Transcripts For CNBC Squawk Box 20100421

>> i think you're going to want one of these, too. you sit here and knock it. you said the same thing about the blackberry. then you come home, you come back here. >> i've driven halfway home and had to come back. there's nothing in my world that i ever had to come back for until the blackberry. it's not fair. >> you're going to have an ipad, too. just to play brick breaker. >> in about 15 minutes, we'll alternative to an analyst and find out if there is still more room for this stuff to run. >> after hours trading session was not as kind to yahoo!. the company posted better than expected q1 earnsing. here is the deal, q1 search revenue fell 14%. yahoo! says larger advertisers are coming back on the display side. we're going to check in with a yoo-hoo analyst in a few minutes, as well. >> and interesting letter from john paulson looking to reassure investors days after his hedge fund was linked to civil charges. in a letter obtained by cnbc, paulson tells investors his firm's role was appropriate, conducted in good faith. he says that paulson and company does not structure or originate the abacus investment vehicle at the heart of the s.e.c.'s case. he says the product of a longer goldman was created in 2004. he goes on to say that in 2007, we've made this point if again and again, but in hindsight, people forget. his firm was not viewed as the end all be all and the most experienced mortgage investor. he says many of the most sophisticated investors in the world were more than willing to bet against us. more than these investors were more than willing to get what they thought was a steady steam of income in this outliar, this nut who was short in the entire mortgage industry. they were on the other side of a trade where they would have been raking in the dough that paulson put up if he had been wrong. he wasn't charged in the s.e.c. lawsuit. he says neither he nor anyone else in the firm received a notice. but there was not one filed and i would think that he would have had to disclose this, because it would have 10%, the deal in question. >> if he's saying there's not one, there's not one. but the interesting thing that i think is that investors were nervous, anyway. you see your fund getting dralgd through the mud like this, being brought up and papers all over the place. investors got nervous, apparently on the call with invest hes, this were some pointed questions. >> and as hank paulson's brother, still involved with the treasury segment, which is what a lot of our viewers think. >> exactly, right. >> people are going to think you guys are serious. >> they probably will. >> that's part of the problem we're alluding to. the way a lot of this is out in the public right now, there are people you never -- i get stuff now that just says, how can you say one positive thing about goldman? they're all crooks, they should all be in jail. >> that's what we got when the earnings came out the other day. the e-mailer that came in is prime phase. >> right. because they beat expectations. >> we get some on the other side, too. >> not signed gordon brown. >> he's a big fan of the show. >> some of john paulson's clients are considering removing money from the firm. the firm has a deadline for next friday for investors who want to withdraw money on june 30th. on that conference call yesterday, it was said no one identified the funds of any intentions to pull out. >> we brought you up to speed on the apple numbers and the yahoo! numbers from last night. futures are not reacting kindly to those words, although european stocks did trade up in the early going. oil is back to close to the levels we had before the s.e.c./goldman news broke. that's the june contract. the 10-year note yielded about 3.8% yesterday. about the same today. the euro is getting pounded as greece once again begins talks on all the belt tightening that's going to have to take place. finally, gold hasn't been in this range for a while, up $5.80, $1,145. >> let's get to our task force. joining us right now from wells fargo, john sylvia, who is in the house with us. also from deutsche bank, ben pace. this morning, there's a lot to look at. it's a steady stream of earnings that seems to be beating expectations by a mile or is it some of the noise from the s.e.c.? some of the noise from washington right now? you know, becky, i really thought that over the weekend, we would see another kind of late january, early february correction. we would see the beginning of that. but i think the earnings news has been so powerful and then you had the apple numbers yesterday. it is a sign that the earnings numbers are going to be good. i think that we thought the markets would be choppy as we started the second quarter here. still generally positive. i think the earnings so far are overwhelming the other negative news. >> fair to say, though, there is nervousness in the markets? >> no doubt. i think you'll start seeing the creation of the 21st century version of glass steagall where we're calling it here. so i think that is a sense of the earnings. >> john, you hear from the companies, you start getting all this great economic news, and it sounds like things are on a turn. but it's difficult to figure out what's going to happen with some of the regulation and what that will mean for the second half, potentially? >> exactly. there is economic growth out there, confirmation of the productivity numbers. i think companies are really ready to move, but always, we are with recognized beyond economic risks, there's always regulatory risks. and here i think the challenge is with additional potential regulation, you may have limited credit availability. firms are afraid to lend, they're afraid to invest. they're not quite sure where they're going to go because the regulators could be making and are making new rules all the time. >> you bring up an interesting point. you say companies are waiting to move. >> a lot a lot of companies are waiting to pull the trigger. for example, in the new york fed manufacturing survey, there was a special question about what are firms most concerned about? and it was both current and future employee benefit costs. so you get a sense that a lot of the firms, at least in the new york distinct, are concerned about what are my employee costs? they're not ready to pull that trigger in terms of hiring people until they get better clarity. >> is that question related back to the health care debate, do you think? >> i think it is. all of that impacts what any employer putting on a full time, permanent worker is facing going forward. >> if you had to get your arms around it, how much do you think that makes up of holding back and what that does for the economy overall. >> overall, it's really the economy that's the driving factor. so i say two-thirds of it is companies are unsure about future economic growth and the other one-third is the microeconomic problem. what is happening at my firm in terms of the cost of materials, taxes and futures employee benefits. >> ben, you mentioned that the apple numbers are technology specific. but this industry has had a number that is out of the park. you had intel, amd, all of them beating expectations. >> yeah. when i say company specific, i mean the big beef that apple has. we're seeing, again, an inventory rebuild type of economy. but in this kind of service economy, that means tech product to a larger extent. we think technology is going to continue to perform well for the next couple of quarters. then we'll see the sustainability growth once that question occurs. >> is this something where the industry has gotten its margins to a position where margins are going to peak or do you think they will continue to push if other companies are starting to invest and buy in it? >> i think what you have is an operating leverage type of phenomenon. we didn't think it was going to be as robust there because we didn't think economic growth was going to be as high. but we're starting to rachet up our growth estimates. >> john, the bottom line, i think, is probably jobs for many, many people, trying to figure out when those jobs return. have you changed your ideas about when the jobs will come back based on any of the numbers you've seen in the last few weeks? >> no. i think it's consistent with perhaps 100, 150,000 jobs per month. once again, becky, the type of jobs being created are different than the types of jobs that were destroyed. we lost a lot of construction jobs. it's not those jobs. it's much more in the service sector, especially the professional services sector that we're focused in on. so the jobs created and the jobts that were lost, probably two different types of people with two different sets of skills and probably a different location. >> which means you leave an entire population still displaced. >> still displaced. >> john, thank you very much for coming in. ben, good talking to you, too. >> see you, becky. when we come back this morning, we'll take a bite out of two different numbers. yahoo! is straight ahead. also a big day with numbers today. as we go to break, take a look at yesterday's winners & losers. welcome back, everybody. down about 7 points below fair value for those earnings futures. earnings are going to continue today. in the meantime, a key test for the senate. the agriculture community will be considering changes to a reform proposal and talk about whether to drop an idea that would keep banks out of the swiss market. president obama will be heading to the sports tomorrow where he will reiterate a call. and a programming note, don't miss john harwood's exclusive interview with president obama. catch this at 2:00 p.m. eastern time where he will be talking about financial regulation. >> apple does it again. reporting apple second quarter results and sending shares soaring in after hours trading as sate satan offered the apple to -- have we tried that yet? there must be -- we've never gone back to genesis, which we could. appear ul was a big part -- >> apple was responsible for the fall of lehman? >> yeah. i just can't believe in a quarter $13 billion for this company. but it's true and it has to do with the mac and laptops, but also iphones. they sold twice as many. from what seemed like a good quarter last year. >> yeah. they knocked the cover off the ball on almost every single metric, so maces are up 33%. revenues still went up baht because of the ipod touch. iphones are up 130%. we don't seen have the ipad in the numbers yet. earnings growth, 90%. >> so was it more iphone or more mac or both? it was both. >> well, the beat, relative expectations more came from the iphone. but the mac, because it has the bigger ticket price, has a larger contribution to overall earnings still, but it's all across the board with the strength of apple, which was very impressive. and we don't even really have, in relationship, consumer spending coming back yet. so this is just a taste of what this mep might be doing later in the year. >> but it's a combination of the consumer spending on gadgets and on apple's long-term investments years ago in software and everything else that they do right? >> that's right. they're gaining market share in multiple areas. if you look at it on a global basis, apple only has 3% market share and i think that goes to 10% over the next couple of years. >> i can't imagine what the market cap for this company is going to be. it's only 3% right now? >> on a global basis. >> what would saturate be for something that costs this much globally. >> well, with i think the fees will come down overall. you also could say, back out some of the enterprise spending that maybe they don't have an opportunity to get to. but listen, every year they can take a market share. the only time they took a breather was during the recession. now that people come back and have money, they're gaining share. in ourur surveys, they have 25%o 30% market share. >> but in china, what could you hope for? >> well, china is something that a lot of people try. apple has done reasonably well there. they certainly have brand recogniti recognition. >> but it's 1%, right? >> you know, at a minimus. but it wouldn't take a lot of people in china on a percentage basis for these people to move the needle. i think apple has been a long-term goal for a lot of people in the u.s. we've seen apple in a position to do that. they have a unique product, a global brand. so i think there's a possibility there. they had, i think, 68% growth overseas. so internationally it's something to watch here. >> you know, there's a lot of big numbers. let's say people are buying this stock now hoping that they get 10%, 15%, 20 percent over the next year or 30% over the next two years. is this going to be the most valuable corporation in the world? with numbers like that, it would pass exxon mobil. >> right, right. this is a little bit like, yeah, when microsoft pure passed gm, whenever it was. >> cisco was $600 billion a couple years ago. >> right. but none of this, in your opinion, was on pure hype. revenue growth. we have earnings growth. over the last five years, 50% compound annual growth rate in earnings. if you back out the cash at apple, they're trading at 15 times. they're growing over 10 times the gdp rate. >> was that your phone? whose phone did they find? they must know whose it was, right? >> yeah. there's speculation about who lost the phone. >> who? jim goldman? who was it? >> yeah, i don't have a comment on speculation on apple's next product. but they have, over the last five years, a track record of improving products and coming out with new ones. i have some confidence that whatever the next product is, there's demand for it and in apple's guidance, there was commentary around a new introduction, whenever they introduce a new product, it has to hit on gross margins in the short run. so they're actually alluding