lincoln center today. this is the site of ron baron's 18th annual investment conference. this is a big event that draws huge names from wall street, from corporate america and from the entertainment, as well. last year, there were about 4,000 investors who showed up for this conference. it was headlined by jerry seinfeld. in the past, several others have cochaired. rob baron himself will join us as guest host. among other guests who are going to be joining us, choice hotels international chairman stewart bainum. we've got casino kingpin steve wynn will be talking to us about what he sees in vegas and what he thinks needs to be happening in this country in terms of job creation. and mickey drexler will be joining us, as well. j. crew came out and raised guidance to about double what the street was expecting. they'll be reporting later, but some very strong news from a retailer. >> and that does not do television very often. >> he doesn't. he doesn't like doing television, so i'm very excited about this, too. even when i was a retail reporter from the journal, it was difficult to get ahold of him. >> that's the first lady play, j. crew. >> and what i want to do is how did he get michelle obama to wear his clothes? and joe, did you say bernanke at the top? >> i did. >> are you caving? >> no. if you can't beat them. i said that and my favorite thing i said is we want viewers. this has nothing to do with baron, the magazine, so this show will be interesting and it will be something you want to tune into. >> and fun and lively and not like historic. this is not entertainment. >> it's not affiliated whatsoever with that historomew that you're assigned every weekend. >> no. this is ron baron, with one r. >> let's keep making that clear. >> i agree with you. >> bye-bye. >> thanks, beck. we'll be among our top stories this morning. investors are waiting speak by fed chairman ben bernanke in chatham, ma chatham, massachusetts. he'll speak on financial regulation in the aftermath of the financial crisis. we'll bring you those remarks at 8:30 a.m. there's two ns in bernanke. >> we have to show that in chicago. >> in the meantime, microsoft will be reporting results in a rare moment before the opening bell. analysts say it's not going to be enough to keep sales of windows and office from dropping compared to a year ago. we talked about windows 7 going live yesterday. they normally post on thursday nights, but this quarter, they decided friday morning was it. so we'll be all over that this morning. >> we will. preview and post view of it. >> brendan barn kal. >> and star of swung bob square pants. >> there is where you lost me. >> barnacle. amazon.com, getting an immediate response. >> cue it! >> and looked at the 14% gain. and he -- >> it never, never gets old. >> so he was laughing all the way to the bank. >> he hates that. you know we're never going to get him on. >> we only needed him once. >> stocks are goc to be close to an all-time high now. >> 106. >> yep. >> speaking of baron, they hated amazon the entire way. >> remember, it was a big liability for bill miller and no one believed it was going to be close to anything -- >> i would never have believed that you could order from anywhere in the world and have a place to ship it. >> for free. >> exactly. we love his laugh, but the guy is an operator. and it's not just about the money any more at this point. it's just great running -- it's an american icon. >> amazing. >> it was books mostly, right? >> it used to be all books. >> and now you don't buy books any more. you guy kindles. electrics, dvds, amazon says its kindle e-book reader is its top selling product at this point. >> it's a good product. i haven't seen the sony one. >> now, can i read good night moon on -- >> that's a good question. you can get pictures. they're not in color, but you can get graphics. >> i hope you can get pictures. >> that's true, i forgot the kind of books you like to read come with pictures. >> many do. >> magazines, too. >> what does that mean? >> take a look at the bid/ask, pretty good results from axp last night. that was a stronger than a lot ooh people expected. bob napaley joins us with his reaction on that this morning. bob, good morning to you. >> good morning, carl. >> the line is overall billings have stabilized, we saw indications that spending by corporate card members is beginning to pick up. given what we've heard from the likes of wells fargo and on the flip side, from pnc yesterday, is this a tiebreaker in terms of where the consumer is going? >> a lot of that will depend on where the jobless claims are going, carl. clearly for american express, credit is improving. they gave more granular data last night on their conference call. while charge-offs came down in the third quarter, look for another sharp loss in consumer prices in the fourth quarter. >> total spending, down 17%. how disciplined have they become on that front. >> spending was better than expected. the we think spending may be up year over year, very close in the fourth quarter. on the expense front, their nonmarketing operating expenses are down about 20%, but they did heavily invest in marketing in the third quarter. marketing was way up in the third quarter over the second quarter about 40%. >> i see. dan henry, the cfo, says -- he characterizes it as stabilization. he says where we go from here depends on the psyche of the consumer over the next 2 1/2 months bringing us into the end of the year. which way do you think that is going to tilt? >> well, initial indications are that october retail sales are pretty good. the corporate spending has improved, clearly, it was down 17% in the second quarter for american express, do know down only 10% in the third quarter. so things can happen. the economy can be fragile. right now, the trends are for continued gradual improvement. the comps get better each month from here. >> i was going to say, when does spending go positive, the next quarter? >> it will be close in the fourth quarter. we have it modelled down 1% in the fourth quarter. clearly, it will be post in the nifrt quarter. i think for visa and mastercard, clearly, it will be positive in the fourth quarter. >> and finally, it is the best performing dow component this year. it's almost doubled. is that going to continue or is it fairly -- >> we raised our estimates significant significantly last night off the quarter. that's 15 times what we think they can earn in 2011. >> bob, appreciate that. it's going to help today a little bit. >> you remember the price where i was asking, you know, people. you've got one of the greatest american companies tsh. >> nine. >> eight. eight and nine. i remember that day. you were trying to get -- >> a couple of times. vogel, anyone, if the world doesn't end, if you can get american -- i've got a gefl winding box. >> yeah. >> good but for am ex, really. you go ahead to buy one of the greatest companies if the woorld doesn't the end. and you see where it is right now. if you're boeingel, you don't need to make a lot of other correct calls, right? >> that's investing, right, not speculatin speculating. >> i don't know what it was. it's better to buy things when they're single digits. >> if the world doesn't end, right? and that was the question at the time. >> i guess. i don't know. those who can, do. those who can't are on tv, i guess. >> we got some interesting news out of the uk this morning. we expected them to come out of recession. it was negative, so the uk remains in session. the ftse didn't really react and neither did the markets here. we saw good numbers off the numbers we got out yesterday from mcdonald's, gm -- >> that's what we do. >> yes. it is 81.27. the ten-year note is yielding about the 3454. the dollar is rezuming its own ways, back almost to 50. >> yeah opinion can you explain that to me? it kwas 88, wasn't it? >> yeah. we had a bit of a bounce here. we had rosengren tell us that rate policy is going to remain acome dafb. a lot of people think the downward trend will continue in the next few weeks. >> against the euro, 150. >> and with a mixed dollar, gold is up to 10.64. >> horrible. some of these crews are looking for a continued piece. let's let oversaws where geoff cutmore is in london. that's three grters now that your smaller truck has been in the doldrums. that is pretty bad news. the uk market, the ftse, as we call it, he joe, over here is higher by 1.2% at this stage. we had a number out of germany, as well, the ifo index which shows -- actually, germany is doing okay and the pmi number out of germany was up. that's the first jump in 15 months or the biggest expansion. unfortunately, the german market is not getting much of a pop on that. so i think the market looking at the easy money stove story in performance to the economic refer. the nope confirmed targets. and we also have some money from sen enno 2009. so nothing to the in order earnings to phi the children. now to christine in singapore. >> hey, yef. upbeat earnings from the u.s. dove investors book into the equity market. the nikkei rose 0.2%. japanese ininvestors holding back with earnings season coming to a focus this weeks. kia motors reported a strong set of quarterly results. the kospi rose 0.6%. and in shanghai xien that surged 1.2%. trading for the first 28 stocks we're told will not begin until october 30th. in hong kong, the rebound of financial shares helped the markets rally. obviously markets here didn't get a chance to reaction to the poor gdp data. we should see some reaction on monday. >> ira harris is here, we're back above 10,000. we keep trying to give the correction seekers some ground. you know, we give them 100 points here, 1 hin points there. as far as a pullback hour. when is that going to start? >> well, joe, when they start to do a serious amount of repos and raising rafts on the reserves that the fed can pay and start bringing in some liquidity. ourselves, as you heard from rosengren and others, it's full speed ahead because as long as money remains loose, people are going to have to take that money as you and carl and i have talked about for quite a while because the equity markets are the are theants of the global carry trade. end of story auto that. >> equity, oil, gold, modties, they're all moving in tandem. so i guess if we see that inflation points, in fact signal it. it doesn't neply -- >> 1 purs is not enough, carl lib. >> i happen to -- i think tear ta sees some part. so if the economy as as strong region 2% can make no difference. in fact, it would probably be healthy. but nobody is willing to take that step because they're on, some people say, the 1937 model and they don't want to move too fast. then you take larry summers comments xwred which is that the discontest twekt plain trooem treat and -- >> we're told it's lagging. the jobless number, you know that gets back to the white house. that's all they're hearing about. i just heard the wrestler, the wrestling lady slamming krils dodd. everybody is talking jobless. thanks, ira. >> pleasure. let's get back to becky at the baron investment conference for a preview of what's coming up. hey, beck. >> hey, joe. you know, ron is here. we told him already that you've been emphasizing this is ron barron not barrens. and he press tae at the beak. did you guys hear me say this is barack obama and let's see who is up on "squawk box"? >> microsoft is set to report results from the opening bell. we have a money mob tones the stock. stim around and we'll be right back if you're taking 8 extra-strength tylenol... a day on the days that you have arthritis pain, you could end up taking 4 times the number... of pills compared to aleve. choose aleve and you could start taking fewer pills. just 2 aleve have the strength... good friday morning. we got good earnings last night from american express. bernanke speaks at about 8:30 a.m. eastern time. apple is declining comment on the lawsuit from mobile hand setmaker nokia. apple is charged with infringing nokia patents. nokia says a total of 10 patents are involved and all versions of the iphone have violated those patents since its release. back to becky and the barons conference in new york. beck. >> thanks very much, carl. the $154 million baron i-opportunity fund is now up 55% year-to-date. it investors heavily on technology. joining us right now is michael lipford. michael, thanks for joining us. >> good morning. you're welcome. >> this is a perfect day to have you here because you focus a lot on technology. we have a couple of big earnings reports that at least last night we heard from am zone. today we'll be hearing from microsoft. those are both sakes that you own in this fund. what dupg of amazon's numbers? >> we invest in innovation. we invest in companies benefiting from innovations and technology. we're long-term investors. we're looking for stocks that can double in a four or five-year time period. amazon is a greater example of that. incredible numbers last night. grew revenues almost 30%. they grew operating income 30%. they're taking a lot of market share because they're continuing to innovate. so we think the road map for amazon is still a really long one. >> but you don't generally focus on things like earnings, right? you're in this for the longer haul. >> yeah. we're focused on how big and how profitable can a company be in four or five years from today. do they have a mode around their business? and do they have a management team that has a focus on the future. >> you don't worry when you see things like walmart.com? they're selling books for less than $9 right now. >> amazon is really focused right now. that's part and parcel of their business. right now, this is a relatively small part of their business. they're innovating in everything else. electronic goods and other forms of media and certainly what they're doing on kindle is different, it can be matched by the likes of walmart and the other ones you mentioned right now. >> the other thing is that microsoft, we've got this new release coming out with windows seven. what do you think of the stock there? some people have complained that it hasn't moved, but you can probably say that about a lot of the big names in stocks. >> it always depends on where you buy it. we are very opportunistic in establishing our position in microsoft. what excited us was not any one expectation on earnings. so that is really going to hit this quarter, not the quarter they're reporting this morning. about y but what has excited us is windows is ip innovating. it's what they're doing with unified communications and virtualization. it's a long road map they have that has gotten us interested in the ip know vacations. >> so that means you were buying on dips? >> yeah. >> and that's what you always do? >> last year when the market was scared and everything was selling off, we were trying to put together the best fort followo of great companies, a lot of which were traeding at great values. microsoft was a great example, also, where we were able to buy that under $20. >> it's not just opportunities that you look at. you're focused on energy and health care. are those energy and health care with the negligent bent or -- >> no, it is. we're looking at any sector of the economy where technology and valuation is playing a role. both our health care systems and energy systems are dumb in this country. we haven't adopted a lot of technology. we have a lot of talk about trying to take the whole payment system that is still mostly paper based in health care and moving that electronics and similar things in the electricity system with the distribution and the smart grid. so we're interested in smart grid technologies. >> that allows businesses to reduce energy consumption on demand utilizing technology. so in the middle of the summer when the grids are running hot and there's a risk of a blackout or you might have to turn on another power plant, you can ask businesses to reduce energy consumption. they do that using their technology. and they pay their customers so they share more than 50% of the revenue with their customers. so it reduces energy without having to turn on another carpet emitting power plant. >> and what is the stock symbol for that? >> enoc. >> michael, it's a pleasure meeting you and we appreciate your joining us today. >> when we return, we have the man of the morning, ron baron. this is the 18th year that he's hosting an investment conference and today he is grantsing us exclusive access. ÷g;;>q9o9nyç ♪ 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. hi, may i help you? we need to start saving on car insurance. and if that means making sacrifices, we're used to that. not here! when you choose progressive, you get more. more? oh, you'll love "more." you also get concierge claims service, 24/7 live support, and pet injury coverage. that's totally awesome! brother jeffrey hasn't spoken in 12 years! i once went 12 whole minutes! saving without sacrificing. now, that's progressive. call or click today. 