Transcripts For CNBC Squawk Box 20091027

lynch executive bob mccann to head its america's wealth management unit. this appointment was widely expected. mccann had been with merrill for 26 years. ubs's franchise was battered by a tax from the u.s. government. >> i thought that had already happened. i had a friend at ubs and i said, hey, tell mccann i need a big pr job over there and the guy didn't write anything back. so that wasn't already done. >> maybe now the job will be on the way. >> maybe now it will be open. sure. >> meantime, gary loch is in china today. he says the u.s. welcomes the rise in the yuan's exchange rate, but wants the currency to climb further. locke is calling for protection of intellectual property. >> strongly awarded ip laws are only as valuable as the civil and criminal penalties that people face for breaking them. and china's enforcement for ip laws is often uneven and penalties assessed are often too mild. >> president obama visits china next month for talks with president hu jintao. >> who? >> why do i fall for it every time? >> sure. >> the joke is only 50 years old, right? >> the longer they last -- >> that's true. >> -- the better they are. meantime, a leading chinese government economist is forecasting a 0% rise in ex ports from the country next year, calling the prediction conservative, he adds china will keep pro export policies in place. ex ports have been falling year after year. china has scrapped some tax rebates and increased rebates on a wide range of goods in an attempt to boost the sector. the big piece yesterday, i guess china's neighbors aren't real happy that they're tied to the dollar. >> because they have the cheaper currency which makes them the big exporting company. >> they depeged it for a while about a year ago, for 5.3% of a move. then they pegged it right back in and it's hosing all of their neighbors right now. >> is that okay? hosing? >> yeah, okay. >> right. you see? >> right. >> in auto news, chrysler's car company road map is due to be released on november 4th. but that plan involves the reintroduction of fiat's alpha romeo brand to the market in 2012. chrysler will bring fiat's tiny popular car in europe, called the 500 to the americas. fiat and comprise ler are said to be working to create several new vehicles with fiat technology for the u.s. market. joe, you look skeptical. >> i just hope that gas prices go down, i really do. >> so that the big heavy duty -- >> no, but i think if gas prices and oil are going back down and all they're selling here is does she. >> did you see that thing? >> you do not like the alpha romo? >> did you see the cx 500? are we really going to look like portugal? >> it kind of has a smart car look, doesn't it? >> maybe for urban areas. >> it's not going to be your life. you're not going to buy one of these things. >> i saw a guy in a smart car on the road with trucks. >> that's the scary thing. >> did he try to give you a little action, i'll take you -- >> what? >> joe was trying to pull around the right-hand side. i looked in and he looked like, you know, an ivy league professor, which is what you would think. >> tweed. >> yeah, tweed. facial hair. >> look at what i have today. i have the patches. >> facial hair. >> i do have patches. >> but an 18 wheeler, he would turn on the wooil wiper fluid and you wouldn't even know. it would have been like, wow, that was a -- it could have been a large insect. >> well, i think the safety standard ones, they talk about how they perform in a head-on collision, but they measure them up against cars of the same size. >> it locks like a motorcycle, like you'd have as much of a chance. >> and fewer jeeps, i believe, right? >> fewer jeeps, cherokees. well, actually, i was happy about that. they're getting rid of one of the minivans that none of us ever want to end up with, no matter how many kids we have. >> buy the hummer, right? >> yeaea yeah. >> let's get a check on markets on this tuesday morning. we'll be fairly busy. we had decent action in europe, if you're short. the biggest drop in asia in about three weeks. europe has been relatively flat. for the time being here, we're a little above fair value. did you see the vix yesterday? up 9%. >> did the dollar move? >> the dollar had a big move up yesterday and is relatively steady today. but we'll see what happens later on. oil, up about 13 cents. way below the high of $8 and change we saw a couple weeks ago. as you mentioned, joe, gas prices are on the rise in this country. 10-year note at 3.543%. that is about a two-month high on the 10-year yield. the dollar, relatively steady. down after rising yesterday quite a bit against the euro. >> 70 basis points yesterday. and it's been three days of gains. and now it has everybody who has been in a long position doctor orb in a short position against these things worried. >> but we were up over 1.50 euro. now below 1.49. now with a sharply lower dollar across the board, take a look at gold. down 2.60, 1040 down from a high of about $30 higher than a couple of weeks ago. saijal patel is in singapore. first, though, we want to check in with london and our friend, geoff cutmore. >> morning, carl. the europeans have finally found some iron in the blood and we're higher on our european trade at the moment, despite the legacy you guys left us and despite the weakness that we saw in the asian session. so i wouldn't call these big gains right now, but you know what? we'll take them to the upside. a couple of corporate stories that are worth telling you about, we are energy at the top of the gainers on the dow jones stock sectors. we have numbers through from bp, profit halved, but they beat expectations. there was a slightly more negative story that dominated in the banks. the market doesn't like this ing story about them splitting the group into insurance and banking. it hates even more the idea of the 7.5 billion euro rights issue. and we're expecting lloyd's tsb here in the uk to come to the market demanding something like 12 billion pounds and we should get detalts on that this week. right now, we've got a lot of nervousness about the financials and the banksing stocks. but elsewhere were we are higher. let's send it over to singapore and pick up on that asian story. >> yeah, jeff. here like you said, a very weak picture. we had a lot of the resource related stocks leading the losses after oil sell-off for the fourth day, the nikkei retreating from a four-week high, down about 1.5%. exporters fairly weak. after the bell, we did get results from honda and is pretty good numbers. remember, they've been dealing with steep cost cuts, one factor, but they've seen solid sales of their fuel efficient cars and that helped them beat on the operating line. they've tripled the annual operating forecast. we got positive news coming from that space there. as for the greatest china region, this is where we saw a lot of weakness. the shanghai composite tumbling 2.8%. the hang seng index down 1.9%. the hong kong monetary authority looking to curb speculation when it comes to luxurious property prices so we saw a big sell-off on property stocks there. the sensex closing down 2.5%. the rba leaving rates on hold. some unwinding when it comes to monetary tightening. this has to do with the statutory liquidity ratio which means commercial banks have to hold 25% of their deposits in government securities. it's up from 24% inspect reality, they tend to hold more than that, anyway, but just the official comment there sparking a sell-off in the barngs and, of course, dragging that market lower, as well. on that note, back to joe. >> saijal, thanks. let's get to our tuesday market task force. join using this morning in studio, both individuals are here. richard steinberg of global asset management and michelle girard. normally the person here i would talk to first because they made the effort, but you're both here. but then i was going to go to michelle because of ladies first, but now i have to go to him to talk about financial markets and then find out if the economic back drop makes sense. 10% down would be my calculation. is this the correction we've been waiting for finally? >> well, it could be, but the good thing, joe, is it's orderly. we've had a couple of days where people have tried to pick things up. we're not getting confusion or major, major chaos in the markets. it's been an orderly transition from an overly bulis situation off of earnings in the short run to more realism. 2010 is where people will start to focus on earnings now. as you have the risk coming out of the market, it's a healthy chance for people to get a second bite at the apple. >> well, i think 2010 might be one of the things people are worried about with the market. there is a perception that maybe this quarter and next quarter we get a snap back from inventory rebuilds. then we don't quite double dip, but we may be seeing good quarters now only to fall back. >> that's the debate. you're absolutely right, joe. everybody has come around to the second half of the year is going to be strong. we thought it would be strong pretty much all along based on inventories and it would be a surprise because of cash for clunkers. and actually just some fundamental strengthening, even the demand side has done better in here. so it isn't just inventories. the economy itself has gotten better. but as i said, now what the pessimists are arguing is it won't be sustained and will fall off in 2010. we don't really think so. i think by next year, what will happen is you see see more solidly a transition from a catchup in production, which is what the inventory growth is. what will happen next year, i think more fully, is that you will see pent up demand from the consumer start to show itself because everybody has just really been hunkered down on concerns that the economy, when some of those fears fade, the consumer will come back more fully as income growth recovers and i think even on the business side, we're hearing talk on capital spending going up. i think that will be a part of the story in 2010, as well. >> yesterday the dollar was strong. oil was weak and gold was weak and that caused the stocks to sell off. there have been articles written that gold and equities very rarely move in tandem and they have recently. >> well, everything -- you know, quite honestly, stocks and bonds don't usually move in tandem. and the bigger trend, obviously, has been stocks have been moving higher. bonds prices have been moving higher. gold is up. the dollar -- what ties this altogether? it's liquidity. it's liquidity. liquidity is lifting all boats, if you will. >> fed liquidity is not causing lenders to lend. >> it's not getting through to the economy. it's moving into the financial markets, which for the fed is a little bit, i think, of a problem. because you're seeing what's happening, that cash has to be put to work. banks aren't necessarily lending it, so it isn't showing up in terms of feeding its way through the economy. the fixed income markets are doing well and people who are getting zero percent interest rates or .5% interest rates are looking to buy stocks. >> it's not just people, it's institutions. >> exactly. >> how does the fed break that logjam or do they have any way of doing it? >> well, they really don't because they can't necessarily control how that money gets put to work. that's why you have people who are already calling for the fed to be pulling back on this liquidity, because you see some of it bibling up worry solemnly in the financial markets. but again, i think the fed is very hesitant to draets that issue while the economy looks vulnerable. >> and we're not getting anything for it, either. maybe we're getting some assets. rich, eventually, if you took the dollar -- you know, if the market goes up every time the dollar goes down, when you get to zee roe for the dollar, the market won't like that. you can't keep doing this, can you? >> i think the debate that will start to happen when we're talking about the dollar is that when we go into the next cycle of earnings and people are looking for revenue growth, analysts now say, well, that's weak dollar related. is it going to be organic revenue growth or are we going to have a debate where people will back out the dollar on earnings and revenue. and i think if the dollar can stabilize or go weaker but you get the demand to come back, like we were just talking about, then you could get an orderly slight weakness of the dollar and have the markets bhief themselves. >> why wouldn't the dollar start strengthening when the fed starts raising rates? >> because i don't know if the fed is going to be willing to raise rates until the second half of next year -- >> that could happen, 2010 before we get the slightest uptick. >> in rates? that can't be. >> well, you have a huge amount 06 etfs that will starts to suck up the liquidity and we'll have to see how institutions handle the demand that's coming from these etfs and we'll start to see, are we going to see a 4% 10-year note? those are some of the benchmarks that we'll be looking at and i think the fed will be looking at that stuff closely. >> do you think the second half? >> we're june. >> really? not a basis point uptick from the fed until june? >> no. and let's remember, the fed is still going to be buying mortgage securities, you know, expanding its balance sheet, adding liquidities into the system until the end of march. it's hard for the fed to be thinking about raising rates on one hand and expanding easing on the other. >> there's a school of thought that says the president, although it's not his decision to make, would prefer they err on the side of overheating going into a november election, right? >> i thought you were going to see the president wants them to hike early and i was going to see, absolutely not. >> they wouldn't mind this bubble raising more, right? >> i have to tell you, chairman bernanke isn't going