to sometime in the next three months we're going to see a new product. >> so people that don't have iphones would be happy with the old iphones and people who do have new iphones want the new iphones. >> right. apple has a good track record of updating the products. i think that will take time to build and have a huge impact and that's also still in front of the company rather than behind. >> dan, one of the things that you said is phenomenal is that they have 25% of the market share among college students. i think they've always had a market share with students, but how much has that grown over the last five years? >> in our college surveys, which are relatively narrow, we are sort of gearing towards tomorrow's corporate leaders. that number was the first year that we did the survey five years ago in that manner i think was 16%. so, you know, it's almost doubled in the five years that we're doing that particular survey. it's a survey that we do the first week of college when people come back to school and we survey the dorms to see what people have brought back into the dorm rooms. and it started with the ipod, went to the mac, now we're seeing the iphones and i'm sure we're going to see the ipads on the campus this year, as well. >> daniel, we appreciate it. this morning, amazing. apple. i think we got through that entire interview without one -- bringing up the beatles, am records, there's a million things with apples that you can bring up. >> the bottom line, alternatings greeting. >> the core of the story is the -- no matter how -- >> back to it. >> no matter how you slice it. >> it's a very, very healthy core. >> it's every quarter and it's been for ten years that we've tried to do that. i can't. i just can't any more, carl. >> we'll do it again in july. >> we'll do it again at 6:30. >> the other side of the tech trade, despite beating the earnings expectations, the company is trading lower. good to see you, clay. i guess you can't talk about the opposite dynamic, right? search continues to be the an albatross. >> yeah, it is somewhat the opposite. the big issue here is that yahoo! continues to struggle to grow. they got significant reimbursements from microsoft and still saw their track record contract. yahoo! is not completely benefitting from that improvement. >> you upgraded the stock in october, right, because you saw that display ads were coming back. and then you said, we fear legitimate concerns about secularyz@k ñ irrelevantsy will continue to keep the multiple down. secular irrelevantsy, that sounds pretty ominous. >> right. and that has to do with the size and existing strategy or existing assets of yahoo!. you know, yahoo! is a portal. and it's the portals that are losing share in the specialized sites that are gaining share. we think the likelihood is people will continue to migrate to those more specialized sites and yahoo!'s search share will continue to decline. >> it has gone from 21% in january of last year down to just under 17. how low can it go? >> well, it was interesting. last night, yahoo!'s management indicated that they felt it was plateauing and would begin to pick up again. >> bottoming, right? >> bottoming in the near term. so, you know, there is some signs of that. but i think you could argue that yahoo! and microsoft will switch places in terms of search share from when they initially struck their deal. so yahoo! going, you know, towards that 10% domestic share over the next couple of years. >> is nick about this operational? >> well, i think the big issue is structural and that is they have a decent amount of cash flow, so there's a lot of risk for them to make any dramatic changes. so they've sort of -- you know, the microsoft deal, you could argue, is dramatic. but in terms of what they're providing their consumers, there haven't been any dramatic changes. so to some extent, the answer is no, there's not much they could do to combat this structural and secular, you know, irrelevantsy issue. >> that's a far cry from the days we used to talk about it. remember, we used to do conference calls with yahoo! and follow them after the bell? tooth and nail. thanks, clayton, i appreciate the insight. >> just in case we run out of things for apple, someone wrote in, you can still use these to upset the apple card. one bad apple spoils the barrel, the big apple, adam's apple, as american as the apple computer. >> so adam's apple. >> that's gross. >> why, because you don't have one? >> yeah. >> because that comes from satan, right? >> yeah. >> i never really -- >> although he gave the apple to eve, right? >> she gave the apple to him. >> you're confused. oh, it was her fault. you don't remember that? she -- it was actually his because he had the final decision to make, but she definitely -- >> what, because he was the man of the house or what? >> yeah, basically back then i think that was. that was before 100,000 b.c. when she took over. >> coming up, we will have more of this morning's top stories. but coming up, bond busters, sure, we often talk about buy or sell stocks, but today, we're going to put fixed income in focus. your best betts for protecting your portfolio. stick around. dow component utx with numbers. it's a $70 billion market cap just to put it into perspective. as we talked about apple, a 220 billion. but the estimate was for 89.8 cents and the company managed to earn, what is it, 93 cents. revenue was just slightly below expectations. 12.258. the company reported 12.09. the revenue guidance for the year is in line more or less with where the street was before. the street was at 54.7 billion. what did they say, 53 to 55 or something? 54 to 55, i'm sorry. 54 to 55, people looking for 54.73. also, the company, it says it's raising its estimate for the year to 450 to 465, but the street is at 462.5. i'm going to start rounding. >> okay. like gasoline prices? >> i'm going to start rounding. >> all right, all right. >> this is a little bit dshg not to say that our our clock that we're ever going to -- you know, when there's something important coming up, like if madoff is going to get into a car, that we will show you in hundreds of a second because we know that you need to have it in hundredths of a second. >> you're finally catching on to the tv thing, the whole live news thing. >> what if you missed him by going to the bathroom by a hundredth of a second. >> you know, utx, a lot of gains that they made were from currency, the positive impact of currency, which i think helped by about 6 cents for this quarter. they say they continued to focus on cost production and productivity as well as savings from restructuring actions. so not anything here about how orders are turning, things are turning around. this continues to look like a cost savings scenario. >> also, the guidance conditions continues to include restructuring. the units have 350. one thing that we can say is that the guidance used to be 440 to 465. so now 450. in our headlines this morning, chrysler reporting its first post bankruptcy financial result. the automaker lost nearly $4 billion exiting bankruptcy last year. but it is posting a first quarter operating profit. the company crediting cost cutting and the introduction of the new ram heavy duty pickup truck. >> all right. today, general motors ceo ed whitacre will formally announce that the automaker has repaid $8.1 billion in loans that it got from the u.s. and canadian government. he will be hosting an event at the company's fairfax plant in kansas city and in an op ed in today's "wall street journal," whitacre argues that this is a sign that the automaker's plan is working, paying back those loans earlier than had been expected and i guess that's good news overall for what we're seeing on the t.a.r.p. >> speaking of which, the evidence today that the love affair with the american car might be coming back. more americans now say that u.s.-made cars are better than those made in asian companies. american autos get the edge 38% to 33%. back in 2006, it was asian autos that won 46 to 29. 15% of those polled says toyota makes the best cars, down from 25% a year ago. >> did they mention versus european cars? they didn't mention versus european cars. it was asian cars. toyota, kia and things like that, yeah, but not including probably beamers or mercedes. i guess people still think -- >> porsche. doesn't porsche come in on top of satisfaction? >> just tell me to shut up. >> he deserves it. he wasn't here. he doesn't even know what you're talking about. because i said porsche is an italian company. >> now i can't hear this. we're just talking about my windmill, too. >> yeah, your windmill car and that football oblong -- >> anyway, the recession changed the playing field for fixed nl income investors. joining us flower is marilyn kohn. marilyn, thanks for joining us this morning. >> thank you. >> it is a new landscape and bonds are garnering a lot of attention right now. how did things change when things fell apart? >> things have changed dramatically. the fixed income market has been unbelievably embraced by baby boomers that said get me the heck out of stocks, i can't take it any more. and we've seen more flows into bond funds than ever before. and you've got millions of viewers that are managing their own separate portfolios. and i wrote the book because i wanted to teach them how to do it better, with how to not just necessarily point and cleng click or accept an offering from a bond broker or a stockbroker because you wouldn't buy a stock without looking at the last trade, right? well, people buy bonds without seeing where they last traded. and the book is to tell them, you know, you need to buyer beware and do it better and be more patient. >> you know, there are some people who think we're building into a bond bubble right now, that this is the exact wrong time to be getting in. how do you tell people where to focus? >> i'm one of those people. i think it's a bond fund bubble because of the massive flows. from munis to investment grade corporate in 2009 than we've seen in the last ten careers. so i think what people need to do is book some of those profits. take some of the profits out of your long-term bond funds and buy individual bonds in the front of the yield curve. you know, seven years and in, sacrifice yield now for preservation of capital. and i think there will be unbelievable opportunities because rates are going up. i think everybody at this desk would say rates are going up, it's just a matter of when. and people in long-term bonds are going to get massacred. >> so would you be saying municipal bonds or corporate bonds are the better arena for where you're going to find some deals? >> very good question. corporate bonds, i'm not worried about credit quality. their credit quality has improved dramatically. balance sheets are in great shais shape. there have been no crazy cherry purchases in m&a activity to committees crate those balance sheets. but that's not true with municipal bonds. >> right. california, look at the massive budget problems you've got in new york and the other arenas. >> and it will take a long time from the trickle down effect from the better economy to reach the state cities and counties. and the muni market, there's a huge disconnect between the finances of how these states, cities and counties are doing versus the low yields. and i want people to know that that disconnect is getting more and more dramatic because everybody is worried about higher tax rates. and, you know, knowing what you have in muni land, whether you have a bond fund or individual bonds and the sources of the revenue is very important. you're going to talk about interest rate swaps. a lot of the hospitals and universities and cities have done interest rate swaps, have committed to interest rate swaps of which they have to get out of post collateral and individuals are going to get murdered. so know what you own. >> and you are, again, saying it's a cautionary tale when you look at a lot of these municipalities. you think some of them could wind up going broke? >> i do. i think that would be the curveball that kind of ruins the muni market for a little while. what we're seeing now is many of the good quality states, like texas, georgia, tennessee, they are the beneficiaries of a flow of new municipal bonds being issued and individuals going out of california, new jersey, new york as an abundance of caution. and i'm all for that even though it's a heavy toll to pay when you have to pay state tax. >> does anyone in one of bad states, let's just pick, for example, new jersey. if you buy ambac now, is there -- is it considered aaa? is there still a way to get a aaa/new jersey piece of paper? very difficult. i'm so glad you asked that question. people used to be able to buy muni bonds that were insured, so they thought set it and forget it. put it on automatic control. i have a whole canter on that. and the truth of the matter is, there's no truth in that matter because the -- you know, the insurers ruined their businesses, they were greedy. insured things that they didn't know anything about. and so people really need to always look at the underlying credit call. what do i really own? what is my source of receiving my income and is it reliable? >> fitch just increased their ratings. california doesn't deserve to be a. we probably deserve to be like puerto rico, triple d minus. >> is it safe to say if -- let's say john paulson picked all the bonds in the bond fund. could you avoid that one? >> absolutely. >> okay. i just wanted to get that out front. don't buy that one, carl. >> if somebody is looking at a portfolio and trying to figure out how much they should have allocated to bonds, what do you think is a fair one? and i know it depends on your age and where you are in your life at this point. but let's say you're a 50-year-old who wants to retire in 15 to 20 years. >> i