Transcripts For CNBC Squawk Box 20091013

controversial purchase of merrill lynch and the latest invention from vac ewe cleaner maven james dyson is a bladeless fan. really? how i tell works and his outlook for high end consumer products as "squawk box" begins right now. good morning, everyone. welcome to "squawk box" here on cnbc. i'm becky quick along with joe kernen. carl is out today. we're watching earnings because today is a key day. the weak dollar will be in focus as some of the multi nationals get set to report. we have one big report before the bell and one after. johnson & johns i don't is expected to report third quarter results at about 8:00 a.m. eastern time. johnson & johnson is looking for modestly lower profits, at least that's the expectation on the screen. the street is looking for sequential improvement from the prior quarter as increased business and consumer demands start to improve the chip industry's health overall. also, the positive side of the weaker dollar, that's going to be on display. in fact, last year, 48% of revenue from s&p companies came from outside the united states and that number is expected to grow this year. joe, i think so far we've gotten about 32 reports, 78% have beat expectations on the street, but you still are talking about more than half of the companies reporting lower numbers than they saw a year ago. >> but we've already got that many. i didn't realize. >> 32, yeah. >> intel is the one. we truly are now in earnings season where we're going to get some stuff that could affect the tone and the outlook for the market. intel last quarter, even though it was down from a year before, it's going to be up 18% sequentially if it hits expectations, but intel was a big part of the move three months ago. >> huge rally on that stock because that was the stock we had the problem with on the charts, remember, we were showing it as a miss or something and it was the stock that really rallied. >> that's right. i forgot about that. it showed it as red. >> and it was green even though it beat expectations. >> but now there are concerns that once the inventory, i guess they -- once that builds back up, then you could see some flash demand. but people say you decide when to buy intel based on the margins. >> 60% is an unbelievable margin. who else can make stuff like that? >> a lot of these big companies are quietly resolving because there is something that they've missed off of in terms of a tax asset that's coming. if you look at the wall street journal, they say the obama administration has decided to drop plans now to drop how the administration taxes overseas profits. the white house had billed this proposal as an overdue fix to the tax code. this was a pretty controversial tax. if you look at the industrialized nations overall, almost to a one, they do not tax revenue that is taxed overseas. they don't double tax is. >> i like the article today that shows that it's a long piece and it shows the chronology of the entire debate on whether we do this. and it talks about, you know, the president had a lot of supporters in corporate america, a lot of ceos. >> especially when you look at some of the silicone valley ceos. >> many who were chagrinned when he called them tax cheats, when he threw companies which pay taxes into the same -- and i remember when he did it, too. >> illegal tax strategies. >> and i remember when he did it, too. i remember saying that these guys are shirking in their tax cheats and he was mixing apples and oranges. a lot of these guys said, wow, i supported you. >> honeywell said you can't love jobs and hate the people who create the jobs. >> exactly. and a lot of them appealed to valerie and a lot appealed to larry summers and to congress so that now it's off the table at least for now. but at the same time, he said, look, if you don't want to do it this way, how do you think we're going to close it? >> and that's the question. it's time to be patriotic or something along those lines is what they said. the question is going to be, where do you find this money? where do you come up with it? especially in ra time when you're talking about a lot of the times are losing to the great recession. >> to tell people that patriotism is somehow core late with giving you money for bigger government, a lot of people are going to have a problem with equating patriotism to -- yeah. but right now, business is breathing a sigh of relief looking at it as somewhere the administration is willing to listen. >> and that boils down philosophies we talk about every day. people will not be increasing tref knews so that the government spends more and that's patriotic. >> shares of goldman sachs will be worth watching today. meredith whitney has cut the stock from neutral to buy. we're going to find out when the company reports third quarter results on friday. >> so she went in may, that was? was it may or july? >> let me see that chart again. do we have that chart? >> on a scale of one to 10, how do you rate that call? >> where is it? probably a five. >> it quadrupled from 40 before you went to a buy. then you caught a little bit of it. you know who caught a lot more of it? >> who? >> warren. >> oh, right, warren buffett buying in -- >> below 100, wasn't it? >> yeah. what was the date on that? >> it might have been right around 100 and then it went to 110 or something. but it went down below that. >> it went down after he had bought in, but it's definitely in the profit right now. >> bank of america has agreed to hand over documents related to the merrill lynch purchase after months of resistance. the company's board voted this past friday to give the documents to investigators. bank of america has repeatedly said it's followed legal vice. that includes which to tell bonuses about the deal. and citigroup is opening its first retail branch in vietnam today, becoming the first u.s. bank to do so. the branch in ho chi minh city offers deposit, atm and wealth management services for individual customers. it's the fourth foreign bank to open a retail branch in vietnam. citi has operated in vietnam since 1983, but i guess they never had a branch before. aig has agreed to sell its taiwan insurance unit for $2.15 billion. primus financial, a new firm founded by citigroup's former investment banking head has agreed to buy this unit, which is known as nanchan life. it saw several corporate and private equity bidders getting in on the deal. and jury selection begins today in the trial of two former bear stearns hedge fund managers that i'm sure never thought they were going to be paraded around in cuffs, matthew tannen and ralph choppy ran mortgage fund which included subprime loans, one of the earliest warning signs that we cost. it cost investors and its sparked a demise last year. initially, they tried to support foss funds. it worked for a little while, but then it all came to a head. tanning and choppy are accused of misleading investors about the funds and it all comes down to whether putting the best light you can on investments is really -- i know i think they the -- >> is it legal or -- >> there were e-mails saying, oh, my gosh, this whole thing is a wreck. everything is going down. then at the same time, they were on calls where it says, yeah, it looks like things could work out. but this is a real gray area. when can you be seen as marketing or flat out lying? >> and once again this involves e-mail, which stands for evidence. >> exactly. we've been watching the futures and they have been flat this morning, probably wait to see what we get in terms of earnings central. some of these big earnings numbers that will be come out this morning and through the day. right now, you'll see that those s&p futures are down by about 2 points. dow futures are down by just over 20 points when you're looking at those dow futures. remember, though, the s&p was up yesterday for the sixth session in a row. it may not sound like a long streak, but in fact, that is the winningest long streak since back to june 2007. so that's better than two years for its longest winning streak we've seen. oil prices are on the rise, as well. it is up by 58 cents to $73.85. if you're watching the ten-year notoriety now, it's rising by 3.33%. this morning, you're going to see right now that the yen -- or the dollar is at 89.72 yen. the euro is at 14819. gold prices this morning are up by another $8.30. and that looks like we're looking at a new record on gold prices, as well. $1,066.80. we'll keep an eye on that, but obviously, the dollar has had a big impact on oil prices and on crude prices. >> christine tan is standing by in singapore, but we're going to start in london with louisa bojesen. >> this is one of those momentum trades. you've got the weak dollar being held on, strong gold, the banking sector to follow, the meredith whitney comments this morning downgradining goalman. it seems that we're still focusing in on what's going on with the earnings season and what's going on with the banks. they were being dragged lower by some of the big financials out there, banks off by approximately 1 mers or so. the deutsche bank ceo, deutsche bank being one of the worst performers today, warning that european banks could be left behind there, european and eurasian funds if they fail to refinance after the financial crisis. he's indicating that u.s. banks have emerged stronger and better positions in what we have incurred. if you look at the german banking season, there could be room to consolidate. that's one of the stories we've been following. the other stories we've been following have to do in the drugs sector, you have novartis, a wild back deciding to get out of the rights for a sdrug that has to do with zits friend ya. they've decided to buy back those rights as they've had a surprise approval in the meantime since they got out of the rights and novartis has been one of the better performing stocks here in europe. not on the charts right now, but nevertheless, still having been trading higher here early this morning. i want to mention that german investor confidence has dipped, indicating that europe's biggest economy could recovery at a slower pace than what we had previously been looking for. it's the first time in three months that we've seen a bit of a stipulate on that front and the question is whether or not we're starting to see a bit of a trend switch. it doesn't seem that way according to the vast majority of people that we're speaking to. christine, how are things look in singapore? >> they're looking to see if we can keep the rally going in the investment markets. japan returned from a long weekend to close higher. the exporters leading the gains. the bank of japan began its two-day meeting today with rates expected to stay on hold. now, south korea came under pressure today in addition to earning earnings, there is conference that prices may have may have weakened. the hang seng rose 0.6% -- 0.8%, rather. in shanghai, the composite rose more than 1%. strong forecast in earnings from sic, for example, and coming from new share supplies coming from ipos. becky, back to you. >> christine, thank you very much. let's see how the u.s. markets are shaping up this morning. joining us this morning, serat defetti. also john lonski. gentlemen, our earnings season is kick off in earnest today. we're going to get a lot of big reports that are coming out. serat, what are you hoping to see from some of these earnings reports? >> we've been talking about this for a long time. we know costs are cut, labor price res going down and comps are going to be pretty good. but what is going to be really important is first and second quarter. you're not going to have easy comparisons and all the inventory build up is going to be done. what are the companies that it's demand driven? we're looking for companies with global growth. so international growth companies and the consumer stable area or even some of the companies that have some of the chemicals, those that have a piece of a large part of their demand, they can keep on growing. >> is that because you're looking for internationals because of the weakness of the dollar? >> well, that's a good tailwind, but what i'm looking primarily for is input drivers to grow the top line. that's where i want to be. because the rest of the global economy has not suffered in some places? >> exactly, and the bric companies. we have some fundamental issues here in terms of deleverage that the consumer had and the ability of companies in our country to spend because of the amount of capacity. >> john, you're going to be watching numbers this week, including that retail number that we get later in the week. i think that's tomorrow inspect. >> yeah. that's very important. that will be an ugly looking number. mostly because of a deep plunge by auto dealer sales that's related to the ex operation of cash for clunkers. we want to look beyond auto dealers sales, take out gas station sales. we think we could see a gain of 0.5%. that is pretty good news. as the other investors said, there's a need in the economy to continue to grow corporate revenues if we have to have any hope of achieving a decent performance of the u.s. economy by 2010. >> john, there's a story on the front page of journal today that says we'll be watching the numbers as they roll in, expecting better numbers from companies at least on a sequential basis. but they say the real trick is cost cutting. do you worry about the chicken and egg problems if fewer people have jobs, there's no way the companies can continue to beef up and sell more things? >> korea. it's a little bit tricky. companies are not going to increase investment spending, they're not going to increase staff unless sales grow from a very low level. they have to continue to grow on the revenue side. how do you get them to grow on the revenue side? ex ports will help as stated previously. but it's also important we need more from the consumer spending. how in the world do you get the consumer to spend more if the unemployment rate continues to rise. maybe the only way of doing this is by aggressive price discounting. so i think inflation doesn't stand a chance in this type of economy. >> there is a silver lining for you. >> yeah, our inflation fears were badly overblown. either there has been