to make that mistake. they're going to wait -- if they wait until the middle of next year, we could possibly have had four quarters of above trend growth by then or very close to it. they're waiting a long time. what i think is the surprise is that when they start to go, they'll go more adegrees ofly. >> rich, we've heard that saying stance from a lot of people. if that's the case and you're trying to find ways to protect your investment, do you worry about inflation? is there hyper inflation? what do you start investing in if the fed waits too lodge? >> it's a great point and it's a dress situation because investors have been piling into the commodity trade as that hedge and gold and we know how volatile those markets can be. and you can really get side swiped. so what we've been doing is on the fixed income side, we're keeping durations shorter and shorter right now and we're trying to get more than zee ree percent that the money markets are paying and we're going to ride out this cycle in the short run. investors want to stretch for yield right now, but they can really get burned. so it's better, you know, i think the markets will allow a certain amount of short-term rates to tick up some, but i think we're going to be in a situation where there's not a huge place to hide until we see how quickly the fed, when they do turn, starts to increase rates again. >> rich, do you think we see 9 thoous or 11,000 or are you predicting in we're in the trading range? >> i think we could test the lower end of the range. i've been wrong in the downside levels of the market. i thought veld have tested 950 a while ago. but on the s&p, we've bumped that from 975 to 1,000 now. 75 in earnings next year, you could have upside to 1100, 1125 by the end of the year. >> you think we're in a correction right now? >> mild. >> 10%? >> 5% to 0%. >> it seems like we went sidewayes and moved back up. >> we could be into the end of next year. you have to realize, the administration is talking out of both sides of its mouth on the dollar, also. they need this weak dollar to keep the economy going and to keep ex ports going. you're going to have the dollar debate and a lot of moving parts going into the end of the year. in the model that i run with in the term, i've kept the 5% hedge on the portfolio and have let our longs continue to stay long. and i am deciding when to take that hedge off. >> so if caterpillar had numbers out yesterday, they're going to hire back some more workers, there's a story that the weak dollar allowed manufacturers to bring back workers that -- >> but they're laying other people off at the same time, though. if employment heals quicker than we think, is that market positive or do people start looking past that to rates that will be going up sooner than we think? >> i think that would cause rates to go up sooner than we think, but it's not enough competition to other asset classes, right? if you have rates that are still on the 4% level and people need to live off of their income, it doesn't matter if it's an endowment or an institution, there's a huge gap that rates have to go up before it allows them to feed themselves off their capital ideal. >> so the market will be the more attractive yield? for now. >> rich and michelle, thank you guys fog coming in. it's nice to have you guys sitting around the table with us this morning. early in the morning and we have visitors. coming up, we'll get to your business traveler's forecast and then their products are used in every major industry around the world. chemicalmaker selanese stops by with a weak outlook on the economy. first as we get to a break, let's look at yesterday's winners and losers. 150 years of legendary financial strength and the proven experience of a leading investment firm have come together. wachovia securities is now wells fargo advisors, with financial advisors nearby and nationwide. for the advice and planning expertise you need to address today's unique challenges, we're with you. wachovia securities is now wells fargo advisors. together we'll go far. if factory floor. voting should be completed by saturday. dmraxo smith cline and genmac to sell their leukemia drug. that decision had been widely expected. right now, it's time for our business traveler's forecast. scott williams of the weather channel is here. scott, what can you tell us about the weather today? >> good morning, becky. we will see problems later on as we move into portions of the the northeast. right now, no current airport delays as we take a look at the map here. you can see quiet conditions. but over on the active radar, this is what we are tracking. moisture continuing to move out of the nation's capital. baltimore up through philadelphia, eventually moving into new york city. so the cloud cover, low ceilings and the rainfall will likely cause airport delays in rgz pos of the northeast. meanwhile, if you are traveling down to the world's busiest airport, look for delays, as well. so as we look at some of the potential airport delays across the country as we move in time here, across the area, we will expect airport delays. as far as the overall scenario for the entire nation, this is what we continue to watch here as far as airport delays possible. atlanta, new york city, salt lake city, also as we move into washington, d.c. keep it here, as always, for more updates. now back to you. >> we're going to look at more upgrades and downgrades. looks positive. 3 upgrades, 1 gown grade. upgraded to outperform from market perform at fbr capital with a $31 price target. cablevision upgraded to outperform from market perform at wells fargo. verizon has been upgraded to outperform from market perform at wells fargo. also you can see that that stock has been weak recently. and i guess -- >> they're up 9% from the lows in march or the markets up 50? >> yeah. of course, it didn't quite get hit as much. it was a defensive play. we were glad to own verizon about a year ago, remember, and at&t. finally, spectra energy was downgraded from sell to hold at citi. though the target wab increased to $18 from $16. so they had a hold, they had a $16 price target. it went through that and went higher and higher. so now they're just doubling down, going to a sell, but acknowledging that they're a $16 price target. >> they could be right eventually. >> everybody could be right. a broken clock is right twice a day. >> it's hard to get the right answer at the same time. >> that's true. >> not just knowing the price, it's knowing the timing for it. >> when we come back, we'll get to the top stories and head to the futures pits and check in with kevin ferry when "squawk box" comes right back. plus, we start a chemical reaction with one of the world's largest chemical companies to get the pulse of the economy. business is changing all the time. there is an unabated pace of continuous communication 24 hours a day. technology drives communication. allows people to collaborate giving them stimuli to think in different ways. having a foundation of innovation is the way that you differentiate yourself from the competition. it's the lifeblood of growth. making businesses richer, stronger, more resilient. nyse euronext powering the exchanging world. ♪ >> good morning. >> start dancing anytime. >> go ahead. go ahead. it's at your own -- >> how can you hear this without -- i'm not moving a finger. no, i'm not. welcome back to "squawk box" here on cnbc. i'm joe kernen along with becky quick who you can right there and carl quintanilla. tonight, the reason we're playing it is the worldwide premier of "this is it." at the nokia theater in los angeles. did you see what his father said? there's doubles? >> yeah. >> he's a loose cannon occasionally. >> and elizabeth taylor was twittering about it. >> she said it's the single most brilliant piece of film making i've ever seen. >> single most? >> single most. >> can there be more than one single? is that like the exact same? >> it is the exact same. >> like saying the single best idea. >> right. let's get to today's top stories. oil giant bp is posting better than expected third quarter werings. the company says its cost cutting program was more successful than it expected. it is now increasing its target for its full year savings. shares were higher in early european trading today on the news, sharply higher, in fact, as bp almost up $3. not quite. you see where it was indicated this morning. that's going to add to that. it's a huge company, $173 million cap and it should be a new high. 57 would be a little high. >> tech firms are launching advertising campaigns in anticipation of a return of business spending. the wall street journal reports the companies are positioning themselves to stand apart. google has a going for g-mail. jup f june per and cisco also some having going, as well. microsoft has the release for windows. and untell is launching another wave of ads, as well. maybe you're going to see the return of tech spending when it comes to advertising. >> and advertising, as well. today, continental air likes is shifting from sky team to the sky alliance airline network. the wall street journal says that the change increases the chances that continental and united will consider a merger. continental's chairman & ceo, larry kelner will join us later on in the program. we know these alliances can help because you rack up the miles. >> and continental has a pretty good image overall. >> ski team also has delta. they're locked in a pitch battle. you can't be in the same alliance with someone that you're fighting. so this makes sense. we have a lot to talk to larry about as he is a young guy and -- >> he's leaving soon, right? he is. going back to pe. >> yep. >> i don't know why. it has to be a personal -- it's probably hard to run an airline. that's the weight of the world on your shoulders. >> think about all the things you have to worry about. >> pilots. >> i know. which looks like that really is what was -- >> did you read the rest of that story? because of the merger, it's going on to change and disrupt all their crew scheduling and what that means for their lives in terms of when they're at work, when they're not at work. apparently the new system they're going on to is more complicated than the one they're used to. you can imagine, if it meant that you were going to take away from home three more nights a week or is it meant you had to give up coaching your child's team, imagine the conversations that are taking place. these guys were talking about it in the cockpit? >> supposedly they were. >> and they were moving faster than they might have ordinarily thought. >> right. they weren't sleeping. >> we've gotten caught coming back from commercial breaking talking about stuff we shouldn't be talking about. >> we don't have passengers in the back, thankfully. >> no one usually dies with what we do here. >> let's get a check on the markets this morning. for that, we turn to the cme. kevin ferry joins us from chicago. good morning, kevin. >> good morning, carl. >> pilots aside, we have two triple digit losses in a row now. people wording after the initial glory of earnings season fades, if we are beginning to correct and if so, if that's going to stay orderly or not. what are your thoughts? >> definitely still orderly, carl. it started on friday, accelerated into yesterday is the story that steve has been covering closely, which is financial reform. so really, what you saw yesterday was a broad based liquidation of long holdings across the commodities sector. whether it was soybeans, corn, anything that people -- even bonds and interest rates products. anything that people had been carrying was starting to get liquidated. so i think it was very orderly, but it started on friday. it caught momentum on monday and that spread into the stock markets. so a rare day. everything was down together. >> why is chairman frank's proposed draft legislation, which we'll get a look at later in the week, why is that such a big deal, aside from the obvious? >> i think it's a big deal. and we don't know how it comes out. the key is that you had to get these firms up and running. now they're up there. you're seeing the profits, you're seeing the benefits of putting capital into them. so the second part of that is reform legislation. so that's a process that's going to come out over a long period of time and what type of things these institutions are going to be allowed to do and at what gearing level is going to be the key. so, you know, i don't think it's a big political thing. i'm not saying that one caused the other. i'm just saying that those that was the tone of the market and it spread through. >> not to mention the fact that harry reid appears hell bent on making this public option a reality even with this opt out for states going gent the political grain, at least we thought. it was not received well in economic, but it's getting new life as it moves forward. >> yee. the markets tend to like the fact that things are freezing up a bit. i think the thing to watch going through today's session would be this is the end of quantitative easing with regard to treasury securities. this would be the first time they're going to step up to the plate since the two years, since that ended, and the role situation. you pick up a lot of yield because of the shape of the curve. so this note looks better. it will be important to watch and see how that option goes. >> really quickly, kevin, as we get to the gdp number, are you expecting a surprise, earth on the up side or down side? and how much is that going to moch us around? >> well, i still think people have moved the expectations up, carl. i think look for something just north of 2.5% or between 2.5% and %. if it's a surprise on the upside of that, the focus will go directly to the unemployment report. any miss, anything that's better in that environment with regard to unemployment and interest rate structures are