think then your allocation should probably be within 30% to 40% maximum. that's still young enough to participate in the equity market. i think the older you get, the more conservative you have to be. and that's what the meltdown in the stock market really told us. people said, you know, i can't make up this money and that's why the bonds have been such a beneficiary. so i think that that age kind of is a good indicator of, you know, what percentage of your asset allocation you should have. and there is a flight to munis like we have never seen before because of higher tax rates and we have a shrinking muni market because of the build america bonds. if you're a straight treasure and you say, gee, i need to issue some bonds, should i use bonds that are going to give me a 35% rebate from the federal government or not? well, duh, you would get the rebate. and so we see a shrinking muni market, increasing demand and credit quality is not what you think it is. >> marilyn, thank you very much for coming in. we appreciate it. >> thank you. >> if you have questions or comments about anything you see here on squawk, e-mail us at squawk@cnbc.com. we'll take a quick break now. we've got some headlines lighting up the squawk news line. inside and outside the world of business. then we'll have -- we're going to beam ourselves over to the chairs. how is that? i made that up myself. what will i be talking about? what could he mean? we have to stay tuned. we'll be back. good morning. i'm no more monica novotny over at msnbc. authorities lifted a ban on flights in .out of xwlnd's busiest airports last night after volcanic ash from iceland kept planes on the ground there for nearly a week. but it will be a while before things are completely back to normal for travelers in the airline. carriers have lost at least $1.7 billion because of those disruptions. in northern texas, a twister touched down tuesday. witnesses say the storm produced golf ball sized hail. there were reports of flooding and minor damage. fortunately, no one was hurt. a french winery offering customers a do it yourself plan. crush pads start the out in 2004. now they have opened another do it yourself winery in france. for $12,000, you can pick the grapes, crush them and bottle your own blend. customers can follow the blend online. stay with us. ♪ long trip. >> we're in the chairs. and we're kind of -- this is kind of a tribute to spock, to leonardtireretiring. he was recently on "fringe" which you tell me is an fx show. >> i believe so. >> it's so hard to keep straight, the dramas. some of these successful dramas on network television. amc? >> amc. you don't watch "mad men," do you? >> no. >> "damages," "the closer," "shield." >> she could be anywhere. >> right. >> they're on cable. >> it's a lot more fragmented. he had been on "fringe." he wants to make room for zachary quinto. there's another "star trek" coming out. >> he's not going to do -- >> not going to do the sequel. >> no. >> that is an understandingly stupid idea. >> he's 79. and that's the reason i saw this because that's cool to be able -- >> to retire. >> wallace is, like, the man. he was, what, 106. >> john paul stevens. hello. 90. >> 90, right. >> tried to get him to get off the court. i don't know. >> 41, jumping out a plane, 90. >> he also directed "three men and a baby," if you remember. >> he cut an album. he wish he'd cut another album because his was even better than shatner's. shatner did "lucy in the sky." >> that is an outstandingly stupid idea. >> 79, i can tell you, i'm going to go way past to 79, if i have control. >> i bet he comes back and actually does a cameo. >> he says no, though. >> he wants to go out on a high note. when you're 79, will you be in chairs? >> yes, i will. >> so we'll need to get a lowered chair. >> you'll be tossing to me from the "today" show or "nightly." i'll still be here. >> wheelchairs, right? that would work. you could wheel yourself on. >> you will have exceeded cronkite's tenure in a more successful fashion at some huge -- but i'll still be -- becky, i don't know where i'll be. >> i don't know either. but "usa today" today talking about how we are a nation of penny pinchers. they say that at this point something like 53% of americans look for products that are on sale to buy. a few years ago it was only 48%. there's all kinds of issues here. it's making all these different businesses change the way they actually operate to cater to these people. whole foods is touting weekly sales which they never did before. starbucks is offering brewed coffee for $1.50. morton's steakhouse is selling three mini-burgers for $5. cds is adding kiosks that spit out personalized discount coupons for you. and i guess that all adds up to this idea of the new normal that pimco's been talking about for some time. the question is is how long do these changes last, and what does that margin mean from 48% to 53%, that extra 5% of americans that are penny pinchers. >> everybody has learned and the states and the government are learning, a penny save is at least a penny earned. i mean, it's really -- it's going to be within the next year or two, it's going to be about three earned. one penny, if you can save it, you have to make three to replace it. with the government, i've said it many times, for every dollar they spend, you've got to cap tax revenues at $10, right? >> there's a little leakage. >> 90 cents falls through the cracks for people moving slowly from one room to the next. >> working 9:00 to 3:00. >> not on fridays. the dmv is actually pretty good in new jersey. >> it's privatized. >> is it privatized? >> no wonder. >> i rest my case. when we come back, the earnings train, yeah, utx, at&t, boeing, mcdonald's, morgan stanley, we'll get the numbers and the instant analysis when we come right back. to stay on top of my game after 50, i switched to a complete multivitamin with more. only one a day men's 50+ advantage... has gingko for memory and concentration. plus support for heart health. ( crowd roars ) that's a great call. one a day men's. the earnings parade rolls on. ♪ on the docket, at&t, boeing, mcdonald's, dow components that could keep investors on their toes. is the case against goldman sachs losing steam? a letter by hedge fund firm paulson & company says it acted appropriately and in good faith. the latest twist in what some say are politically motivated charges. time for "squawk box's" blue light special. inside tips on the consumer and the chief operating officer at kmart. the second hour of "squawk" begins right now. good morning. welcome to "squawk box" here on cnbc. i'm joe kernen along with becky quick and carl quintanilla. in 15 minutes, john paulson's letter to investors on his fund's involvement with goldman sachs. the details are coming your way. then at 7:30 eastern, earnings from dow components at&t and boeing are expected to hit the wires. plus gm's plan to repay its life-saving loan to the government. at 7:40 eastern, the post-recession consumer. we were just talking about all the cheap penny-pinching people. we talk about some of the trends that kmart is seeing at its stores. we're going to talk with the retailer's chief marketing officer. everybody likes a market. >> a lot of alliteration. first, a look at this morning's top headlines. >> all right. let's get a check on futures this morning. they've been a little below fair value for the morning. in fact, right now you're seeing even more weakness. right now the dow futures down by about 17 points below value as there are concerns out there about europe. more on that in just a moment. sales of ipads, iphones and macs driving results at apple, the company earning $3.33 in the second quarter. that was way above estimates. the shares were sharply up. and after-hours trading they'll be worth watching this morning as well. strong metrics across the board. iphone sales, ipad sales barely even counted. mac sales were very strong, too. we'll talk more about this a little later this morning. meantime, yahoo! posted better than expected results. the stock was mixed in after-hours trading with trading volumes surging. right now you see down 3%. the european commission, the imf and the european central bank begin talks with greece on belt-tightening measures that the country has to take before the year 2012. the talks will focus on the terms of the joint bailout plan agreed on earlier this month. the package will be activated if greece requests the aid. and general motors says it has repaid $8 billion in loans it got. chief executive ed whitaker will formally announce the loan buybacks in kansas city op our phil lebeau is there and will join us with details. the s&p 500 up 8% but there's concern a slow economic recovery could halt a rally. here to discuss this and more is robert albertson, former head of financial research for goldman sachs. if bob barbera were not with us right now, i would go immediately to goldman, bob -- or robert, sorry. we'll do that later. let's talk economy first and foremost. and bob, since we have a robert and a bob. we have a robert that if you call bob, you'll leave, and we have barbera who doesn't care what you call him as long as you call him for supper. anything change in terms of where we stand? the claims have people worried, but you think this is all normal and it's a pretty good recovery? >> yeah. in 1983, claims were averaging about 450, 460. so it's not true you need them to go through 400 at the turning point. the retail sales numbers were great. the tech spending is very good. i still think gdp is closer to 5 than it is 3 in the first quarter. on the other side, the inflation numbers, very, very good. less than 1% for headline. actually slightly negative. strong growth, low inflation, you know, what's not to like? >> right. as a jenner eck generic economi don't remember what you say a lot of the time, and once again, you must have been, in the last three or four weeks, as people started to talking to me, they have, and i'm not talking about the show, but they started talking to "v," and you were an early "v" guy. were you patting yourself on the back again? what you forecast has come to pass again, it looks like. >> well, it's a dangerous business. never get smug or pat yourself on the back. but i do think the big issue here was most people thought it was fiscal stimulus and temporary. i think -- >> sugar high. >> right. >> yeah, i know. >> and i think it was monetary policy. the alphabet soup, the talf, the t.a.r.p., gave you an equivalent of a 500 basis point ease. you get the stimulus, wall street recovers and then you get the surprising main street recovery. i think this is genuine because it's driven by monetary stimulus which the fed is not going to take away until everybody agrees it is genuine and strong. >> robert, do you agree or disagree with a lot of those points? >> i want to agree. >> we all want to agree. >> rob, this is robert or bob, doesn't matter. i've been looking at past recessions. i have to agree, the uptick in retail sales, a lot of these indicators certainly look like a "v." i always worry that "ws" always start with a "v." and the problem i'm worried about is the income base that is supposedly supporting these sales. because if you look at retail sales or consumption, it's up a couple hundred billion since the recessi recession. but if you look at income and you take out roughly $450 billion in tax support, tax relief and about $400 billion in transfer payments which never occurred in past recessions, that eventually either has to go away or if it continues, it's going to drive up government debt even higher and rates. i'm just worried how the consumer's going to continue to sustain the spending once that support wanes. >> do you have an answer to that, bob? >> well, yeah. i think at turning points, the payroll survey tends to be meaningfully revised in the direction of the term. the household survey says we created 1 million jobs in the first quarter. the income data you're looking at, they simply use the payroll data. they use the payroll jobs data. they don't have any income data yet. i think what we mind find out is the reason they were spending was because the income was there, and it was there because the jobs were better. >> but i'm not looking at the income data from these surveys. i'm looking at fourth quarter of last year. >> right, but the b.e.a. data from the fourth quarter, they don't have any. they used the payroll employment numbers. >> it's all broken down here. it's up $450 billion. >> right. if you talk to carol moylan who does the data, she'll tell you she doesn't get any information on income until six months from now. so all she does is extrapolate from the payroll employment statistics. >> you'd argue wages -- >> the wages and salary number is an extrapolation. they don't have any information on it for six months. >> bob, to what degree are you worried about the savings rate coming down? and i'm wondering, is it true that the degree to which net worth for consumers has improved has been largely because debt has been excused or forgiven, not paid off? >> well, the net worth went up, obviously, we had a giant move up in the stock market. that helps. and on the debt side we're definitely having people who walk away from their debts. you know, i owed $300,000 on thursday and 0 on friday. my debt-to-income ratio just improved a lot. >> you still count that as positive even though it didn't happen the way you might prefer? >> in terms of consumers' purchasing power, you walk away from that debt on thursday, on friday you can spend again. >> so all right. so foreclosures, even though they're ugly, they help. >> if the idea is that we have to meaningfully change the debt-to-income ratio, paul mccully had a great line. everybody listens to paul simon. just drop off the key, lee, and set yourself free. >> he was at hutton when you were there, wasn't