. >>> for more, log on nbr.com and you can read my blog about it. >>> you're golder years may have lost a lot of luster after a troubling report about under funded pensions at some of the nation's biggest companiecompan. the report out today shows a record amount of underfunded pensions for the 2012 fis

as you know, there are some people who wanted for some time to actually end qe immediately. and certainly president george of the kansas city fed has been dissenting on that for that reason, for quite some time. and there are others that probably are nervous about beginning to taper now and would prefer to do it later. but i think if the labor market continues to show gains in jobs of let's say between 175,000 and 200 over the next couple of months, and if the economy looks like it's rebounding from the doldrums that it hit in the first half of this year that were likely attributable to fiscal policy, i think tapering in september seems like the most likely outcome. if that doesn't happen, and if there are any significant setbacks, especially on the labor market side, i think we could easily see the tapering put off until december. but at this point, i still think september looks like -- until december -- still think september looks like the most likely outcome. >>> executives at japanese electronicsmaker n.e.c. may bow out of the smartphone business. they say it's getting d

so that was a factor that could have affected qe but bernanke dismissing it. because of economic reasons, better economic outlook but saying it is something they need to monitor and later talking about higher interest rates and that the tightening was unwelcome. back to you guys. >> thank you very much. beyond na the major takeaway, his belief that the markets are beginning to understand, he sats, the message he's delive deliveri delivering. let's return you to capitol hill. >> -- of government support. you know, that's really what has created opportunities for middle income potential homeowners from getting into the market, and as we're grappling with this gse reform, i'm concerned about what happens to rates. i agree with mr. miller, there seems to be some requirement of a backstop at some point, and obviously you want the taxpayer to be as far back as possible and that the initial cushion or the initial loss if necessary be absorbed by the private sector, and we're trying to figure out a way of preserving an affordable 30-year fixed mortgage, keep that mark

also comments suggesting that more qe could complicate the eventual move towards exit. across the charts, you see the extent of the red. the ftse was tracking up about half a percent first up, now down half of a percent. the cac quarante in france, the xetra dax down .6 in germany. it is the spanish market that is the weakest of the european markets, down near 1% sell-off on that market. let me show you a couple of individual stocks moving around today with big stories as well. barclay shares down almost .8%. the u.s. energy regulator has fined barclays and its traders $453 million. this relates to allegedly manipulating energy prices in california. investors, though, say it is not material to the company's earnings. novartis also in our focus today as well. this is after the drugmaker says it is not part of an investigation by china's authorities into alleged bribery in the pharmacy sector. this comes on the back of the glaxosmithkline scandal in china, apparently four more global companies are in the eyes of regulators. the share price tracking lower by 1.4%. let's mo

september 18th is when the fomc will discuss possibly a tapering qe. it wasn't obvious that that's what is going to happen with with this latest statement, but that will certainly be a date to be reckoned with. then october 1st. we'll get another sequester and we forget they're going to happen every year nor a ten-year period. they add up. there will also be a debt limit fruk kus down in washington i'm sure and obama care hits us in october. i think all these things may give the markets some pause. the reason the impact has do you know so well is because the fed said they're going to keep interest rates towards zero for a long time. >> in terms of what this stall will look like, can you characterize it? are we going to see a market pull back and if so what do you do out there? when you are a viewer at home and listen to this you think maybe i should get out at this point? >> the problem with getting out in this bull market is you also have to figure out when to get back in. you have to time it just right. we have had three major corrections in this bul

i think japanese equities with qe on steroids type of approach that they are taking now makes sense. particularly if the yen weakens from here. those are areas we are cons tra tra concentrating to moving capitol to here. >> obviously japan is on fire because it has its own printing presses moving full bore. the economy there is in trouble. i don't want to say it is coming apart at the seams but fraying at seams. that might benefit the u.s. market. because all of the chinese people that want to take their money out and put it some place safe, where will they go? they will come here and put it into housing. >> i think the market closing at a high here. and john, what would this tell you about how we open tomorrow morning? is it all about the earnings in the morning? >> i think you know, again everybody is saying we are at this great big high. we are flat for 13 years. we are not up that much over where we've been the last 13 years. here is about 15 merging markets about 12 and if you look in europe there are about 9. so the markets, equity in the markets are not in a bubble. we're just