really going to have to weigh in. >> we have to get through that. we have an fomc next week. the story continues. kevin, we'll talk to you soon. good to see you again. >> thank you. global chemical company selanese earning 58 cents a share for the third quarter. that is 15 cents better than the street was expecting. profits were down from a year ago as the global recession took its toll. but joining us now is dave weedman. he's the ceo of celanese. dave, it sounds like you are seeing a stabilization when it comes to demand around the global. >> asia continues to be the bright spot for us. there's good growth in asia. >> growth in asia, you also talk about continued strength in asia and the continued benefits of government-sponsored programs in north america. i guess that may lead people to wonder if that government help continues. do you expect that? >> no, we don't expect that. but what we do see are signs of strength across the global economies. we see parts of china that continue to be very strong, infrastructure spending in china is strong. consumer spending in china is strong. we haven't seen an uptick yet in ex ports in china. but we continue to be optimistic about our business and the performance of our business in this stable, let's say, global economy. >> you expect that this is going to lead to increased volumes across all businesses for 2010, as well, and that will mean an increase in earnings? >> yeah. 2010 will be exciting for us. we see earnings increasing by about $ a share. certainly we see the effects of our productivity programs kicking in, some streamlinings that we've done within our corporation examine manufacturing and also in the admin area. and then we also see the benefit of auto lower tax rate within our organization. so even if the economy remains relatively unchanged with where we are today, we'll see good growth next year and if there's an uptick in the economy, we'll see growth beyond that. you talk about the normal seasonality in the fourth quarter. what does that mean? what does that entail? >> well, normally we see our customers, we sell in the manufacturing industries and we normally see our customers do belt tightening at the end of the quarter. so we would expect to see something like that in december as with we move into what we think will be a very good 2010. >> and if you had to look around at the brightest spots where you have seen the most improvement, is it simply asia or are there other spots in north america you could see, as well? >> well, there's some other spots in north america. it brought consumers back into show rooms again. but by far and away, the biggest strength na we've seen globally is xhien na. and that continues to be a bright spot. we're investing in china. we're putting new manufacturing facilities in place. we recently completed the expansion of a facility in china and that facility was started up successfully and it's close to sold out within the matter of about 60 days. >> you also pointed out that lower raw material costs have helped, as well, and we have seen material costs, commodity costs down substantially from where we were a year ago. but over the last quarter, we've seen prices start to build again. does that concern you? >> our business model is relatively to raw material and energiy escalation, deescalatio. we have contracts, natural hedges in place for raw materials that put us into a situation where any type of volatility does not have a material effect on our business. i think what it does show is there is increasing confidence in global economies as commodity prices are stable and moving up. >> david, we want to thank you very much for joining us today. we appreciate your time. >> thank you very much. >> if you have any comments or questions about anything you've seen here on squawk, e-mail us, quack@krnlz.com. when we return, we'll get talking about the news that's made business. david patterson will be joining us for the rest of the show. we'll talk about what's happening with the business of wall street and much more. 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. welcome back. making relates at this hour, renault and nissan considering producing electric batteries for friends. the company has already announced plans to manufacture batteries in japan. the u.s., portugal and britain. the number of visitors to macau last month, up 3.8% year over year. arrivals from china to the gambling mecca up more than 6%. and google introducing a new feature that let's google use its google voice service without switching to a special phone number. the change could broaden the appeal of that phone service which was launched in march. monica know votsny is here with a roundup of the headlines. >> hey, carl. after months of debate leaving senate democrats pushing forward health ca health ca health ca health care legislation with the public option. another story a lot of people have been talking about, those two northwest airline pilots who flew 150 miles past landing in minneapolis last week, they could soon be out of work. both men say they were not engaged as a heated discussion. instead, they were looking at their schedules on personal laptops. using a laptop computer in the cockpit is a violation of the airline's policy. finally, outside mexico city, pink taxis. they are the latest craze, going where no men are allowed to go, apparently. women are able to grab a cab without, they say, being hassled by male drivers. i'm curious what you guys think of this. right now it's a fleet of about 35 cabs. they've been doing this in other cities, but they say these are strictly for women partnership mean, i think what's interesting is that it opens up the job to women. women have not been able to crack that taxi driving. >> that is true. in japan, they have special cars on the subway for women and for different reasons because a lot of the men there are kind of gropers. >> you're kidding me. >> but they're saying that these drivers are -- they're saying that these drivers, the male drivers here leer at them, theyt feel it's as safe. they have the women only buses on some subways. so i guess there's a safety issue that they feel is being addressed. but you have the women's drivers coming out against this because there's a beauty kit in that car. >> what? you buried the lead. there's makeup in the car? >> because i think it's ridiculous. they put a beauty kit in the car, and you see the color, pink. the other thing is they won't pick up men, which i think is interesting. it's one thing to specialize, but to turn away men is interesting. >> what about men? >> they won't take you in that cab, so you can't borrow the lipstick. >> i was going to say, carl and joe know about these things. >> i'm wearing it right now. >> very little. >> do you do air brush or -- >> i do the air brush. i don't do it myself. but i have someone -- >> you have your people do it for you. >> you have to hold your breath when they do that. >> you do, a little bit. it's never cleaned out. it drips on me, but you know, the things we have to do to look like this. >> fame and fortune. >> monica, thank you. coming up, we're going to head over to the chairs for a look at what's catching our attention in the papers this morning. then wall street's governor joins us on set today. new york's david patterson is our guest host for the next couple of hours. welcome to the now network, population 49 million. right now 1.2 million people are on sprint mobile broadband. 31 are streaming a sales conference from the road. 154 are tracking shipments on a train. 33 are iming on a ferry. and 1300 are secretly checking email on a vacation. that's happening now. novotny. am3g network.t dependae bringing you the first and only wireless 4g network. right now get a free 3g/4g device for your laptop. sprint. the now network. deaf, hard-of-hearing and people with speech disabilities access www.sprintrelay.com tdd#: 1-800-345-2550 if i'm breathing, i'm thinking about trading. tdd#: 1-800-345-2550 i always have my eye out for a stock on the move. tdd#: 1-800-345-2550 doesn't matter if a company sells computer chips tdd#: 1-800-345-2550 or, i don't know, fish and chips. tdd#: 1-800-345-2550 i'll look at all kinds of stocks before i settle on one. tdd#: 1-800-345-2550 if i think i'm onto something i'll check it out, tdd#: 1-800-345-2550 you know, see what other traders are up to. tdd#: 1-800-345-2550 when everything feels right though, tdd#: 1-800-345-2550 that's when i get serious. tdd#: 1-800-345-2550 and the minute i get into something, tdd#: 1-800-345-2550 i already know when i want to get out. tdd#: 1-800-345-2550 of course, every now and then i'll talk with somebody tdd#: 1-800-345-2550 who knows what i'm trying to do. tdd#: 1-800-345-2550 (announcer) switch to schwab today. tdd#: 1-800-345-2550 you'll get the tools, the technology tdd#: 1-800-345-2550 and the support to trade your way. tdd#: 1-800-345-2550 go to schwab.com/trader tdd#: 1-800-345-2550 or call 1-800-540-7304 tdd#: 1-800-345-2550 right now. tdd#: 1-800-345-2550 but opportunities can vanish like that... tdd#: 1-800-345-2550 ...so most days, i'm right there tdd#: 1-800-345-2550 when the market opens. allet's fine-tuneat the eyour businessanged, to take advantage of new opportunities. 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why i could a vacation day. i'm leading to something with this. i read "the new york times" and i regretted taking the day off yesterday. >> why? >> because of the piece on mcdonald's and the louvre. i've got to give some props to the people of france and say i've been wrong for the last 15 years. they have no problems with mcdo being in the louvre. i this would be a huge cultural war. if any of our words are used, they ban it from their dictionary. >> we had freedom fries for a while. remember that? >> i do. they went to an average frenchman on the street and said, there's a mcdonald's on the louvre, what do you think of this? what do you mean? if there's a mcdonald's in the louvre, i love that. i'm fine with that. jerry lewis, mickey roarke, who now we have a new appreciation for, woody, allen, it's no big deal, can you smell as you're passing the monets. you can smell the french fries or freedom fries. >> you say you like paris. >> my favorite city. just like the way europe hates us because they are envious, sometimes i do that about the french, the quality of life. >> next time she's on, she'll love you for that. >> she's pro capitalism and business. >> are you guys going to take the kids trick or treating. >> yes. >> you're going as jon and kate. >> jon and kate plus two. they are four months' old. we might try to dress them up. all the costumes for infants are vegetables. peas, carrots. >> i am brought you costumes, because they had dog costumes. i was going to bring you one for lucky. he could dress up like a hot dog. >> it's a dangerous holiday to walk around the street. they are more than twice as likely to get hit by a car. drivers aren't used to small pedestrians around neighborhoods. so a couple of things if you are coming home on halloween night, make sure you have the lights on, drive slow. parents tag along. never jaywalk. 80% of pedestrian deaths occur between intersections. >> you have to pick the right neighborhood, obviously. i'm going as susan boyle. >> you are? >> can you give us a taste of les mis. >> i am going to dress up. i'm going to be a prisoner. i'm thinking maybe a wall street. >> madoff is supposed to be one of the top selling. >> madoff. my son is going to be the cop, so i'm going to be -- >> the bad guy. >> we're going to want pictures later. >> they have handcuffs on. keep them. >> when we come back, governor dazed paterson is our host for the rest of the show. a lot more, stay tuned. search f, 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. ladies and gentlemen, this is your captain speaking. welcome aboard the 7:00 a.m. flight from main street to wall street. today's in-flight entertainment, chairman and ceo of continental airlines, his outlook for the sector, swine flu and rising energy prices. >> a problem in the cockpit. >> the cockpit? what is it? >> the little room in the front where the pilot sits. that's not important now. >> david paterson of new york joins us on his outlook of the economy, how wall street is recovering and what it means for his state. >> surely you can't be serious. >> i am serious and don't call me shirley. >> a high-flying fund manager that can get your portfolio off the ground. put your seat in the right position and put away your snack tray. the second hour of "squawk" begins right now. >> i picked the wrong day, i guess. good morning and welcome to "squawk box" on cnbc. i'm becky quick along with joe kernen and carl quintanilla. just about 15 minutes the chairman and ceo of continental -- was that wrong. >> that's wrong. you're joe. i'm becky. >> what difficult say. >> reading. >> joining us first on cnbc on a day when his company has made a major strategic move. first joe has a look at this morning's headlines. joe. >> is that true? i thought it was me? >> it was. but i was becky at the top, you know. >> we all know you like your air time. you can't have this. oil giants bp latest number before forecast, analysts originally thought it might. stocks traded higher overseas. chrysler's turnaround revolve heavily around vehicles from italian partner fiat. involves reintroduction of alpha rom ao. the tiny car in europe called the 500 called the americas, but will not attach the fiat name toyota. >> mccain had been with merrill 28 years, umbrellas hoping he will build the firm's presence in the u.s. shares of ing falling sharply after a second day after the company said it would split into two. stock did fall 18% monday. over to you. >> carl, thank you. let's get to our guest host this morning. new york governor dazed paterson. he's going to be can us for the next two hours. thank you for being with us today? >> i'm sorry, becky. i'm governor ed rendell. a little bit of switching of rolls today. it's good to have you back, good to see you. >> thank you. good to see you. >> thank you. we've been talking about the economy and hearing from company after company starting to say things like things are approaching a bottom. we heard it yesterday from david sokol who runs midamerica, things are starting to bottom out. when you look at new york's economy, is that a sense you get? >> i read an article that ended with the sentence the national future looks brighter but the next victims of the crisis will be local and i think that's what's happening. 