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. the gold delta skymiles credit card... from american express... it's the official card... of the world's largest airline. and it's the only credit card... that earns miles on delta. miles that take you... to more places than ever before. over 350 destinations worldwide. so switch today. get up to 25,000 bonus miles-- good for a free flight. call now to apply. there's no annual fee for the first year... and you can redeem... with no blackout dates or seat restrictions. these are just a few of the benefits... of carrying the official card of delta air lines. switch now and you can earn miles... on delta with your purchases: groceries, gas, entertainment, and more. get up to 25,000 bonus miles... with the gold delta skymiles credit card. call 1-800-skymiles to apply. this is the official card... of the world's largest airline. good morning. welcome back to "squawk box" here on cnbc. i'm joe kernen along with carl quintanilla and becky quick is at an opera place, right? you're live from -- i guess she's a sa ploprano? >> there's great acoustics in here. >> singing with you and that whistling. we're going to play the animal orchestra and yoko. but in the opera house, things are probably shattering, glass and stuff. you're at the annual baron, one r, deal down at the new york metropolitan house at lincoln center and i think you're joined by the oponomys, right? >> big word. >> i had that ready to go. is he there? >> he is. he's sitting right here. he's been listening to you. he's waving at you. you just can't see him yet. ron baron is joining us right now. we are live at the ron baron conference. this is the 18th annual conference. ron, we want to thank you for inviting us in today and hosting us. we appreciate it. >> thank you for coming. joe has been reminding everyone this morning this is ron baron, not barrens. you've got about 4,000 people who might be piling in today. last year, the headliner was jerry seinfeld. what brings this conference together and what does it mean to you? >> well, the idea behind it was that we wanted to introduce the shareholder of our executive funds to those introducing the businesses. and then they get to see them, hear them talk about themselves, their lives, how they became steve wynn or stewart bainham and how did that happen. just off-the-cuff discussions like that and then they get to ask questions. so it's not often that people who are teachers or doctors or lawyers get to mooem meet people like that. and our people are very usual people. there's 4,000 people here. >> the last time we talked to you, we talked a lot about where things stand right now. so many people had been spooked by things you see in the markets. when you look around, you say there were a lot of opportunities. what do you see right now? >> i see opportunities everywhere. and last year, the theme was optimist. the markets were crashing. it was 8,600 on the dow, down from 11,000 the month before and 14,000 a year before and we're telling -- and they couldn't open the market. it was down 500 points. >> the day of the conferencing. >> the day of the conference, it was limit down that morning. they couldn't open the stock market. and my theme was why you should be optimistic. this year, my theory is opportunities, in my entire career, i've never seen so many. >> you say you were telling people that this is the right time toni vest. but were you nervous at the same time watching this? >> well, it's hard not to be nervous when, you know, my whole life has been build upon investing. and all of a sudden, all you read about, they tell you that the market is going to go from 6,000 to 4,000 and we're going to have a depression and you're going to lose everything you have. you had mike steinhart on recently and he's a friend of mine and i was having dinner with him saying, what happened? all those people who invest with you are going to leave. what happened? and i thought what he was describing would never happen. however, the government took financial action to keep it from occurring. there are 71 global initiative investments that occurred together so that the financial system is safe again. >> i know joe has a question for you, as well. mike steinheart made his money a few different ways. he's been at conferences cnbc has hosted and had a lot of concerns over the past 10 or 12 years, a lot of concerns. stars was his biggest thing. the last conference we had, czars was going to cause the end of the world as we knew it. >> when you're very wealthy, as mike is, what happens is you get concerned about everything all the time. you don't want to lose what you have. >> well, what happened to you? because you're right up there and i give you kudos, ron baron, because you were really, really calm and sort of grounded the last two times you've been on. you know, the world can only end once and it's unlikely that it can happen and you've been investing for years and years and businesses will come back and the markets will come back. that was sort of paraphrasing what you told us. >> well, i felt that the government was being run by people who understood that there were problems that could become severe until they were dealt with. and you have auto man who was in charge of the federal reserve whose father lost everything in the great depression. he's a brilliant man, per unanimousky, and he had been studying the depression for his entire life. so a brilliant guy, studies the depression his entire life and this guy says, there isn't any way i'm going to bet that happen again, he and paulson. so i was reading about that and i felt that it was likely -- i started off with a mikus net worth. in 1970, i was in debt from school. and it took me ten years to go from minus $15,000 to $1 million in 1980. stewart bainham will be visiting us today and stewart was the head of company manor care at the time and i had invested in that when i was in look skul. i war lowed money to do it. and when i was, you know, in the mid 70s, when i was worth $1 hurn,000 on the verge of getting to $1 million, i bid the 00% of my net worth. and it was acquired by another company. so this country is build on immigrants and it's built on opportunities that are in this country. freedom, people come here from all around the world and you can go from nothing to something. it is an unbelievable place. >> ron, i can't believe that you're not worried about things like deficit, debt, dollar, asset bubble inflation, things that worry a time of the bears right now. not to say that there aren't a lot of opportunities out there, but they come with a sing. >> well, why should i believe that i have any more expertise than ben bernanke in terms of predicting and how do deal with them. or anyone else. identify never seen anyone who has been accurate over the long-term being able to predict whether the stock market is going to go up or town or whether they're going to raise interest rates or when they're going to tighten again. so never, in my whole career, so this is for 39 years, i have never seen anyone do it. so why do i think i recalled be able to do it? so i have this idea that here is is an interesting country. they give you these opportunities and you have the rule of law that operates this nation. and, you know, it doesn't always work properly, but everything works here sooner or later and the politicians, of course, don't always work the way you want them to work. you don't always agree with everything they're going to do. but that is their job this they're making big sacrifices to -- instead of making a lot of money and living this amazing life, for the most part, they're doing this out of their good nature that they want to make the country better. so you've got people with their hearts in the right place and sooner or later, they get it right. >> ron will be with us for about the next hour and 45 minutes until he has to go into the conference at 8:15 eastern time. but we're going to talk about where he sees opportunities in just a little bit. by the way, if you have any xents questions or sments, e-mail us. we have much more ahead from the ael baron investment korns. in these turbulent times, you want a financial partner who promptly gets you... the information you need. at northern trust, our sophisticated technology... puts the most accurate information at your fingertips. so while you may find yourself waiting now and then, it won't be for the numbers you wanted by 7am. ♪ northern trust. wealth management. asset management. asset servicing. you want faster ground shipping. welcome back, everybody. the travel and tourism industry which is the second largest employer in the nation has been hit pretty hard in this recession. one of the companies trying to thrive is choice hotels international. they have brands like comfort inn, econo lodge, quality inn. joining us right now with his outlook on the industry is stewart bainhan. he's the chairman. joining us also in this hour is our special cohost, ron baron. he has backside 15 million under management. the funds invest in choice hotels international. you heard ron talk about the long relationship. stewart, you were one of the very first people he invested with. >> ron has been an investor in five of our different companies over the last four years, beginning when i was in law school struggling with his classes in law school in washington, d.c. and eats been an interesting investor because no other investor that we've ever had has asked so many remarkably penetrating questions year in and year out. and at first i thought he was a nuisance, but then his questions made me start thinking and he had ideas to boot. so i always looked forward to meeting with him and it's been a real partnership for us over 40 years. >> let's talk about the industry. tourism and travel has been hit very hard. you have to rely on some of those coming in. >> we have 6,000 hotels in our system throughout the world. about 4,200 in north america. and those hoelts have been hit hard. the main research organization for the hotel industry says that revenue per available roll is down 15% through august year-to-date for mid tier and economy hotels like ours. and that is about what we're tracking, as well. so our hotel owners have been hit very hard. we actually, the choice hotels as a franchisor tends to sell more hotel contracts turn downturns because unbranded hotels fill a need to affiliate so they can generate more business. and over over the past four quarters, we've seen -- we've added 206 new hotels to our system. so there's kind of a -- we're quite recession resilient. >> so why do they choose choice instead of another brand? >> the -- well, they don't always choose choice, but the reason -- we're is the second -- well, you did go from 360 to 8,000. how does that happen? >> that's right. focus on the customer. i mean, we've tried to focus on the customer and how do we meet their needs better, how do we generate more business for them? these are small business owners who have their capital invested. we have increased our contribution over the years to their revenues. as now, we really about 30%, about a thinker of those sold are generated by our central reservation systems. >> do you benefit from the trade down? i know most of your hotel res are 2 1/2 to 3 stars. have you seen a benefit? >> we've seen a benefit in our markets. and corporate travel managers, only about 65% is leash i couldn't say your and the rest is corporate. but corporate wants free parking, free internet access and free breakfast. we deliver all three for a very good price. if any are watching right now, e-mail me and we've got great opportunities for you. >> stewart, thank you so much for joining us though morning. we appreciate your time. >> thanks for something me. coming up, a whole new meaning for the football phrase, go long. bob kraft is in london this morning with his take on the global economy and the business for everything from the pigskin to macaroni and cheese. gearing to get into a time machine and go back 20 years. (announcer) we call it the american renewal. because we believe in creating cleaner energy that creates new jobs. being the number one manufacturer of wind turbines in america. and developing lower emission, fuel-efficient aircraft engines. ecomagination means growing the green economy by harnessing our most powerful resource- imagination. the american renewal is happening. right now. of your business, when ywhat do you see?uture is the glass half-empty or half-full? well, with ups, you could eliminate warehouses. streamline your supply chain, and even reach new global markets. so your business is more adaptable, more efficient and more profitable. hey, the opportunities are out there. seize them with ups. is anybody else thirsty? 