he? >> yes, that's right, paul. we togethered together at e.f. hutton back in the dark ages. >> i was there. i actually was talking about e.f. hutton recently. you know, maybe we can -- we probably can't because this is economic, but e.f. hutton, that was an existential question with the check kiting, remember? and that was piddly compared to the way people are trumping up these accusations on goldman. >> i did well on the l-sats but i didn't go to law school so i'm clueless. >> there's no kidder anymore, there's no e.f. hutton anymore, no drexler. >> although if you look at the credit default swaps, goldman is still a safer place than either citigroup or morgan stanley. >> bob, if the government wants you, they can get you, though, can't they? >> it's concerning. they seem to have the high level of power. i think the government legitimately scares the market. i think the reason we have the huge drop back in march of last year was the fear of nationalization. what will they ultimately do with banks? i think we're reinjecting that fear. i'm not so sure it's got. my career started at hutton, actually. i was there six months when i first showed up on wall street. >> i absolutely think that's right. i think that one of the, you know, that moment, were they going to nationalize the banks or come up with a strategy that rescued them without owning them? that was the big event for me. >> that was a big positive event that you get a lot of yit credir the administration for, too, bob. >> i don't think people realize how close that call was. and i think the fact that, you know, geithner and summers and bernanke came down on to a plan that didn't nationalize the banks was the big positive, yes. >> let me ask you this, then. before you go. you have a pretty good number for 2010. a lot of positive things happening. there's a lot of things going to kick in in 2011. and a lot of things in 2012. will 2010 be a better year than the following one? >> yeah. i think, you know, first year of a recovery after a deep recession, you're supposed to have a strong number and then settle into a cruising speed. if you're worried that we may be somehow changing the long-term trajectory because of a larger presence of government, that's a legitimate discussion. all i'm saying is when you think about, you know, double dip or earnings that can't support this market right now or a sugar high, i think a year of strong growth and all of those concerns are allayed. >> okay. bob, thank you. good to see you. we've got to go. robert albertson is with us till the end of the show. >> by the way, my dad is the only one who calls me robert, and when he does, i'm in trouble. >> same with me with rebecca. >> robert? >> it was the reverse for me. >> so you're used to hearing it, then, bob, right? >> you hear that a lot. >> because you were in trouble a lot. we know that.raiser. >> any questions or comments, drop us a note. john paulson says his firm acted appropriately when it came to cdos sold to goldman sachs. the letter and reaction. our earnings parade continues. boeing and at&t expected to hit the tape. we'll get the numbers and the reaction. stay tuned here on "squawk." time now for today's "aflac trivia question." who was the last u.s. president to never have a vice president? the answer when cnbc "squawk box" continues. r cost to your cy insurance. aflac is not how do i fit it in my company's budget insurance. aflac is help protect and care for your employees at no cost to your company insurance. with aflac, your employees pay only for the coverage they want or need. and, the cost to you - nothing at all. if all you know about us is... duck: aflac! ...then you don't know quack. to find out why more businesses provide aflac, visit getquack.com. now the answer to today's "aflac trivia question." who was the last u.s. president to never have a vice president? the answer, chester a. arthur. >> aflac. >> the housing market crashes. the cdo's value crashes to zero. our debt pays off and we make millions and millions of dollars, and before you can say step six, we're rich! ♪ we're going to bet against the american dream ♪ ♪ we're gonna be on the winning team ♪ >> that's a new song that's out. obviously, the goldman sachs fraud case involves such complex investments that it is easy to become confused when you try and understand them. but robert lopez and steven are arenas, two of the guys behind that raunchy puppet hit "avenue q," they break down how to get rich off of a cdo and five easy and hummable steps. you can go ahead and watch and listen to the song right now at cnbc.com. >> he said how to make hundreds of millions. so he was not talking about john paulson. obviously he was talking about some of the other guys. >> lesser. >> i don't know if he'd have even bothered for mere hundreds of millions. >> why would you? when you can make -- >> trillions. >> hundreds of thousands of dollars. hedge fund firm paulson & company conducted in good faith. the comments come from a letter sent to investors in the fund and obtained by cnbc. senior correspondent scott cohn joins us now with more. good morning, scott. >> i feel like i should do this in song. >> yeah. >> that would not be good. >> carl loves show tunes. >> anyway, no one has accused paulson of doing anything wrong, but the company at the heart of the complaint against gold sman sac sachs. it says they chose the mortgages that would be included and secretly betting against them. but this three-page letter paulson wrote to clients dated yesterday paints a different picture than the s.e.c.'s lawsuit. the s.e.c. says investors might not have bought the deal if they knew paulson was betting against it. but at the time most people thought paulson was nuts. prior to the collapse, mortgages were viewed as among the safest investments possible, he writes. it's easy to forget that now, he says. and no, he writes, paulson did not structured or originate the abacus transaction. yes, they suggested securities but it did not have the final say. by the way, before it went on the market, both moody's and standard & poor's rated this investment aaa. this letter can't help the s.e.c., although it does not disprove the agency's central thesis in this case, that goldman never disclosed that a short seller actually had a hand in structureding the deal. even john paulson, in his letter, does not deny that. >> i like where he said that many banks were still champing at the bit to take money from someone on the other side of these trades. it was a free income stream that they thought was basically guaranteed. we look back at it now. it's, like, oh, my god. it was like selling them toxic waste when nobody knew it was -- >> and this, by the way, this is another -- this 200 pages of light reading which is the offering document, the actual offering document for abacus, when i've been looking through it and trieding to find any touting language. it's very technical because they were sophisticated buyers. there's also nothing about who selected the portfolio, that it was anyone other than naca. >> again, there's an op-ed piece yesterday about the continuing assault on just the short side mentality where the idea that a short seller might have some influence on what's in something versus what's accepted that the long is always -- well, yeah, i'm trying to pick the best things to put in there. that's my right. but for some reason, you think a short seller does it -- >> takes two sides. >> we also forget that at the time of this offering, housing prices had already collapsed dramatically. and therefore it's very logical to assume a lot of people thought now's the turnaround. i want to see it go up. and a lot of others, not so many at the time trusted and believed thought no, this is going to get a lot worse. so it looked like a very balanced transaction. i'm puzzled by the case. >> the outcome of the trade has nothing to do with the disclosure. it could have gone up, it could have gone down. it's totally irrelevant. >> a and b, buyers and sellers are not supposed to be advertised or shown. >> you know what i'm confused by, this is not some offering that was made to the general public or to a broad range of investors. if aca was making some of the recommendations and was getting some of those rejected and others put in, who did they think was making the other side? >> there had to be a short side. >> the cdo has to have a long and short side and have to be balanced. again, the heart of the case is that they didn't say that goldman sachs did not say that paulson had a hand in this at all. it said there's a portfolio selection, which is aca. aca is the long side of the deal. and so that, the s.e.c. alleges, suggests to everyone that it's still -- it's a long deal. you're investing in these mortgages. >> it was -- you know, whether that rises to the level of fraud was a matter of disagreement right in the s.e.c. itself. you know, in this politically charged environment, and we're going to talk to issa today, you know, it just raises a lot of questions to seize on that on one transaction. how old is goldman sachs, bob? and when you were there, robert -- robert, when you were there, you would say that this was a pristine firm in terms of legal -- >> i'd go beyond that. i was there for 13 years. it's probably the most ethical firm i've ever been in or associated with. >> well, not anymore. >> what year? >> by implication -- i left in '99. i really -- i am puzzled by this. this is not their nature. >> maybe they're sunk into the debts or it's an unfair sort of -- >> i think there's a lot of hype that makes this worse than it is. "the wall street journal" says aha, they're finally allowing the public into their earnings call. it's silly. that's one of the few earnings code where there's no pass code. >> wouldn't you think long and hard as the government about whether you decide to sully -- >> and i respect the s.e.c. so something's missing because i don't get it yet. >> you left before they went public. >> right. >> you would you agree you left before the environment went from banker run to trading run? >> no, i was there while the process was being contemplated. raise the ethical standards and image standards. >> a lot more. >> absolutely. >> i mean, it's often said the firm -- the firm used to help ford go public. now it helps ford hedge the price of platinum. it's a different business. >> it does both. and i think in these world with these uncertainties, the ability to reduce reduced exposure and hedge is critical. that's what derivatives do. and everyone's turned this thing -- >> all of finance. >> yeah. people are missing the fact that we have a valuable new instrument that works. you can misuse it like aig did, but the vast majority do not. why blame the instrument? >> do you get the sense that the s.e.c. is at all surprised by some of the pushback? >> no, i don't. i don't get that sense. and i think what may be happening -- and i don't want to read too much into it -- but i think it's the s.e.c. drawing a line in the sand about disclosure. even if it doesn't prevail in this case, you now know -- >> because that means future transactions have to identify the buyer and seller? >> who structured this portfolio. >> one portfolio selection agent? >> why would you sign a high motive when it was the same day that the solicitor general's report. it is an senchts c. which has been pilloried because it missed madoff while it was right under its shown. why would it do anything other than -- >> if they lose, then their reputation, their enforcements -- >> it's as simple as we're getting tough because we've been so useless for the past ten years. the time line. sudden suddenly discloser is a sin? >> i was going to say if i would sign a motive to it, disclosure would be about number ten. >> they've got to get high-minded about something. if they missed things all these years, then maybe it's not such a bad thing they get tough. but you're right, they've got to pick their battles. >> they announced goldman and ge the same day. all right. madoff and stanford skate through, but now we've got our eye on them. >> we'll see what issa says about that. >> we'll continue to look through your e-mail comments. and scott, you'll be back in just a little bit? >> yep. coming up, stories maked headlines, a check on the futures. later on, mark sniyder, kmart's chief marketing officer. consumers' spending habits. we'll talk about that when "squawk" continues. as we head to the break, widely held stocks. hi, ellen! hi, ellen! hi, ellen! hi, ellen! we're going on a field trip to china! wow. [ chuckles ] when i was a kid, we -- we would just go to the -- the farm. [ cow moos ] [ laughter ] no, seriously, where are you guys going? ni hao! ni hao! ni hao! ni hao! ni hao! ni hao! ni hao! ni hao! ni hao! ni hao! ni hao! ni hao! [ female announcer ] the new classroom. see it. live it. share it. on the human network. cisco. getting a lot of comments and questions. we'd love to hear from you as well. our address is squawk@cnbc.com. are they good or bad? it's a mix. >> this is a good one, but i can't read it. this is on our side. >> we'll get to that in a little bit. hang on. got some weakness in the airlines sector expected to affect boeing's business. we'll get the earnings and reaction next. gm making it official, plans to pay back government loans. details and what it means for the automaker when we return. 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. here's at&t, 59 cents excluding items versus expectations of $54.50. start rounding up. $30.6 billion in revenue versus an expectation of $30.724. 