49 of the 50 states have had lower revenues for the first two quarters. 48 of the 50 states are in deficit. of those states, many that receive stimulus money lost tax revenues at a rate of twice the amount of stimulus money that they actually received. so the states are encumbered with a number of different problems. new york was ground zero with the economic crisis. new york was actually impacted to a level where our fallen revenues are twice the national average. so trying to dig out of this ruin and hearing that the recession is over when your unemployment is 9% for the state and 10% for almost all of its cities is hard to reconcile. >> what about tax revenues, though, have those bottomed out or are they continuing to decline. >> they are continuing to decline. new york's revenues are down 35 to 37%. and because of that we have opened up a $3 billion shortfall in this budget year where we balanced the budget just last year. just to put new york's circumstances in perspective, the budget deficit, which was estimated at 5% in july of 2008 swelled to 21% when you added 2009 -- '10 budget to the bulge out year deficit we had in 2008-2009. we ended up closing $21 billion in deficit. it quadrupled. that is the highest escalated deficit ever experienced by a state in the history of this country, came to new york just in the last 18 months. and in that respect, we now have to go back. we have to bring our legislature back as soon as possible not only to close a $3 billion deficit but to offset what is a $2 to $3 billion shortfall for the payments we have to make in december, our quarterly payments. it's a seminal moment in new york. if we balance this budget and make the hard decisions we have to make, if we recognize we have spent more than we have, and you just can't spend money you don't have, then we'll be all right. if we make the mistakes a lot of states have made, trying to push our problems off into the future, we will wind up making some of the drastic decisions other states have made. >> sounds like you're building a case for more federal aid, more federal stimulus. >> you know, i think it might be a different type of stimulus. in new york, one of our biggest issues, i think, is endemic of the financial crisis is we have credit problems as much as finance problems. a lot of the stimulus money came in, we're ready to go but the construction companies that were going to perform the task couldn't get credit from the banks. >> credit to do what? to buy equipment? >> to buy equipment. in other words, the cost that any business has that are at the out set of performance. when partners bank of naples faa florida, went under, becoming the 100th bank to go under a week and a half ago it symbolized a shift in the banking industry to the smallest banks being hard hit. these are the banks that help local government. these are the banks sponsoring a lot of new york's innovation companies, working on clean renewable energy sources, advance battery technology for the hybrid vehicle. the reality is one of the reasons business is stymied around new york and other places in the country is no one can go ahead credit. >> you don't necessarily want feds to come over and dump money from a helicopter onto the state but you think some of the things we've already heard, t.a.r.p. being opened to smaller banks, t.a.r.p. being opened to smaller businesses. that's a move in the right direction. >> that's a move in the right direction if the federal government doesn't recognize the falloff in revenues was twice the value of the stimulus package. so the stimulus package has been a very good things for states. it's been a real shot in the arm because it has forestalled perhaps 11 to 12% unemployment rates. but at the same time the monsoon that is hitting states is greater than the relief that came. i think one of the fundamental problems with the stimulus package was that over 40% of it was deferred in a tax cut. in the last few years we've experienced more of a deflationary period if you give tax cuts to people, hold the money, if you give rebates people, save the money. the american public is now saving at a raft 8% of our salaries. in the beginning of the decade we were at one-half to one percent of savings. people recognized the tremendous financial issues families have, they have got to hold onto their money. so the tax cut was not the part of the stimulus package that helped. the part of the stimulus package that helped, i think when you're in crisis you can't be ideological about this, the part that helped was get companies up and running, get people jobs and back to work. >> you must know how to phrase is, ideological concerns when you run the state of new york must shift you to the right to some extent. i'm just wondering if some of the things that are happening in washington just really scare you in terms of of the detrimental affects it's going to have on wall street. it's not just the bonus issue. it's regulation, it's marginal rates headed up, corporations being strapped with higher taxes that now you're going to have to -- i know a lot of governors are worried about what health care does to medicaid, not that they are going to have to pay. things aren't looking good for trying to raise tax revenues, are they? >> no, they aren't. new york has a generous revenue package. the way the health care reform act is or at least the last addendum i read is what it will do is put new york in the position where you're not doing to get -- you're not going to get much for expanding medicaid because you can't. you're actually already there. so new york will probably lose money under that plan. yes, nationally, i must tell you, i don't think people recognize how difficult a state's financial picture is. 25 of the 50 states have shut down their early childhood education and pre-kindergarten programs and 21 states have laid off furloughed workers. a few states have actually conducted early release programs literally letting prisoners out early to try to save money. >> governor, don't you tax those citigroup bonuses? don't the coffers swell from some of that? if everyone makes $200,000 in financial services, your taxes are going down. >> 20% of our resources are derived from wall street taxes, there just haven't been any. capital gains, personal bonuses, initial public offerings, land transfers, land sales, they have all been drastically down. it fell off the cliff and it hasn't come back. now, the outlook may be bright in the greater sense but new york is traditionally lagged 16 to 20 months behind recessions. at least that's how it was in 1975, '82 and 1991. but the problem right here is new york, as a state, has $2.5 billion we have to pay just in the next month on property tax relief. a $1.6 billion payment for schools and other services that count up to another $2 billion. so when lou at all these payments, we come up short and do into special pools, which is what other states did. you run the risk of a downgraded credit rating. you run the risk of being put on somebody's watch list or you run the risk of creating phony revenues to try to push your debt obligations into the future and that's why you see states like hawaii shortening the school week to four days, states like arizona ready to privatize their prison system, even the capital punishment protocols. >> new jersey has done that in previous decades, too, in terms of selling bonds that they shouldn't actually be selling. the supreme court then and the state went and declared unconstitutional. so you're facing those situations. what you're basically telling new yorkers, you're not going to do those funny deals, look at. be prepared for more cuts. >> we're not going to do those funny deals. 34 of the 40 states in deficit have done that. new york is one of the 14 states that has not gone down that road. if we can stay where we are, maybe the light at the end of the tunnel, the sunrise beyond the horizon is that we might become one of the first states to escape the financial crisis or at least get out of the deficit if we would adopt a spending cap and limit spending and stop spending money that we don't have and additionally hold the line and not engage in any gimmicks that would further impact our financial woes. >> governor, thank you very much. we're going to hear more from you throughout the show. we've got many more issues to get to. >> meantime, comments or questions we'd love to hear from you. our address is squawk@cnbc.com. when we come back, swine flu and fuel prices, a couple of the factors impacting the airline business these days. we're going to take a closer look we ceo of continental airlines larry kellner. later guest host dazed paterson no stranger to budget battles talks to jim nussle, former omb director. do the nussle. stay with us. h 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 welcome back to "squawk." a look at futures this morning. first back-to-back triple digit decline. gary locke in china for high-level trade talks. he says the u.s. welcomes the rise in the exchange rate but wants the currency to climb further. the president visits china next month for talks with hu jintao. a popular tax break for home buyers helped to bring housing out of the slump since the recession. they are talking about graduating it down, a couple of thousand a quarter until it goes away. >> then what happens? >> that's the question. >> let's talk continental airlines. joining us, a strategic move triggered by last year's northwest delta merger. to discuss this move, continental and chairman ceo larry kellner. i look at you, you look even younger when i'm sitting on one of your planes and you welcome me aboard, yet you start with -- when are you stepping down? when does jeff take off? >> end of the year. jeff takes over january 1st. it's a good chance for me -- i've had a great ride at continental but it's a great chance to build a business from scratch. >> are you going back to private equity? >> exactly. trying to focus on commercial real estate but looking for an opportunity to build something from the ground up. >> doing it in an orderly way. jeff has been there how long? >> almost the same time. he had been there a couple of weeks when i got there. he had had been there nine days. >> it was disruptive when gordon left, some of us that fly continental. we worry about change. here we go again. it's going to be a good thing? can you allay our feersz? >> jeff is going to be a good leader. he's been with me. i have tremendous confidence going forward. >> is it simple leaving one alliance going to another, it's not good to be in an alliance with your biggest competitor, northwest. >> absolutely. want them to be complimentary. you're looking for carriers that fit together like pieces in a puzzle. it brings new york and latin america to starr. >> people have you merging, it's impossible for you to comment on things like that. do you see something like that down the road? >> i think we looked at merging with united a year and a half ago. we decided not to do that. we didn't say never. we have to look at the future and do what's best for the long-term. looking to balance risk and rewards. it's a great opportunity to go in with star. we clearly think this is a great where it be with good. >> how important is that for continental? >> it's bumping along the bottom. i heard commentary about where the economy was. we clearly see a case business traffic starting to stabilize, coming back. i want to be careful not to be too optimistic. one data point doesn't make a trend. being clearly as we saw budgets coming back. whether we're back to a few years ago we'll wait and see. >> are you leveraged better? >> we're positioned correctly today. we pulled back capacity in the summer of 2008, fall of 2008 as fuel prices skyrocketed. we pulled back our european capacity a little bit as well. but we've grown this year as well. we've added shanghai, adding houston frankfurt. we're going to be disciplined. >> i don't remember paying for bags on your airlines. is that going to change? do you have to try revenue generation? >> we do charge for the first and second bag if you're not an elite fire with us, not on a full fare ticket or you don't hold our chase credit card. so there are cases, a lot of ways we've designed it so you can avoid baying bag fees. we're going to generate $200 million in bag fees. it's important for us. we held out quite a while before we matched that. we just concluded as we looked at the customer that was the right solution for us. clearly we'll look for continuous opportunities to provide the customer choice and added benefits much like we put live tv on the aircraft. we charge for it, but it's a great benefit. >> makes you wonder why the industry didn't do this years ago. you are carrying something that weighs a certain amount over a certain distant. do you think that could extend to people's weight like some airlines do in europe. >> i wouldn't go that far. some people say your second bag is down after the fee. there's a big cost to carry them. i think i'll stop at bags. >> good help with health care, charge two seats, obesity, put it in there. >> we're going to try to find the right balance for our customer where you charge. i'm sure you'll see interesting concept out there in the next few years. >> larry, good luck. tell jeff isaac we want to get him on at some point. >> i'll do that, joe. >> just so we can confirm everything is going to stay relatively the same but we'll take your word for it now. thanks for your time today. >> thank you, joe. >> coming up on "squawk box," a check on the markets. a five-star fund manager tells us how to play this market when names like travelers top his picks. you're watching "squawk box." we're near the very top. if we're not right up there we're very close. 