they want to stop qe. they want to stop qe as quickly as they can. freaked out about the idea qe would be pulled back, they came out and said, no, we're not raising rates or not going to sell securities. that is not what is bothering the market. what bothers the market they will reduce purchases and fed seems intent on doing that he have about the end of the year. ashley: james, they also downgraded or revised lower a lot of their economic projections. it is not as though we're getting a sense that the economy can really stand on its own two feet. it may be able to do it but not exactly going gangbusters, is it? >> right. i think that is the key thing that bothered the market the most. the fed downgraded its assessment of the economy on both inflation and gdp this is a data dependent fed. they downgraded the economy. that means a data dependent fed would argue more qe. not that we'll end in september. no that we'll end over the next few meetings. the market scratched its head. why are they talking about exiting when it is downgrading economy. the ans

>> the thing is what is this now qe infinity and qe eternity?oney printing what it stands for. when are we going to get off that kick? >> apparently not any time soon. >> that's right. i'm thinking walking into your studio the markets have been dependent on central bank -- >> just occurred to you walking into the studio, you did no research coming in? >> no i did but you're so inspiring it just lit something in my head, so since the '80s, i mean, what, the central banks around the world according to bank of america, merrill lynch, says the central banks added around $11 trillion, $12 trillion into the global markets. is this really our future? when are we going to get off of the central bank fix here? >> not any time soon. >> not any time soon. i'm wondering at what time and point, melissa, this turns into a bad story. >> over time when we see interest rates go up that's going to be the problem, because we've seen housing recover quite a bit and interest rates -- >> precisely because interest rates have been going up. >> exactly. all of a sudden

july of 2014 qe ends. now, we asked this question how much of what you think is going to happen do you believe is already baked into the market. 68% of the move is baked in for mortgages. less for equities. >> so what can we expect from tomorrow's statement. guy adami, we'll kick it off with you. >> i'm of the belief and we said it for a while the market doesn't give you this long to sell the highs. technically it did what it needed to do today. i thought 1681 was a big level, it held bounced. obviously not a big day in terms of where the market went but important in that the market doesn't want to give up any ground. now, i could be dead wrong and this could collapse but i'm hard pressed to believe that we've been around this 1685 level for a few weeks and this will prove to be the top. >> to go higher the market must accept the fact that the taper could be coming. >> when it comes to the markets are you telling me mortgage rates are where they're going to be when the fed is pulled out? i don't think so.

show, it changed because bernanke told you there's diminishing returns to the efficacy of that our qe jobs data, market goes up. >> back when you didn't like the market, you thought earnings would continue to decline. >> right. >> or the rate of growth. >> right. >> isn't that -- i mean, the same debate we had last segment, is it about earnings or is it about the fed? your view changed from earnings to the fed, didn't it? >> look. we were right on the earnings. >> yeah. exactly. >> declined year over year in the third quarter. i think what mattered and your question is really about that multiple, or the p.e. ratio, and the fed was able to get the p.e. ratio higher. we didn't want to fight that p.e. ratio anymore. i think right now the call is much simpler. good news in the economy will be good news for the market. bad news will be bad. i don't think it's going to be a great earnings season but it's going to be better than april. april had bad guidance. i think it's going to be better. look at the companies that report in may and june. they give us better numbers than in may and april.