1.4 net gain. an increase in wireless service revenues. and you have boeing or -- >> yeah, coming out right now, headlines, they came in with 70 cents a share. estimate was for $63.50 a share. still waiting for this, just popping up. net income, 70 cents a share including that previously disclosed charge. we need to pay attention to that. they talk about their 2010 earnings per share guidance. now, $3.50 to $3.80. that includes a charge for health care legislation. i'll tell you that right now the street was looking for $3.839, so $3.84. they're now saying $3.50 to $3.80 but it includes a charge for health care legislation. i'll have to dig in and look at how much it will affect earnings. they're talking progress on the 747 and 747-8. the outlook remains attractive and delivering to customers. >> first delivery of the dreamliner, fourth quarter of 2010. >> fourth quarter? >> fourth quarter of 2010. total firm orders for the 787 were 866 airplanes from 57 customers. that's a lot of work. i mean, boeing is, you know, they have a lot of things to do. then you've got this tanker thing. >> 747-8 program began its test flight program during the quarter, as we know. completed the initial air worthiness testing and ended the quarter with three airplanes in the flight test program. they say initial delivery for the 747-8 is expected in the fourth quarter of 2010. >> you mentioned commercial airplanes, 2010 delivery guidance, unchanged at this point. >> okay. >> all right. so at this point boeing looks lower. >> yep. >> even though we don't show it there. i've got $70.45. >> i do, too. >> on the ask. i don't know why it's not updating on our board now. >> looks like it's between 70 and $70.45 on mine. >> that's what mine says, too. at&t, $26.65 ask versus a $26.66 close. and with at&t, it might -- you might look at the metrics of wireless additions and things like that. that might be what people key off of with boeing instead of the top or bottom line. they key off of expected deliveries. yeah. wireless deliveries. it's not just as simple as top or bottom line. let's get a check on the markets. after all that, we're getting four dow components reporting, mcdonald's will be the fourth one after utx. we just got boeing and at&t. close to session lows. good action in europe in early going because of the apple numbers last night. but some of that is, in fact, dissipating, as joe mentioned, after some of the numbers today. skies over europe are opening up, slowly, though. thousands of stranded travelers finally getting on flights, though the backlog caused by the volcanic ash may take days to clear up. so far the international air transport association estimates the closing of european skies have cost the industry more than $1.7 billion. did you have something, becky? >> yeah, on boeing where we talked about their guidance, that $3.50 to $3.80 includes the charge for health care legislation. that's 20 cents but apparently that was previously disclosed. so maybe you can read into that's why boeing's trading a little lower because the guidance that they're giving us is below what the street's expecting of $3.84. and this includes the health care legislation charge that was already announced. the street should know about that. that should be worked into those figures. so maybe their guidance is a little below what the street was expecting anyway. >> i don't know whether they consider that an item, though? >> yeah, they say disclosed charge. it's included in this $3.50 to $3.80, but wouldn't the analysts have already figured out? maybe it's a case where some have weighed in and some haven't. 22 analysts weighing in. and sometimes first call doesn't get the same assumption from every one of them. >> right. >> all right. gm will announce today its repaid its loans from the u.s. and canadian governments. phil le breaux is in kansas city where the ceo at whitaker will make that official announcement. phil, good morning to you. >> reporter: good morning, carl. it's a big day for general motors. just about nine months since coming out of bankruptcy, essentially getting $50 billion, $49 billion from the u.s. government to start a new life outside of bankruptcy. the company is repaying what it's obligated to repay to the u.s. government. ed whitaker jr. will be here at this plant today. gm making a payment of $4.7 billion. that's the remaining loan that it had to make to the u.s. government. another $1.1 billion to the canadian government. and with those repayments, gm has essentially made its obligation to repay a little over $8 billion to the u.s. and canadian governments. that's the only money that they were obligated to pay as part of their funding coming out of bankruptcy. today in a "wall street journal" op ed piece, whitaker said no one was happy, not the government, not the taxpayers and not the company. we believe we can best thank the citizens by making sure their investments are hard at work every day. by the way, we'll be talking with ed whitaker today here at this plant in kansas city, missouri. then we're also going to be talking with steve girsky, a first on cnbc interview coming up later this morning on "squawk on the street." we'll be talking with him specifically about gm's road from here. folks, let's be clear. gm is going to be going public by the end of this year. so we're going to talk with steve girsky about how much this repayment sets the stage for gm going public. this is a lot faster than a lot of people were expecting. >> okay. phil, i'm just looking at boeing again. phil, you're there, you're on your gm beat, but we know that, you know, you're protecting of your boeing beat as well. what's going on there? what are the metrics here that we need to pay attention to? >> reporter: well, the biggest metric is going to be in terms of delivery schedule. and it sounds like -- i haven't had a chance to read through everything -- but it sounds like there's been no change in guidance on the delivery schedule. i think one of the reasons we're seeing this stock pull back, look at the run-up it's had this year. it's up 31% year to date. a lot of that is because of increased business with the airlines, things improving, that outlook there. and a lot of people are looking at what's happening in europe with the shutdown as well as this run-up. i think they're saying give me some of that money. >> and the bid/ask is not all that clear. >> reporter: go ahead. >> the bid/ask is $73 versus $71.41 so it's not a clear indicator. >> i think becky was right about this charge. it was previously disclosed. the 20 cents or whatever. and the analysts -- >> reporter: right. >> -- included it in the first quarter to get to 70 cents. >> let me call first call and find out. >> so we knew it was there. so they should have been able to. >> but i wonder if there were analysts who didn't -- >> if they say $3.50 to $3.80, i don't know, they should have taken that -- if they took it out of the first quarter, they should have taken it out of their year guidance as well. >> reporter: you would think. you would think that would change any estimates there. >> okay. >> lazy analysts messing up the -- >> that's pretty cool where you are, phil. do you check out how things are working on the assembly line? >> reporter: absolutely. these are my people here in missouri so of course i'm checking things out. >> do they ever let you tighten anything? >> reporter: what do you think this is, like the movie "gung ho"? >> i don't know. >> i'm going to climb in the back of the cars? >> you know what? you could get docked by the unions if you touched anything probably there. >> reporter: absolutely. stay within the yellow lines in the plants. those are the rules. >> okay. thanks, phil. >> there's 22 analysts. and they get to $3.84 essentially. the first call website says the majority of these analysts have included that charge. >> they have. >> so i don't know if majority is 21 or if it's 18. we're calling to find out exactly how because you could have an outlier who didn't update it, and that could throw off the estimate for the year. >> at&t has now called higher. both bid and ask. actually, boeing is now called higher as well. >> significantly. >> the ask is much higher now, and the bid is about 9 cents above. coming up, attention, kmart shoppers. we have a blue light special this morning right here on "squawk box." the chief marketing officer joins us for a look at the post-recession consumer. that's right after the break. you're watching "squawk box" on cnbc, first in business worldwide. they've served for decades as a golden, tasty sidekick... to the all-american meal. french fries, and our national passion for them, are legendary. classic. iconic. but times change and people want better foods. so cargill helped a restaurant chain create... a zero trans fat cooking oil for their french fries... canola plants... and innovative processing techniques... while preserving their famous taste. because no one wants to give up a classic. this is how cargill works with customers. ♪ [ siren blaring ] welcome back, everybody. kmart sun veiling the results of a national survey taking stock of how consumers change the way they shop during the recession. joining us right now in his first cnbc appearance is kmart chief marketing officer mark snyder. our guest host is robert albertson. mark, thanks for coming in today. >> it's great to be here, thank you. >> we were talking earlier this morning about the lead story in "usa today" which says consumers have, in fact, changed how they've shopped. we are a nation of penny pinchers at this point. is that what your focus found in the survey as well? >> well, i think price is still really, really important. but i think that's balanced within the context of the quality and product offering that's available as well. shoppers today, the recession has taught them that they've got a ton of choices. and they recognize their power as shoppers and they're out there using it. >> and what does that mean for shoppers? i mean, is it the bargains that bring them in? i was in a kmart yesterday and heard a blue light special when i was in there. i didn't even realize you guys still did that. >> we do. blue light special is the original form of retail entertainment. and during the recession what we found is the customers were surprised and delighted to be able to have that opportunity to come into the store, be shopping for something else and all of a sudden be able to get a different deal. >> did you bring back the blue light special or was it there the whole time? >> we brought it back in july of last year. really by popular demand. we've got a great dialogue going with our customers. we really could use those blue light specials. we loved those before and now would be a great time to bring them back, so we did. >> what do you find with the consumer, though? do you have to offer not just blue light specials but also everyday low prices and sales? is it some combination that brings people in? >> here's the thing with the survey. the most stunning statistic that came out of that for me is that 80% of respondents said they are now willing to forgo instant gratification that's associated with financing purchases, credit card purchases, in order to be able to have a tool that allows them to pay with cash, have no interest, and not run up finance charges over time. >> is that why you brought back the layaway? >> layaway has always been at kmart, over 40 years. it just became more relevant recently with the recession. but what we're finding is, in the survey, that it's not just seasonally relevant for holiday anymore which is typically the way it was. our customers are using it to plan and pay for purchases all throughout the year. so in february -- >> like what? what's an item? >> in february she's buying outdoor living set, patio set. it's still snowing but she knows in eight weeks they'll begin to move outside again, she wants a new patio set. think about the travel sector. vacations are down. we're not going to orlando. we're staying at home. think about what that means for mom. she's got to have things to keep them interested. the toy category is huge on the layaway side because she's planning to put those away and bring them out because not only is it an important part of childhood but needs a way with less entertainment based on vacations and restaurant outings. >> how big is the layaway program? how many people use that or what percent of sales and how has that grown over the last three years? >> in 2008, we made it a clear marketing strategy for holiday. and what we found is between 2008 and 2009, and we've got it in both the kmart and sears format, we've had double-digit growth and over 3 million customer relations created as a result of that. the residence of the program is tremendous. >> what happens as the economy starts to improve? because we hear from a lot of our guests coming in that there are real signs of improvement. has that changed the consumer's behavior? >> i think what's really going to be interesting about this recession and this financial downturn is behaviors truly have changed. because of the length of the recession, because of the severity of it. i think even coming out of the post-recession customer is not going to forget about what they've learned and the new behaviors and the new tools that they've learned to utilize like layaway at kmart to continue to manage their family's needs and purchases. >> interesting because the things that are selling well right now are things you buy on credit. cars, electronics, furnishings and a lot of people think consumers back to their old ways. >> it doesn't appear that way to us. >> really? >> the customer in our store, she's always been financially savvy. she's the person that understands how to manage the family's budget. she doesn't look at that as a chore. that's just something she does so she can get more out of the budget, more out of the finances for the family. and giving her a great financial tool like layaway is a way to make that happen for her any day. here's the thing about layaway, too. just because there was -- our wallets got tighter doesn't mean our customers' wish lists have