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. we are in chairs along with becky and ron baron. the nfl is going overseas this sunday when the new england patriots and tampa bay bucs go head to head. bob kraft, owner of the new england patriots and chairman and ceo of the kraft group. bob, good to see you as always. we'd love to see a contest in london but we know the bucs are o and 6, you guys are coming off a six-touchdown game. you guys should be licking your chops. are you? >> no. they have a tremendous amount of good players. the strength of the nfl is you never know from one week to the next. no owner, head coach, quarterback, no one knows what's going to happen. they have a lot of good players. they are a much better team than their record suggests. i'm thrilled playing at wimbledon stadium. i don't think we have anything like that in america. this is such a great country to come back to. they have so many great traditions here. playing in women blimbley. >> he has a question here and i never get in the way of millionaires who want to ask questions. >> i've been a great fan of ron and he's been promising to give me a good investment nugget. i'm still waiting. >> could be a long time. >> bob, you talk about some teams being better than their record suggests. one of the thing the nfl has been praised for, this idea of parity, you never know who is going to be in from one year to the next. we've got seven teams with a zero in their record, win or loss column. i think that's the first time in the history of the modern nfl, lots of shutouts, a lot of blowouts. why is there -- why are we going to extreme. why are there you guys and detroit lines, broncos and other teams not doing well like the bucs? >> well, you know, carl, with all due respect, we're still early in the season. what really matters is what happens at the end of the year. the first year we won our super bowl, we started one and three. it's really what happens the second part of the season. you have injuries to account r for. the chemistry of the team comes together. looks like our team came together the last week. if you had seen us play the previous week, you wouldn't have thought so. there's still a lot of football left. >> we don't have a lot of time. your wife said you're crazy, opening up this huge retail complex in the worst economy since the depression and you proved her wrong, i'm sure. she was just concerned, probably. how is it going? then you've got the packaging company, too, which is a barometer of the economy. what are you seeing? >> you know, what we're seeing in the packaging business, actually, things are getting a little bit better here in the u.s., but our volume still down around 7%. our international business is at an all-time high. we have bigger back logs. the last six weeks have just been amazing. so global trade is up. i think the most important thing we can do is help our friends in washington to focus on creating jobs. i know there are a lot of other things we're trying to do, but we need to help mid-sized and small companies get credit and those are the companies that are going to go out and create entrepreneurial opportunities and create jobs. >> that's for sure. all right, bob. it's good to see you. have fun. make sure they bring out the ball with points on it at both ends and not some round football. >> joe, it only took them 230 years but they invited the patriots back to where they belong to hope fully get a victory on this side of the pond. >> thank you, bob kraft. appreciate it. weevil have this morning's top stories and "squawk box" will be right back. more musings from guest host ron baron. for over 150 years, wells fargo has been putting our clients first. according to a leading independent research firm, in 2009 clients rated wells fargo advisors the #1 u.s investment firm for doing what's best for them. with advisors nearby and nationwide, we're with you when you need advice and planning expertise to meet today's challenges. wells fargo advisors. together we'll go far. >> the second hour of "squawk box" live from the barron's investment conference begins right now. >> all right. good morning, everybody. welcome back to "squawk box" on cnbc. i'm becky quick live at the metropolitan opera house in new york city with coverage, exclusive coverage of the 18th annual baron investment conference. we have a great show, including steve wynn, chairman of wynn results. he's been making headlines about the obama's handling of the economy. we'll hear from him and what he sees in vegas. first let's send it back to carl for some of today's headlines. >> what was that? >> that music? >> becky, do you have any idea what that tune was at the top? >> what's that? >> i wish i knew. >> beck, no idea. >> i don't know. do you know? i know it comes up in cartoons a lot. >> did you run opera sounding stuff. >> sounded like opera sounding stuff. i don't know. >> play the crickets. >> nobody knows. >> a lot of news, microsoft rolls out the result this morning in a rare before the bell release. analysts expect ag profit of $0.32 on $12.4, pc edged up during the quarter, not going to end up watching sales from dropping. amazon, $0.45, quarter led by incredibly strong sales in books, electronics, dvds, general merchandise, amazon. that's a new high, new all-time high above 106. fed chairman ben bernanke set to speak at the boston fed conference. he'll speak on the topic of financial regulation and the aftermath of the financial crisis. we're going to bring you the chairman's remarks when they happen at 8:30 a.m. eastern time. >> i just heard -- if we tried to guess and act like -- have any discussion, we're going to end up looking bad. there's no way -- >> it's a little late for that. >> i just heard it was swan lake. is that tschaivo sky. >> this is a special conference ron baron has been doing for 18 years. he brings out about 4,000 investors that come out to see everything from the companies he's investing in to the special entertainment. it's a secret. we don't know who is here this year. we know jerry seinfeld headlined last year. we know cher and others have performed. today we have ron baron. what are the opportunities you see now. you told us you still see opportunities everywhere you look in the last hour, when you try to narrow that down specifically what are the best tupts now. >> one of the reasons there are so many opportunities is because whenever there's a difficult economy, those are the times when businesses have a chance to grow. they can hire people they normally couldn't hire. they get resources they couldn't get, so there's less competition. >> this is more unique than the past. it's much harder to get credit, get businesses to spend and invest. is this different? >> do you know more than half of the companies of the s&p 500 were started in recessions or depressions, more than half. it could be federal express, ibm, microsoft, all these companies were started in really tough times, apple. it's not that unusual. what we're seeing is an unusual recession or depression, i guess recession. deep, great recession. but it's not unusual in terms of providing opportunities to businesses. >> where do you see those opportunities? >> right now i'm like steve, i'm optimistic -- steve wynn -- about the prospects for businesses. what i think is that across the board we have a very active administration. they might not be coming up with solutions to the problems we all would like them to come up with. on the other hand, they are trying. my feeling is that there are opportunities they are addressing -- they are giving us because they are addressing the problems. >> what are you talking about energy -- >> health care. i don't agree with exactly what they are proposing in health care. on the other hand we're investing in businesses reducing costs and providing high-quality solutions to the problem. >> little companies developing brand-new ideas or are you talking about an ibm or general electric making technologies. >> i'm talking about outsourcing resource for drug companies that can do it cheaper. i'm talking about community health bringing health care to rural communities so therefore they can be more effectively provided and people can be safer and get better care than they could if they had to travel 50 or 100 miles to a regional hospital center. so that sort of thing is what's interesting to me. the idea of education. our country in 1960, we were the top country in the world as far as education. now we have 15% of our kids don't graduate high school and only 27% of our adults have a college degree. >> how do you look at something like that and think, great, there's an opportunity. >> investing in education, we've been the largest investor in education and proprietary since 1990. we invested in devry, they are taking kids that couldn't get to college, making sure they are completing a college course and getting accredited by the same institutes that accredit the university of chicago. a lot of kids that go there, they are the first child in their family to go to college. a lot are immigrants, minorities. dev devry, 1990 they had -- last year they replaced general motors. >> what's the market cap. >> $3.3 billion. we've been the largest shareholder for three years. i can't remember what we own, 10%, 10 or 15%. so education. infrastructure. we haven't investments in infrastructure. for years we invest 2.5%, europe 5%, asia 10%. our highways are crumbling. we don't have the right transmission. >> you mentioned all these arenas that have been probably plays a lot of people -- you've been there for a while, bah lot of people have jumped onto those ideas and seen them. is it too late to buy those areas? >> actually the stocks haven't performed especially well of late. the reason is a lot of spending that is taking place, occurring, is from government. governments aren't in great shape. we think these are issues that have to be dealt with. these are prospects for creating jobs. steve wynn talks about how you have to create jobs. this is an easy way to create jobs. we have to invest more in our country and we have to spend less. we have to save more. >> does your investment philosophy depend on the government investing more in these arenas. >> well, right now the consumer represents 70% of the economy. >> right. >> the consumer has gone from spending zero -- saving 0 because the house was going up in value all the time to now saving 5 or 6 or 7% income. last month 3 or 4. bottom line that's a 5% headwind to the economy. in order to get the economy growing again, you have to create jobs. how do you create jobs? infrastructure is an easy thing to do. >> more on this conversation when steve wynn comes up. he has a different idea. he'd like to see the government cutting taxes and providing tax incentives to business. this is a conversation that will continue. >> i agree, too. >> more on this later but right now back to you. >> cutting taxes. yeah, okay. >> he wants tax incentives for businesses that create jobs. we'll get a little deeper into that, that discussion as well. >> i don't know about cutting taxes any time soon. >> tax incentives. >> all right. we've got honeywell coming up? >> we do. >> i guess that's worth mentioning. honeywell looks like $0.72 a share. is that -- no, the revenue view -- that was the estimate was $0.72 a share. it looks like the company earned $0.80 but there was a $0.04 tax-related gain. so that would be $0.76 versus estimates of $0.72. we're not prepared for this dow component? we've been pitching dow components all week long. >> another on the way. >> microsoft will come as well shaking things up this morning reporting before the bell not after like it typically does. david garrity tracks microsoft for gva research. i think the consensus at this point on microsoft is, what, $0.32 on $17 billion? >> $0.32 and $12 billion in revenues. >> on $12 billion. >> what are you looking for. >> basically something in the area closer to $12 billion and earnings probably coming in somewhere around $0.28. we think that, you know, consumers obviously and businesses as well have been well aware of the fact windows 7 was launched yesterday. obviously people didn't want to buy old technology, so they probably held off. as a result of that things suffered for microsoft during the september quarter. obviously in perspective, things look reasonably good. >> is this going to be another quarter where revenues dropped? that had never happened and it's been happening? >> that's very correct. a large part of the reason revenues dropping, pc shipping volumes had been declining up until recently but also you'd seen a shift in mix toward netbooks obviously being lower cost, lower price gave less of an opportunity for microsoft. >> we have been talking about windows 7 all week long, david. we haven't gotten your take on that. on a scale of one to ten, it's impact and i guess the quality of the product? >> core franchise for microsoft, the impact has got to be on a scale of one to ten rated somewhere around a nine. from the standpoint that most of the reviews are coming out fairly positive, to the extent microsoft is supporting a number of new functionalities in terms of multi-touch for screens argues favorably in terms of where computing form factors are going. from that standpoint we're encouraged about microsoft windows 7. they seem to get it right every other release. xp was good, vista a bomb. >> you think they are going to miss the quarter by $0.04, you're staying bullish. >> i think the reason the quarter was missed, people waiting for the new product to come out. consensus estimates, looking for the company to have flat revenues year over year and earnings down 1% giving them no credit whatsoever for the new product pipeline, far broader than windows 7, at the same time not really taking much stock or credit to the recovery that we are seeing develop in terms of pc sales. >> all right, david. we appreciate your time this morning. thanks. >> thank you. >> we'll check on those earnings when they come in. honeywell, what did they move chevron in? >> it's hard to keep track. >> should have left out aig and maybe kept honeywell. >> you probably still want sears, good year. >> honeywell gone from 23 to 40, would have been nice if that were in it instead of aig going 60 to 0. >> travelers. >> big gain yesterday but a 30 billion market cap. alcoa is $13 billion. >> that's the black sheep of the dow component. >> not going to like that. see what becky thinks. she's down there whistling. >> i'm not whistling. anyway, comments or questions about anything you see on "squawk box," comments about what you see happening with the dow 30 components, which is the black sheep, e-mail us at squawk@cnbc.com. when we return our exclusive coverage of the baron investing conference. we have the chairman of southern union gas and business entrepreneur george lyndmen joining us. we'll be right back. thank you. time for aflac's trivia question. on this day in 1993, what major league baseball player won the world series by whacking a ninth inning home run over the sky dome's leftfield wall? the answer when cnbc's "squawk box" continues. 