a big increase in financial liquidity. there's a lot of government spending. but believe me, if you go back historically, each previous episode of run away inflation, i'm talking about the mid 70s, i'm talking about 79 and 80 was proceeded by a very strong economy. where real gdp growth of 5% to 5.5% was common, where employment income was growing by more than 10% annually. >> sarat, if that's the case, are the gold bugs wrong or just early? >> i think they're just early. there's so much cash on the sidelines, it's not earning anything. so people are deploying their cash because the bond market is way more expensive. and to add to what the other guest was saying is what people are looking for is companies that can raise prices because if you're cutting prices, you can't really pay your dividends. so if you have companies that have dividends and increasing dividends, such as the consumer staple companies, you get a 3.4% dividend yield on a 6% earnings growth, you're looking at a multiple that is really pressed. playing the index will be very, very tough. >> sarat, thank you for coming in. >> coming up, we're taking you to earnings central. join us for the inside look at headline stocks. business is changing all the time. there is an unabated pace of continuous communication 24 hours a day. technology drives communication. allows people to collaborate giving them stimuli to think in different ways. having a foundation of innovation is the way that you differentiate yourself from the competition. it's the lifeblood of growth. making businesses richer, stronger, more resilient. nyse euronext powering the exchanging world. this is an important one. intel is out with third quarter results after the bell today. joining us now with a preview, joanne fini. joanne, what is the consensus number i think on the street is, what, about 27 cents? >> that's correct, joe. i'm looking for 27 cents, just a shade under 9.2 billi$9.2 billi revenues. i expect the growth margin to be a shade under 54%. >> do you feel it could hit 60 next quarter? >> that would be pretty -- that would be a pretty good accomplishment. i'm not hoping for that much. i think perhaps next year, but i think, you know, capacity utilization is rising quickly enough and that's one of the key ingredients. but asp is a key part of the growth margin and would he have seen a major shift to lowering systems and that means lower price products and that tends to squeeze your margins a bit. >> intel was up about 65% from the lows and lately it's been kind of a -- a little bit range bound. has it made its move already? because in the past, when you get up towards the top end of the margin number, that has been a good time to lighten up on the position? >> in the past, it has been a good time to compare about your situation. but i don't think we can compare this period of time to any recent history. we are in the mist of a trough, hopefully emerging from that trough and it's a recession unlike any we've seen in, as you know, many years. so i think there's a lot of tension in this out there right now about intel because we don't know how big an impact the shift to lover end pcs, those purchases by consumers has been for their margins. and i think a lot of people are tentative about how much we're going to see holiday spending come back this year. and ultimately, it's going to tend to determine what happens in this quarter. so i think there's a lot more uncertainty around and i think that's why the stock has been range bound. i think we're looking for information from intel tonight about how much their capacity utilization has gone up and how much that may be affecting that. >> joanne, there are some that say the company has been benefiting from restocking inventories and once that is done, you're going to actually need consumers to start buying stuff that takes things out of the inventory again, i guess. is that true? do you need that or could this be a business story as they just grade in 2010 or cut costs? >> i think there are two things going on here, joe. one is that there has been some building up of inventory for the holiday season and that happens every year at this time. and it's always done without firm knowledge of how much the consumer is going to spend. this year, however, the uncertainty is just a fair bit larger than we're comfortable with. and so those people that are concerned about how much restocking has been driving intel versus real demand are in some ways right to worry because we know that the pc manufacturers have been ordering lots of chips to build systems. so from intel's perspective, there isn't really a restocking of chip inventories going on. it's really a creation of system inventory. and then the question for early next year is do those systems fly off the shelves at your local best buy? and that will really determine how well we start 2010. i think, though, 2010 will tend to be more of a business story, certainly in the middle of the year. there's a lot of people that believe that the computers at corporations have gotten rather old. the average e, upwards of four years and that it's time for them to replace those systems. and i think that vista was a deterrent to that and i think windows seven was being viewed as a mature operating system and so there will probably be a quicker switchover. >> last question before we go, do you know what the expected range from fourth quarter revenue is and are you expecting -- you know, they always do these things where they race the high end or the low end. do you expect to hear anything about the fourth quarter, whether they boost the revenue or the range? >> they haven't yet given guidance for the forty quarter. we don't know what they're thinking before, what they're thinking now. there is an expectation out on the street. i think the mid point of that range will be expected to be above $9.6 billion or so. >> that's a nice shot of cleveland. i'm from ohio. i didn't know you can tell go ahead a knight nice shot of -- in, i'm kidding. i'm from cincinnati. there's a rivalry. browns/bengals. don't write me in anything. thanks, joanne. see you later. >> thank you. coming up, we'll have more of this morning's top stories. still ahead this morning, we have blackrock's money man, bob doll, steve forrers, cam fine and the fdic's sheila bair. we are approachinging 6:30 on the east coast. announcer: in today's markets how can you get your investments heading in the right direction? at oppenheimerfunds, our fund managers' perspective on the numbers helps uncover opportunities no matter which way the markets are moving. ask your advisor about oppenheimerfunds. call your advisor for a prospectus with complete fund information. read it carefully and carefully consider fund investment objectives, risks, charges and expenses before investing. mutual funds are subject to market risk and volatility. shares may lose or gain value. oppenheimerfunds. the right way to invest. (announcer) we understand. you need to save money. good morning. welcome back to "squawk box" here on cnbc. i'm joe kernen along with becky quick. carl quintanilla is off today. a lot of earnings coming, carl. i don't know whether you factored that into your -- >> it makes you think he didn't. >> i think he did factor that in. >> anyway, we're going to be watching the earnings flood as it's unleashed today. we're keeping an eye on goldman sachs earnings today. meredith whitney has cut the stock from a buy. we will find out more about this when the company actually reports its third quarter results coming up on friday. but as you can see, this is something that is causing action bit of an impact this morning on these shares. stock closed at 190.15. a time of times when we she come out with these calls, it has impacted things. >> that was an important call in july because the notion -- i don't think it was that widely dissemester nated that a lot of these banks could do really well and certainly with mortgage assets at that time. >> she was certainly saying something far different than she said on that day. people were attributing it to her comments. >> so we're not saying that it wasn't a good call and there was an extra 30 points that she got. >> yeah, especially if you see a pullback from this point. >> in a perfect world, if you were a genius with a crystal ball, you would have gone hugely positive on gold instead of 160 and then you would have made, obviously, done a lot more. earnings central, you saw me over there already. you know what that means? that means that it's getting fired up today. and there's a couple of dow components. one after the bell and one before the bell. johnson & johnson is expected to report third quarter results at about 8:00 eastern time. the whole business model of j & j over the last year, anybody that owned it had it under their pillow. baby shampoo and baby powder and band-aids and drugs and instead of a financial with, you know, not really having a financial component necessarily, and multi national around the world, a pace that was a beautiful thing, but we know johnson and p&p had some competition. it did lose patent protection on topamax, an epilepsy treatment. as well as its acquisition of cougar biotech. wow. >> i was glad when that was gone. >> you can't help but -- i even think that. >> cougar is such a -- it has a weird stigma. i remember when they acquired it, i said i'm glad they acquired it so we can bury that name. here we are talking about it again because of that, i think. then after the bell, we get the latest numbers from intel. a 23% decline is expected in profits, but since it's expected, we've got to see what 27 cents, whether it's above or below analyst expectations. >> people write in every time and say it doesn't matter whether it beats expectations. but that's the way the stocks trade. >> even though it will be done 23%, it should be sequentially up from the 18 cents the company earned in the last quarter. >> all right. let's turn over right now and get a jump start on the trading day. joe kennan is standing by at the cme. joe, we're waiting for these earnings numbers. how much anticipation is built up in the trading sense for this of these numbers? >> i think it's interesting, becky. if you look at the vix and things like that, the surprise they might be expecting is to the upside. it's interesting as whitney came out with that rating on goldman sachs overnight because what we saw yet was the xlf, which is the etf of the financials. there was a huge buyer of calls just out of the money. the november 16 calls, someone bought 160,000 of them yesterday. that's three times more than the open interest or the ones that had been -- you know, open previous to that. so that is a very, very big bet that we are going to head to the upside and outside of what ms. whitney said last night, we have seen a lot of upgrades actually recently in the financial sector. >> we spoke yesterday with dick bove who has buys on a huge number of these banks. people have said, it's going to be very easy for the banks to make money. i guess it depends on if you're looking at the flat-out banks, if you're looking at some of these investment banks and what the mix is of some of those numbers. but beyond the financials, is the expectation there that you're going to look at a lot of companies that could beat expectations? >> yeah, i think so. actually, joe just talked about johnson & johnson. there's one again where i think people are expecting that it's going to beat by a little bit and some of the fear i know is maybe with health care, things like that. i think a lot of that is built into the stocks unless, you know, we come out with craziness in the plan at the last minute that no one is expecting, which obviously there is so much opposition to that. you've had so many people in from capitol hill over the last few days who are saying that's not going to fly. they have something that's unexpected. so unless that happens, i believe it's also baked into these companies and, in fact, may not be as bad to the companies as people originally expected. >> although you're seeing the 32 companies we've seen so far, something like 78% have beat expectations. i guess the question is, how does this match up with where we were last quarter at this time? >> well, i think that, you know, because of what the market has done, there has been great expectation going into these earnings. the funny thing to me is, becky, that we haven't adjusted the numbers all that much. we've just adjusted that hey, this is going to be a great earnings season. it's interesting, there have only been a few companies that we've seen recently that have said, you know what? our earnings are going to be better than expected and most of them have been tepid in their statements because i think they're afraid of being the one who kind of makes us come down a little bit in the excitement. it's the most excitement i've seen in an earnings season in a long time because earn wants it almost to confirm what we've seen out of that -- that main street is matching up to wall street and what we've done so far through the whole summer. >> joe, thank you very much. it's always good to talk to you. >> always a pleasure, becky. talk to you. >> the other joe, j.j. >> comments about anything you see here on squawk, e-mail us, squawk@cnbc.com. coming up, another check on the morning's top headlines. hopefully we change a few words inside and outside the world of business. plus, it's a well known vacuum brand, but today, dyson wants to enter a new part of the household. >> is that really it? >> that's it. james dyson is our special guest and that supposedly works. >> it's a fan, right? >> yeah, without any blades and we'll take a look at it when "squawk box" comes right back. x welcome back to "squawk box," everyone. we have seen futures below fair value. right now, you're talking about the dow futures down by just over 16 points below fair value. s&p is lower, as well. but at this point, it's less than 2 points below fair value. the s&p 500 has been in positive territory for the last six sessions. that's the longest winning streak we've seen in two years. you have to back to june of '07 to see a longer winning streak. jury selection begins today in the trial of two former bear stearns hedge fund managers. matthew