shrunk at all. let's face it. even though people weren't shopping during the recession, they still wanted to. layaway was an organically capable way to do that. go in the store, continue to shop, but knowing that you can put it into layaway and pay it off over time without finance charges, that works really well. >> you don't have martha stewart's offerings anymore. and that was a key part of your strategy before that deal fell apart. what have you used to replace that now? >> our home department is better than ever. martha was great. she certainly did a lot for kmart. if you went into the home section today, what you would find is a broader assortment of product. >> what about sales? >> price points. >> were your sales up or down from where they were with the martha stewart line? >> our home sales are up. and that is because we've introduced new brands with a broader spectrum of price point and quality that the customer, i think, is able to really put their arms around. you know, think about kmart. martha stewart, really, really strong brand. but if you didn't like martha stewart, there wasn't a lot to choose from. now you've got country living, jaclyn smith on the apparel side and moved her into the home side, selling like crazy. canon, another great brand. i'm proud of the home category. customers really picked up on it. >> how strong is your brand? say lot of people worry you were losing the share because of big-box retailers. has that reversed? are you comfortable now that the brand is rising again, is going to take market share back? >> well, if you look at our q3, q4 2009 results where our comp store sales exceeded for the first time, were positive for the first time in 25 quarters -- >> is that because of the downturn in the recession? you're not saying because martha stewart's out, right? >> not at all. what i'm saying is it's because of our strategy and it's about having the customer at the center and offering things different, layaway being a good example of that, gives the customer a whole new reason to reconsider us. this fall we introduced the selena gomez brand, the dream out loud brand, and absolutely spectacular from the standpoint of being able to make an offering now to customers that we think is going to have a great appeal -- customers that haven't considered us in a long time or that we haven't been top of mind with i think have a whole new reason to try us. that's just one example of a brand. >> the more famous selena. >> there is a more famous selena. >> quintanilla. >> is she a fan of selena gomez? >> i don't know. >> no, because she's dead. j. lo, jennifer lopez. remember? work with me, mark. >> thank you for coming in and spending time with us. we appreciate it. >> my pleasure. good to be here. >> good to see you. join us tomorrow for an interview with another retail giant, terry lundgren. >> that's got to be one of the models for macy's. that's him? >> you know that. stop. wells? >> yeah. >> how did they miss on revenues? i don't understand. every bank has been 20% above on revenues. the company did bottom line was okay. it was good. 45 cents versus 42. estimate. but the revenue estimate was 21.7. and the company reported below that at 21.4. not much of a miss. >> 21.45. >> yeah, but bob, how did the other banks do so well on beating revenue expectations? is wells fargo -- are they cheap? are these the guys -- >> the revenue overshooting is on trading and capital markets side. >> so this is a true bank. >> this is much more a true bank, but it still has capital markets. >> trading has been the turbo boost. >> correct. >> all right. anyway, wells fargo at this point is indicated a little lower. they were huge up side on bank of america, jpmorgan and go ahead. >> they say credit believed to have turned the corner. >> did they? okay. there's the stock, down about 50 cents. coming today, lawmakers getting in on the case against goldman sachs. darrell issa wants to know more. we'll talk to him just ahead on "squawk," so stay right here. up next, before you make a trade, you need your daily dose of "stocks to watch." we break down today's movers and shakers right after the break. ♪ didn't run that a single time last week when you were out. >> nor the week before when you were on vacation. so i haven't had to listen to that. >> no, you haven't. >> in, like, three weeks. >> but without you here to annoy, i don't even bother. >> i like how when we come back from break and it's playing, you look at me. because you want to see me in pain. and i'm trying to, like, not look at you in the eye. >> maybe if i ignore it, he'll stop. >> it's a thing we have. you like it. you do. it's a shtick. >> but once is enough. >> stocks to watch. once is enough. you know what the name of that song was? >> no. the country song. >> yeah. "happy ending." >> which you listen to on sirius xm highway. >> i assume that just means a story with a happy ending. okay. all right. because i know carl, you know, you were thinking something completely different. let me go with -- let me just move on, save all of us. boeing, revenues slightly above full year guided to $3.50 from $3.80. it -- at&t, 59 cents, a nickel above, stock indicated higher. 1.9 wireless ads. wells fargo, 45 cents. that included some items, too. so it's unclear if that compares to the 42 cents. the revenue was slightly below. apple probably -- maybe stock of the day. you would nominate that for stock of the day, right, becky? >> yeah. it was huge, $224 billion? >> of course, mcdonald's had a new all-time high yesterday. oh. you're going to talk about it right now. >> we are. we're going to have a super-sized hour. you like that, right? >> what is it, longer than 60 minutes? >> on "squawk" ahead, mcdonald's expected to report. we'll find out if the blue chip is a buy. then congressman darrell issa looking for the timing on those s.e.c. charges against goldman and the ceo of eads north america. "squawk" is coming right back. serving up results. ♪ tonight we'll serve it up with a smile tonight ♪ >> find out if mcdonald's will be on your menu of stocks to buy. ♪ i'm loving it the case against goldman sachs. now congressman darrell issa wants answers from the s.e.c. on why the agency picked right now to launch charges against the wall street firm. ♪ where there's gold there's a gold digger ♪ and the dogfight for $50 billion. >> what are you doing? you're slowing down! you're slowing down! >> i'm bringing him in closer. >> you're going to do what? >> eads taking on boeing for a tanker contract ahead of eads north america talks to us first about entering the bidding. >> i got the shot. >> "squawk box" begins right now. ♪ highway to the danger zone ♪ going to take a ride into the danger zone ♪ final dow component reporting for the morning. we've heard from at&t, utx, boeing and now mcdonald's. you see the stock's off a little bit. >> all-time high. >> first number came in with $1 a share which would beat the 96 cent estimate. but they're now saying 2010 results include a 5 cent positive impact from the affected foreign currency which would -- if you strip that out -- >> but i don't think -- >> missed by a penny. >> i think we should leave it in. maybe it's just a quality of earnings question. >> exactly. reuters is saying you do not strip it out. and to try to, you know, any weakness in the stock that you were to see, remember, it hit a -- not just a 52-week high but an all-time high. the comp stores, carl, 1.5 in the u.s. >> that's pretty good. >> 1.6 was the estimate. europe was 5.2 versus expectation of 4.8. >> then they're saying that april comps globally are trending at least as strong as the q1 numbers. so maybe seeing consistency as we roll from q1 into q2. >> how much is this is driven by the international side? particularly china? >> at least half the revenues. >> led by results in asia and china, their operating income was up 27%. it was 9% in constant currencies. but that's still pretty strong in constant currencies, 9%. >> and then their combined operating margin up 220 basis points to 29.8. >> revenue slightly above, too. revenue, 5.6. >> yeah. and we were looking for 5.5. meantime, you guys have morgan stanley, or you will soon, right? >> yeah, we will soon. >> see, it looks 103 from continuing operations. the street estimate was 57. let me see if i can find the press release. yeah, income from continuing operations, $1.03 per diluted share. that does include a discreet tax benefit of 21 cents. even when you stretch that out, it's a strong beat of expectations, 57 cents a share. >> $9.1 billion in revenue. the estimate was $7.9 billion. and it was versus $2.9 billion a year-ago period. >> strong number. i mean, this is what we've seen from all the banks that also have trading operations. pretty incredible numbers. you dig down through and see where -- what the main results are. you can probably guess it's from the trading desk and fixed income on some of the others. >> the revenue, the number on morgan got all the brokers of somebody from citigroup, didn't they? >> there's acquisition distortion. >> yeah, yeah. because remember, now morgan has one of the biggest -- >> but everybody's getting someone's because think how many collapses occurred. >> you say $9.1 billion versus $2.9 billion in the year-ago period. >> sales versus revenue, $4.1 billion compared to last year. so sales in trading net revenue. it's not only the improvement in morgan stanley's debt-related credit spreads, also higher fixed incomes. >> remember, pandit said we'll never sell smith barney. next thing you know, right? >> big mistake. >> well, we'll see. >> he may be had no choice. okay. let's see. we've got mcdonald's out with q1 results. they just happened a moment ago. joining us with his executive, matthew defrisco, senior analyst for oppenheimer and company. maybe you can help us sort out, matthew, this foreign currency charge. were you looking for it? >> well, it's always tough to figure out their foreign currency swings, but yeah, their benefit here of positive 5 cents per share. i think that was expected. they report their constant currency numbers for january and february. so march is really the only incremental. i think the quick takeaway here is that the u.s. was very strong in the month of march. 4.6 is what the implied number is for the month of march well ahead of the street of 1.5 and 1.8. >> yeah. you know, we saw -- i mean, not that they're exactly comparable, but we saw coke's north american case volume yesterday disappoint. what's going on with mcdonald's that makes it a stronger than expected picture? >> well, mcdonald's has been very progressive with staying ahead of the consumer and bringing out new products. so offsetting any sort of core business that might be falling off like the carbonated soft drink business and certainly they're still getting sales and coffee business in the u.s. and i think they're also constantly reminding people of their everyday value which keeps foot traffic in and brand image high. >> one of the big stories over the past year has been for their more aggressive push into coffee. what kind of grade would you give them on that so far? and if they're taking share from anyone, who's it from? >> well, i don't know if there's so much taking share as expanding the category. because certainly their recovery is parallel to also starbucks' strong improvement in their same-store sales. i think they've helped out the category and brought the occasion a little bit away from home. so maybe they're saying the share of free coffee and office coffee and home coffee consumption out into the convenient store locations. and i also think that they're probably taking from some of their peers in the qsr space because that occasion is closer to what you do at a mcdonald's. but most importantly, they're getting the guy who would have spent maybe $1 or so on a cup of coffee, spending a little bit more because it's a premium product. >> is that working internationally, too? is that working in non-u.s. side product introduction? >> when you look to markets like australia, it's been way ahead of the u.s. that's where they have literally mccafes. it's even more of a coffee brand there. >> kangaroo burger. the little stringy. >> the hoppe meal. >> high five. high five on that one. very good. hey, matt, there's a 3 cent charge in there for closing some restaurants in japan that was previously disclosed. did you know about that? do we add it back in and that takes care of some of that 5 cents it got from currency? >> nafsthat was a couple months they mentioned that. so yes, that's already been forecast in there. i think those things happen. that is an older market where they've been on the ground for a while. so that's in there. that's not really incremental to the stock today, i don't think. >> you know, i mean, not to take anything away from their growth story, but a year ago we were talking about u.s. comps that were well above 1.5. are you seeing any signs that their growth is flattening out, is beginning to peak? >> well, i think, yes, you're quoting the quarterly comp, but the comp in march was 4.6 is what we're seeing implied from blacking out. we already knew january and february. it's a sequential improvement from the 0.6 in february. and it's also, obviously, they ended on the strongest. now, weather is a major factor in that. but i think it's going to give people confidence heading into the summertime when kids are out of school, and teenage unemployment probably will be better year over year that maybe this is a healthier trend for overall qsr as well. >> yeah. teenagers are jobs end up being pretty loyal customers sometimes. matthew, appreciate that. good to talk to you again. >> thank you. >> matthew defrisco. >> hoppy meal. can you come up with something in a pouch? there's got to be, right? >> it's becky's turn. >> no. i don't have anything. >> the producer is saying