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 now the answer to today's aflac trivia question. on this day in 1993, what major league baseball player won the world series by whacking a ninth inning home run over the sky dome's left field wall. the answer, toronto blue jean joe carter. futures as we wrap up a busy week of earnings are still coming in. honeywell with decent numbers, awaiting microsoft later this morning. also bernanke speaking at 8:30 a.m. eastern time in boston. let's continue our exclusive coverage of the baron investment conference taking place. becky is there and has a special guest. beck. >> carl, thank you very much. again, this is that annual investment conference. this conference always bring out the biggest and most powerful names in business. that couldn't be truer for our next guest joining us. he has an empire built on gas and media. he's no stranger to shakeups. he's here to tell us what's coming in both sectors. chairman and ceo of southern union. ron baron is here as well. george, before we get started on things, you are somebody who has touched on so many different industries over the course of your career, everything from the cosmetics industry to contact lenses, pharmaceuticals, vision cable which you built to 230,000 subscribers. you built metro mobile, a very early cell phone company. natural gas transporters, southern union is what you're in charge of right now. through those years, where is it you first cain and met ron? >> well, i was in the telephone business in the early '80s before it really began. at that point all we had because car phones. lots of people did not understand the car phone, they felt they could stop on any street corner and there was a public telephone that worked. and i was trying to convince banks to lend us money to keep building. it was a very hard sell, because they couldn't understand what you would do with a cellular telephone. i'd explain to them, when you get into your car, that is the time to call your mother, because you never do it otherwise. also anyone who in business called you and you really didn't want to return the call, if you called them back at 6:00 and you left a message because he wasn't there anymore, you accomplished the same thing of being very polite and returning his call even though you didn't have to speak to him. at some point i got a phone call from somebody who said there's an investor that runs a fund and you should meet him because he would love to invest in cellular phone calls and that was ron baron. i went up to his office and that's the first time i met ron baron. i said to myself right there, here is a man who understands what is going on and what is changing in the world. remember, this is long before portable phones. in those days they were talking about a half percentent, one percent penetration. ron was on top of a whole new field that no one even understood existed. that to me was very impressive. after that i always trusted ron, because i knew, whatever was new, someone in his organization would be on top of it and make a go of it. >> let's talk about businesses you're focusing on right now. natural gas. transmission of natural gas a huge industry, especially with natural gas developments we've seen in the united states recently. where do things stand when it comes to natural gas? where are the advantages and big holdups. >> natural gas is a clean burning substance as opposed to coal. if you take a progressive state like florida, florida said all new generation facility making electricity will be gas generating facilities. lots of places like new york are still burning coal. as that change occurs, you'll get more and more natural gas. we probably have in excess of 100 years of natural gas in this country and it's untapped at this point. after that's there's so many more shale finds, the amount of natural gas we have is something we don't even know. but we are not tapping into it because of our government and the way they are operating now. >> although there has been a move to try and look, because of climate change, so many issues to push it here, what do you think the holdup is in congress for natural gas. >> if you're a senator from west virginia or any major coal state, you are voting for coal. it is jobs. they want to be reelected. so that is the main push. >> are there congressmen who line up in favor of natural gas who have it in their home state. >> most states that have natural gas also have coal. the marsala shale, everyone talks about now is in pennsylvania, it's a heavy coal state. there's more people employed in the coal industry than there are in the gas industry. >> do you think this is a fight that will continue to be won by the coal lobby? >> i think that's a very difficult thing to answer and no one knows the answer to that obviously. if logic prevails, then the gas industry wins. but you know, it's a slow go of whoever is going to win, because it's a three-year or four-year program for people to change out their generation facilities. >> this is the solution. natural gas is the solution. whether it's going to take a while or whether it's going to take a little bit longer. this the solution, transition until you get alternative energy. >> natural gas can drive the cars at a cheaper rate than gasoline. there's no point with electric cars because at night when you come back and plug the car into the garage, you've got your generation going all over again. there's no solar power at night, whether people realize that or not i don't know. there is no way to store electricity. so it makes absolutely no sense to sell the alternate energy forms we do. also electricity degrades as it goes down the line. so if you have a windy, 50 miles away, a major loss of line. >> george, we'd love to have you back soon to talk about it. we didn't get to the media aspects. thank you very much. >> thank you. >> "squawk box" will be back right after this. >> as the recession starts to lighten, i expect to see improvement in tech spending everywhere in the world. >> cnbc, first in business worldwide. when we come back on this friday, wynn resorts chairman steve wynn stops by with his outlook on the economy and resort business. we're awaiting microsoft results for the quarter after amazon posted good numbers last night. stay with us. with twenty-nine miles per gallon on the highway. it's power and efficiency in perfect harmony. - ( tires squeal ) - chevy camaro. may the best car win. guaranteeing it? that's another. announcing the 60-day satisfaction guarantee when you buy a new chevy. if you don't absolutely love it, return it. simple as that. welcome back to "squawk box." let's get a check on the markets. the dow with the second highest close of the year. awaiting existing home sales bernanke speaking in an hour's time. amazon.com, third quarter sales, profits strong. kendall reader is the top selling product. predicting sales growth of 20%. shares jumping in after hours trading a new all-time high. apple declining comment on this lawsuit from mobile handset maker nokia. they are charged with infringing on patents. nokia says ten patents are involved, all versions of the iphone have violated those patents. now over to becky in new york. >> carl, thank you very much. unemployment continues to be a cloud that hangs over the economic recovery. we talk about that just about every day. joining us now exclusively with his thoughts on jobs, economy, hotel industry. also guest host ron baron, chairman and ceo of baron capital. a group with $15 billion under management and the fund also invests in wynn resorts. thank you for being here. >> nice to be here so early. >> yes, very early to you when you're on vegas time. >> that's okay. nice to be here with ron. we've been together since 1980. >> he was telling us a little about that. >> long time. he takes the longview. whether you're talking about warren buffett, ron baron, most of the fellows the most successful have been able to see simple things over a long period of time and that's what's created the wealth for the people in the baron fund. i'm glad, proud we were part of that. >> big part of that. >> ron, what drew you to steve wynn. >> well, in 1976, i was interested in investing in atlantic city. i didn't find anything that was especially appealing to me. i was friendly with jay christopher at the time, chairman of hyatte corporation. this was the beginning of my career. he said the guy you've got to meet is steve wynn. i thought it was a joke, wynn, atlantic city. i met and invested in his company. >> i just graduated high school. >> it's been an unbelievable relationship for us. what was interesting to me really about some of the things he does, in atlantic city when he built his property, he built it further away from everyone, smaller than everyone, yet he made more than the whole rest of the town. he made more per slot, per game, per table than las vegas, built a property where his one property are making more than 30 properties all together. one of the interesting questions is you also talk about investing in bricks not just straw. what does that mean and how do you do better than anybody else else over and over again. >> my favorite case is three little pigs. everything you need to know is contained in if you read three little pigs. getting there early, getting the advantage, all the things, getting to the woods ahead of the wolf, building in bricks instead of straw, less enduring. >> does that mean spending a lot of moneymaking casinos? >> it's very important when you talk about house of bricks, i don't mean mean the physical structure only. it's good to have nice taste, build places that are pretty, with good fabrics and nice life but what i'm really talking about is the emoss of the business. that's the heart of the house of bricks. first an idea, then a building. first an idea, then a government. the idea is that the building is all about how people feel. when they feel good, then it's enduring and it survives. more than the house of bricks per se in a literal sense the house of bricks is about people. only people make other people feel good. our house of bricks is about human resources engineering, how retreat our staff, the feeling of family that we try and create in our business is passed onto our guests. that's the house of bricks. >> all right. have you about 20,000 employees. so you know what you're talking about in terms of people. >> can we stop for a second there? >> uh-huh. >> when steve left mirage and it was sold and i went out to visit him before we invested in his new company, one night my son and i went to a show at the mirage. as we were walking through the mirage, a live show, i guess i was, as we were walking through, he's not a part of this any longer, and we were walking through going to the show, people kept coming over, mr. wynn, i hear your building a new property. i want to come work for you. i can't tell you how many people when we're walking through the enemy's casino are coming over to him saying, i've got to work for you. that was one. number two -- that's because of the way he treats people. and when you talk about the properties themselves, he is fanatic about every detail, whether a water closet -- i remember one time in 1987, walking through the casino in mirage saying why the property makes people feel good. smaller rooms, in mat, ceilings are hardwood. even though people can't see them, they make you feel better. >> right now is an important time for tourism in general. >> there's a general loss of confidence in america. it's being made worse by, in my opinion, government policies that are not creating jobs, that are increasing our deficits. it's one thing to say we're going to increase jobless benefits. that doesn't make someone believe in tomorrow. that doesn't give them confidence. what gives people a better life is a job. and our government, i think, has lost its focus on job creation. last night i watched the founder of singapore take a program over at bloomberg with charlie rose. and at 86-year-old, he's the most respected figure in international politics in the world without dispute. he would probably go to washington today and be interviewed and received by the highest members of our government. charlie asked him what are we doing right? what is the most important thing? he said the dollar is collapsing. america will lose its position of leadership if the government of this country and the congress doesn't protect the citizens from a collapsing dollar and these deficits. if we continue to allow the economy of america to suffer from deficits, then every single working person in america will be damaged. >> what would you like to see the government do? i've read you're very interested in tax credits. >> that's what they do in singapore. >> how would that be directed, at what industries? what are we talking about in price. >> we spent $900 billion on stimulus, $300 billion on t.a.r.p. we could take any part of that money and by subsidizing companies, small companies, big companies, in every corner of this economy, we could create jobs in 60 days if we offered a tax credit of 30,000 for every new job created permanently with health insurance for their families. if we did that, we could create 3 or 4 million jobs, half of the ones we lost in a very short period of time. that sort of thing is done in singapore and other enlightened and sophisticated countries. >> of $787 billion in stimulus, $300 billion were tax cuts for businesses, individuals, the cash for clunkers program, tax credits for firstime home buyers. were those misguided programs? >> unfortunately, based upon the programs that are out there today, that is going to be more than offset of the myriad of tax increases that are sort of punitive that are being suggested by this administration from the tax if you don't do the right thing -- i don't know what the health care bill is finally going to end up with. they are voting for stuff that doesn't exist yet. an incredible example of uninformed government. but the other taxes people are going to pay are going to be very severe. more importantly, understand this, to the extent that we run these deficits and the government spends over a trillion dollars it doesn't have, the principle people that are going to be whacked by that are going to be the people who work for a living, whose wealth will be decreased. >> tax credit $30,000 for a job, are you saying that tongue-in-cheek, because that's a lot of spending, too. >> $30,000 per person, $900 billion you could have created a million jobs. we need to do both. we need discipline to face the fact america as a nation, just like any other person, cannot continually spend huge amounts of money we don't have. someone pays for this, and it is the middle class of america that pays for this. the notion you can overtax folks that have money has been proven wrong over and over and over again. socialism or versions of it, socialism-like have been proven in every example to be a failure in the world. what works is discipline. the administration and congress have to come to grips. i remember that