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. so, at national, i go right past the counter... and you get to choose any car in the aisle. choose any car? you cannot be serious! okay. seriously, you choose. go national. go like a pro. welcome back to "squawk box." we're going to be watching shares of china's largest search engine. posting quarterly profits. a switch to a new advertising system will lead them into the next year as they try to adjust. glaxcosmithkline winning approval for gemmab. the decision had been widely expected. >> comments or questions, drop us an e-mail. our address as always, squawk@cnbc.com. when we come back we'll talk to former omb director jim nussle. he'll join us with governor dazed paterson from new york. be right back. what's the proble? these are hot. we're shipping 'em everywhere. but we can't predict our shipping costs. 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week of auctions with the sale of $44 billion in two-year notes. the results will be available after 1:00 p.m. eastern time. on wednesday we'll see the sale of $41 billion in five-year notes, then $31 billion in seven-year notes coming thursday, so a big week for those auctions. president obama $3.4 billion in spending to modernize power system. the spending will be awarded in grants that need to be matched one to one by private funding. >> i believe that a public auction can achieve the goal of bringing meaningful reform to our broken system and will protect consumers, keep insurers honest and ensure competition and that's why we intend to include it in the bill. we will submit it to the senate. >> harry reid supporting the public option, plans to send the bill to the office for a price tag. jim nussle, chairman of the nussle group along with our guest host david paterson, governor of new york. good to have you back. >> nice to be back. >> why would you risk irritating the olympia snows of the world. is it like a football team going for a two-point conversion. >> some won't make a decision until they are forced to vote. what probably has happened here is senator reid has gone to his caucus, talking to snowe and collins. he probably has critical mass, 57, 58. he believes he can go to the floor and push those last few votes over the line when the vote is actually on the floor and ready to go. they are undecided right now. they haven't told him hell no, but they have told him, look, i want to see the numbers, see if it adds up. >> how much of a concession is the opt out. >> i think it's a big concession but it may not be enough to attract those last few votes. we'll have to see on that he's made a concession it's not a pure government option or public option and i think that signals quite a bit as far as the strategy he's employing. >> jim, don't you think this whole argument has come full circle. this is where it should have stayed from the beginning, lowering cost as opposed to fighting with the insurance companies. presenting it to the public -- >> joe just liked at you like you are a deity. >> are you raelg a democrat of a northeastern state. >> he's a governor. they have the toughest job. >> i love you. >> listen to what he said earlier. he's got a deficit, has to bring the legislature back and fix it. you don't hear that in washington. >> no matter the party establishment, this is not working. >> this could actually be transformative. i think the democratic party could show fiscal discipline in a lot of places. all the governors are in trouble. they are letting governors with poll numbers under 30%. but the way out of this is to try something thinking about where you want to be in five years. five years do you want to pay the interest on the debt you continue to run up to try to save nothing or do you want to be in a place where you're moving from recession back to prosperity. so i'm looking at the long-term. perhaps when we have money we'll fight more over how we should dispense it. but right now we adopt have any money, yet we continue to spend as if we do. every car owner and every credit card holder and too many homeowners found that out the hard way in this crisis. >> maybe we ought to get the cost side of the equation in health care right instead of -- >> that's why we're here in the first place. >> that's the cart before the horse. >> you fix nothing about the cost structure and add -- >> two reasons we're here, cost was going through the roof and nothing anyone was doing about it. and b, there were uninsured who weren't getting coverage. this bill only covers another 10, 12% of of the uninsured, only gets you to 92, 93%. b, isn't controlling cost. like telling somebody with a credit card bill out of control, hey, go buy on sale. that's the way you fix it. keep buying but buy on sale and you'll feel better. >> the number of people uninsured, a lot of people saying we can't afford to do that, they are saying you're already paying to cover these people. they show up at the emergency room and that is more expensive. >> their personal behavior may not change whether they have insurance. they may still go to the emergency room. i think what you've got here is a situation where the bill is not fixing -- for the cost not fixing those two ailments that got us here in the first place. that's cost and controlling cost, the underlying sbilgtment to begin with, a. and b, whether or not people are going to get access to coverage that will change their personal behavior. >> as applied to senator reid, the real dialectic plan, he's the first person that shows enthusiasm. just when you think he would be negotiating he steps forward with something that appears to be -- i think it's brilliant -- appear to show real faith in the program, where a lot have been mired in stunned disbelief. >> a tough re-election in nevada and needs to appeal to grassroots, heavily i don't know ufd people in nevada. that's what cynics are turning it to. >> has he a greater role as the party leader on a national sense. i think the people in nevada know where harry reid, their senator stands on the issue. there's harry reid the majority leader that has to come out of this with some sort of victory for the president. >> a, would this survive, go to the president's desk? >> that's the toughest part. this is only the senate part of this equation. then they have to work together with nancy pelosi and the democrats in the house and try and cobble together some kind of a -- in the end i think they do get a bill to the president's desk. i don't know what it's going to look like. a lot depends on the cbo score that comes back this week and whether or not they can get it across the floor. the governor is right, certainly senator reid is finally showing he's going to put something out there and get a vote. as the governor knows, too, legislators don't want to make a decision until they are forced to. and this is what senator reid is doing. he's saying, look, it's time to decide. we've had all this discussion. put a bill on the floor and let's decide once and for all exactly where the votes are. >> what would happen if it's 55, 56. >> there's two things. one, he could go back to the drawing board, a. b, he could use the nuclear option reconciliation and try and jam it through under a procedural vote, which is still an option that senator reid has in his back pocket. >> he's got some options. >> oh, yeah. he still has options. this is one of the smartest tacticians when it comes to -- with all due respect to the national leadership he's one of the best vote counters out there. he knows exactly how to manipulate or deal with the senate floor. that's a huge advantage that president obama has right now is senator reid's ability to manager that floor of the senate. >> he knows very well what he's doing. this is not some hail mary type of situation. he knows what he's getting into. >> it's in that sweet spot. certainly a hail mary means you've got a receiver and a quarterback that can get the ball to him. that's really what's going on here. >> a one in ten chance. >> it still is a better chance than they have seen in quite a while. >> have to pray for legislation to hail mary. >> as long as they don't pour gatorade on him. >> jim, thanks again. >> when we return on "squawk box," five star fund manager, five out of five. >> five out of five. >> telling us what he's buying in the market. 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>> absolutely, becky. first and foremost i'm interested in an absolute return. i don't like losing money. after this year's performance, i'd be happy to quit right now frankly. i think 27% is a nice return for a year. >> right. you got there, again, by looking for value in midcap stocks. what are some of the stocks that have been your best performers. >> with the rapid rise in prices since the march low, becky, we've had a lot of securities reach our private market value. i've probably been a net liquidator over the third quarter. still some names that offer attractive value from small companies to larger ones. you just have to dig harder than last year. >> what are some of those names? >> a small name, prestige brands, pbh. shares around $7. we think they are worth in the $9 range. i owned the equity and debt. they make products like chlor septic, compound w, comet, spic 'n' span. >> you like cr. >> catheter business will stay with us despite what they have in health care. i noticed as i entered the studio, ran into p.j. o'rourke, has he one of my favorite quotes, if you think health care is expensive now, wait until it's free. cr has been buying back shares, sequential growth in urology, vascular, other parts of their business. i really don't think despite what harry reid may do to us it's going to affect business materially. >> they feel like they are getting picked on. >> $20 million. >> well, sure, joe. we're going to save $600 billion by cutting medicare reimbursement and flat lining doctor's pay, so that's obviously going to work. >> no sarcasm in that last statement by the way. >> sure. >> you also like travelers group, not a midcap. that's a dow component. what do you see here that's so attractive. >> our mandate is not index centric. we can look from $100 million market cap up to coca-cola. but travelers to me that a book value of around $47. hate a combined ratio around $93, which means they have a positive underwriting experience. and you know, if you think of it, most insurance companies have a lot of fixed income. in their case they probably earn around 8%. and most insurance companies sell for a multiple of book. we think the value is in the upper $50 range. >> it's interesting, mark, you say when you see a year like you've had over this last year, it makes you want to say, let's lock in gains, you've sold a lot of things. i think that's the sense we get from a lot of different portfolio managers which may beg the question do you think the markets have seen the best of their gains and from here on out it's going to be holding onto those gains? >> an eecdotalanecdotally, i he thing from shareholders. it will probably move higher. every person i run into says when is the dow going to 6,000. i don't think that will happen. i think we had a great opportunity last fall and we took advantage of it. that's what we're reaping the benefit of today. it's materially harder to find attractive valuations right now. >> mark, we want to thank you for your time today. >> thank you, becky. >> coming up on "squawk," one of the most well respected economists on the street, david rosenberg, joining us to give his economic outlook. "squawk box" will be right back. thast a. that was a dos equis. are you willing to let us do one on you? >> if becky does one. >> i think it's a boy thing. >> i want to see you look. anyway, let's look at some stocks to watch. will you help me with this? >> of course. >> barry hates when you call it yahi! he wishes he didn't name it interactive core because he doesn't want to hear that. third quarter adjusted net of $0.30 a share, way above expectations of $0.13, although there were some gains totally $35 million related to the sale of its open table common stock. also some other items impacted by $0.16 or so. it was still above in revenue. it was also above expectation. communication reported $2.12, $1.85 above expectation, revenue more or less in line with expectations. fiscal 2010 guided 785 to 805, streets 903. underarmour, above expectations of $0.44. do you own any of that? >> not actively. >> no, the stuff itself. governor, under armour. >> it's that stretchy stuff. >> it's weird. you sweat through it. >> i wore underarmour when the pope came to new york because we went to ground zero, i was freezing. >> you did have some. >> yeah, my son let me wear his. i went to yankee stadium, it got up to 80 degrees. i'm sitting there with bloomberg and he put a sweater on and i thought both of us were going to die. >> the company starts with under arm, then you add the rest. >> i can think of worse. >> there's other body parts. >> what happened there? how are you over there? everything okay? all right. all right. good. >> u.s. steel reporting $2.11 loss, narrower than expectations. revenue 2.8 billion versus 2.72. johnson control $0.52 items in revenue of 7.87 billion. that was slightly below the net of $0.47 is what they recorded on a gaap basis. but that was i think more or less in line with expectations. finally we had sellanese they >> cash for clunkers helped them out a lot, too, some