we'll think about it. i think that means move on. fine. when you get a moment like hoppy meal, i think you need to -- >> run with it? >> yes. >> hop with it? >> they do eat kangaroo down there. they do. >> yeah. >> andrew liveris told us. it's a little gamey. >> now i have that stupid song in my head. "tie me kangaroo down." earnings central today has been dominated by blue chips all morning long. many of these are stock of the day nominees as well. boeing earned 70 cents a share for the first quarter, 6 cents better than the street was expecting. and now that stock is indicated higher. there are some wobbling back at the beginning, but $71.41 is where is closed yesterday. $72.76 is where it stands. and boeing did take a charge for the cost of health care reform. also saw commercial airplane deliveries decline by 10%. the analysts, at least for the most part, knew about that charge they were taking for health care. and so that was included into at least the majority of their estimates. also at&t earning 50 cents a share, 5 cents better than expected. revenue was slightly short of consensus. as you can see, that stock is indicated slightly higher, up by maybe 10 to 15 cents. a third dow component, united technologies earned 3 cents better than expected. the company is benefiting from cost cutting and increased demand outside the united states. you can see that stock a little below, even though it beat on the bottom line. $74.20 is where utx closed. right now the bid is $71.26 and the ask is $73.89. when we return, a question of timing. congressman darrell issa wants answers about why the s.e.c. decided to charge goldman sachs with fraud now just as the senate debates financial regulatory reform. he's going to join us right after this. and can eads outduel boeing for the contract? thank you very much. >> springy. springy. >> the north american chief of the european aerospace giant's going to talk to us first on cnbc at 8:30 eastern time. "squawk box" will be right back. ♪ all right. john paulson is looking to reassure his investors just days after his hedge fund was linked to civil charges against goldman sachs. cnbc senior correspondent scott cohn is here with more on that story. scott? >> maybe he's reassuring investors probably not helping out the s.e.c. much because this letter obtained by cnbc seems to chip away at the fraud case. remember, central to the s.e.c.'s case is that goldman hid the fact that john paulson was pulling the strings in the ill-fated abacus deal that he picked the underlying mortgages so he could bet against them. but the letter which was dated yesterday paints a much different picture of paulson's role which he says was appropriate and in good faith. paulson did not structure or originate the abacus transaction, he writes, seemingly contradicting the complaint. yes, he suggested securities but aca, the portfolio selection agent, had the final say. would investors have stayed away if they knew paulson's role? paulson doesn't seem to think so. prior to the collapse, he writes, mortgages were viewed as among the safest investments possible. at the time of the deal, 2007, paulson says he was often the lone voice of concern. but did investors have a right to know that that lone voice had a hand in structuring this deal? the s.e.c. says they did, and goldman sachs should have disclosed it. by the way, paulson notes in this letter that his strategy has changed now. during the fourth quarter of 2008, the depths of the crisis, he went from short the credit markets to long. fine. >> and that's what he's doing. scott, thank you. stay right here. we've got a top lawmaker sending a liter to the s.e.c. questioning why the commission is charging goldman sachs with fraud. representative darrell issa wants some answers to this. he's on the government and reform committee. congressman, you've got issues with the timing. what exactly are your concerns? >> well, first of all, becky, i've got issues with that song. my mother played me that "tie me kangaroo down" song that i did not need to hear it again. but on -- >> just to help you out with that. >> you say it once and we'll play it again. >> but on a light note, the s.e.c. could have filed this six months ago, could file it six months from now. in this case the s.e.c. is like anybody else suing saying something wasn't quite right under the rules and therefore there should be damages. so when you file it during the trading day, which is an exception to the rule, on the same trading day that 151-page scathing report from the i.g. on their failure to file tough cases comes out, and you file it on the eve of the president doing his final push for this financial reform, it wreaks of a political motive. and we just want to know which one of them was the reason for their filing it on an unusual time right on the eve of these two events. >> you have requested additional information. you'd like to know what government employees or government-elected officials had any talks with the s.e.c. just before this was filed? >> absolutely. you know, one thing we know is the american people don't trust government. and it's my job not to trust them either. >> is there a chance, though, that this had nothing to do with it, that this is simply a case of the s.e.c. working very hard, trying to find some way to get their arms around a bad fallout on wall street and a lot of people who got the raw end of the deal on main street? >> becky, it's possible that goldman will be found not guilty and owe no damages but get no money back for the government going after them. everything's possible. in this case we're government oversight and reform. our job is to ask when anomalies happen. why they happened and whether they were wrong. so in this case they're looking at goldman, a court will decide whether goldman did wrong and owes money, because this is a civil suit. it's our job to find out whether they were properly motivated, pick the timing properly, and were not intending to interfere either with congress in its actions or even possibly just hide an i.g. report that came out the same day that said not only bernie madoff but stanford, we should not have lost that money had their done their job over the previous decade. >> congressman, what would you see? what do you need? and would there be a paper trail? would you -- what would you do? you ask for rahm emanuel's itinerary? you look at e-mails? we know that "e" stands for evidence, evidence mails. is it possible to find this out, or is it possible that you'll never know? >> well, first of all, when we ask these questions, we expect answers. if we get those answers and we never get any additional information other than denials and let's say there's no e-mail trail, then things go cold. but what often happens, as you know, is people deny and then somebody presents something to show that that denial is not true. and ultimately that's one of the best reasons that we deserve answers is you're on the record. it's a criminal offense to lie to congress. it's a criminal offense, as martha stewart found out, just to lie about whether or not you knew something about a trade. that's really our job is put people on the record because this wreaks of some motivation other than business as usual, particularly when they interfered with the trading day by putting it just hours before the i.g. event and at a time in which, to be honest, the democratic party was able to profit by doing fund-raising off of it. all three events need to be answered for the american people. >> congressman, do you have any evidence that is not yet public that would feed these suspicions, or do you know what we know? >> well, you know, i have to tell you that periodically at my home we have a problem with rodents. and generally i don't see them first. i smell them first. in this case, the timing, how they did it, when they did it smells. and that's why we're asking. but it's why we ask every time we do something, we look at the i.g.'s reports. we look at the actions. and we selectively ask when we think there's the best chance that something, in fact, was wrong. we asked about angelo mozilo and countrywide. today we see not only did it wreak, but probably on the west coast there's going to be an indictment. that's part of our job is to uncover and then hopefully let law enforcement and other organizations do their job if it's outside our purview. >> congressman, this is robert albertson. broaden the timing issue for me. there seems somewhat artificial urgency in getting reform passed. it seems to be going more after treating the crash than the cause. there's a study going on to determine what went wrong and how to fix it. and even part of that process to get that going. why all of a sudden is that study irrelevant and we've got to get the bill done first? >> well, there was always pushback on the commission. and we did get it. we got it mostly because congress was not willing to responsibly deal with all of the problems including the impact of freddie and fannie and government regulation. and so you're absolutely right. we're not changing things which some people, myself included, were part of the problem and need to be part of the reform. and as you know, this bill is changing some things that probably don't need to be changed or at least were not part of the crash. >> congressman, that inspector general's report, as scathing as it is, and it is scathing, refers to conduct that basically ended in 2005. it happened under the previous administration's watch. why do you think they would feel the need to cover it up with this lawsuit? >> one of the things that you have to know about the s.e.c. is in spite of the commissioners and so on, this is an organization driven by, if you will, bureaucratic investigations. they have had a long history from -- in the case of that investigation that we're talking about, it began to bill clinton's watch in the '90s, didn't get addressed time and time again because it was hard or for whatever other reasons. what you had was eight years of not doing their job under two administrations. and quite candidly, you don't see the tough prosecutions, the tough investigations and the protections that the s.e.c. is responsible for yet under this president's watch. so i think it's the bureaucrats more than the five appointed officials really who drive this question of can we bury this? >> congressman, did you say the findings are not back yet on the causes of the crisis, or they are? >> no, the commission is still at work. >> because the s.e.c. sort of did the job for the commission. we now know what the cause of the crisis was. it was goldman sachs. >> yeah. it was one rogue -- it wasn't aig. >> it wasn't the ratings agency. >> it wasn't the rating agencies which, by the way, rated this -- these investments as aaa. so yeah, almost ask a question of why isn't moody's in the focus as much? how could john paulson know that these were actually bad mortgages and moody's couldn't know? >> you know, i don't know. if they're found -- if they are found where they're, you know, if the suit doesn't work, if they're found to not be liable, i guess, i'm not going to say guilty or innocent, but liable -- >> goldman or the s.e.c.? >> goldman. >> like we know, the reputation probably doesn't come back, and most people, nine out of ten on the street, it's already been done. so the government had to think that this would be part of the equation. that the blame would be assigned to goldman at that point. >> oh, absolutely. you're going to assign to these greedy people on wall street all of the blame to the exclusion, to a great extent, of government's involvement. look, i'm a republican. i listen to president george w. bush time and time again during this period of time brag about the highest level of home ownership. so in all levels of government, we were saying -- we were telling the american people there's no problem. well, clearly there was a problem. there was a euphoria in a market that was unsustainable. everyone should be willing to take their share of the blame. i'm a pilot. and i'll tell you, every time there's an airplane crash and the faa's people come in, they don't just find that the pilot made error. they look at every element that led to the crash. and they publish it. we have the same obligation. look at every element. find out which ones need to be changed. change those. but make sure people understand every element of a crash that, in fact, we do not want to have repeated in a macro or micro way. if fannie and freddie aren't reformed, there's no question we're back into inflating a market for affordable housing for the poor while at the same time not dealing with the fact that, as you inflate the market, the poor are worse off, not better off. >> it's so simple. he made $68 billion that one year. just a much -- much simpler. >> here's my question, congressman. >> yeah, carl. >> for future reference, are regulators supposed to consult the congressional calendar to see what's on the hill so they can avoid stepping on any tiptoes and having you come after them? >> they didn't know there was financial -- >> i'm asking in the future. look at what's going up for mock up, for debate? >> they didn't know financial reform was on the table. >> first, they didn't have to consult the calendar. it was pretty obvious to the s.e.c. second of all, they should have released it after the trading day, at a minimum. and i guess last but not least, they should have asked the question of have we done all of our homework before filing this civil suit? having said that, look. i'm willing to give them the benefit of the doubt after they answer questions. but right now there is a clear indication, a sniff in the air, a smell in the air, that this was politically timed. that, in fact, it's part of vilifying one group to the exclusion of looking at the overall problems that the american people want