i read a book by the french political officer who said the american system of democracy will prosper until the moment the politicians realize they can prib the electorate with their own money. that day has come. i think it's dangerous for middle class of america. i'm hoping somehow the lights will come on and a very bright president will finally study history a little bit more and learn some lessons paragraph ron, you are a great business partner with steve wynn but you don't necessarily see eye to eye on politics. >> i agree with a lot of points he's making. >> which points do you agree? >> tax credits. one of the things steve was facing fairly recently and we were talking about education, gee, schools are underfunded and teachers underpaid. we have a special problem with math teachers and science teachers. one of the ways you solve that, give a $15,000 credit. no one who is going to be a science teacher or math teacher should pay taxes on the first $50,000 of income. i think it's a great idea. >> if you did that, every kid in college would have a career change. look, federal government can't affect government directly. it's up to local governments. property taxes and other things like that are responsible for education. you can't increase property taxes in america in every jurisdiction. but if the federal government said, harry reid, my dear friend and nancy pelosi, and president of the united states said they are going to introduce a bill ags a measure or expression of our social priorities to educate this country and we're lagging in that department, we're intend, if you're a teacher, with proper accreditation, you could even have a national test, if you are a teacher and you stay a teacher, you will receive a tax credit on a joint tax return for x amount of dollars. you'd have every teacher and every young kid in college, a whole bunch of them, deciding a new career would be teaching. what happens today our best teachers leave. when they have children, they need to make more money and they leave the system. the federal government's most powerful weapon is tax policy the restraint of federal power is the most dynamic use of power. >> where do you disagree when it comes to the administration. >> when steve and i were growing up, women didn't have the opportunities they did today. you couldn't do what you do today, so you'd be a teacher. great women were teachers. we had so many options. we have to make teaching better. >> do you agree with what he's saying about what the administration is doing in terms of its tax policies and punitive tax policies. >> it's very disturbing, the tax proposals being made. on the other hand, i do strongly support the idea, the notion that if we had had a different administration in power at this time, then we could have had a very severe problem, because the financial system, people would have said, republicans would have said, you know what, let's see what happens. it will fix itself. >> although a lot of programs started under the bush administration, everything from t.a.r.p. to paulson, geithner and bernanke still there. >> it's not what's wrong but what we're supposed to do to make it right. the answer is not government spending on a huge scale. the answer is federal discipline and priority. first a priority, educating a population should be a priority. >> tax credits don't come for free. >> that's correct. that's why you need discipline and put your money -- in a business, the people you invest with, the most important thing for him and the ceo is someone that knows the difference between 10 on a scale of importance and something that's two on a scale of importance. what we're missing here, the most important thing to a politician is getting reelected. you want to talk to one, you say this would be good for your re-election. that's what they care about. the citizens of the united states have to give the politicians the backbone they don't have now to make priorities and to control spending in areas that are frivolous and unnecessary. and when you take a whole bunch of taxes out of the system, you destroy the ability of business and individuals to create jobs. anybody that doesn't believe that is uninformed. >> you said harry reid is your good friend. he is your good friend? >> pardon me? >> you said harry reid is your good friend. >> yes, for 40 years. >> do you think he's getting it right in the administration? >> i don't know. i don't think that harry is of the same mind as somebody like, for example, nancy pelosi. whether he's able to distinguish and do the fine cutting between what he thinks and his priorities as a western rugged individual who has made it on his own and what nancy pelosi thinks, which is sort of a collectivist socialism light, that remains to be seen. you know, when you're the majority leader of the senate, your constituency is the democratic caucus of our senators. >> when you talk about spending and how it's so important to try to get the economy back on track again and try to create jobs, when you talk about taxing, then what you're talking about now is having a big tax on wealthier people. steve says wealthier people, they are not going to pay that tax, just figure how to defer income. the problem in america -- one problem. we're spending 15 or 16% of our gdp on health care. do you know what china spends? >> what? >> one. one. their target is three. you know what the average developed country spends? ten. >> our national debt exceeds gdp. >> we're talking about going to 20%. >> that makes us an emerging country, third world country. i don't think the american public in general understands the enormity of what is being done to them. i'm hopeful between now and midterm elections it will clear up. but there's a lot of damage being done at the moment, even though they can say it was worse before, it's not exactly an accurate statement. >> steve, we want to thank you very much for your time today. we thank you for joining us. >> you bet. >> ron will be with us for the next hour. >> is he leaving? we have no time for him. we've been asking the booth if we can talk to him. is that possible? >> he's listening right now, joe? >> do we have time? did they tell you in your ear -- >> they told me to wrap. >> it's been a fascinating discussion between the three of you. steve, i've got a question, joe has a question. really quick, steve. we're going to get gdp numbers next week, a 3% on the upside, minus six not long ago. jobless claims aren't going down a lot but they are not going up a lot. i'm wondering if there's a point in this economic recovery where you will see, okay, the spending worked. i'll give them that. or has enough spending been done that no matter what the outcome, the damage has been done? >> well, when the jobless rate really starts to go backwards, i'll say we're moving in the right direction. when job creation goes back up where it should be, i'll say we're moving in the right direction. and sure as the lord made little green apples, i know if you keep taking -- the idea of the $250,000 top tax rate, listen, we've got to get it straight. the personal income tax rate is a business tax. most of the economy is people paying taxes as chapter s corporations, individual proprietiships or partnerships. they make a million, $2 million, $3 million and then they take and pay the tax. most of their income is tied up in accounts receivable or inventory. then they open another shop or another office and that creates jobs. so raising the so-called tax on the rich is a fallacy. it's misleading. it's a sham. the personal income tax rate in america is primarily a tax on businesses. and for some reason the rhetoric has tried to hide that fact. it's part of this ridiculous spend we're seeing these days from the far left. it's got to stop. america is getting hurt here. >> on another network, it was played as an incendiary quote of yours, that the government in the history of the world has actually never create add job. that's done by the private sector. >> no. i didn't say that. i said the government is not responsible for an improvement in the standard of living. what improves the standard of living in america is the productivity of its citizens. that's where the taxes come from that pay for the soldiers that pay for the president, that pay the salaries of the senators. government does create employment, but not everybody in america -- all this joblessness is not from government employees, it's from service sector, from the hospitality sector, from the construction trades, carpenters, sheetrockers, plumbers and electricians. this stuff of building roads, it may be -- listen, infrastructure is a great thing to do, even health care reform in a healthy economy and we don't have one. so what comes first in the triage of the nation's economy is job creation. >> all right. that was just sort of an intro to a question. you are witnessing at this point, steve, a fight between those that would like to have more government and less private sector. it was something we haven't seen really as a battle we've seen in the last few years. you expect that -- >> in my lifetime. >> how do you expect that -- do you expect it to be -- do you expect the private market to eventually win out or do you expect a 10, 20 year slide into a more european-style economy? >> i expect that the american people will realize on that side their bread is buttered. what we're talking about here is the truth, not what i want or what obama wants. what is the truth? the truth is that the standard of living of the united states of america's citizens depends on their ability to have productive jobs. that's how come they can pay taxes. that's how come they can own a home and pay real estate taxes so there can be teachers salaries. that's how come obama and nancy pelosi will have money to spend, when people have a job. not by increasing their jobless benefits but by getting them a job. that happens away from washington. that's where the standard of living changes away from washington, d.c. now, washington can help destroy that environment that creates jobs or they can have policies that encourage it. >> sounds like you have applause building behind you right now. we are hearing people file in this morning. mr. wynn, we want to thank you very much for your time this morning. we really appreciate it. >> that was fantastic. >> so much good stuff done there. >> a lot of proxies from our viewers, wynn for president. he doesn't pull any punches. >> good to have him back. >> he had no interest in being a politician. why would he? he couldn't be. i don't think it's possible. >> i don't know. good question for him. he's done so much in the private sector maybe he feels he could do some good work. >> i'm sure he could. why would he? why would he want to? >> help alter the course of the future of the country? >> i don't know. it would be a little bit frustrating as a backdrop. >> all the more reason to do something about it. when we come back, we'll head back to the met and exclusive coverage of the investment conference. becky will be joined by retail guru mickey drexler who hardly ever does television. a rare interview when "squawk box" continues. this is humiliating. stand still so we can get an accurate reading. okay...um...eighteen pounds and a smidge. a smidge? y'know, there's really no need to weigh packages under 70 pounds. with priority mail flat rate boxes from the postal service, if it fits, it ships anywhere in the country for a low flat rate. cool. you know this scale is off by a good 7, 8 pounds. maybe five. priority mail flat rate boxes only from the postal service. a simpler way to ship. stocks to watch, honeywell reported $0.80 a share. a $0.04 benefit, above $0.72. a former dow component indicated higher. it did guide full year net to 285 and reuters is down to 272. whirlpool reported $1.15. that is above expectations. look at all these things. look at that. whirlpool. someone bought a washer, something at some point in the last three months, carl, right? >> or someone is about to. >> shrunk is happening. slumber ger reported. that company raised full year guidance as well. that's it. it was down $14, now $37. >> when we come back on busy "squawk box," a lot to come. fortune called him the boy wonder of retailing. he filled closets around the country with apparel from gap. now he's looking to do the same with j. crew. retail visionary and ceo mickey drexler. microsoft's earnings and chairman bernanke speaks at 8:30 a.m. a double dose of market moving news coming your way. we've got you covered. stay right here. you're watching "squawk box" on cnbc, first in business worldwide. fidelity, traders learn from the pros. say you want to backtest an entire portfolio of stocks. market experts show you how through fidelity's extensive trading knowledge center. and fidelity gives you free research from 15 independent firms, with accuracy scores... to help you decide which analysts to trust. find out why more and more active traders are turning to fidelity for a smarter way to trade online. trade like a pro. trade with fidelity. this is a special "squawk box" exclusive, live from the 18th annual barron investment conference at new york metropolitan opera house, famed host investor ron baron. this hour legendary retail exclusive mickey drexler from turning gap into a powerhouse to running the ship at j. crew. his thoughts on the power of the consumer. the count down is on for two of the biggest stories of the day, ben bernanke about to speak, microsoft about to roll out results, both at 8:30 eastern. "squawk box" will have those live with mark reaction. it's time for action. "squawk box" begins right now. welcome back to "squawk box" here on cnbc, we're first in business worldwide. i'm joe kernen with becky quick and carl quintanilla. we will get to becky and her exclusive guest. is he gone, wynn, or can he joins us longer. >> he walked away. i can try to track him down, he left. >> ask what he's doing for lunch? >> what about cnbc contributor role? >> i can ask him, although he wasn't thrilled about being up this early. this is not something he does that often. it takes ron baron to get up this early in the morning. >> i'm not going to try to get him for other shoes. that was great. >> i just saw your note and i will do what i can, joe. >> i can't imagine he could ever guest host, but he got a big response, becky. i'll tell you that. boy, we'll get back to you in just a second. first we're waiting for bernanke to speak. he's going to address in massachusetts, the topic financial regulation and supervision. our steve liesman is there. he'll fill us in on the day's events at 8:30 eastern time. chatham, massachusetts, i don't know what's wrong with chatham, missouri. >> there's no fed based -- >> there's a blockbuster. we're waiting for the release of microsoft at 8:30, right about the same time bernanke speaks. it's going to be a busy half hour for the market. let's get other top toers from carl, who is not in the control room but here. >> let's look at the futures, late rally, back 10,000 and second highest close of the year. one economic report in the middle of it all, bernanke speaking, figures on existing home sales. national association of realtors expecting to see a jump of 5.7% from august levels. chrysler financial will go out of business within two years. the firm of chrysler exclusive lending arm phased out as gm and chrysler went into and out of bankruptcy. 