government spending back into it. they talk about how 2010, earnings per share of an additional $1 per share. >> you were really listening. you don't just ask questions, do you? >> no. >> reading my paper. >> wait for the silence? >> yeah. wait to ask another question. i'm waiting to ask another question. i'm more interested -- $0.50 was well above and revenue above. it's going tab winner today. now i know a lot about the company. >> he talked about how they built the new -- >> the celanese guys talked about how they opened a new plant in china. >> all this dhapd on the show? >> where were you? >> i don't know. he was on? >> we have governor paterson here, one hour under our belts, one hour to go. when you see the banks posting good profits on wall street and good bonuses, is your thought that that's good for the state or is it politically a liability? >> well, it's theoretically good for the state because as i said before one-fifth of our revenues are derived from wall street. but the banks are in a pyramid. the largest banks are in very good condition. even when they have problems, they are able to receive government assistance. just as we had too big to fail, i think we have a new problem. we see it in new york, it's too small to save. the banks we need to generate opportunity for smaller businesses are in very, very serious trouble. there are 416 banks now on the fdic's watch list. they estimate there will be 600 to 1100 failures. one of the biggest differences between the 514 banks that failed in 1989, which was in the middle of the federal savings and loan scandal is that we're counting numbers of banks that have failed. we're not counting is the percentage of assets that have failed. we're already up to 3% of the bank assets in this country have failed. it was 4.4% during the entire savings and loan crisis. so you get some of these research funds that estimate in the end they may be twice the damage proportion ately, 16,000 banks and thrift institutions, now only 8,000. >> the chargeoff rates are depression like, even though the number of sheer bank failures, as you mentioned may not be as high as the s and l crisis. >> what this means on the lower frequencies, summers in new york state and a lot of states is totally impeded. it's not the big bank on wall street, it's the bank on the corner that you need to create a clean renewable energy source that could replace traditional energy sources and you can't get the capital to get the recertainly and development to turn to manufacturer. >> what needs to happen to make that change. the feds have lowered interest rates but it's not making banks loan to businesses. what happened? >> october 21st, president obama expanded federal guaranteed loans, has talked about the asset programs that will hope fully try to alleviate the crisis. there has to be an overall shift in concentration to what is the prognosis of the smaller companies. as i said before, the problems of the economic downturn have shifted from the major -- from the federal government to the states, from the major banks to the smaller banks, from the major corporations to small business. but small business is what drives our economy. our tax revenues are down, not even as much from the unemployment in the higher echelon, but the consistent rise in unemployment, not just the unemployment rate, but the number of americans over 100 that are able-bodied and aren't working. >> governor, we'll have more in a moment. we'll also have bulls versus bears fighting over the health of the economic recovery. find out it will impact markets. a $206 million payroll, is the investment paying off? we'll throw that question to the yankees president randy levine. 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we have a bull-bear debate on the state of the recovery. >> getting tough on too big to fail. chairman bill isaac will tell us if this is the right strategy following the crisis. >> play ball. ♪ the fall classic comes back to the bronx, yankees president randy levine on the big investment that's baying off. >> yankees win the pennant. >> "squawk box" begins right now. ♪ >> welcome back to "squawk" here on cnbc, first in business worldwide. i'm carl quintanilla along with joe kernen and becky quick. new york governor dazed paterson has been with us the past hour. we have one hour to go. meanwhile, headlines from becky. >> the new york governor is here, i get new york and yankees but go phillies, too, man, you've got to believe. a bunch of yankees fans in here. ubs naming former merrill lynch bob mccann to held its wealth management unit. it was widely expected. mccann had been with merrill for 26 years. they hope he can build the firm's presence in the united states, maybe coach some former colleagues before. franchise was battered by tax news with the government. chrysler's turnaround is expected to resolve heavily around vehicles from italian partner fiat. the plan involves reintroduction of alpha romeo brand. it will also bring the tiny car in europe called the 500 to the americas but it will not attach the fiat name to it. shares of baidu getting hit hard after hours, an increase in quarterly profits but a company warns a switch to a new advertising system will lead to softer revenues into next year as customers try and adjust. if you've been watching the futures this morning they have been above fair value. this is coming after triple digit losses. but right now dow futures up 29 points above fair value. seeing some of the earnings coming out and waiting for a few numbers later this morning. joe, back to you. >> becky, thanks. let's highlight contrasting points of view on the economy and markets. here on the set david rosenberg and associates chief economist and strategist and from minneapolis jim paulson wells capital management chief investment strategist. that's still david we have up there. it's jim. david, let me start with you. you've got to go home to toronto. you were at merrill lynch. that's where you're from, where you made yourself famous. let me start with this, don't get mad. you've been dead on on the economy mostly for the last two or three years. i would say you've been dead wrong about the stock market and what it would do in the last six months based on the economic backdrop. will you concede that that much? >> i wasn't bullish on the equity market. there's more than one way to skin a cat. >> are you early? you're going to be right eventually in your view? it's overvalued? >> it is overvalued by 20% but comes down to what your view on corporate earnings will be. by the time you're up 60% from an egregiously sold loan, you've already got earnings recovery. this has been an expansion over time. we've never seen that b there's different ways to express a cyclical view. it's not as if we haven't been bullish on equities. we prefer to express that view in the credit market. that's where low hanging fruit has been. corporate bonds have actually been a better place to be. it doesn't get enough media attention. >> have you spoken to ableson? he's quoted you 600 times. he takes it from your writings and uses it like he's your best friend. that's the way it works? >> that's the way it works. >> that's bizarre. reads your stuff and puts it in -- >> misery loves company. we've actually -- he called to congratulate me when i left to go to -- >> that's it. >> we've exchanged e-mails. it's not as if he's some long lost uncle. he like to think he likes my research. what can i say. i'm not the only one. stephanie. >> in the old days, bob ferrell, he didn't quote bob ferrell during his heyday. >> you must pick up the book on saturday mornings and only then do you realize he's writing about you. >> i can only say one thing, it's keeping my mom busy. >> all right, jim. now, with you, i would say you were way too sanguine on the way into the worst economy of all time. but you've been dead on in saying that the world is not going to end and equities are probably the place to be? >> yeah. >> yeah? >> i guess i certainly missed the downdraft a year ago. i would argue really since november of last year, almost the entire last year now, the right thing to do was to be bullish, be aggressive, going towards risk not away from it. no matter how much the mind-set, joe, of a the collapse a year ago in december was to preserve capital rather than the return on it. indeed the ber thing to do was to go after the return on capital. i think it's been that way every since. >> what about now. >> i think that we're real early in this. we are maybe one quarter into an economic recovery. i doubt it ends that soon. i think we've got a longways to go on that score. that tells me the financial and the market cycle also has a ways to go. to david's point we're up 60%. but i'd still say a big chunk of that was off a false bottom to begin w we were sold in this country that we had a massive depressionary bank default going on in march of this year and it turned out we didn't. all we did was reverse 100, 150, 200 point of the s&p over a 60-day period. if you really look where we've gone if we didn't have that bank scare, maybe 900 to where we are today and the market wouldn't look nearly as overextended as some people perceive it. >> david has -- i'm going to get him to list what's wrong here, jim. i want to you listen. you may change your mind if you hear about all the things that are still bad, david. >> okay. >> isn't there a huge overhang left, nobody getting credit, toxic assets left. what is the bear case in your view, david? >> i would just say if you take a look at bank lending, okay, everybody talking about how healthy the banks are except the 106 regional banks that failed this year. bank lending is contracting at a 15% annual rate. draw the chart back historically for the past five decades, this is beyond the realm of anybody's personal or professional experience. bank lending contracting at a record rate. you know, take a look, for example, at the transport stocks. they are starting to falter. you saw what burlington northern had to say. things were better in march. to say that we came off a false bottom. what makes this false bottom different than 102 low on the s&p in august of '82 when people thought inflation was going to 1,000%. what's a false lo. >> a heck of a time to buy. >> understood. back then we had reagan, going towards deregulation, lower government, lower inflation, lower interest rates. we had an eight multiple, 6% dividend yelled, price to book. how can you compare? >> were those good things? >> what i was saying before were good things. >> reagan, as canadian. >> absolutely, as a canadian. we have a conservative government in canada, right? look, the household balance sheet was expanding throughout that period. situation outlook, credit is contracting. what's happening -- i think the governor was spot on, actually spot on. what we have, we have the public sectors come in and replaced large chunks of the credit of the private sector vacated, is the economy doing better. the economy is doing better. absolutely, when he comes out and says that the net government stimulus in the system is equivalent to 5.6 of gdp. my god, this economy is not growing. if it's not growing we have serious problems. then we'll see what happens when stimulus starts to come out of the system, see what the economy looks like organically. the view, came off a false bottom. where does that come from? the banks were technically insolvent. we put in the bottom, guaranteed all banking sector liabilities. we shifted in the middle of the game from market to market accounting to market to model accounting. on top of that the government came out and said we're go to save these big banks. >> is the risk to you the pillars of the economy, artificial that they are, that they stay too long or go away too soon? >> either-or. only time will tell. here is what i'm going to put on the table. absolutely right, not bullish enough in equities. come on, over six months. it's true it's been a 60% rally, all multiple point expansion. >> if jim is right, you're going to be wrong about another 60%. >> jim is focused on returns, i'm focused on returns and risk. i'm focused on as a strategist risk adjusted returns. we were not getting people in for cash, to the low hanging fruit risk adjusted bonds, part of the capital structure collect gargantuan interest rates. you want to talk about price armageddon, all due respect, 2% dividend yield, 12 put mal, i've seen that before. you can argue the market was cheaper off the crash. it was the fifth year of a secular 18 years bull market. we're in a secular bear market. i'll tip my hat off to jim and he's had the last six months right. >> time will tell. >> exactly right. time will tell. we have to respect the risk. we've gone to over 60% at a time when the economy has lost 3 million jobs. >> we're back to where we were 11 years ago and earnings have doubled in places. let me get back to jim. jim, he does brink up scary things. i know you're from the land of humphrey and mondale. he brings up higher taxes, protectionism, government programs. none of those things cause you to pause. >> let's look at some of the good things. it's not like everything is always rosey or always bad. we have a consumer that everyone thinks is dead because of excessive debt burdens. if you take their debt burden and energy burden, that percentage is off 2.5 to 3% from highs in '08, now at a level, proportion ate to disposable income for any time in the 1980s below average. there's a big improvement in the toelgt burden on the household sector, might be one of the reasons retail sales are starting to respond. if you can focus on the fact we have leftist moving politics in the country. we've got the biggest breakout in free market capitalism across the globe that we've ever had in u.s. history because of the emerging world. we've got growth leadership coming out of this cycle that we never even had in 1982 at