tannen and ralph tiopi ran subprime loans. that cost investors roughly $1.4 billion and sparking bear's demise in march of just last year. tannen and chiofi are accused of misleading investors about the health of the fund. they face up to 20 years in prison. dyson revolutionized the home appliance industry with the bagless vacuum. it's introducing a new product today thatry thinks one of the simplest appliances in your househo household. joining us now is sir dyson. let's get a shot of this thing because it's really cool looking. it's very futuristic. it looks like something from -- 2001, that's eight years ago. we need to change the name of that. but this is a fan with no bliedz. >> it's exactly that. and getting rid of the blades is really important because the blades literally chop up cake shaped wedges which they're throwing at you. >> because you can hear that noise. exactly that. >> but this let's the air out of this slot all the way around here and it draws air in and draws air from here and multiplies its initial air flow 15 times and what you get is a cool stream of air. would you like me to turn it on? >> let's see. i'm sorry. there you go. >> there it goes. oh, yeah. you can feel it now. >> it's much more like being in a breeze. >> puts this up so you can see that. >> yeah. it's a strong breeze, in fact. and it has a motor on the bottom, too. >> it has the impeller here, but only a small amount of air is arranged by the propeller. >> i don't feel a lot of -- >> it's drawing in 15 times it's original air flow. >> i guess it's safer for kid. >> put your head in it, you see. it's safe and very, very easy to clean. a lot of accidents are caused by children putting their fingers into the fan blades. >> what made you think about coming up with this? >> well, we were working on our air blade hand dryer, which scrapes the water off your hands. >> scrapes it? >> yeah, with an air blade. >> oh, wait, i've seen these. these are in mcdonald's, and you stick your hand in ksh yes. that jet of air blade through in a whole lot of extra air and we thought, well, that could make a very good fan so we started developing that principle. there is the equipment of the blade you get in the hand dryer, there. and it draws in air here. it sucks in air here because the air is expanding down this cone here. and then across here, you have a cylinder of clean air coming at you. >> it's strong. i'm cold. >> shall i turn it down a bit? >> wait a second. leave it on her for a second. no, no, put it back on her just for a second. >> why? >> point it right at her. get a shot of her. pretend you're in a photo shoot and give me a look -- come on. let me see if you can do it. >> i can't do it! >> oh, baby, that's it. >> try it on me. i'm going to try it. >> try it on joe. there you go. let's see. let's see. >> i've got too much hairspray on. look at that. not a move, not one hair. >> it's smooth, like a gentle breeze. but no that buffetting. >> how much? >> $299. >> $299? >> yep. >> what's a normal fan cost? >> there are some a little less, plastic ones are less and some of those steel ones are more. so we're sort of -- we're in there. >> you're in there. all right. dyson doesn't -- >> and it's very nice, as well. >> does dyson trade? >> no, no. and it's easy to adjust the angle. you put it to where you want it. >> and it rotates around the central of gravity. >> so what else are you working on now? >> there are a few other things around, yeah. i'd love to tell you what they are, but -- >> but then he'd have to kill you. >> so it's not sucking in much, really. >> no, no. >> you can put this here and it kind of goes through. >> it's drawing from here over there and it's accelerating the air down there. >> how does it do that down in the base? >> you get about 55 miles an hour air flow here. it goes over this aerosol section, which creates the vacuum above it. negative pressure. >> like an airplane wing? >> exactly like an airplane wing. >> i was right about that? >> you were right about that. the aero dtsdz plane wing causes the suction here. we're using that suction to suck air in. then you go down a cone here. this is tapering outwards at 16 degrees. it causes a huge negative pressure here, so you get more suction, more nullification. >> you know, sir james dyson is known as being the best appliances that people can buy. have you noticed any pressure from the downturn in the recession, though? are people less willing to pay for quality? >> no, not at all. quite the reverse. our market share has gone up, although many fewer vacuum cleaner res being bought. i just think that people are more careful in a recession. they look for things that work well and are built well rather than perhaps just spending indiscriminantly. >> do they give the nobel prize out for physics this year? oh, i think they have it, it's sean penn, he completed that math course. no. but maybe you'll be in the running next year. >> we're just interested in making better appliances. this has 150e of the electricity of air-conditioning. >> you're kidding! oh, man. you just talked to a lot of people in our audience. >> and it's healthier. using this and reducing the ter of this is far healthier than -- >> than recirculating the air. >> i think people at home would think that we were lying about -- >> because our air is not moving enough? well, mine is, but she's -- play some music. that's it. >> will you come back when you can tell us about some of the other things you're working on? >> i'd love to do that. it's been great fun. thank you very much. >> thank you very much. >> leave it on her. come hither. >> coming up, everyone, we're going to head to the chairs and let loose! we'll have the stories that have us squawking this morning. a little later, fdic chairman sheila bair. she's going to join us live at 8:40 eastern time. stick around. we'll be right back. ♪ yes, you're lovely... ♪ what do you think? hey, why don't we use our points from chase sapphire and take a break? we can't. sure, we can. the points don't expire... ♪ there is nothing for me... ♪ there's no travel restrictions... we could leave tomorrow. we can't use them for a vacation. you can use the points for just about anything. i know... ♪ the way you look tonight ♪ chase what matters. get your new chase sapphire card at chase.com/sapphire. welcome back, everybody. we get to talk about the things we find most interesting in the papers this morning. there's financial times column written about what regulators need to look at focus on all this reform, not who the regulator is as important as what that regulator has access to. says it's very important they have to see everything on the balance sheet andocity balance sheet. but he also says an institutions assets have to be valued at their fair market value, prices willing buyer and sellers transaction. very different from the two congressmen we had as our guest hosts yesterday. they thought market to market accounting in large part what is brought it in. he says, no, it's important to see those things. at goldman sachs we calculate the fair valve our position every day. we wouldn't know how to assess or manage risk if the market price wasn't on the book. >> their management of risk has been better than anybody else. >> they said, no, you should have these types of accounting and regulators looking at this every day. >> tell you what's interesting about that, if you were an objective person and say letting lloyd define -- >> these are tougher restrict n restrictions. >> i'm leading to this, let them weigh in on how much it costs for health care reform. do you write it off quickly or listen. the hip, american insurance plan, industry's lobby paid pricewaterhousecoopers to do a study to see what it would add to the cost of american family. immediately it was called -- max baucus called it a hatchet job but said it was politicking for corporate gain at its worst. it's a world divided in "new york times" editorial pages. >> i wonder if rockefeller has listened to the coal coalition. >> the journal makes the case the hip shouldn't wihine about the issue, they were in with the obama administration from the beginning and now they are coming to the table. they are voting on a version, the less liberal version that doesn't have a public plan. unbelievable. they have to do this. then the health committee of the senate votes on its plans, reconcile those two and the senate has to vote on that, house has to reconcile three plans, vote, put that together. by the time this thing is done, i have no idea what it's going to look like. the obama administration and the democrats are worried about even with an industry group that puts this together, they are worried about findings. see what -- >> the reconcile bills once we get through it. coming up this morning, talking more with our guest host, talking to him in a few minutes. time to put your hard-earned dollars to work. who better to help than blackrock's bob doll. he'll join us at the top. hour. ation 24 hours a day. technology drives communication. allows people to collaborate giving them stimuli to think in different ways. having a foundation of innovation is the way that you differentiate yourself from the competition. it's the lifeblood of growth. making businesses richer, stronger, more resilient. nyse euronext powering the exchanging world. welcome to progressive. how may i help you? i'm looking for a deal on car insurance. i think i might have a coupon in here. there's an easier way. we've got the "name your price" option. you do? follow me. you tell us how much you want to pay, and we'll build you a policy that fits your budget. and i still get great coverage? uh-huh. go ahead. you're the boss. i'm the boss of savings. more like the c.e.o. oh, oh. no glass ceiling. the freedom to name your price. now, that's progressive. call or click today. johnson & johnson, intel and csx topping our earnings central radar. what traders are looking for and what the numbers will tell us about their sectors. blackrock chief equity strategist bob dole is our best. >> bond is in the house. >> bond, james bond. >> no, not that bond. senator kit bond of missouri on the agenda today, health care, the economy and future of our banking system. >> you don't have to worry about me. >> forbes ceo and billionaire steve forbes stops by with his economic outlook arnold more as the second hour of "squawk box" begins right now. good morning. welcome to "squawk box" here on cnbc. says here i'm becky quick but i'm not. i'm joe kernen. carl quintanilla is not here, although he says he is. we have a bond girl on set because becky is offset. mary thompson is here. i think we're playing this music -- we have senator kit bond coming on as a guest host. >> i don't have to walk out of the water in a bikini. >> if you would like to -- >> no, we won't do that to our viewers this morning. >> at this hour, we've got a transport, csx will report. the rails have alternately showed up when we went into a business slowdown and some life as we come out. csx will be interesting, give us an outlook, focus on transportation, one of my favorites. outlook from avondale partners. becky, we made her sit on carl's chair because you'll eventually be back. >> where are you? >> hiding in the control room because this is where all the important news happens, joe. good morning, everybody. let's get to stop shares this morning. shares of goldman sachs report keeping an eye. financial analyst cut the stock from neutral to buy. in july whitney give a buy recommendation saying it was in for a hugely profitable quarter. we'll find out when the company reports. third quarter results friday. bank of america agreed to hand over documents related to merrill lynch takeover. mary thompson has more on that story. mary. >> thank you, becky. b of a's change of heart. the bank has entered a pact with the s.e.c. that would be subject to court approval. one judge has already rejected an earlier settlement between those two parties. the board's friday vote to turn over the documents does follow meetings last week between b of a lawyers and andrew cuomo's office in a letter obtained and sent last night. bank of america writes following the meeting and in hope of furthering a resolution with your office, bank of america reconsidered its position with regard to the waiver of attorney-client privilege. investigated whether bank of america would tell material information before buying last year. information considering losses last year and billions paid to merrill employees. in depositions, b of a executives, including outgoing ken lewis say they acted on advice of council to determine what information was disclosed to shareholders. now the bank will be turning over documents detailing communication between lawyers and executives from september 12th of last year to january 19th of this year. the documents pertained to issues cuomo is probing including why certain information was included or withheld on the proxy deal. when told about losses and fed and treasury assisted provided for the deal. a source close to investigations said others will be deposed again once cuomo reviewed document. bank of america didn't return cnbc's calls seeking comment. beck y, back to you. >> thank you. we're keeping an eye on futures. there's some improvements but dow futures down 8.5 below fair value. s&p down one point below fair value. we have so much in the s&p closely because s&p has shown six winning sessions in a row. that's the longes winning streak in over two years. nymex inching higher, right now above $74 a barrel. this comes after major gains yesterday. you're talking about crude sitting at a seven-week high right now. this the highest level we've seen for crude oil prices since august 24th. part of what's happening is the weaker dollar. if you want to take a look at where things stand now. ten-year note yielding 3.34%. tomorrow important information including retail and fmoc released. the dollar has been mixed today. it was down once again yesterday. right now talking about the yen at 89.58 and euro sitting at 188.44. gold higher by a weaker dallas, 1,069 an ounce. many commodities touching new highs as we continue pressure on the dollar. >> 100 in gold. wasn't too long ago i saw on the blog, 1500 next. dow and s&p closed