4,000 workers reported. job cuts ahead at "time" incorporated, "time" subsidiary that publishes "time," fortune. told reuters cuts will be of similar size. back to becky at barron's investor conference. wrote barron's and said it out loud. >> thank you. j. crew's profit forecast bringing in optimism in the retail sector, rare occurrence. j. crew stock sent soaring when the retailer raised earnings forecast and said it's seeing positive signs for upcoming holiday season. raising forecasts may be putting it lightly, talking about numbers almost twice what the street is looking for. joining us exclusively with more is mickey drexler, chairman and ceo of j. crew. also our guest co-host ron baron, chairman and ceo of baron capital. mickey, we want to welcome you and say thank you for joining us. interviews, particularly television interviews you don't do very often but we really appreciate your being here. ron says thank you, too. >> nice to be here. >> the numbers came as a real surprise on the street. you're talking about numbers almost twice what the street is expecting. what's happening right now? what do you see in your stores? >> i think what we're doing is we continue to do what we've done since day one, bringing the right product to the store, being as creative is ever. when the tsunami recession hit, we all fired ourselves and weren't pleased with our performance and had excuses, even though the world was falling apart. i think when you go through what you go through, we all went through about a year ago, and are scared about a lot of things we decided to move forward. we've been practicing for this day our entire careers. we come to work every day. most important always always is being creative, being a good business person, providing the right service and environment, respecting our customers and differentiating from all the sameness out there in the world. and lostly, producing a product that has the utmost of quality at prices that we define, we think are fair and affordable. we're trying -- >> you told me you had been practicing for the recession for six years. what does that mean? also we talk about getting the style right. what does it mean to get the style right? how have you been able to do that? >> well, i think practicing means, look, whatever we are, whatever we do is an accumulation of all of our experiences. so i've been doing this a real long time. my team perhaps less so. we've been up, down, around. i think the recession kind of, in our minds, put a stop or complete mind change to how consumers thought about buying. i think america overlived its standards for the last ten years, overspent. i think the reality of value came back into being, which in a session is what our mission is, value styled product. in terms of style, it's not a terribly scientific thing, but you have to have the most creative, innovative team, understanding that every single day we come to work we're trying to figure out what's next while in fact taking care of what the consumer wants now. i think the recession was a very loud cry, back to realistic spending, fundamentals and value and quality and service. >> so mickey, becky was telling me before, half her wardrobe is j. crew. >> love you, becky. all right. i haven't met becky, so this is not a setup. >> no, it's not. i told him i hadn't been in a consume-of- couple of years, my best friend dragged me in in the spring and it's a complete different store. >> music to my ears. i sincerely appreciate that. >> and last night a young girl, whos the child of one of the executives in my firm wrote mickey a letter and said i love -- what did she like, mickey. >> she loves the head band. she's 11 years old and loved the headbands. >> mickey, in fact, called her on the phone, left a message for her. this girl is 12 years old. just blew her away. and so you're telling -- and whenever i speak to you, you always say, hey, listen that great wool sweater you have that cost all that money, i can sell you the same thing for a third or a quarter of what it cost you. >> how do you do that? how do you get those lower price points? >> first, a little more finesse than that, no offense. in fact, i'll tell you how we do it. it's not complicated. when we took over j. crew years ago, we fired 70% of our factories. we go after the best quality and best fabric in the world. maybe because of my background and yours, ron, whatever, i think value is back again. it has to be here. so a few combinations, the best fabric, the best quality. we're not building in multiple middle person profits. we make it, we manufacture it, we design it, and we sell it all under our control. and in fact, if you look at the retail values of prices around the world today, there's multiple profits being taken. our model, and i think this is going to happen more and more in america, why do you need all the middle people selling a great brand. the maker sells it, the retailer sells it to the consumer. for us, why not eliminate that. >> it's not always an easy task to be able to handle all those things. designers in the past who have tried to get into retail have not been able to do it well. j. crew in a different situation. you talk about the right fashions right now. one of the toughest things in fashion and retails is staying with the fashions. as you know, it's a very fickle environment out there. >> i know. >> you can be hot today, not tomorrow. how do you stay on top of this with stuff you're designing right now for 2010. >> i think first of all, needless to say you have to have a design team and a merchandising team, et cetera, that sees the future. no rearview mirror management in our company. every time i've personal been there it doesn't work. consumers dramatically dress, they move forward. but the other very important thing in running a company, whether it's public or private is that making up the content of our stores are things we say, what are we famous for? what will bring a customer back to j. crew because we do it better than anyone. and we never want to compete on price. so if you evaluate our assortment, there are those predictable things, we evolve, sharpen the edge every year. but a woman will know our mini pants, cashmere sweaters or jackets or a guy knows our wash shirts will be there. they will be there in a different perhaps better form next year, but you have to answer the question of what are you, in fact, famous for and we ask that question always. >> and what am i going to be wearing, let's say next spring, next summer. i know last year it was the cardigan sweater, the shirts with a little bit of a frill but not too much of a frill right here. what's hot six months from now, nine months from now? >> i'm not -- if jenna lyons were here and her design team, she could answer it better. when i see it, i know it. it's that kind of thing. we are now working into next year. i can't give you an example but we are working on many exciting things. i can't give you a good answer verbally about what's hot. it's never one thing. it's a j. crew look. it's a style. it's a feeling. there's no logos. you're not putting together the way you want. >> you sound an awful lot like steve jobs. you've been on apple's board since the late 1990s. when you start talking about discussions that happen there, do you have conversations with him about style, about how you know what's cool, what's hip when you see it? >> the reason he's on this board is because steve jobs wanted to get mickey's expertise to be on that board. >> i think there is a thing you know it when you see it. being on the board has been an extraordinary privilege and very exciting for me. look at what apple does, they keep it simple. they design it better than anyone. it's technically better than anyone's, and they put it in a an extraordinary environment. the other thing steve recognized 10 or 12 years ago when i joined the board was he wanted to control his distribution. that is so critical, i think, in the world of product and retail today. you cannot -- he felt he needed an image for apple. the only way he can create that was in his own stores which, of course, is what we do. the other thing is you can't buy a j. crew product on sale anywhere else. it's that big elephant in the room we live in. go on line and check the price of what you're paying. we do that regularly and constantly. watching what apple has done, constant flow of newness, excitement and design and fashion. i think we're all in the fashion business to a degree. that's been a great, great experience for me and i've enjoyed that. i think the same principles apply to the car business. you know, i think, no offense to whoever fixes cars, but they better know how to make cars good looking and designed well and then also be of high quality. but that's the world we're in today. >> mickey, real quickly, how did you get michelle obama to start wearing your clothes? did she approach you or did you approach her? >> it was an afterthought. she liked our clothes. >> is she jewish? >> oh, my god. anyway -- ron, i didn't know -- she loved the clothes, i guess. i don't know her. if you think about it aesthetically and politically, of course i'm biased, it was incredibly smart for her not to go out and pay -- especially during the last year -- high prices for designer merchandise. and you know, the world is about brands and labels. but our prices and i'm not selling us on prices, i think she had a great eye, recognized it, as did she for the children's collection for her daughters. love her, love all our customers. i think they are recognizing, as you said, there's a discovery out there. we're on a mission really. it sounds corny, but you come to work every day trying to get the message out about, wow, this is a way that is new, a way of doing business that is always respecting the customer, their quality demands and their value demands. >> mickey, we want to thank you very much for your time. you've been generous. we appreciate it. >> i really want to thank you. this is really nice of you to do this. thank you. >> thank you. my pleasure. appreciate it. >> appreciate it. >> ron, we want to thank you for letting us join you today with these groups of companies you invest in and here at your conference today. we really appreciate it. >> thank you very much, becky. >> we have more coming up a little later, guys. we're going to send it back to you. you're waiting on stuff happening with ben bernanke as well. >> becky, you've got to ask ron, he's early on cell phones, he's early on -- he knew steve wynn was going to be huge. will you ask him what's going to happen like over the next 20 years and get some of the stuff. we don't have to say it on air but bring it back so we know what's going to happen, seriously. >> i will dog him today to get him to whisper in his ear. >> is it natural gas cars? >> i like batteries in cars. i think natural gas is going to be really good as base power instead of coal. >> all right. there you go. you got something out of him already. >> ask him other stuff, though. other stuff, too. the next big thing. >> let me think about it. the next big thing when it comes to technology, we'll do that. >> or clothes. i don't have any j. crew stuff. i'd like to be cool and i'm not. >> thank you, becky. >> coming up two big stories that can set the tone for the trading day. waiting for fed chairman ben bernanke to speak at the fed meeting in boston, massachusetts. we'll take that live at 8:30. microsoft rolling out results in a rare before the bell release. next a preview whaf we can expect from the software giant. another one. "squawk box" will be right back. okay. waiting for the fed chairman to address in chatham, massachusetts. that's not a live picture but we will get the details of the speech in 11 minutes, 8:30 a.m. eastern time. in the meantime futures relatively flat, united kingdom in recession, gdp negative there. that was a bit of a surprise. good earnings from american express. let's recap some numbers this morning. whirlpool as joe mentioned, well above revenue beat. cost cuts, weaker sales, you were impressed with that? >> that's a durable thing. >> schlumberger, $0.65. prices down from a year ago as prices fell on spending and exploration. a couple of numbers, honeywell did well. >> microsoft will report before the bell. i'm not sure why. first quarter earnings expected in 15 minutes. with us top rated analyst, heather of isi, brendan of pacific press securities. ladies -- ladies and gentlemen, either of you above consensus or below? anything -- any outlying calls on this, heather, i'll start with you? >> we're below consensus. >> below. >> on revenue and earnings. >> really? why? >> i think it was a tougher quarter than people think. if you look at what intel said, it was all about consumer spending and china being good. that's why better. that sums up the reason why we're below. >> in that a lot of good things on the horizon, is that a good reason not to like the stock? >> no. in our view what they report this morning almost doesn't matter in the client division because of what you just said. it's what's going to happen going forward that we're optimistic on? >> this is a much better prognosis for windows 7 than for vista? >> much better. >> they got their act together? >> i think they have their act together. if you saw any of the demos from the launch events yesterday i think people were pretty impressed. >> i just hope the scalability of windows 7 in my cross spreadsheet analysis. >> you don't want to leverage your cloud computing. >> when i write my own software code, i hope it's easier on -- i have no idea what windows 7 will do, i hope it's cool, easy, applicable, scalability is in there. what are we looking for? >> the biggest thing with windows 7, a whole lot easier to use. i've been using the demo for ten months. with an operating system it's hard to explain what the differences are. it's not like a neat demo. you see it faster, wakes up faster, your battery lasts longer. things like that below the covers make a difference when you're kroog it on a daily basis. that's where i saw the difference. >> gets closer to what people say mac offers, ease and flow of knowing how to do things but doesn't quite achieve it. >> that's absolutely right. it's borrowing a lot of strengths of mac. microsoft going in and finding out what works there, finding a way to make them comparable. i run a mac at home, a 7 at the office. i find 7 easier to use because i'm more familiar with windows but a lot of similarities in the two. >> what's your estimate for revenue and bottom line? >> i'm