. >> talk about qe. when you look at what qe was supposed to do.t seem to be doing it. is that a fair or unfair way to put it? >> well, i'd say this. you know people want to buy capital equipment they have a need for it. they will produce results. low interest rates are interesting. they move the needle on the mar jirngs but they don't change fundamental demand. dumdal demand drives the need for capital equipment. if it isn't there, then probably that equipment isn't going to be sold. >> why do you think demand is weak? >> well, i think demand is weak because of a lot of uncertainty. i think the u.s. market is better than many markets, you know, in rust we trust, we say, as things get older, that i need to be replaced. but ultimately, there sooedz needs to be greater employment, greater growth, greater certainty around tax policy in this country. we should be leading an economic recovery globally. we're not. infrastructure investment in this country is paling by comparison to what the requirements are. i think long term it's a good growth prospect.

the minutes showed the officials very split on the timing of when to start winding down qe 3. that was the fed. we also had decisions today from the bank of japan. it was brought to you by the letter r, central bank held steady on policy saying japan was beginning to recover moderately. and for the seventh straight month, raised its economic view while sticking to its long-termer term growth outlook and to set inflation target. a similar picture in neighboring south korea. bok held rates at 2.5% as it raised its gdp forecast but warned that fed tapering and china slowdown are risks. joining us from hong kong is a japanese economist at hsbc and from singapore, the southeast asia economist at lamura. the bank of japan, are you -- how comfortable are you with the sustainability of the recovery? >> i think so far things are going well. i do agree that there -- the sustainability of the recovery is dependent on part on the external environment. >> which one in particular? there is a couple. >> yeah, i mean, there is a risk of a u.s. growth slowdown in the third quarter. there is al

but my point is the second part of that is that qe has provided a self-sustaining legacy, if you likeiving. because the banks' balance sheets have been expanded by $2 trillion. and even when qe disappears, you got this self-sustaining lending that from the banks is on their balance sheets now. as long as you get housing, autos, the engine of growth, continuing, you're going to see -- >> you agree with that, john? >> i do. i think the market has totally overreacted to what bernanke said and, you know, over the last week to ten days you've seen many, many top fed officials out there saying no, guys, wait a minute here, we're not in any hurry to raise rates certainly and tapering might be, you know, it is still -- i agree that markets definitely overreacted there. in terms of why the fed may want to slow down here, i think maybe they're at the point where the risk/reward is no longer in their favor. they probably want to do more, but they're uncertain if they do more, if it is actually going to help. i think -- i still think they're going to continue to do quantitative easing. they need

it doesn't have to be the train wreck with qe doesn't have to be inflation. the train wreck could be trying to unwind and something else happens. i'm not sure what it would be or how it happened. people like krugman say everybody has been wrong, qe has been negative, no inflation, we're not out of this yet and nobody knows how it will turn out. >> i'm going to beat my dead horse with emerging markets. think about a stronger dollar, think about rising yields in the u.s. and how people are taking money out of emerging market debt because the carry isn't as interesting. growth is slow. because their currencies are getting weaker, brazil will raise rates this week. turkey tightens. we think about how big em is today. when clients ask me what keeps you up at night, this is one. what could make this go badly wrong? if you had enough growth and political problems combined in a number of big enough emerging market companies and aggregate that could -- >> half of them are dependent, mostly on china. how many are dependent mostly on china? >> all the commodity exporter

bernanke wants to stop qe. there's no reason economically for him to be talking about this, because the economy's no better than it was in september when he started qe. he wants to stop it. so he's going to talk about tapering, the bond market's not going to take it well, and that's going to drag on the stock market as it did through may and through june. i suspect it will continue to again. >> all right. sounds like a lot of fun tomorrow. thanks, gentlemen. >> we'll leave it there. thank you, everybody. we're in the final stretch of the day. about 50 minutes left before the closing bell sounds. the market is under fractional selling with the dow down about 49 points now. >> not having a cell phone contract that locks you in for two years, sounds good, right? not so fast. wait until you hear what you have to do so get that instead of signing on the dotted line. that story is coming up. >>> don't miss my exclusive interview with the s.e.c. chairman mary jo white. she has a tough message for wall street, one that