yesterday as their highest levels in over a year with dow trading intraday within 70 points at 10,000. joining us now is bob doll, blackrock chairman. you were on about a week ago yesterday. right, bob? >> probably right, joe, yes. >> you've been putting your plan into action. maybe you could go back and just summarize -- that was a pretty macroview of the way to approach the markets over the next year or so. have you been implementing it? >> yes, we have, joe. our view is that risk assets will continue to outperform safe assets. that is equities and the corporate bonds over treasuries and cash. believing that economic recovery, albeit less robust than usual after a big recession nevertheless is growing. we have to respect those cyclical positives. >> you came in after two down weeks and then we had a great week last week and closed at a new high yesterday. so-so far so good. you would think. is j and j, that would seem to fit the bill in terms of moving out on the risk factor but staying with real high quality. >> i agree with that. that's exactly the message we're trying to suggest to investors, that is you need to own risk assets but play the higher quality one. we would expect them to be good cost managers. maybe good news on revenue side. >> intel. >> csx earlier, a little more out the cyclical curve, i think the rails are part of the cyclical elements of our economy and we should soon tart seeing more positive signs there, not just cost-cutting but -- >> what would blackrock think of the consensus view of the consumer? is this going to be a strapped consumer for two, three years, a new normal, if you will. >> i think the answer to that question is yes, joe. let me take a bit of the other side while being concerned about the consumer, we have to respect how fast the savings rates come from minus one to some mid single dinlg number in a very short period of time. i've got to also point out consumer net worth up now four months in a row with the stock market improving, residential real estate prices here and there bottoming out. the consumer, i like to sayish is still in the hospital but definitely out of the intensive care unit. >> do you spend much time thinking about washington, bob, the multinational dodged a bullet at least near term with the overseas tax. >> yes. i don't know how you get through the investment climate these days without thinking about washington, d.c. around all kinds of issues, currency, potential taxes as you just pointed out. it's much more difficult, because politicians are going to do, i think, a very difficult exercise and occasionally a fool's game. >> looks like given enough evidence and discourse, the administration can change its mind. >> you've seen that. >> they did that in a good way. at this point, did they hear corporate america? i thought it was a great quote from david cody, not good to hate the the people that create the jobs. >> love the jobs, love the job creators. >> not good tovillify -- who wants a country with all government jobs. >> corporations have citizens who vote, you're absolutely right. having said that, i think one of the unsung positives of this difficult period has been the health of the non-financial corporate balance sheet. really strong news. the strongest we've seen out of non-financial corporate balance sheets after recession in a long, long time. unfortunately washington will see that as a place to potentially go to get revenues. let's hope more of what you talked about comes true. >> bob, australia is a different place, obviously. they have raised rates but they have a lot more trade, i guess, with china and commodity exposure so they didn't have a recession down there. should we be hoping we could raise rates here? do we need this to defend the dollar a little bit or at this point is it still a positive for our exports? >> i think that a slow dollar decline, which i would argue in the main scene is not at the death knell a lot of people talking about. having said that, a stable dollar would be much, much better. yes, it is a positive for the translation of earnings but there's so many other issues i think argue in favor of not a strong, at least a neutral currency. the administration seems to be letting that go, given all the imbalances that we have. >> so should we start to raise rates or you're happy that we're not? i think -- >> i'm ready to start raising? >> i think it's premature. consensus is link on 2011. i don't think that late, i think middle of next year, starting half. adjustments will have to make at some point, if the economy continues to recover albeit modestly. >> i don't want us raise. i just wish we had the conditions that would allow us to do it. looked how long japan wished they could raise rates. they have raised them a quarter point. >> if we raise rates now, i think we'll have an economic problem. we need a little more time and a little more evidence of sustainability of economic recovery but then they have got to get started. >> you're a smooth operator, bob. >> so are you, joe. >> you're a big guy at merrill. merrill when we talk about it, only negative, blackrock has become the eminent firm on the street. you smoothly move from one to the other. >> sometimes one gets lucky. >> thanks, bob. >> have a good one. >> all right. if you have any comments or questions about anything you've seep on "squawk," e-mail us at squawk@cnbc.com. when we come back, bond, senator kitt bond, republican from missouri and member of the appropriations committee. he's our special guest for the next few hours. touch on economy, market, feds, health care and more all when we come back. good morning, sir. >> time now for today's aflac trivia question. on this day in 1792, the cornerstone was laid for what historic u.s. building? the answer when cnbc "squawk box" continues. without aflac! is that different from health insurance? well yeah... ...aflac pays you cash to help with the bills that health insurance doesn't cover. really? well, if you're hurt and can't work, who's going to help pay for gas? ..the mortgage, all kinds of expenses? aflacc it's the protection you need to stay ahead of the game... exactly! aflac. we've got you under our wing. aflac, aflac, aflac... aflac, aflac, aflac at the end of the day in sitka, alaska, the fishermen bring in the catch. and cargill brings in the sea salt to help them preserve it, shipped in an efficient supply chain to save the fishermen money and their catch. this is how cargill works with customers. now the answer to today's aflac trivia question. on this day in 1792, the cornerstone was laid for what historic u.s. building? the answer: the white house. >> all right. welcome back to "squawk box" on cnbc. time to look at the futures. they have shown modest improvements. dow up 2.5 above fair value. s&p 500 up barely as well. the big key is going to be what happens with earnings season. we're expecting csx and johnson & johnson, dow component. meantime stores breaking out holiday decorations but shoppers may not be in the holiday spirit. research firm annual holiday spending survey said 37% plan to spend less this year from 26% last year. about 60% plan to spend the same amount as last year. as for what they are buying, clothes at the top of the list followed by toys, dvds, books and electronics. all right. pulling up a seat for the rest of the show is republican senator kit bond, former missouri governor, guest host for the next two hours, on the appropriations committee and vice-chairman on the select committee for intelligence. and get, this one more thing to add to the list here, the co-author of the new book called "the next front" senator, thank you for joining us. >> thank you, becky and joe. always a pleasure to be with you. i'm glad you let me come by. >> we appreciate it. the book you've got out, brand-new book released in september, this is a serious focus on southeast asia written by you and another gentleman who is a pulitzer prize winner. >> louis simmon, my co-author spent years in southeast asia, won a pulitzer prize. he's done great interviews with people in southeast asia, help americans and others understand why southeast asia is important. they are the fourth largest export market for u.s. goods. they are politically militarily located. they also are home to more muslims than the mideast. and we need to learn how to work with the muslim world. southeast asia is the place to start. >> so you're talking about not only from a business perspective but also from a safety perspective? >> i think it's a total package. economic opportunities and a lot of people are saying -- i'm not an investment adviser but a lot of people are saying southeast asia is one of the best emerging markets. in addition to that, they have the potential to help our businesses grow by buying our exports, buying neutral trade. but we need to do more, need more interaction with them. we need more volunteers when peace corps people going through. there are challenges of terrorism, particularly in asia, philippines, thailand and malasia. if we want to avoid putting military boots on the ground later, it's important we have sandals on the ground now along with business investments and trade opportunities. >> let's talk a little about what's happening in washington right now. and that intersection of wall street and washington. there's a big story on the lead of the "wall street journal" today that talks about how one business pushed back, taken off the front burner at this point. that has businesses breathing a sigh of relief, tells about the mix in washington. how is it working? >> very nervously. some are trying to go along with the administration under the threat sometimes expressed that if you're not at the table, you're on the menu. unfortunately some people who thought they cut deals, such as big pharma, offered up $80 billion, okay, that's the starting point. we'll take more. i think everybody needs to understand that excessive taxation, raising taxes, particularly when we're trying to get out of a recession may be one way to put us back in a w. if we tax particularly the small businesses that create new jobs in this last decade, are taxed too heavily, not only will they not create jobs, they may start contracting jobs, because taxes do figure in to employment decisions. >> does it make you hopeful to see that the administration says we're not going to deal with this tax right now. we're going to put it off and reconsider next year? >> i don't know can which taxes are taken off the table. they have so many up. it's a real smorgasboard. >> you have to pay for all the spending at some point? >> how about cutting? i really believe we need to cut spending. we have half of the t.a.r.p. funds that haven't been spent. t.a.r.p. did not go for taking toxic assets out of the system, bad liabilities. that money should have been used by -- we're talking with sheila bair later through an fdic-type operation to get the liabilities, bad debts, out of the system and let the system function. but the way they spent the t.a.r.p. so far has, i think, perhaps increased risk to the economy by propping up entities that should have been cleansed of their toxic assets and maybe resold going through a form of restructuring or bankruptcy. >> biggest companies, the companies that have taken the most t.a.r.p. money? >> i think we've gotten the federal government far too deeply involved, not only in financial companies but now we're owning major auto industries, auto companies. are they going to be able to function as a profit-making private sector entity that can continue to provide jobs or are they going to be a social experiment vehicle for the administration? i'm nervous it may be the latter. >> we're going to talk more about this with the senator over the course of the show. we've got much more to discuss with him. if you have any thoughts or want to weigh in as well, go ahead and write us at squawk@cnbc.com. when we return, we'll talk about the global economy through the eyes of an american business icon as steve forbes joins us a closer look at the transport sector ahead of the freight giant csx earnings which we're expecting sometime today. "squawk box" will be back right after this. you're watching "squawk box" on cnbc, first in business worldwide. (announcer) we call it the american renewal and at ge it means innovating, inventing and building things. it means everything from shipping a new wind turbine every 4 hours to creating some of the world's most advanced healthcare technologies. manufacturing is part of ge's belief that the american renewal is making things right here in america. the american renewal is happening right now. today on "power lunch," what are the investment opportunities ahead as world business sets common corporate and environmental goals. hear from ceos leading the charge. "power lunch" at noon eastern today on cnbc. all right. take a look at the dow futures right now. they are up eight points above fair value. they have turned around. a key day for earnings, market gearing up, johnson & johnson reporting. also the weak dollar reporting. johnson & johnson expected to post moderately lower profits with drugs like epilepsy treatments, but are expecting positive from others and acquisition of cooper biotech. of a the bell reports will show a 23% drop from a year ago but sequential improvement from the prior quarter as increased business and consumer demand improves the industry's health. when we return steve forbes joining us on set to talk about kit boind washington. dow up 10%. have you missed the train or is there still room to travel? we're going to find out. you're watching "squawk box" on cnbc, first in business worldwide. welcome back to "squawk box," here is a look at the futures. surprisingly it turned around. i don't know why. >> you have the anticipation earnings would be better. >> same anticipation when they were down. >> i think it was us. >> the fan in your hair. the come hither look. if you fifd-omissed it, you've get up early. whitney upped rating to buy. she instituted that buy on "squawk box" back in july. the market was up 151 that day. goldman earnings out friday morning. another record high for gold this morning. obviously not inflation, even though we're close, 2300. at the moment the session high, 1,069.70, the dollar