that point. we've got demographically charged growth coming from china, india and mexico and other places that didn't even exist 10, 15 years ago, let alone 20 or 30 years ago. we've got a tremendous trend month after month now for six, seven months of better than expected economic reports across the spectrum, better than expected earnings reports now for three quarters, better than expected improvement in all financial markets including libor spreads and junk spreads and reemergence of bond issuance for investment grade companies and junk companies. we're going to have bank lending again next year when job creation comes back early next year and when inventory rebuild starts which, by the way, is already showing up because commercial paper has been rising in recent weeks. if you take commercial paper plus bank loans they have been going up for more than a month. we have an environment where we have tremendous corporate profit operating leverage as a result of the great fear that was -- the crisis, the depression that wasn't of 2008. we've got lean and mean corporations that are now starting to mix that with the revival of global sales. i think we may have an average value market now. but a year from now with earnings growth, that average value market is going to look very attractive. >> i'm getting teared up. >> we're just starting to emerge from this thing. one last point to risk. david is focused on risk. i would ask this question, when all around you sees nothing but risk, the reality is risk is low. are banks overlending today? are corporations overexpanded? are too many people paying up for houses today? do you think too many people are overexposed to the stock market today? none of that really exists. we have a low risk world that's emerging from recovery and i think it's got a long way to go. >> do i get a rebuttal? >> no. >> we're in a post bubble credit collapse. we've destroyed -- even with the rebound in the markets, $12 trillion -- consumer behavior for years. consumers doing better. cash for clunkers, auto sales go to $14 million. that's the new normal. >> you want to break the tide governor. >> down to $9 million in auto sales without cash for clunkers. >> jim said lending is up in the last month but in the last two quarters non-performing loans are down at a peak. so my view of it is when you're that high unemployment rate, when you have the number of bad assets being carried in this country right now, sometimes you jump off a building and people tell you you're in trouble and you say, no, so far i'm all right. sometimes we're in a place where the states in this country where the stimulus package runs out at the end of 2010, we'll be $300 billion in deficit. there's a point that rolls over into the private sector. >> you're going with the guy channeling reagan instead of the land of -- >> gentlemen, thank you for a lively and spirited debate. jim paulsen, you're wearing all black. >> it's purple. >> purple is the color this year. >> there's a lot more ahead, a former fdic chairman checking out the too big to fail, one of the kings of fixed income, blackrock, $40 billion income portfolio. today's trader's edge. when we come back, fall classic returning to the bronx, yanks, phils tomorrow, a new stadium on deck. talk to the president randy levine on the investment that's paying off. empire state of mind. you're watching "squawk box" on cnbc, first in business worldwide. tdd#: 1-800-345-2550 tdd#: 1-800-345-2550 i want everything right where i can find it. tdd#: 1-800-345-2550 anything that makes trading easier. tdd#: 1-800-345-2550 i want to be right in the middle of the action-- tdd#: 1-800-345-2550 you know-- i have to see what's going on. tdd#: 1-800-345-2550 and when i pull the trigger... tdd#: 1-800-345-2550 ...i've got to get the best price out there. tdd#: 1-800-345-2550 (announcer) try the new schwab.com tdd#: 1-800-345-2550 for yourself. tdd#: 1-800-345-2550 call 1-888-4schwab tdd#: 1-800-345-2550 or visit schwab.com/trader today. tdd#: 1-800-345-2550 'course a trade doesn't always work out my way. tdd#: 1-800-345-2550 but when it does... tdd#: 1-800-345-2550 ...man... do i love that feeling. yankees returning to the world series for the first time since 2003. they will take off defending champs philadelphia phillies as they try to kpaur the title. a new stadium, $208 million payroll. is that investment paying off. joining us yankees president randy levine along with sports reporter along with governor paterson. section c, right? >> the governor got me through law school. i don't know how i make it. that's why he's sitting with you. he's much smarter than me. >> they are calling this series, the perfect world series. 20 all-stars, three mvp, maybe more. are you feeling like this is as good as it could have been. >> it's a great series. they are an exceptional team, defending champs. they have to get a lot of credit. we also have a great team. we think that we're capable of winning the world series. that's our goal every year. we're going to try awfully hard. it should be a great world series. >> randy, it's darren. thanks so much for coming in. i know you've had about an hour's sleep over the last two weeks. tell me about lowering prices. about three weeks ago you announced you were lowering prices for 2010 season as much as 30, 40% in some areas. do you regret that now because if the yankees win it all, you would have been able to get more than that? >> no. good morning, darren. no, we really didn't. as we always said, as george steinbrenner said, the first year we were going to test it. we made mistakes. very few mistakes. a very small amount of ticket prices were adjusted. we think this is fair because it gives all of our fans an affordable way to go to the ballpark. we think yankee stadium most tickets are really affordable. >> you sold 92% of the tickets this year, which still led the american league in attendance. go ahead. >> i think it was a little higher, about 94, 95. >> okay. what does it mean for the yankees brand to win the world series to carry over to next year if you do win? >> i think that that's our commitment every year to win the world series, to be the best. i think that the brand's goal is excellence, winning, tradition. that's what we're all about. we try and win every single year. unfortunately we haven't been back to the world series in a few years. we're here now. this commitment to winning, this commitment for the steinbrenner family to put the resources back in the team, to give new york and yankee fans a winner, it's never going to change. >> got to ask you this question. "new york times" on saturday came out with a story that said yankee stadium in some sense was falling apart already, that there were cracks in the ramps. i believe there was some response to it, but as you know the response never gets the same type of press that the original story does. can you clear that up for us? >> "the new york times," they are great people but they own the boston red sox. they haven't been too happy with our new stadium all year. they really don't like the fact it's been so successful. they have been writing a lot of negative stuff. it's a punch list items. basically cosmetic things that are the same in every single construction site. in fact, once again the city building inspector, commission eri came out saturday and said it's fine, totally safe. the building is one of the greatest put together buildings of all time. the fans really love it. >> in terms of baseball, randy, what's the series going to come down? are there weapons they have in their arsenal that you'd rather have in your arsenal? >> i think it's going to come down, as it always does in a great series, to pitching. each team has a great heinup. these great world series or great playoff games come to great pipg. we have a great pitching staff, they have a great pitching staff. it's going to be forefront for everybody. great for new york governor. a lot of people here. when the yankees are in the world series, a lot of people don't like it in one way, the networks, newspapers, you guys, hotels, everything, we bring a lot of business to this city. when the yankees are winning, it's a good thing. it's a good thing for baseball and a good thing for new york. >> well, randy, acquiring h.a. burnett and sabathia and teixeira put the yankees in a great position. both have concerns about relief but they have rivera and the yankees will win the series. >> how many games -- >> in six games. governor rendell of new jersey should wear the yankee t-shirt the day after the world series. i would wear the philly t-shirt the day after the world series but the yankees would still have won the series. >> but governor, would you wear this dress on the cover of the "new york post"? >> that would be a bet. i want rendell in a yankees skirt and you in a phillies skirt. what do you think? will you agree to that? >> i won't have to pay so i'll take the bet. >> now we'll get rendell on. >> randy, thanks. we look forward to tomorrow night and the coming days. >> great. thanks for having me, guys. all the best. >> they do what they can. >> the frillies. >> whole inside spread about why philly is a second class city. >> terrible city with terrible fans. this guy was never in it, they put his body in that skirt. >> i guarantee that. >> i think rendell is going to be on in the next few days. >> shane victorino. >> who is this? >> i think rendell was going to be on, it would take about six games for sure for him to be here. >> maybe he'll call in before then. >> let's get the skirt on the other side. >> governor paterson, are you feeling a little nervous at this point? >> no. >> standing by this. >> getting tough on too big to fail. congressman barney frank wants new rules in place to deal with banking giants and crisis. bill isaac will tell us if this strategy will work. "squawk box" will be right back. bull market or bear, traders are always hungry for ideas. trading is all about strategy. and strategy... is all about information. heat mapping shows me where the money's moving. twenty five hundred stocks... one quick look. that's where the action is. plus, this amazing gadget... it's called the telephone. i can call td ameritrade anytime and talk trades, strategy... anything. td ameritrade. built by traders, for traders. this is what i need. announcer: trade commission free for 30 days, plus get 100 dollars cash, when you open an account. welcome. u.s. steel shares on the rise after the steel maker reported a smaller than expected q3 loss, expected to lose more than for the third straight quarter for a three month period. they say it will continue to improve. speaking of improvement, honda tripling its forecast due in large part to stimulus programs around the world, like cash for clunkers in the u.s. that increased sales. vivendi ceo says an option might be at stake if they sell the parent. the ipo option has always been under consideration. vivendi has an annual window in november in which it can decide to sell it's 20% stake of nbcu back. >> what do you focus on when you run a $540 billion portfolio. curtis arledge, fixed income from black rock will tell us what he's watching and what moves he may make next when "squawk box" comes back. you're watching "squawk box" on cnbc, first in business worldwide. (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. welcome back, everybody. congressman barney frank and treasury secretary tim geithner getting tough on too big to fail. steve liesman has details on that legislation getting news. >> everybody watching it. washington still waiting for a house bill with a language, big financial firms wind down when they get in truly. a bill on track, likely to be released today. some delay in figuring out some of the thornier details. an overworked staff negotiating through the weekend and overnight. still sources say outlines in the bill would give the governor come in, throw out management, wipe out shareholders, force creditors to take major losses. you'll notice this has not happened in the bailout so far the secured or unsecured creditors taking any losses at all. what's coming out of here is the product of negotiation between treasury and barney frank's house services committee. one proposal for a resolution council to overseas the process like determining who is too big to fail and how it would be used. supposed to include treasury secretary and chairman from fed, fdic and at this point what we hear fdic would have authority to handling resolutions the way it does small and regional banks. frank also considering a resolving fund pay for too big to fail resolutions. won't be a surcharge ahead of time, rather the government will assess the industry on an as needed basis. again, a pro cyclical thing. dispute about that why would you tax the banking industry when they are in trouble instead of ahead of time in anticipation for something. look for tim geithner to testify on thursday. meanwhile chris dodd, head of the banking committee on the senate side watching this carefully. many think the frank legislation will be seriously amend on the senate side. we're watching as if it's something to come out and will be important, product of negotiation with the administration yet over on the senate side private consultations between dodd and shelby, anybody the result of what that will be. >> let's bring in another voice on this, here now to join his thoughts on the legislation is bill isaac, a former fdic chairman of lecg global financial services and a cnbc contributor. thank you very much for joining us this morning, bill. i know you haven't seen this legislation yet. what do you think based on what you've been hearing? >> well, i'm very concerned about it, because i actually think it's a solution and circular problem. the administration did a whole series of transactions last year without this authority. what i'm concerned about is that if we actually instituationalize