similar to heather. i'm a little light on consensus on the top line, $12.3 billion and $0.30 for similar reasons. i do think given what we've heard recently on servers and better strength we've soon in pcs, client side of the numbers give strength, weakness in the opposite side. the street tends to overestimate that number all year long. >> either one of you have any idea why they are doing it before the market? is it the strength -- >> it's because of windows 7. >> it's not the strength of the "squawk box" franchise. >> that's exactly it. >> i think ballmer did mention that yesterday. >> didn't he sort wildfire a wink and nod. actually it's windows 7. >> heather, taking a share, that is sustain able. >> slowly but surely expect it to march down that path and gain share. we expect it to break even, 15 to 20% organic share which we think takes three to five years for that to happen. >> does that remember better execution by microsoft or a miss step by another -- by a yahoo! or google? >> i don't think you can bet on misexecution at google. i think it's going to be better execution at microsoft. >> brendan, all the hype about windows 7 is not going to change the fact that pc sales are still down. when do you see that changing? >> that's right. as we look out to next year, firm line view, decent growth, as much as 17% growth. interesting comment ballmer made last week, they think windows 7 could grow faster than pcs previously they suggested in line with pcs. that would suggest numbers higher on the street. right now expectations for high single digits. high revenue expectation windows growth if we see something closer to high teens maybe 20%, that's going to give us significant upside to the numbers. >> overall, big sunday piece in the "times" with baumer. do you see that changing? we talk about them getting their mojo back. are they in venting new ideas? >> if you look at this project they have coming out on xbox, that's a big invasion that could dramatically change the gaming platform. they have something going on there. windows 7 is an incremental step. strikes me the most earth shattering thing coming. >> do either of you see the stock getting into the 30s in our lifetime and staying there? >> actually i would. i think -- i agree with brendan. i think we have upside to client numbers, in particular really we're very optimistic on fiscal 11, we're a billion above the street in terms of our client estimates, which is their windows business. we think that would properel the stock in the 30s. >> you too, brendan. >> you could see as much as two bucks in earnings. that gets us back over the $30 level. >> takes nerve for either of you. how long has it been in this range? seems like forever but maybe finally built a base? >> yeah, i mean, it was back in the 30s if you look back at the vista timeframe when vista what out. >> short-lived. >> short-lived. >> very short-lived. all right. so we'll watch for that. i guess you get through the old highs that may be a while. >> take a little longer. >> heather, brendan, thank you. great having both of you on at the same time. >> that's nice. >> busy half hour on the way. two big events coming up beginning in four minutes. fed chairman ben bernanke expecting to start speaking at the boston fed. steve liesman there, a podium twr from which he'll be speaking. microsoft earnings today before the bell, a rare release, the day after windows 7. that release and reaction. stay here. all on the way right after a short break. futures relatively flat on some decent earnings to far this morning prosecute whirlpool and others of the fed chairman about to deliver a speech on financial regulation. steve liesman in chatham, massachusetts, with those details. steve. >> thank you very much, carl. the fed chairman speaking here at the boston fed conference in chatham. he's supporting this idea we've been talking about for several months now called contingent capital which is debt that converts to equity during times of stress. you might have first heard this when we interviewed bill dudley back in september. now i believe, i can't be sure this is the first time the fed chairman is putting his approval on this idea. it's one a lot of academics and some fed officials have been stressing. the fed is considering working with international other bank supervisors, a tax or higher equity levels for these large complex financial institutions. it's considering liquidity standards, quantitative and capital levels during good times. >> steve. >> yeah. >> we just had a bunch of analysts talking about microsoft, both below expect as. unless there's some items in here, it's a much better than expected number people have been looking for. the estimate was $0.32. the number, the nominal number is $0.40, $0.40 versus $0.32. also revenue declined 40% to $12.92 billion. that's also about $900 million higher than the analyst we spoke to three of them today. nobody was looking for a beat on top and bottom line. futures moving. steve, sorry to interrupt you on that. back to you. >> okay. thanks, joe. let me look at some of the things the chairman is also saying in this speech on banking and reforming the banking system. he's urging congress to enact financial reform including this idea of resolution authority winding down complicated or complex institutions. he's saying resolution authority must in sure that shareholders and creditors take losses in that process. the financial industry should bear the cost. kp again, an assessment, a lot in here from the chairman, should bear the cost of these assessments, resolution through an assessment. congress should include all financial institutions, hedge funds coming under some supervision. the fed emphasizing this consolidated supervision right now even before congress has acted. supervisors he says have to hold bank management accountable for lapses in risk management. with the ter mile easing, now is the time to take action. the fed's systemwide approach should lessen threats to financial stability. that's essentially what the chairman is saying here. contingent capital we're going to be talk ug more about this over the next several weeks. >> good morning. the theme of the federal reserve banks bostoned economic conference this year reevaluating regulatory supervisory and central banking policies in the wake of the crisis is certainly timely. not much more than a year ago, we and our international counter-parts face the most severe since the great depression. fortunately forceful and coordinated policy actions converted the global financial collapse. since then, aided by a range of government programs, financial conditions have improved considerably. however, even though we avoided the worst of the economic and financial outcomes. the fallout from the crisis has nonetheless been very severe. as reflected in the death of global recession, the employment here and abroad. now is the time for policymakers to take action to reduce the probability and severity of a future crisis. although the crisis was an extraordinarily complex event with multiple causes, weakness in financial along with lack of capital and liquidity were clearly an important factor. unfortunately regulators an supervisors did not identify and remedy many of those weaknesses in a timely way. accordingly, all financial regulators, including, of course, the federal reserve, must take a hard look at the experience of the past two years, correct to identify short comings and to improve future performance. supervisors in the united states and abroad are now actively reviewing prudential standards and supervisory to incorporate the losses. we're participating in joint efforts to ensure large politically financial institutions hold more and higher quality capital, improve their risk management practices, have more robust lukt management, ploy structures that provide appropriate performance and risk taking and deal fairly with consumers. on the supervisory steps we're taking steps to strengthen oversight and investment at the firmwide level and implementing our specific methods of oversight with a more macroprudential or systemwide approach that should help us better anticipate and mitigate broader threats to financial stability. although regulators can do a great deal on their own to improve financial regulation and oversight, the congress must also act. we have seen numerous instances when weaknesses and gaps in the regulatory structure contributed to the crisis. many of which can only be added revved by statutory change. notably to promote financial stability and to address the extremely serious problem posed by firms that are perceived as too big to fail. legislative action is needed to create new mechanisms for oversight of the financial system as a whole to ensure all systemically important firms are subject to effective, consolidated supervision and to establish procedures for winding down a failing systemically critical institution without seriously damaging the financial system or the economy. and the rest of my remarks i'd like to elaborate on some of these areas. first, i'd like to report on changes already under way to strengthen the regulatory standards that limit the risks taken by financial firms and establish the capital and liquidity buffers they must hold. through the course of the crisis, it has become increasingly clear many firms lacked adequate capital and liquidity to protect themselvlv as well as the financial system as a whole. these problems became apparent not just in the united states but around the world necessitating internationally coordinated response. the federal reserve has played a key part in the international effort, working through organizations such as the committee on bank supervision and financial stability board. for example, we were extensively involved in the committee's recent decisions to strengthen capital requirements for trading activity and capitalizations and continue to work with domestic and foreign supervisors to raise capital requirements for all types of on and off balance sheet exposures. by conducting the supervisory capital assessment program, properly known as the stress test, u.s. supervisors took a significant step toward ensuring that banks hold adequate levels of high-quality capital. led by the federal reserve, this program evaluated the capital needs of 19 of the largest u.s. banking organizations by estimating their expected losses and earning capacity through the end of 2010 under a more adverse than expected macroeconomic scenario. firms that were not projected to have enough high-quality capital under the scenario were required to raise additional capital within six months. the release of the assessment results last spring increased investor confidence in the banking system and helped to open the equity markets to these institutions. since january 1st, the 19 participating firms have raised more than $150 billion of incremental tier one common equity, through share, exchanges and asset sales increasing their average tier one common ratios from 5.3 at the end of last year to 7.5% as of june 30th of this year. as one indication of improved market confidence in those firms, their subordinated debt spreads have fallen by one-half since the completion of the assessment. additional steps are necessary to ensure all banking organizations hold adequate capital. internationally, the financial stability boards -- >> we will be right back with the fed chairman. just want to update you on these microsoft numbers. there was $0.12 deferral of earnings per share. i thought that would bring it to 28, no, that brings it to 52. i imagine analysts knew about windows deferral. revenue, even though it was 14% below last year, well above what people were looking for at 12.9 billion. the company said cost discipline earnings per share growth futures are higher on this, nasdaq futures jumped on this and microsoft, which is a market cap $237 billion company, that you can equate what a move that you're seeing in the stock of 10% or so, 8%, what that equates to in market cuts. this is a big deal what microsoft was able to do even before windows 7. >> consumer demand for windows. they say windows examine box exceeding expectations because of strong demand. >> bernanke is going to call the shots, i guess, but this is going to help the market. >> that's right. back to the chairman in chatham, massachusetts. >> requiring a greater share of their capital be in the form of common equity. for additional protection, systemically important institutions could be required to issue contingent capital such as debt lag securities that can convert in times of macroeconomic stress and losses erode the institution's capital base. the crisis also highlighted weaknesses in liquidity management by major firms. short-term secured funding of long-term potentially illiquid assets through repurchase agreements and commercial paper conduits, for example, became unavailable or prohibitively costly during the worst phases of the crisis both here and abroad. in response the federal reserve helped to lead the committee's development of revised principles for sound liquidity risk management, which in the united states are being incorporated into interagency guidance cha reemphasizes the importance of rigorous stress testing to determine adequate liquidity buffers. together with our domestic and international counter-parts we're considering quantitative standards that are similar and analogous for those of capital. international funds can fund themselves even during periods of severe market instability. with supervisory encouragement, large banking organizations have, for the most part, already significantly increased their liquidity buffers and are strengthening their management of liquidity risk. in addition to insufficient capital and inadequate liquidity risk management, flawed compensation practices at financial institutions also contributed to the crisis. compensation, not only at the top, but throughout the banking organization should appropriately ling pay to performance and provide sound incentives. in particular, compensation plans that encourage, even inadvertently excessive risk taking can pose a threat to safety and soundness. federal reserve that just issued proposed guidance that would require banking organizations to review their compensation practices to ensure they do not encourage excessive risk taking are subject to effective controls and risk management and are supported by strong corporate governance including board level oversight. a fundamental element of effective financial regulation is protecting consumers from unfair and deceptive practices. the recent crisis clearly illustrated links between consumer protection and safety and soundness of financial institutions. we have seen that flawed financial instruments can both harm families and impair financial stability. strong consumer protection helps to preserve household savings and to provide families access to credit on terms that are fair and well matched with