qe has really kind of, while it has been great for some, for the m&a market is really kind of messedhere is what we know. we know that the interest rates are stolen. -- appeared close to all-time lows and get the market is not as robust as people would have thought based upon the normal relationship between interest rates and levels of inactivity. now, much of that has to do with the fact that there are still significant uncertainties in the broader global economy that come back to potentially impact what happens with the business of the course of an extra three years. that adds to the riskiness of any business the you require. and so one of the things we have seen is that the low interest-rate environment, much as it did in 2006-7, has caused people to want higher prices because the math can be made to work if somebody pays a higher price. if you're a private equity player you can still apparently hit a 20% return the money given the low interest rates. one of the things of we all learned back in 2006 is you should not buy a business from more than what it to intrinsic value is rega

our call has been that good news will be good and bad news will be good because there will be more qe, and i think that changed last we are and i think the market regime is much different now and the difference is that the fed told you there's diminishing returns to the efficacy of their qe which means good will be good and bad will be booed. a different regime and volatile regime for this quarter and ultimate lit think the market will be higher, but i think we'll get better entry points than right now. >> so i assume what that means what the market will do in your view because you won't have qe as that sort of band-aid or makeup covering the flaws and blemishes of individual reports, is that you will have to pay a lot more attention to the fundamentals of individual companies and that it will become much more a stock pick's market. is that fair? >> yeah. we've been arguing since last january that company-specific risk will rise and it will be more of a company-specific story. i think that's true now. i think good news will be rewarded and bad news punished. remember, just a few month

i think we're going to be pretty range-bound, and the continued qe is supposive. think the economy needs it. that's why the fed will keep the foot on the gas for now. i think once we get closer to the tapering, yeah, we'll have to be more cautious and look for maybe a backup move to a higher range in rates and spread products might get hurt a little bit when we get closer to that point, as well. >> all right. we will leave it there. thank you, everyone. appreciate your time today. we'll keep watching that, of course, a new era at the fed. of course, we are facing a new era somewhere else. up next, facebook soaring, about 40% in a week. somebody here says it is still not friending the social network stock. find out why he's so bearish. >>> then, former ncaa athletes scoring a big win over electronic arts in court. and now, ea may have to pay them some big bucks to keep using their images in the games. details ahead. you're watching the "closing bell" on cnbc, first in business worldwide. i've been doing a few things for a while that i really love-- tdd#: 1-800-345-

but qe is better than nothing. >> pete, inflation never panned out. janet yellen wins the forecasting prize. i gave a mea culpa six or eight months ago and said there is no inflation at least as reported. what is your take on this because the inflation story never panned out. >> i'm still waiting for your next mea culpa. when the fed monetized $3 million worth of mortgages and treasury, by definition, that is inflation. quantitative easing is just a euphemism for inflation. we're talking about the effect of inflation when we talk about rising prices. we already have rising real estate prices, rising stock prices. inflation has caused that. but i believe consumer prices are also rising much faster than the government admits. we're hiding behind the cpi numbers which have been reverse engineered to come up with a low number. but if you actually look at what's happening to consumer prices, not what the government tells you is happening, but what is actually happening, prices are rising a lot faster. and so yellen is wrong. there is inflation and it's goi

the taper is about sustained employment growth since they put the program qe open-ended in play. rolls don't fall off, they will be willing to start tapering in september, having set markets up for doing it sooner and the numbers are not so obviously strong to warrant that. as for the data themselves what's impressive about 1.7% growth in the second quarter is that was supposed to be the peak of fiscal drag. we had the equivalent of 1.75% of fiscal drag associated with the tax increases and sequester, and we could still get 1.75% growth. that tells you there's underlying support. >> ben, that's a very interesting point, and from where i sit where you have modest growth 2% or thereabouts and very most inflation. that's a pretty good recipe for the stock market ben. let's talk now about the topic that is on a lot of people's lips and that is who might replace ben bernanke? it looks as if the race has narrowed down to fed vice chairman janet yellen and former treasury secretary larry summers. is there an edge to one or the other or even a third party? >> i think there's a clear edge