this authority we'll be creating a huge moral hazard. reillusion with respect to the banking industry to extend it to insurance companies and investment banking firms and automobile finance companies and the like i think is a very dangerous thing and is going to create a big moral hazard. we've done it. but i don't think we've repeated it ever again. i'd hate to put mechanics in place to make sure it would be appropriate to do it again. >> can i tell you the reasoning i've heard from academics and regulators as to why that's not the case. the thinking is if companies now they can be wound down and the government will not come in with bailout at the end of the day. in addition if creditors know they can be forced to take losses, then they would sort of exact some better due diligence on the front end. why doesn't that reasoning work for you? >> first of all, i don't think that we're ever going to allow truly significant firms to fail and for creditors to suffer major losses. let's take, for example, the fdic. the fdic had the authority to do almost anything it wishes to do. last year it let two large institutions go under, did impose losses on creditors. in the case of wamu it did do that, wipe out bond company and shareholders then once the soup got thick in the financial system we came to wamu -- not wamu, wachovia, fdic stepped in and took care of it and none of the large banks were allowed to fail after that and all the creditors were protected at wachovia. sorry to cut you off. why should somebody who gives long-term debt to a bank essentially have a u.s. government guarantee on that credit. that has been the case throughout this bailout where the creditors do not take any losses. one of the things this bill would do, give the government authority to force creditors to take losses. the government can force creditors to take losses now by not intervening, let the creditors work out non-banking institutions, which is what we've done for hundreds of years. i think we set a very bad precedent by intervening in non-banking cases. i hope we don't set up the mechanism to allow it to happen again routinely. >> bill, we want to thank you for joining us today. obviously this is a conversation that's going to continue. steve, we'll see you again. guys, thank you. >> when we come back we'll talk to curtis arledge with blackrock, talking about fixed income, where your money should be in bonds when "squawk box" continues. don't go away. all right. we're back. u.s. equity futures this hour. we were looking at 40 points upward momentum, making headlines this morning. microsoft's msn is in early talks with myspace on a music tie-up. google recently announce add plan to offer music as well. southwest airlines announcing a fare sale today based on the length of the flight. some one-way tickets will go as low as $25 for travel up to 375 miles. retail sales are seeing rising one-tenth of a percent week ending sunday, fifth consecutive weekly increase year over year, sales up 2.4%. the final headline, carl. >> yes. >> in the financial times, iceland is closing their last mcdonald's. they are going to be gone, then join albania, herzegovina as the tiny amount of countries that don't have mcdonald's. >> because of what? >> the collapse, the euro so expensive. they import everything from germany. >> import taxes are the big reason for it. >> as france and paris is adding mcdonald's to the louvre, iceland, no mickey d's. >> one of the unspoken tragedies of this crisis. >> that's how i saw it. >> let's see how smart money is in fixed increase, $540 million. curtis arledge head of fixed income from blackrock. he joins us this morning. curtis, welcome back to the show. good to see you again. >> great. thanks for having me. >> a lot coming our way, next week's meeting, all the reports the fed is somehow working on how and when to massage its language. what's the overall dynamic in your view in fixed income? >> well, i think the overall view that we have certainly is to pay attention to what the fed and treasury department of saying about the stimulus packages they put into place. clearly the exit strategy is top of investors minds. this week a lot of supply coming to the market. we're watching it and wanting to make sure we understand how options go. generally we'll be bound for a period of time as the economy will be in a period of low growth and low inflation for a while. a lot of economic data has had great year over year percentage changes but much of this is rebounding from a frozen state we were in at the end of last year and early this year. the steady state long-term for the economy is going to be quite a low growth environment for an extended period. >> how do we know where the fed's job owning or individual fed governor's job owning, where it ends and begins. they have thrown us curve balls. >> they are spending a lot of time talking about it internally. i wouldn't say they are all necessarily on the same page. you can see that in their commentary. having said that i think they are looking at primarily the same financial system. they have the same information about the fact we had two large drivers of debt critical to growing our economy and keeping the economy moving. one was the u.s. banking system. clear off the lows and doing better. the other was the shadow banking system or securitization markets still not recovered or repaired. in many ways much of what the fed has had to do with buying agency mortgages, talf programs, treasury, that has been replacing shadow banking system and stapling onto the economy this important balance sheet. i think all of the official know if they removed too quickly this third engine of support from the economy that the economy would be in great harm. so i think the debate really is when we decide to remove the stimulus, how are we going to do it, at what pace? how are we going to communicate that to the market. obviously the entire market is watching closely. >> we had the conversation this morning, the degree to which they are inflating assets on the one hand on the financial side of the economy and not getting money into the hands of normal americans and the real economy they don't have too many options other than hoping that logjam breaks, right? >> yeah, i think that's right. i think the financial markets are obviously going to anticipate on a forward basis what recovery will look like. sometimes they get it wrong. but i think that ultimately the capital is being created in the financial system. some of it will clearly make its way into the real economy. we're watching closely what's happening with private demand for credit. much of what we're seeing in the high yield market for example is paying off. refinancing earlier borrowed money paying off debt isn't yet targeted on growing a company's overall ability to produce. there will be m and a activity. but unlike some of the m and a activity we may have seen earlier in this decade offensively minded on the part of companies, a lot will be productivity minded. good for company's earnings but not great for the economy as a whole because it means downsizing to generate revenues. when we start to see the private sector really begin to have durable recovery and start in a deep way begin to invest again for growth, that's when we think that maybe the fed and policymakers broadly will feel better about pulling away. we just don't see it right now. have you this gigantic engine of debt that has disappeared from the economy, trying to keep the economy from deflateing. >> for more defensively minded investors, safer to go there. offensively minded investors can get paid very well with deep credit analysis to go into the sector a bit more challenged and more complex to understand like mortgages and mbs. >> you have to do your homework more in this space than anywhere else. curtis, good to see you. >> thank you. good seeing you. take care. >> be sure to tune in tomorrow. has he built a reputation that moves markets. bill gross, bond king of pimco will be in studio, guest host tomorrow from 7:00 to 9:00 eastern time. >> i don't think he's been here before. >> i don't think he has either. got no moustache. it's gone. >> i think it is gone. >> oh, no wonder you're looking at me. you want me to read this? >> this is your read. >> art cashin on the scene find out what's on hisconomic reports. he did a three-part series with pisani. >> did you see it? it's quite good. you're watching "squawk box" on cnbc, first in business worldwide. time for the "trader's edge." there she, art cashin. star of small screen, big screen. pisani, you had a three-part series, art, they got a picture of you, looks like you're it's sitting in a library or something. and you're still willing to come on with us. even without that buildup. >> i was a little uncomfortable with that it was an unfamiliar surrounding, it was a saloon, i've never never been in one of those before but it came out okay. >> you were a fish out of water. art, we've got another chance here to get something going for the correction crowd. does it go sideways. what's the correction going to look like? >> the jury is still out. what you got a hint of yesterday and kevin ferry alluded to to it also, a lot of people use the dollar as the funding thing. it used to be only the yen carry trade. the big surprise here, the big negative, if you would, suddenly that trade began to unwind, not so much where the dollar is going, but people would have to scramble to uncover shorts in the dollar. that would lead to a kind of chain reaction and maybe a bit more than that 10% pullback. whatever happen, if it were to be a chain reaction, it would be sharp and sudden, little bit of what we saw yesterday. >> you see the paulson-rosenberg smackdown, art? >> yes, i did. >> both had pretty good point, i guess that's what make a market. >> joe, one of the most amazing things, i've been doing this for a couple of decades now, this particular debate as to whether this is a bull market moving along or where it's going, some of the brightest minds in the business are on opposite sides of this thing and arguing vehemently you usually don't get that a couple of people off in the wilderness. >> wook co-s. >> the world is ending tomorrow that kind of routine. >> that was a weird selloff yesterday, art, but we're breaking up a little bit. we'll get you later this week. we appreciate your time today. >> thank you. up next, the exit poll for new york governor david paterson. "squawk box" will be right back. - ( thunder rumbling ) - ( rain pattering ) ( tinkling ) with 12 world's first innovations, the lexus ls doesn't simply lead an industry, it inspires one. how can you get your retirement plans back on track? consider oppenheimerfunds, whether the markets are up or down, we follow a consistent investment approach. ask your advisor about oppenheimerfunds. and see how our numbers can lp you reach your destination. call your advisor for a prospectus with complete fund information. read it carefully and carefully consider fund investment objectives, risks, charges and expenses before investing. mutual funds are subject to market risk and tility. shares m the right way alue.merfunds. welcome back, everybody. our guest host today new york governor david paterson has been talking to us about the many troubles facing state governments around the country. you talk about tough love, you talk about cutting spending and that's a very difficult thing to be preaching when you're looking at a re-election bid. how do you preach tough love, not buy people's votes and still maybe make your way in the polls? >> well, somebody actually suggested that i took on this fight to get my poll numbers up. this not going to get your poll numbers up. but i do believe a good ethical decision inevitably becomes a good political decision. nobody likes to see health care and education kurkts the they do comprise 60% of our budget. the ramifications of now making these necessary decisions are the realities that so many states in the union are facing right now where they are encumbered with debt for the next five years. look at california, in spite of the val efforts of the governor had to borrow $9 billion with a bbb credit rating and already they've run up another $1 billion. so the reality of this is governing in a period of crisis you can't think about the normal ideas of what, say, liberalism and conservatism or or regionalism, the reality is that you can't spend money that you don't have like i said before, somebody wrote in about why i gave into the personal income tax increases. i knew the personal income tax increases in new york were not going to yield the revenues they were purported to. i knew that people moving out of the state or changing their addresses and i also knew that a number of the people who were thought to be paying taxes were unemployed. so we have picked a low hanging fruit over a number of years of taxation but the reality was, it was the only way to make up $4 billion gap in the budget because new york lost $83 million a day from january to march. so i think the inevitable solution is if you make these tough decisions now, and you're now escaping the recession, rather than being mired in it because my view of the economic situation is there had to be a correction after we sort of hit a false bottom, but will will be a series of short wins, where you will see progress and then it will be negated a period of time and we will slowly come out of this period, but the states that will emerge from it more positively since clearly we're not getting the assistance from the federal government we need in spite of the best intentions of the administration right now because the opposition in washington, we're going to have to fend for ourselves and the best way to fend for yourself is to make the same decisions a family makes when you are spending money you don't you have to make corrections. >> governor, appreciate your time as