index has reached a fresh 14-month low, instead of a rotten one, i guess. >> a 14-month low is a 14-month low. >> it's not stale, brand-new. >> what's the difference? the senate finance committee. >> somebody said in my ear, bite me. >> what did they say? >> never mind. >> national federation of independent business is out with its latest survey. small business optimism rose a mere 2/10 from last month. the good news continues to be less bad news. who here now with more, chief economist of the national federation of independent business. bill, good morning, it's good to see you. >> good morning, joe. >> what can we hope for, less layoffs or actual hiring? when does that inflation point hit? >> i'm guessing at this point by the end of the year we'll see a positive job number. we're close but we just can't seem to get over the hump. i think the problem is we don't have any customers. as soon as we see a customer we'll hire somebody and order some inventory. >> talking about when the consumer does something then we'll see somebody hire someone. >> exactly. this has been a long recession as you noticed. i think most people didn't think it would last this long. everything is wearing thin. financials and so on. everyone is cautious now. we still have twice as many firms reporting quarter on quarter declines in sales as we have firms reporting gains. it's still weak out and the consumer is the key. >> good morning, kit bond. i'm delighted to have you on. i think it's important to hear how small businesses are doing. i was just reading in an issue of forbes saying we're not going to get recovery until we see small business toss start investing. from what you're seeing coming out of washington, what is the view of small business generally about their prospects? what do you think about the second stimulus, more taxes, more regulation? >> well, of course, they are talking about a second stimulus. some people are talking about it in the form of a job tax credit like we had back in 1977. but look, you know, we're not going to hire a $30,000 worker to get a $5,000 or whatever it turns out to be credit if we don't have something for these people to do. job credits don't bring sales. that's what we need is sales. everything going on in washington that's scaring small businesses, mandates, liar taxes, you know, the cap and trade and guaranteed higher electric bills. what's the good news coming out that would make us optimistic about the future? >> what if there was a public option in small businesses? this is what i hear all the time. if small businesses didn't have to worry about providing health care and they could give -- let the public option do it, i've heard enapprehend yours would come out of the woodwork because they are afraid to start businesses now because they would have to cover health care. what if there was a public option and they didn't have to worry about that. would that be a positive? >> i don't think so. let's remember, offering health care is not a mandate yet at least. it's still an option. look, i could pay you $100 an hour, or maybe you more than that, joe. $100 bucks an hour. >> tell me what to do. >> part is the taxes i pay on you, part is the benefits. if i can get the benefit cheaper, fine. i'm not obligated to pay more and more for the benefit if it keeps rising. the real key is to make the system work more efficiently. we'd like to see things like cross-state shopping. the state legislature stop adding things like hair pieces, which i'll need pretty soon, to the mandatory coverage in these things. there's a lot of stuff we could do to make it cheaper for us to offer as a benefit but it's not keeping us from starting a firm. you know, we'll start a firm and pay you whatever you're worth. we can pay it in some form you like and we'll be happy campers. >> i hear a lot that small business is behind, you know, the efforts to reform the system. i mean, do you represent a -- i don't know. we know about the, what is it, commerce, main business organization. we know that a lot of businesses are separating from that organization, chamber of commerce, separating from that on cap and trade. we are seeing a split from the normally right leaning business community. are there some that are supporting the health reform bill? >> there are. some of them may benefit from being able to off load the provision. excuse me, after all, if you're an employer, you have a lot of paperwork and red tape. that would be nice not to have that. nfib was only the one out back in the old days when hillary care came up and eventually people saw the light. i think we'll see the light here. the first thing you know about the health care bill since it doesn't start until 2013 after the next election, it's painful. there's a lot of things we don't like. >> will it come back when the consumer -- does it mean anything from the recession? what should we take from you not having one or having one? >> can you see it there? i'm growing it back. it means it's over. >> okay. i wanted -- i'm definitely glad i asked that question. thank you, bill. we'll see you next time, you'll be looking like sam elliott again. >> there you go. thanks, joe. >> as we mention add moment ago the senate finance committee is expected to vote on the health care reform bill. joining us with his take is forbes ceo steve forbes. his new book "how capitalism will save us" is out on november 3rd. steve, you've got another book out? >> it's something to do during tough times to supplement the income. >> another book november 3rd, comes of a the last one. >> in addition to the senator's book. >> authors all around here. steve, why don't we focus on what we were touching off on that health care debate. the health care bill is expected to be voted on as early as today by that senate committee. there's a lot of contense out there. this has gotten much further than hillary care ever got, though. is this something people will like this. this could very well become law, correct? >> it could. it's going to cost the democrats dearly next year if they push this thing through because it is a combination of taxes. it is going to hurt small businesses. if they make it mandatory, that's going to increase the cost of health insurance. it keeps the same old system that's clearly not working which is third party. you don't get the kind of normal enterprise, innovation you get everywhere else. it's going to mean less for more. so this is just going to be bad news. they really worked heart, this white house, giving credit making sure pharmaceutical companies, insurance companies were browbeaten into keeping quiet about this. one thing i'd be interested, senator in your view, medicare advantage, a lot of people have that. that's going to go by the boards this bill. >> not only that, steve. grandma and grandpa and people my age are very worried about medicare. not only do they cut out medicare advantage, which many people, ainge million people in florida enjoy because it gives them better coverage. >> sure. >> the cuts they are planning to pay for this are drastic. they are going to cut half a trillion dollars out of medicare reimbursement. some people who are short sighted say, that's not going to come out of the patients' pockets. what it means is doctors and hospitals who are already paid 80% or less of what their cost of services are will be paid even less. in my part of the country, more and more doctors, more and more hospitals can only take so many medicare patients because they lose money on it. you cut that more, if you're a medicare patient you're going to have a tough time find ag doctor or hospital who will provide you health care. >> gentlemen, people will say on the other side of this debate, something has to be done. we're dealing with medicare system exploding with debt, problems around. you're dealing with a major uninsured problem, too. >> okay, becky. number one. fix medicare first. medicare is in real trouble. it's run up a $37 trillion deficit. as i just said, it doesn't reimburse doctors, hospitals and other health care providers how much it costs. they have to shift to the private sector. that's one of the things burdening the private sector. what you need overall in health care is not what the baucus bill provides. >> which is -- what's the problem with the baucus bill? scrap the whole thing and throw it out? >> actually i should say we don't -- the baucus bill is what we're trying to get out of the finance committee. we don't know. there's some questions. probably it will get out. then it will go to harry reid's office. in the back room they will rewrite the bill and we hope that we'll have 72 hours to read it. >> that's your concern, what happens to it. not necessarily the baucus bill as it stands, the cpo marked this up and said this is something that could reduce the deficit over the next ten years. >> it will reduce the deficit but won't do anything to reduce health care costs. that's the problem. it will impose tremendous taxes on businesses on the health care providers. the health care providers will pass that onto their patients. and it's going to take money out of medicare that means doctors and hospitals won't be able to serve medicare patients. what we need to do is get better means of getting coverage, access to care, doing something about the spiraling cost of health care and making sure we have tax equity. so small businesses and farmers are treated like employees of large corporations and unions are. >> steve, what do you think about that? >> well, we need to have a little more genuine free enterprise and entrepreneurship. why not allow consumers to buy across state lines, get real competition. if you're an individual, why can't you get the same tax break an individual gets. how about tort reform which costs tens of billions if not hundreds of billions of dollars and allowing small businesses, as the senator said, to pull together so they can get this. people that can't get insurance when you make positive reforms, how about the equivalent of a debit card, so you focus on people that can't get it instead of messing the whole system up in the name of people who might not be able to get it. >> bingo. steve, you brought up one important thing. cpo said the federal deficit would be lowered if you had tort reform, medical malpractice costs not only drive up the cost of insurance but doctors have to practice defensive medicine. they do unnecessary test toss protect them from lawsuits. now, that's the savings to the federal government. but the saving to the health care system has been estimated to be $120 billion a year. that's how much malpractice and defensive medicine add to the cost of medicine. >> while we all focus on dollars, it's all about outcomes and countries that have seminationalized, lower rates of prostrate, 13 out of the 16 cancers, we have better recovery rates here. heart disease, much better recovery rates. you wreck that kind of invasi innovati innovation, we're going to pay for it. >> is it too late to do any of the things you're talking about? the train has already left the station and we're going to be dealing with some variation. >> i think why public opinion can weigh in, that's why they canceled the recesses. they don't want to go back to constituents and get an earful about how terrible this thing is. this is taking 20, 18% of the economy and railroading it through like this in the middle of the night, don't let you read the bill, that's a political reaction. this is not the american way of doing things. >> steve, this should be done. this should already be law. the republicans can't do anything. you've got the executive branch and both branches of congress. what's happening? do it. >> the democrats -- >> public opinion is starting to weigh in. >> public option, it can't be liberal enough for the far left and can't be conservative enough for the right. you wonder why it hasn't been done in 60 years, this is why. even with the democrats controlling they can't get it done. >> they will get something done and it's going to do more harm than good. it's going to be an issue, likely so, more government or more entrepreneurial route. >> will they or won't they? >> if they want, to the price will be higher. the price to the economy is going to be great. reconciliation was meant to deal with taxes. and they can mess around with taxes and put taxes on people. but they would get half the job done. now, as bad as many of the plans are that came out of the house, that came out of the health education, labor committee in the senate, having something that's only half as bad may be an improvement, but i still think it's a disaster for health care, a disaster for the american consumer. >> you think the far left -- we've got to go. you think the far left will play ball if there's no public option for the good of the bill? if they don't get one in there, will they support? >> sure they will at the end of the day. more government intrusion. >> sooner or later. >> they always love that bottom line, it's not about money but our own health care. we'll get less good health care at a higher cost. that's not the way we should do things. >> steve, thanks for coming in. >> good to see you. >> coming up, ride the profit train and transport sector ahead of the key earnings. awaiting dow component and consumer goods giant johnson & johnson. that number due out at the top of the hour. we'll have the numbers plus the instant reaction. from wall street regulations to the possibility of more public funds. the fdic reacts to the distressed banking system and beyond. chairwoman sheila bair will be our next guest, coming up in the next hour of "squawk." stay right here. here you go. whoa! that's some serious insurance. ding-ding-ding! ding! ding! fun fact -- progressive is the number-one truck insurer. yeah, great service at the right price. and nowadays, my business depends on it. do you have anything like that for my car? yes! our car insurance comes with 24/7 claim service, and you can save hundreds. so, what you haulin'? oh, eight-year-olds to soccer practice. nine! oh, precious cargo. protecting what matters most to you. now, that's progressive. call or click today. all right. j & j, second dow component to report, $1.20, $0.07 ahead of expectation. stocks trading higher. maybe futures will