the federal reserve exited qe 1 and qe 2 early prematurely in the sense it had to give us qe3.ts misthey again, it's forecast is more optimistic on the street than the economy. >> that means they keep going oup up, shork will still be smiling. >>> coming up, shares of microsoft will be in focus this morning of disappointing earnings after the bell. we will talk about the company's miss next with rick sherlund. we will look at the plans for restructureing in detroit. "squawk box" will be right back. (announcer) at scottrade, our clients trade and invest exactly how they want. with scottrade's online banking, i get one view of my bank and brokerage accounts with one login... to easily move my money when i need to. plus, when i call my local scottrade office, i can talk to someone who knows how i trade. because i don't trade like everybody. i trade like me. i'm with scottrade. (announcer) scottrade. awarded five-stars from smartmoney magazine. . >> microsoft hit a bysmal quarter. rick sherlund is thegy to talk about this. looking at some of the stuff are you on record of, four str

when qe 1 and qe 2 ended the markets sold off.out 85 trillion and the markets don't like it. the markets gone '84 or '94 where they went to the endgame is and rise in interest rates which is showing in the 10-year likely to go higher. that has broad implications in the market refi. lori: we're seeing less refi-ing. >> everyone that wants to has already done it. lori: dan, give me investment advice in this climate? >> if we're right on the thesis you want to gravitate away from the interest sensitive sectors. we would be underweight utilities, probably reits, mlps, even staples. anything that produced that yield grab over the last year, year-and-a-half. we would be gravitating towards more pro-cyclical, more pro-growth areas on rising interest rates. we agree it will be rising interest rate market. the difference we think markets will act well during the that rising rate market. in that we like the banks, financials, industrials, transportation. within tech we would skew toward semis, more early cyclical plays. again small, mid-cap

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democrats are saying is there a danger of too little qe and bernanke is saying yes to both. cause than there is to keep going with the project as it is. september tapering i think still seems on track if the economy improves. >> with that in mind we will take a break. again with the dow up 108 points. "squawk on the street" is back in a minute. [ cows moo ] [ sizzling ] more rain... [ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros take a break. with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim. from td ameritrade. all on thinkorswim. wi drive a ford fusion. who is healthier, you or your car? i would say my car. probably the car. cause as you get older you start breaking down. i love my car. i want to take care of it. i have a bad wheel - i must say. my car is running quite well. keep your car healthy with the works. $29.95 or less after $10 mail-in rebate at your participating ford dealer. again with the dow up 108 you gotta take care o

what is the future of qe? >> well, i will offer my views.uantitative easing has served a role during the course of the crisis, but more recently the open ended program has raised questions for me about its cost relative to its benefit here i think the economy has continued to recover even though that has been slow, we have seen positive trends. the discussion about how much longer, when will that outlook for the labor market be sufficient to allow the committee to make adjustments, we have come to that point. the minutes of the most recent meeting have suggested that. the signals to the market after a long period of engaging in this kind of policy will be a bit confusing, may create communication challenges for us. i think creating that dialogue is important. peter: how do you think that this should play out then? are you satisfied with the job growth? do you feel that it is time to start tapering in the next meeting or two? would you support that? >> i think it is time. the labor market have shown now for the last six months pretty steady g