financial needs and resources. at the same time, effective consumer protection promotes healthy competition in the financial marketplace, supports sound lending practices, and increases confidence in the financial system as a whole. the federal reserve has taken several steps to strengthen the protections provided consumers and to in sure these protections effectively respond to market changes and emerging risks. as well informed consumers are better able to make decisions in their own best interest. effective disclosures are the first line of defense against improper lending. the federal reserve has pioneered the use of extensive consumer testing to improve clarity of disclosures, notably for credit cards. however we've learned even the best disclosures may not protect consumers from unfair practices. accordingly we have written rules providing strong substantive protections for mortgage borrowers and credit card users. for example, last year the board adopted new regulations under the home ownership and equity protection act to better protect consumers with higher priced mortgages. these rules strengthen underwriting, restrict prepayment penalties and require escrow for property tax insurance. >> we'll return to the chairman in just a second. look at these microsoft numbers and get instant analysis. brendan barnicle. how did they do this above what you're looking for? >> what really surprised us, mdp business, office business was very strong and xbox business blew it out. almost 3, $4 million higher than what was expected. they saw real good improvements there and continued good cost controls and they guided that going forward taking down operating expenses further. we're going to see good improvement. >> so it sounded to me like you just said a bit of a contribution from business with the office stuff but also from the consumer with the xbox stuff. so it's kind of intel and kind of goes further than what intel said? >> that's right. we saw upside where consensus had been on clients and tools, that's where i thought we might see upside. big surprise other two areas more heavily impacted by consumer, particularly business side where most of where you see office sales right now, individuals, not too much the businesses. that really does show you're seeing some consumer pulse on that side. >> what does this examine box story tell you? does it say anything about christmas, video games, coming out of a recession? that is a huge surprise? >> probably the biggest surprise is that number. that's where we're going to have to see what's behind that, see what explanation they had. that decision had stuff in there, too. maybe they saw some there. we saw good units in xbox, they had a couple of good games but still much bigger than anybody expected. >> it's hard not to couple brendan what we heard from amazon, their sales in electronics and general merchandise, even what amex said about corporate card spending, are you willing at this point to take some large lessons about the consumer? >> here is the thing we're doing right now give us real good follow-through. guys in the field right now checking on sales of retailers across the u.s., united kingdom, germany. they will know better monday how that's going. based on that, i wouldn't be surprised if you see good things out of this. >> people want to say be careful, more about brand recognition than consumers willing to go out and spend. that's certainly a step in that direction. >> absolutely. >> brendan, thanks. are we going back to the chairman or go to break? >> large financial institutions. >> we'll go back to fed chairman ben bernanke. >> little regard to corporate or national boundaries define jurisdictions of functional supervisors in the united states or abroad. for example, a non-bank subsidiary financial holding company may originate a mortgage loan, sell it to an investment banking affiliate to be packaged and distributed as a security, which in turn may be purchased by an investment vehicle supported by liquidity facility from a bank affiliate. financial, operational linkages can expand in complex financial firms, the risk born by such cannot be focused on individual subsidiaries alone, instead effective supervision must involve greater coordination among consolidated supervisors and incident grated assessment of risks across holding companies and their subsidiaries. in recognition of these points the federal reserve board issued guidance a year ago that updated the approach to consolidated supervision tying it more specifically to significant of individual holding companies and their business lines such as core clearing and settlement activities and activities in critical financial markets. strengthen consolidated supervision supports oversight with compliance with consumer protections. building on a pilot project we launched in 2007, we recently announced consumer compliance examination program for non-bank subsidiaries, bank holding companies as well as foreign banking organizations. second, our sproofsry approach should better reflect our mission as a central bank to promote financial stability. the extraordinary pressure on financial firms last fall underscored how profoundly interconnected firms and markets are in our complex and global financial system. thus any effort to address systemic risks will require a more systemwide or macroprudential approach to supervision of systemically critical firms. more generally supervisors must go beyond individual focus on individual firms and markets to try to identify channels of financial contagion and other risks to the system as a whole. to improve consolidated supervision, and increase the macroprudential focus of oversight we're improving supervisory tools and developing new ones. for example, drawing on our experience the recent capital assessment program we've increased our emphasis on horizontal reviews, which focus on particular risks for activities across a group of banking organizations. although we have conducted horizontal reviews before, the supervisory capital assessment program of this past spring was broader in scope and conducted differently than previous horizontal reviews.reviews. it had a review of several risk exposures at the binking organizations covering a majority of the assets of the u.s. banking system. examiners applied the saperimet. across all these firms, we were also better able to consider the systemic implications of financial stress under adverse economic scenarios. building on the success of this initiative, we will conduct more frequent, broader, and more comprehensive horizontal examinations, evaluating both the overall risk profiles of institutions as well as specific risks in mismanagement issues. the increased complexity of the firms we supervise and the need to consider the systemic implications of problems at individual firms underscore the importance of increased collaboration within the federal reserve system itself among examiners and other specialists. the federal reserve's ability to draw on expertise from its range of disciplines was essential to the success of the supervisory capital assessment program and it will be a central feature of our supervision in the future. for example, we are using a multidisciplinary approach to develop an enhanced quantitative surveillance program for systemic critical institutions. this program will incorporate supervisory information, firm-specific data analysis and market-based indicators to identify developing strains and i'm balances that may affect multiple institutions as well as specific firms. our economic and market researchers will work in concert with examiners, market operation specialists, and other experts within the federal reserve system. their efforts will incorporate periodic scenario analysis so we can better understand the consequences of economic shots for both individual firms and for the economic and financial system as a whole. off sight quantitative analysis will compliment our traditional on sight supervision but will be independently conducted to provide an alternative perspective to traditional examination findings. to support and compliment these initiatives we're also working with the other federal banking agencies to develop more comprehensive information reporting requirements for the largest firms. traditional bank regulatory reports have not been sufficiently complete or timely to support continuous monitoring and analysis or the dynamic and diverse business activities of the largest, most complex organizations. these firms should report systemic and frequent consistent information of material firm-wide exposures, funding and liquidity profiles and operating performance. enhanced reporting requirements should not only help supervisors identify vulnerabilities at individual institutions and in the banking sector more broadly but should also prompt institutions themselves to better track their own risks. when risk management shortcomings are identified, even if losses have not yet materialized, supervisors must hold management accountable and make sure that weaknesses receive proper at tension at senior levels and are resolved promptly. we will ensure that important supervisory concerns are communicated prompt li and at a high level with more frequent involvement of senior bank management and bores of directors and senior federal reserve officials. this approach proved especially effective during the recent supervisory capital assessment program and in other circumstances where clear expectations were prompt for mediation or forcefully communicated to large banking organizations. of course, we will use the full range of enforcement tools at our exposure as necessary to achieve the objectives. though the federal reserve and other supervisors in the united states and abroad are strengthening the existing regulatory and supervisory framework, it remains critical for the congress to close regulatory gaps and provide supervisors with additional tools for anticipating and managing systemic risks. the recent financial crisis -- >> you're listening to chairman ben bernanke but looking at the futures and the pop that we've seen since microsoft had better than expected results, especially in the nasdaq futures. kind of a double whammy when you take into account amazon numbers late yesterday. but there's microsoft up nearly 9%. 40 cents a share. well above expectations. revenue also above expectations. but -- >> you were joking about when it would hit 30 and we're $1.05 away. >> talking agent cost cutting did help with the bottom line. and operating expense guide now $26.2 billion from $26.5 billion. they're going to bring that down a little bit. a big day there. there is amazon, better than expected results. that, is you know, 17% on amazon. and all-time high. now, you add the xbox news, how well xbox did. you add that to how well amazon did. what does that say about the christmas season and the doom sayers and people who say it's going to be the worse season that we've ever had. >> right. we've been hear that it's biz spending. those two examples show the opposite. the strength in microsoft did not come from corporate spending. >> no. although some, and intel was consumer, too. and amazon, you have to think was consumer. we have had a couple of earning report stuff that we had before we go back and end this -- end the show. honeywell, 80 cents a share. above expectations of 72 cents. and revenue was just slightly below. that stock is called higher. whirlpool had a good quarter. reporting $1.15 a share. that hassed that stock indicated up in the probably $3 because the ask is so much higher than the bid. so with american express late yesterday, you really need -- has to be an outliar to find someone really disappointed. j. crew, much better than expected. maybe this huge move in the stock market added leading indicators up 1%. >> yesterday. >> large part due to the stock market. maybe everybody is wrong about voting no underpinning. we're going back to the chairman. back to the chairman for horizontal -- >> not born by the taxpayers. beyond strengthening and making provision for safe unwidening systemic firms, there remains the broader actives of monitoring systemic risks. because of the size, diversity and complexity of our financial system, that task may see the capacity of any individual supervisor. the federal reserve supports the creation of a systemic oversight counsel made up of the principle financial regulators. by combining the expertise and information of all the relevant agencies and departments, the counsel would be in the best position to identify developments that threaten stability of the financial system as a whole. the counsel could be charged, among other things, with monitoring risk exposures that cut across firms and markets, analyzing potential spill-overs among financial firms or between firms and markets that could lead to financial con they john, identifying regulatory gaps, coordinating responses of its member agencies to emerging systemic risks, identifying systematically important firms, and periodically reporting to congress and the public about emerging systemic risks and recommended approaches for dealing with those risks. in addition to further encourage a more comprehensive and holistic approach, they should be directed and empowered to take account of a broader financial system as part of their normal oversight responsibilities. as we work together to build on the progress already made towards securing a sustained economic recovery, we cannot lose sight of the need to resorry ebt our supervisory approach and to strengthen our regulatory and legal framework to help prevent a recurrence of the event of the past two years. as i have described today the federal reserve is actively engaged in this process. we are working with our domestic and international counterparts to strengthen the standards in consumer protection, among other areas. we also improving supervision and giving it a greater macroprudential focus through enhanced consolidated supervision and to the development of new supervisory tools, including comprehensive horizontal reviews, off sight, quantitative evaluations, and more extensive information gathering. we are moving quickly to bring unresolved issues the attention of senior management and we are requiring prompt responses. regulators and supervisors can do a great deal, but comprehensive financial reform requires action by congress. strengthening consolidated supervision, setting up a mechanism such as a systemic oversight counsel to identify and monitor risks to financial stability, and creating a framework that allows for the safe unwinding of failing system leadership firms are among the ingredients of a new system that will reduce the probability of crises. we at the federal reserve look forward to working closely with the congress as the legislative process evolves. thank you. >> the chairman agreed to take a few questions. if you would raise your hand and wait for a microphone. the chairman