improve as well, 62.77 to 63.24. the '09 guidance excluding items goes to, i don't know whether this is new or repeat, 454 to 459 now. it's $0.07, oak, is 452. even if they don't beat in the fourth quarter they already -- the new guidance would already be up there for '09. not necessarily boosting guidance for the fourth quarter just the overall year guidance. i'm looking at the sales number was just likely -- i don't even think -- i think it's 15.08 versus a guidance of 15.02. on a percentage basis not much of a miss. it is slightly lower, down 5.3% from a year ago period. they had 15.92 billion last year. 15.08 billion this year. on the phone with us, calling in now with "squawk" news, the reaction to this. at first flush, what do you think? >> i think the company basically met expectations and analyst expectatio expectations, a little lighter but not much. so looks like there were cost control and financial management going on in the middle of the income statement. but all in all, pretty much in liven with what people are expecting. >> same old story, even though sales are down and revenues light. >> although, i think it was general expectation the company would come in lighter this quarter than they did last year third quarter and they did. we were looking for a better 5% decline. others were looking anywhere between a 3 and 6% decline. so met that expectation. so that's really not a surprise. the surprise is how well they did on cost management line. you're right. it's a continuation of that kind of story. >> what's the key to understanding j & j's issues right now. is it the consumer with the consumer products and move to private labor? generic competition, the pipeline, recent acquisitions? how do we understand what to do with johnson & johnson. >> i think you have to look at the consumer as something that was going to be a little weaker this quarter than it has been in the past. a little weaker. i think the key to understanding j & j, almost like a turnaround story where you're turning around the earth. we've saw some moves a yee and a half or two ago when they were looking at cost control. looking at a pharmaceutical pipeline that's beginning to look a little better in terms of competing against the ability to have good products now in the second or third stage of approval. so it's really a turnaround story, i think. >> okay. and even though they say they are boosting guidance, it may be boosting internal guidance but extra in the quarter, not going up that much. doesn't say anything about the fourth quarter estimate being too low, does it? >> no, really doesn't. >> rebecca has to ask you about whether there's any cougar biotech addition? we were seeing recent acquisitions might help. >> i think it's too early to tell whether the cougar has helped. they aren't really that specific in terms of what they will talk about. >> okay. >> i think in the long run it will. >> okay. thanks, jan, see you later. >> i want to hear joe talk about biotech. he's an expert in cell biology. he's right out on the cutting edge. i keep wanting to hear him get into explain to us -- >> if the moment comes, i will do it. it has to be driven by some news, senator. >> all of a sudden -- >> then it's going to come out. >> be sure and e-mail us and let us know when it's going to happen. i want to hear the word. >> thank you. >> up next, stocks to watch on the rails, csx a little later today. sheila bair will join us for an interview on where the regulatory reform is headed and the state of the banking industry. stay right here. business is changing all the time. there is an unabated pace of continuous communication 24 hours a day. technology drives communication. allows people to collaborate giving them stimuli to think in different ways. having a foundation of innovation is the way that you differentiate yourself from the competition. it's the lifeblood of growth. making businesses richer, stronger, more resilient. nyse euronext powering the exchanging world. special stock to watch, csx third quarter warnings after the bell preview. managing director and senior transportation analyst here. don, you know, morgan stanley went to $57 for a price target on csx, which is going to be higher today at 44.91, indicated higher. is 57 in the range where you think the stock will go? >> no, much more conservative, much more -- well, it is with kit bond on and me on, show me state day. we look at the rails, volumes are down to mid teens, pricing at risk both from a marketplace perspective as well as from a legislative perspective. >> in what way legislatively. >> senator bond can tell you even more, but right now senator rockefeller and others are looking at changing the way the rails are regulated. that puts potentially the pricing at risk. >> why? >> i'm sorry, why? >> yes. >> why would you make it harder for the rails to do well? >> well, that's a good question that you should ask senator rockefeller. >> how do you ever know why, it's almost a rhetorical question at this point. what's your number here, $0.71 the consensus. >> i'm looking lower than that. i think there's a couple points of confusion. one being they had a $75 million benefit from bringing down some of their insurance accruals last quarter and i think unfortunately some people straight lined that. that's not a repeatable event. we're looking at closer to $0.63 for the quarter. the bottom line for rails it's going to be another year or two before they can get back towards peak earnings. i like names with a flexible cost model, a land star, lstr or companies like fedex, who are participating in the strongest rebound in freight. when you look at international air freight, of all of the modes, that's the one rebounding the strongest for fedex that's the most profitable thing they do, international air freight. for me that makes a lot more sense with all the uncertainty out there, bet on the things you know you can count on. >> overall you're not placing the macrobet on the domestic economy growing quickly any time soon. you would need that to like csx? >> i would. not all these countries are created equal. not all these freight modes are created equal either. i think it's prudent at this point to look where you're already seeing some growth and which companies can best capitalize on that. >> all right, don. thank you. appreciate it. >> my pleasure. >> see you later. >> all right. coming up, dealing with failed banks, dealing with other government agencies and dealing with lawmakers. fdic chair sheila bair says it all. she'll be talking to us first on cnbc on the state of the banking system and much more. 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"squawk box" begins right now. welcome back to "squawk box" on cnbc first in business worldwide. i'm joe kernen along with becky quick. carl quintanilla is off. our guest host is senator kit bond, senate appropriations member, former governor of the show me state, missouri. he's author of a new book, the next front. we'll check in with him and touch on that throughout the next hour. your co-author is a pulitzer winner. >> pulitzer prize. >> former marine, anti-iraq war, totally different viewpoints on so many issues you got together. >> he and i are so different we've become good friends. i told everybody thank heavens he didn't live in missouri. he'd never vote for me. there's only one thing we agree on, that is we spend more time in southeast asia. critical to us economically, politically, strategically and in terms of national security. >> have you got a website? >> i wanted to plug kitbond.com. >> kit.bond or kitbond. >> you can find -- buy the book there or something? >> you can find out about the book. the book is available in most bookstores now. most of them have four or five and i hope they are doing to sell out and buy more. you can get them online. i know there's been a good online sale but check your local bookstore as well. thank you. >> we'll talk more to the senator in a moment. let's look at futures. they have turned around this morning. right now you're going to see futures are actually right about in line with fair values down about five points for dow futures. s&p is down by half a point below fair value. we have seen things moderating back and forth checking out the earnings we've been watching this morning, also the slumping dollar driving gold to another record high this morning. a dollar index rates, 14-month low this morning. gold prices sitting right at 1,066.40 an ounce. higher this morning. talking about gold sitting at new records. bank of america and s.e.c. agreed to privileges relating to the controversial merrill lynch. this the next step towards handing over details of the merrill deal including information on bonuses paid to merrill executive. last friday b of a voted to hand over documents to the new york attorney general andrew cuomo. >> $1.20 with $0.07 ahead of expectation. the stock initially traded above 63, now trading below 62, which would put it down $0.70 or so. hard to say if anything was going on. the sale number slightly below expectations and down from last year. it was down about 5%. also the guidance, the company said it's boosting full year guidance, only one more quarter but only boosting it to the staple amount of the upward beat on the third quarter. so even though it's now above expectations, we'll see what happens throughout the session. initially stock traded up. turn to guest host republican senator kit bond, a senior member on the appropriations committee. a big day, senator. we've all watched, sort of trans fixed -- maybe it's not all, we've been trans fixed with health care. a big vote today likely to go the president's way as far as the finance version, the baucus version of health care. that's going to be -- how many democrats are there? >> majority -- this is the finance committee. appropriations committee gets blamed for a lot of things. we're not in this. max baucus worked hard and achieved something almost impossible. when his bill first came out, he made -- it was truly middle of the road, maiden miss, left, right, those of us in the center didn't like it. we think it will probably get out of the committee and go to the leaders office, senator reed, where it will be written combining things from the health education labor pension committee. we have no idea what's going to come out. there are many things that trouble us, what we see, and we think that this -- and i say people, many of my colleagues and an awful lot of my constituents who accosted me every place i've gone in missouri, no government takeover help, don't get government farther into health care. we want to reform it. there are things that can be made we don't want to take over. >> what's your feeling onto senator, have you talked to her? >> she'll vote how she wants. i don't predict the weather and i don't predict how my colleagues will vote. some of them are reliable. some of them, we'll wait and see. >> all right. today that will probably get out of committee. >> has he to keep -- senator baucus has to keep some of his more liberal members on board if he doesn't have the public option. >> even in the vote today there could be -- >> there could be. but they all know. >> they can put it in later. >> at some place along the line it will be slipped in. >> what do you mean at some point along the line the public option will be slipped in. >> either at the house or what harry reid writes. >> what we had heard at one point, there will be a vote on that, it wasn't likely to make it into the final provision? what's your handicap on that. >> the democrats have control and they will ultimately put in as much as they can get away with to get a bill passed that leads to what barack obama has always said he wants. for the last 15 years, he said we want to have -- >> not for a while. >> i know. >> i know he's on the record. >> he hasn't said it for a while. he said he's -- >> say he -- >> dollar lot of things. co-ops are a trigger. these are gateways to public options. right now there's enough things that trouble me about this bill, the baucus bill raises taxes on the insurers that will have to be passed along to everybody who buys a premium. they will drive up the cost to families will go up about 46% with the taxes that they are going to put on the insurance companies. >> was that the health insurers, the price waterhouse study they paid for? that's downplayed by the administration. >> of course. they will call it a lie. >> gross politicking, a hatchet job. >> when you get a study they disagree with they call it lying. >> this is politics as usual. >> but i think it makes sense. you raise the cost to the people who are selling insurance, what happens? that rolls downhill. >> senator, the big momentum boost was the latest numbers that showed the deficit being reduced by 100 billion. once again, the other side side that assumes all these medicare cuts have become law. they never have in the past. have you been there to see they always get put off, never really happen? >> because the problem with medicare cuts is they affect the doctors and the hospitals that provide the care. >> do they write them into bills and not do it? >> we have the medicare system is flawed. the system needs to be changed. they have written in provisions saying we're going to hold the cost to this certain level. >> that's the only way to get to $100 billion deficit. will it really happen? >> no. because doctors and hospitals will say if you cut us down even more, we're only getting paid 80% of what it costs us to serve these people, we want to serve them. but if you cut it down to 50%, we're going to have to start cutting off medicare patients right now. there are doctors and hospitals in rural missouri who don't want to talk anymore medicare patients. some somebody is critically ill, they will provide service for them pro bono but they can't take on -- saying 98% of the hospitals have stuck with medicare. they somehow are able to make do. >> they shift it. talk to any hospital administrator. medicaid pays 70%, medicare pays 80%. that means to recover those costs, a private pay patient pays 120% of what their normal charges would be. the private patients are going to get stuck with. the big problem in the baucus bill is the $500 billion or half a trillion dollar