if you loobt whk at qe 1 and qe the markets basically rallied ahead of the rumor and when the actualtarted, markets sold off a little bit. we think that's what happens in reverse. we're seeing a sell-off ahead of the rumor and little buying or relative stability once the fed actually stops. >> look, how worried are you -- how concerned should we be about if there is a spillover -- a further rise in other rates, mortgage rates, for example. >> mortgage rates are very closely tied to the level of treasury yields. if you asked me two or three years ago whether i thought a 3.5% or 4% mortgage rate made any difference to the housing markets, i would have to say no, absolutely not. because the dynamics that are going on in the housing markets and how that is affecting consuming spending levels and wealth and balance sheets, it is much more tied to home prices which are in themselves tied to the lack of inventory that is available on the market for sale. so i think there are many, many factors, beyond just the rate market which play a more dominant role particularly in things like housing,

again, there's been no pullback yet on qe.alking about it all morning, when are they going to slow down purchases? we have yet to see that real impact. so what's the real normal for interest rates? we think it's around 4.5% by year end. but again, that's taking emotion out of the market. >> how about you, what do you think? >> i think historically what happens in business cycles, demand comes on, interest rates rise as a derivative of that and housing keeps going up. my question for david is what's going on on the demand side. i know the refi stuff will soften because of the bump-up in rates. you get more wealth for the housing sector. they buy more houses. >> you've been commenting here for a while about main street versus wall street and how does unemployment ultimately affect consumer demand and those variables. those are the same things we look at. we saw 1.2% drop in new purchase applications. month over month. we think some of that is emotion driven. people see interest rates rise. they slow down a little bit of that eag

. >> i was railing about how -- i don't like qe infinity, i like qe perpetual. i worry one of the reasons was obama care. i worry about getting employment ever back to where it used to be and if you don't, they basically have a license to do this perpetually if we don't. i initially thought the market might go up today based on this would help employment prospects and job prospects, but then -- now it is down and i think that's because it increases the democrats' chances in 20 -- >> it also increases -- it also increases just the level of uncertain uncertainty. >> it does. i know companies still don't know. >> now we don't know another year. now we don't know if it will get repealed, what is going to happen. i'm just telling you. >> the economy is getting better. >> that's got news. >> it could be getting -- >> yeah. >> fair enough. i'm feeling like a bug today. my whole life i've turned into an insect. check out google. franz kafka, most famous -- >> i hate that book. >> have you played -- >> you know, john, i'm glad you brought that up -- >> i don't think that

is it possible that, a, the bond market has already discounted the end of qe bond buying? is that possible? >> a large part of it with the downpayment in the last six weeks or so. i felt that as the economy gets better, when we look at the data and it is getting better, you have retail sales up 4%, new home construction up 30%, home prices up 12%, new home sales up 12%, durable goods 8%, and my favorite statistic is that investment spending is a percent of gdp has gone from 10 to 11 to 12 to 13%. at the same time -- >> that's what we've been missing. so in effect these are rising real interest rates, talking about real gdp and hopefully real earnings although i think mike ozanian's point about earnings is delicate. what's your call about earnings? >> i think earnings are going to flatten. i think in part that's why the small cap is doing better. investors are hunting for earnings growth. in the large cap growth you do have peak profits. you do have revenue growth which has slowed down. >> really slowed down. >> maybe so slow -- that's a good point. maybe everybody is so ba

half of the fed heads believed it would be appropriate to end their asset purchases, better known as qe, later this year. crude oil settling higher than 106 bucks a barrel. joining us to talk about all of it, john here on the set tonight, zach, and carol roth, former investment banker and author of "the entrepreneur equation." i don't know how larry does it but when i'm doing the show, it's ladies first. there seems to be confusion about what the fed is going to do. >> it's funny, you call this a cat and mouse game. i call it a cat and cat game. there are no mice here. the fed is being looking at the market and seeing what the reactions are. they say it's all dependent on the economy getting better. i'm looking at the same numbers, the economy doesn't look so great. if you look at the jobs numbers, we had certainly a lot of increase that we were pebltexpe but a lot of that was trading full-time jobs for part-time jobs. >> it seems to me, zach, there may be mice but there ares are men, of which you are one. welcome. >> that's good. that's good. >> what do you think bernanke's trying to a