further cut in medicare. and you think that hospitals and doctors are going to be able to survive? >> there's a question of the cadillac plan tax, whether it goes through or not. that's an tension part of -- >> the cadillac plan tax is poorly structured because if you put a tax on insurance companies, 40%, it isn't going to affect just the cadillac plan holders, it will affect every premium payer. that's why the cost will go up about 40 to 46%. i've looked at studies in my state, say 43%. it may not be 46, it may not be 43, but it's certainly going to be more than 20%. if somebody wants to get another view, i'd like to see it. if it's professionally done peer reviewed study, let's see it. trot it out. >> senator, thank you. we'll talk more. >> cleaning up the mess of bank failures, it is getting costly. there are many more expected to come. the president and ceo of independent community bankers of america. later, sheila bair with a personal cnbc interview ahead of her appearance before the senate financing industry. the woman on the front lines of the financial crisis. "squawk box" will be right back. you're watching "squawk box" on cnbc, first in business worldwide. tdd#: 1-800-345-2550 tdd#: 1-800-345-2550 i want everything right where i can find it. tdd#: 1-800-345-2550 anything that makes trading easier. tdd#: 1-800-345-2550 i want to be right in the middle of the action-- tdd#: 1-800-345-2550 you know-- i have to see what's going on. tdd#: 1-800-345-2550 and when i pull the trigger... tdd#: 1-800-345-2550 ...i've got to get the best price out there. tdd#: 1-800-345-2550 (announcer) try the new schwab.com tdd#: 1-800-345-2550 for yourself. tdd#: 1-800-345-2550 call 1-888-4schwab tdd#: 1-800-345-2550 or visit schwab.com/trader today. tdd#: 1-800-345-2550 'course a trade doesn't always work out my way. tdd#: 1-800-345-2550 but when it does... tdd#: 1-800-345-2550 ...man... do i love that feeling. ♪ [ bicycle bell rings ] [ bell dings, kids cheering ] ♪ ♪ [ cheering ] [ female announcer ] sharing. that's video on the human network. cisco. welcome to the human network. all right. welcome back to "squawk box," everyone. take a look at the markets right now. futures have been fluctuating. right now you'll see they are down 5.5 below fair value when looking at dow futures. j & j the dow component out with earnings, $1.20 a share, $0.07 better than the street was expecting. revenue was a little light of consensus though not by much. we've been watching the affect of the slumping dollar by sales of multi-nationals. j & j saying negative impact by two.5% of quarterly sales. we have seen this over the course of the last quarter as well. big company that beats expectations on the bottom line. top line light of expectation. senate finance committee expected to vote today on the health care reform bill. the vote should collate this afternoon or later this evening. if the bill passes as expected, the next step would be talks to reconcile that bill with one passed by the committee, health committee this year. bank of america and s.e.c. reached an agreement that waves legal privileges let's the bank turn over legal documents to its controversial purchase of merrill lynch last year. that followed the vote last friday to turn over merrill documents demanded by new york attorney general andrew cuomo. folks the alarm on small banks continue to sound, 98 on the books in 2009, speculation that number will grow. joining us, the president and ceo of independent community bankers of america. we've been trying to get a feel for how things are. i think this is the first weekend in some time we didn't see a small bank failure. when you look around at the state of the industry, where do we stand? >> good morning, becky and joe and senator. great to be with you today. where do we stand? people need to keep scale in mind, i think, becky. there are over 8,000 community banks. i would say that between now and the end of 2010, say december 2010, less than 2.5% of those banks will actually fail. are there several hundred that are feeling stress? yes. but very few of those relative to the total number will actually fail. >> although we've been told that the fdic is running short of cash, the expectation is they will certainly need to find a new way to come up with some cash for the banks that are likely to fail down the road. what do you think is the best solution? >> well, the fdic is facing a range of what i would call bad options. none of the options they face are good. they have proposed a prepay, and that's probably, in our opinion, the best of the worst options they face. >> why is that? >> well, because it allows the banks to book an asset and actually then provide much needed cash to the fdic without hitting the bottom line capital earnings of the bank. and so the fdic has proposed a three-year prepay. we think that's a little long. we're advocating a lesser time for the prepay. of the options that face the fdic, we think the prepay is probably the best of the worst options. >> some people thought maybe the fdic would go to treasury to find some money. you made some headlines in september when you said sheila bair would take bamboo shoots under her nails before going for help. do you think that's a deal off the table? >> i think it is for now. i think that's an absolutely worse case scenario for the fdic. because how the media would portray that, it would be seen as a bailout for not only the fdic but every bank in the united states. and i don't think congress would look on that real kindly as far as what they might impose on the banks for taking a direct taxpayer subsidy. you know, we're very proud of the fdic because it's always been bank funded. a lot of people don't know that on the street. but banks have funded the fdic since day one. i think they will continue to fund the fdic. >> good morning. >> good morning, senator. >> good to see you. you've come a long way since i asked you to be tax collector in missouri in 1981. i was telling them how you've gone way up and i see bamboo shoots under fingernails, you still have your good country metaphors to talk about. i have kindly a different view. we passed the t.a.r.p. program, which is supposed to be the toxic relief program. when it was sold to me by the previous administration, i thought it was going to be to help activities like the fdic to take out the bad assets, clean out the assets out of the banks, and if necessary, sell it, restructure them and sell it off. the t.a.r.p. hasn't been used for that. the only thing the t.a.r.p. hasn't kept the economy alive, the tremendous flooding of liquidity from the federal reserve has. what do you think about the presence of toxic assets in the system? is that really the key to getting those out? is that the key to getting the lending system, banks and other agencies back into business? >> well, i agree with you, senator. t.a.r.p. was originally passed to cleanse the banks of their toxic assets. that's the whole name of the program. i can tell you from the community banking program if t.a.r.p. were the titanic, community banks were the third class passengers. there were no life boats for us, senator. they didn't clean anything out of the community banks, they just closed us down and cleaned out and bailed out the very largest banks in the system. i agree with you. i think that the toxic assets do need to be dealt with and congress and the administration should be focused on that and do a better job with that. >> are you an obstructionist for any type of reform? i read that in piece. you down kittens repeatedly. that was one of the things. shame, shame, shame on you. i read that about 1,000 times. you want to respond to that piece. it was in the "new york times," i'm sure it was fair and balanced. >> yeah, fair and balanced. the independent community bankers of america have actually been working with the congress on a number of range of regulatory reforms. our focus is the community banking system. we have not been treated very well in the broader scope of regulatory reform and we're doing things to correct that we think the community banks deserve parity with every bank in this country, whether it's citigroup or bank of america. they should be treated no differently under law than those banks. what they got we should get, what they don't get, we shouldn't get. it all should be equal. >> real quickly, you think the next big problem looming out there is what's happening in the agriculture sector. >> i'm worried about the agri sector going into next year. farm prices inflated, commodity inflated. there was a little bit of an ethanol bubble. that's all going to go into cycle. there will be problems in commodities, translate into farmers not paying back their operating lines. i'm worried about the 12 to 1500 banks that are agricultural related banks that deal with the farm sector and agri business sector every day. i think they could be running into rough water in 2010. >> cam, welcome to the group of people who have been slimed. i'm proud to be able to join your company and a lot of other good people in there as well. but one of the things that we're talking about when we talk about reg reform now, i would think you would agree the people who are not bricks and mortar, not bank savings and loans, who originate loans, need to be regulated. >> absolutely. >> that's one of the key areas where we found many of the problems in missouri. but beyond that, rather than focusing solely on regulation, isn't having more skin in the game one of the ways to make sure that you have less of a risk? in other words, we got in a problem with no down payment home mortgages. having requirements that there be more equity in these transactions, is that something that can be regulated? isn't that one of the things that really should be dealt with maybe in the too big to fail and prevent them, anybody from being too big to fail. >> absolutely, senator. you hit on two big points. one is, it was the unregulated, non-bank financial players that were responsible for most of this mess and they do need to be regulated. number two, community banks, as you know, senator, because you've always been a champion of community banks because there are over 300 of those in missouri, have always had skin in the game. and community banks are all about skin in the game, because they operate on a relationship model, not on a transaction model. and i think it would be proper for all banks, whether they are systemically important banks or right down to the community banks to have skin in the game when they are dealing with their customer. >> thanks, cam. appreciate it another time. >> thank you very much. >> more about the rate of bank failures and how the fdic is going to keep up with the woman who is on the front lines, fdic chair sheila bair special guest first on cnbc, at 8:45 a.m. eastern time. "squawk box" is coming right back. blane all right. take a look at futures below value by 11 points, at the dow, s&p up six days in a row. the longest winning streak in two years. we'll see what happens today. biggest question, what the earnings report tells us about the economy. when we return, protecting consumers and saving the banking system. alexi will tell us about mounting debt and way to protect them from bad guys out there. sheila bair first on cnbc ahead of her testimony on the state of the banking system just in time for financials to turn in their quarterly report cards. "squawk box" will be right back. 24 hours a day. technology drives communication. allows people to collaborate giving them stimuli to think in different ways. having a foundation of innovation is the way that you differentiate yourself from the competition. it's the lifeblood of growth. making businesses richer, stronger, more resilient. nyse euronext powering the exchanging world. all right. let's check on dow component johnson & johnson. the company earns $1.20 a share for the latest quarter, $0.07 better than expectation. of the 31 for the latest quarter, $0.07 better than expected. this is something we're keeping an eye on with johnson & johnson. the sales were just about in line with expectations, maybe slightly below. >> currency was 2.5, down five total. two generic, topo max down $0.76, faced generic competition. another down 40%. >> you see the stock originally opened bid ask above that 4:00 p.m. closing price. right now you're going to see bid 6 #.31 after an ask of 61.40. the company will make comments in a call with analysts coming up shortly. president obama pushes for a consumer financial protection agency, our next guest is proposing its own legislation for illinois that will rein in debt industry. alexi geannoulias. we hear ads all the time on the radio, talking about if you are consumed by debt, just stop paying it, don't worry about it. this is the industry you're going after? >> yes. that should be an enormous red flag to families in debt. the first thing a company tells you, don't pay any more of your bills, we'll take care of it in a few years. put this money in an escrow account, of which will pay exorbitant fees, that should be a red flag. we're going to push legislation in illinois through the state treasurer's office, further than any other state in the country to regulate these companies. >> what's been happening? has this been something on the rise since the severe drop-off in the economy? >> it has been. obviously the enormous recession we're facing coupled with the excessive borrowing that's taken place over the last decade has put many families into this precarious position. the problem with these debt settlement companies is they actually cause greater harm than good by charging excessive fees, driving the customer deeper into debt and ruining their already vulnerable credit. so what we're proposing is there are debt management companies that actually negotiate with credit card companies to bring that balance down, to bring the rate down, without telling you not to pay your bills, to do it the right way. for the most part these are not for profit corporations, blanketing airways and radio and advertising heavily on the internet. the other thing to remember, an overwhelming majority of customers who work with these debt settlement companies drop out before settlement is even reached. so, you know, attorney general of new york, attorney general here in illinois is starting to go after them but we want to push legislation so there's no more loopholes for these companies. >> alexi, what got you interested in this? what made you think this was seriously a problem that demanded attention? >> we've heard from more than a couple families who saw this on tv late at night. put money in an escrow account. a year and a half later collection agencies were calling, saying we'll go after you. their credit was ruined. they checked their escrow account, short a couple thousand dollars. they called the settlement company. now they owe a lot more money, collections after them. another thing reaching out and talking to credit card companies, they in many instances are unwilling to talk to these companies. my advice to consumers will be reach out to your company directly and call them and say here is my situation. how can we work together, bring my minimum payment down? how can i bring my interest rate down? they are more inclined to deal with the consumer what are in many instances fly-by-night companies. >> how is your proposal going had ahead to attack this? >> we're going to put restrictions similar to management companies and other credit counseling services have themselves. that is to make sure there's more transparency in the system, to cap the fee they can charge and absolutely prohibit any company telling the consumer not to pay your credit card bills. we're also going to put a provision in there, the first 90 days, if a customer wants to get a refund or drop out of that plan, they can do it and get their money back. a common sense, practical, reasonable approach to dealing with these companies, not trying to be excessive, drive them out but we do want to send a strong message. >> alexi, you are running for senate. you have to get through the primary first. how are things going? >> things are going well. we've raised $3 million, gotten support from almost every democratic organization, poll numbers are great. we have momentum. obviously i'm going to run like i'm ten points down. one reason the campaign is doing so well, the people of illinois know i've always been fighting them, going after debt companies, saving thousands of jobs. we've always been fighting for the people of illinois. i'm really excited about the campaign. >> are you more worried about the primary or the general election? >> i'm concerned about everything. again, we're in a great, great place. the campaign is really progressing well. people are ready for fresh leadership and innovative ideas, someone who has both a business background and has worked in state government. i think that's beneficial. i'm, again, extremely excited about the opportunity. it's going to be campaigning for what's going to be one of the most high profile races in the country. >> alex, thank you for your time. great talking to you. >> thanks for having me on. >> coming up, reaction to j & j results, handling bank failures and inspiring financial system all on the shoulders of fdic chair sheila bair. we'll talk to her first on cnbc before they testifies before lawmakers on the state of the banking industry. check out futures, "squawk box" will be right back. you're watching "squawk box" on cnbc, first in business worldwide. so, what's the problem? these are hot. we're shipping 'em everywhere. but we can't predict our shipping costs. dallas. detroit. different rates. well with us, it's the same flat rate. same flat rate. boston. boise? same flat rate. alabama. alaska? with priority mail flat rate boxes from the postal service. if it fits, it ships anywhere in the country for a low flat rate. dude's good. dude's real good. dudes. priority mail flat rate boxes only from the postal service. a simpler way to ship. all right. let's get to stocks to watch. johnson & johnson continued to get weaker. heard from the company today. they do point out that with these acquisitions, the deals they have done, there is some dilution, i guess. as a result of $0.10 or so of dilution. >> a surprise. >> still raising the guidance even though they are absorbing the dilution. in essence observing dilution, still raising guidance by $0.04 number, the number on the third quarter obviously helps them boost the full year guidance. people are disappointed with year over year sales but should have known sales would be down. down 5%, 2.5 was currency, the rest was generic competition for top omax. goldman sachs, whitney downgraded from neutral to buy. it's 190 stock. 1.5%. >> senate banking committee wants to hear about the state of the banking industry. they are going to the front lines. fdic chair sheila bair will be talking to them. before she does, she talks to us. bank failures, higher premiums, all ahead right after this. are you a cop? no. you didn't hear it from me, but this malibu is a best buy. yeah, i heard that from consumers digest. it offers better highway mileage than a comparable camry or accord. estimated 33 highway. i saw that on the epa site. so how come the malibu costs so little. it's a chevy. you have cop hair. introducing the 60-day satisfaction guarantee. buy a new chevy if you don't love it, we'll take it back. i think that is an absolute worse case scenario for fdic. how the media would portray, that it would be seen as a bailout for not only the fdic but every bank in the united states. we're very proud of the fdic because it's always been bank funded. a lot of people don't know that on the street. but banks have funded the fdic since day one, and i think they will continue to fund the fdic. >> that was cam fine. first he was talking about if the fdic went to treasury and that wouldn't be good. then he was talking about a lot of things. we're going to talk with shoal, a bair and all of this, the role fdic has and the options it has. you're going to also be in front of congress again, sheila bair. you'll be a witness. thank you for coming on very much. he said a couple of things. prepayment, didn't like aspects of that, three years booking it as an asset when they haven't really done it. is it possible you'd go less than three years or is that the way to do it? >> i think we need the three-year prepayment. we want to make sure we have enough of a cushion for liquidity needs. we need cash. our cash position is strong right now. next year it could go negative. obviously we have lots of authority to borrow from treasury. we want to avoid that. >> like bamboo shoots in your fingernails? is that overstating it. >> that may be overstating it a bit. always-of- i always say never say never. a lot of distress the industry faces is about the economy, beyond our control. based on our current projections i think we continue to rely on industry-funded reserves and resources to get through this. i think this has always been who the fdic is. we are industry funded, deposit insurance they benefit the industry has paid for and should pay for. i think they take pride in paying for it. everyone has bailout fatigue. we want to avoid that. never say never. based on projections i think we can continue to rely on the industry to fund the fdic. >> we all go home on fridays and see the banks being closed. i'm just wondering, i don't know if you have a monitor, are we still on rising upward slope? will commercial real estate cause the number to keep increasing or are we starting to see where the economic recovery is helping the decrease, what we're looking at every friday. >> well, banks are generally lag economic recovery. if we're sure the economy is recovering, on an uphill climb, banks will lag by a couple of quarters. that's historically been the case. i'd like to see more quarters of evidence what the banking trends and economic trends are. i can say more definitively what we're getting out of this. our projections is that bank failures will continue at a good clip throughout 2010. we're paired for it, ready for it. initially we were working through loans and high-risk investments not as made. traditional credits, loans made and going bad now because of economic conditions. the rate of healing the economy will drive the rate of the healing of the banking sector. >> good morning, sheila. kit bond. >> good morning, senator. >> good to talk with you again. thanks so much for being on. >> sure. >> we just had a conversation with cam fine. one of the things i raised with him, i thought when we passed the t.a.r.p. that that money was going to be used to take the toxic assets out of the system. i know you have authority to go with banks. i would be a strong proponent of getting expand iing your authory to go after bank holding companies. if that is going to cost more money that hasn't come from the traditional bank sources, i hope that the t.a.r.p. money would be used to take out toxic assets. do you believe that the toxic assets are still in the system causing counterparty risk and making it more difficult for businesses and individuals to get loans? >> well, i do think, we would like a more robust mechanism for getting the toxic assets out of bank balance sheets. we don't have authority beyond bank to the bank holding companies as you point out, but we have launched a program, what we call our legacy loan program, we just ran a funding mechanism, basically the idea is the fdic provides some funding to sell these assets and improve the price a little bit bike addressing the liquidity discount that you're seeing right now for providing financing. we ran a test run with refership assets and got a good price. 71 cents for all the-a nontraditional mortgages which was a very good price so we would like to expand that program and make it more generally available. you're right, the longer the distressed loans are on bank balance sheets, it does build conservatism into bank management thinking they're not quite sure what the ultimate losses will be. they need to reserve heavily against them f we can get them off the bank balance sheet, it's hard because you have to take a loss when you sell them, but that bolsters banks' ability to lend more capital into the economy. >> speaking of capital, we're talking about more regulatory bells and whistles from washington and there are segments that haven't been regulated, mortgage originators that need to be regulated. but i'm wondering, shouldn't there be more discussion about capital requirements. it seems to me much of the failure in the home market where they had no or low down payment loans but throughout system has been financial institutions dealing with almost -- with tremendous lever aage ratios. shouldn't there be an emphasis on getting skin in the game for the institutions as well as for the mortgage borrowers? >> well, yes, there is absolutely too much leverage going into this crisis, particularly for larger institutions, smaller institutions because they can fail and investors know they can fail tend to hold more capital, have to hold higher capital levels, the larger institutions were more highly leveraged, commercial banks were in much better shape an commercial banks and fannie and freddie, there was too much leverage across the system. we need to bolster capital reserves, not just on commercial banks but on financial institutions across the board. but we need to be very careful in how we do that, it needs to be a gradual process because if we spike up capital levels too much now, it could impair banks' ability to lend and we need them to lend into the economy right now. >> she'll la, earlier. cam fein said he's worried about the banks that rely on the agriculturetory and make their loans there, that may be the next bubble. is that on your radar screen? >> we have been monitoring that for some time that asset category seems to be hold be up pretty well, we butt we have been monitoring that and it's hard to tell how what kind of problems we'll see but we are monitoring that. >> can we assume with ken lewis gone that maybe there will be increased efforts to oust vikram pandit? >> i don't comment on an open operating institution. >> you can't- >> no, cannot do it. >> nice try. a for effort. >> you can try. >> let me ask you about a piece in the "financial times," he thinks it's very important that you see everything that's only on the balance sheet but off the balance sheets and that he thinks looking at things with fair market value is very important. do you agree? >> well, you know, if i did not see his op-ed but i do not think we should go to fair valuing all assets. loans held to may chturity, the accounting is appropriate. the idiosyncratic nature of those loans. so, no, i think the accounting treatment for loans held to maturity is right. if you went to a different regime and required fair value, there would be a lot of volatility on bank balance sheets m in good time, you would probably inflate the value of those assets just as you would understate the value in times of distress. so i think the current kentuc kentuckying for banks is appropriate and would not want to see fair value expanded. >> that's makes a lot of sense. >> when it's all said and done, if we ever do get around to regulation after health care, how does it finally look, do you think, chair woman? which agency is going to win, treasury, the fed or the fdic? >> i think we're all still -- there are more areas of agreement than disagreement. we very much fear the concentration of power in any single regulator, whether that's the fed or a new regulator, we think that big regulators too much become captive of large institutions and that would lead to further consolidation in an industry when we need less consolidation in the industry. so we think we need more market discipline through a robust mechanism that says to large institutions if you get into trouble you're going to be put into refceivership, we need to serve as a check on regulatory capture when an individual regulator isn't doing their job and we're also supportive of the consu consumer agency and there's a lot of overlap and agreement between the fdic and the fed and the treasury. >> you're very nice to this missouri guy. >> a fellow midwesterner. >> is that what it is? >> that's right. >> that's even more important that be the interstate. >> good to see you. >> up next, a finer roll call with senator kit bond. 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