us to be responsible for. i personally consider myself responsible for not having done more during this euphoria period. and i think everyone should. >> they only can file one suit at a time. how is it just because they've sued goldman sachs, why are they not looking at everything else? it's a big case, but it's one case. >> well, look. i'm not going to get into the details of goldman. it doesn't look like it's a slam dunk. but on the other hand, there could be something there. we're looking at the timing of it. if nothing else, the question of why did you file it during the day? was there any, if you will, more than coincidence that the i.g. was about to really say, look. these people don't take on hard cases. and lo and behold, here's a civil, not a criminal case, being filed at a time when it's easy to vilify and probably get a settlement in many cases from big wall street firms. >> all right. congressman issa, thank you very much for joining us. and please let us know what you hear back from this investigation. >> will do. thank you. >> republicans, we know -- we've done some of this in the past. we know how to do this. we know that that's how the game is played. i'm not saying we. when we come back -- >> i've got to throw one to cohn, too. a warning that a large financial company was taking on too much risk. rob eithert engel gives us a nek when "squawk" continues. all right. steve liesman has breaking news in the case against goldman sachs. steve? >> thanks very much. cnbc has learned that the government has testimony from a former top paulson official that appears to contradict a part of its own case. specifically, cnbc has reviewed documents that question the government's contention in its case against goldman sachs that the wall street firm misled the financial insurance company aca about paulson & company's intent to shorten the deal. it reads, unbeknownst to aca at the time, paulson intended to effectively short the rmbc portfolio it helped select. however, we ever learned that a top paulson official told aca executives the hedge fund intended to short the polio. a government official asked him about a meeting with aca manager laura schwartz. did you tell her that you were interested in taking a short position in abacus? the reply, yes, that was the purpose of the meeting. the government does not mention this information in its complaint. s.e.c. spokesman john nestor said, quote, we look forward to providing a complete record in court. it remains possible the government has other evidence contradicting this testimony. and pellegrini says he doesn't specifically recall telling her, however, it would have been a little difficult to sort of miss the fact that we were trying to short this stuff. pellegrini also told investigators that he shared with aca the outlines of how it selected the subproim securities. that it was looking for low fico scores and high loan-to-value ratios. the government's case is substantially about goldman's failure to disclose the role in selecting subprime portfolios. however, aca ended up being a major investor in the deal. and according to documents obtained by cnbc, he had firsthand knowledge of selection in the portfolio and touches relevant to that portfolio. there is that allegation they did anything wrong in this case, and goldman has denied wrongdoing. pellegrini declined to comment. one note i'd like to add. asked by government officials if the $900 million paulson made on the deal made it one of its most profitable ever, pellegrini replied, it wasn't off the charts. >> this would contradict the key point that the government seems to be basing this entire argument on that aca didn't know paulson was shorting it. and that's the question. and aca was not just a major investor. it was the major investor. it had more than $910 million, i think, that it lost on this deal. >> and that it was invested in the deal. this contradicts a portion of the government's complaint, p least, which says that in paragraphs 4 and 32 of the complaint, that aca was unaware of paulson's intentions. >> to me that's the strongest point. >> but there's still other players that were not disclosed. and it remains possible that the government's case rests on the disclosure in the disclosure documents. however, i can't make a judgment on this. however, if you go in front of a jury and say, well, we told them in a separate conversation, but it wasn't in the disclosure documents and is only one or two investors in it. >> is it possible they had this meeting, they went over the fact that these securities did involve low fico scores but that aca's belief in the market was still so strong? >> absolutely. >> so bullishly strong? >> you know, you have to go back to the time period, carl. and that's an excellent question. during the time period people were scrambling for this paper, the general feeling on the street was that paulson was dumb. that paulson was stupid for not covering its shorts, that paulson was way out there. they had a view that the market was inefficient and was inefficiently preissing securities. and their view was that these things were going to crumble, and they also had a view that it was cheap for them to make this play. that if they lost money, they weren't going to lose very much. but they stood to gain an awful amount of money. >> because the odds were so much against them at that time from wall street as a whole. wall street as a whole thought they were such an outlier. that's how you make a lot of money without losing. >> exactly. >> prices had already fallen. >> yeah, it was already clear it was going down. a lot of people were tempted to bet against it. hindsight is always defending the loser. >> and at that time pellegrini, they knew he worked for paulson & company. >> he was the paulson representative through the deal. >> they knew it was paulson, they just knew it was a hedge fund. >> steve, you look at a lot of offerings documents. have you ever seen buyers and sellers identified anyway? >> no. in fact, it would have been against goldman's fiduciary duty. however, what is known at the time, what is known -- >> stock's up about 1.5%. >> what is known at the time is that it was common wall street practice for the short in the deal to structure the deal. that was what was done. and as pellegrini says, it would have been a little bit hard. they do that all the time. that's the thing, it's hard for people to perceive it this way. the short is the exact opposite as a long. as a fly fisherman, i don't want to make light of this, but the back cast is the same as the forward cast, just in the opposite direction. >> especially in these synthetic deals. >> and at the time it was harder to find the shorts than the longs. >> the other question in your report is what people say was in a conversation, his testimony that he gave versus any written documentation that backs this up. >> you're correct. and i don't want to make a -- you know, a judgment as to what is right in court or not. i'm just reporting here that what we have seen suggests that -- >> what you have seen. >> pellegrini told aca they were short the deal. pellegrini testified it would be hard to miss that. >> the government apparently knows this as well. >> this was apparently in an interview with government. >> okay. that's significant. that's very significant. steve, thank you. >> way to move the ball forward. >> doing my job. >> thanks for doing it. regardless of your own personal agenda. >> the stock was moving on that. it was up about $1.50. >> it said some nasty things about the s.e.c. at least. >> we'll await to hear from the s.e.c. what their response is. >> all right. and we'll continue to watch the stock, up almost more than $2.50. steve liesman. meanwhile, eads north america will submit a proposal for that u.s. air force tanker contract that's worth up to $50 billion. joining us for a first on cnbc interview is sean o'keefe. sean, welcome. good to see you this morning. >> thank you. pleasure to be with you. >> we all know how this ended last time. what makes you confident this is going to be a fair fight in round two in >> we've got a competitive product, a competitive aircraft that we believe is the best value for the military and the best value for the taxpayer. so the opportunity to offer that is really a privilege and one that we're looking forward to. there's no question about it. >> the plane is a version, right, of the kc-45 platform which won in the previous competition. is this the same? is it the same plane or something different? >> well, i think there's going to be variations on it, but more important to your point, it is a derivative of the a330 aircraft that is flying in commercial service every day. we've also got a derivative of that that we are producing and making available for the royal australian air force, for the uk, for the saudi arabia air force as well as the arab emirates. so this is an aircraft that's in production. it's proven. it's designed, it's developed, and it's an opportunity to compete in a very vigorous effort on behalf of the u.s. military. >> it's fly by wire, right? >> yes, sir. >> engines from ge. >> yes, sir. >> and it says although the boeing plane is said to be cheaper, i don't know if you take issue with that, eads says the plane its offering carries less risk as it is already flying, right? it's already in the air. >> we've got a competitive aircraft. and it's one that we look forward to the opportunity for competition to prove that. >> boeing would argue that their version based on the 7-6 has that digital flight deck, burns 24% less fuel. do they have some efficiency advantages year over year?ñrñr >> i'm not sure exactly what they're going to offer. we'll look forward to reading it when it comes out. >> why is this worth going after again? is it the sheer size of the potential deal? >> again, it's a great opportunity to really establish only the second production kajtd capability in the united states, and our ability to do that in alabama, it's going to produce and maintain the better part of about 48,000 jobs and a chance to really establish a u.s. manufacturing presence that really, in the aerospace industry globally is going to make the united states and the american aerospace industry that much more competitive in the wider global market. so this is a very rare opportunity in order to do that and in order to really, most importantly, demonstrate the best capability, the highest performance, and the most competitive price for the u.s. military war fighter when they're really depending on a product like this. and it's a commercial derivative. so it fits right in the sweet spot of what the eads north america can pull together as a team. >> you managed advantages to the home front. do you think the political environment is fairer now than it was before? >> well, look, public debate is always going to be enter speint with advocates and critics. in these circumstances, our opportunity to really i think demonstrate by our performance and by the quality of what we have to put forward is going to be the determinant. and the way the defense department has structured this whole competitive process, it's going to be based on a very rigid set of criteria that either you meet those criteria and you can perform or you don't. and we're confident we can meet all the criteria as specified. >> if you win, you can get me, becky and joe on a flight, right? >> we certainly look forward to that. >> first class, i think. >> wait till fahrvergnugen. wait till that's finished. >> good to see you again. thanks for the insight. next, developing an early warning system for risk. 2003 nobel laureate and economics robert engel is headed to our set to unveil a new way of ranking risk for the nation's financial giants. "squawk box" is coming right back. "the stock of the day" is on the way. is it in your portfolio? find out in just a few moments right here on "squawk box." hi, ellen! hi, ellen! hi, ellen! hi, ellen! we're going on a field trip to china! wow. [ chuckles ] when i was a kid, we -- we would just go to the -- the farm. [ cow moos ] [ laughter ] no, seriously, where are you guys going? ni hao! ni hao! ni hao! ni hao! ni hao! ni hao! ni hao! ni hao! ni hao! ni hao! ni hao! ni hao! [ female announcer ] the new classroom. see it. live it. share it. on the human network. cisco. all right. welcome back to "squawk box" this morning. the futures are just below fair value. those dow futures only down by one point right now. they had been down by about as much as 20 points earlier this morning. we've gotten a lot of earnings that have beat expectations this morning from dow components. so that is helping things out, getting things right back towards the flat line. nyustearn business school is launching daily systemic risk rankings of the largest u.s. financial institutions. they're designed to provide an early warning system of the risk to the global financial system. joining us on set for an exclusive interview is one of our "squawk" laureates, 2003 nobel laureate and economics robert engel, professor of finance. i know that the nobel prize was a big deal, but being named a "squawk" laureate ahead to -- >> that's right. i put it on my vitae. >> basically, you have a top ten i can go down and well-known firms that are the most systemically risky, you're ranking them. >> we're ranking them. >> and i'm just going to -- i don't know if we have a -- bank of america, citigroup, goldman sachs, jpmorgan, freddie and fannie. now, how come they're not one and two? they should be perennially pun and two, no? >> well, they could be, but they aren't, actually. >> they are not. okay. and there's the rest. that you can see. and aig, too, seems like -- of course, maybe they've already been -- had their wings clipped. >> that's one of the questions. what do we really mean when we talk about these companies that are already wards of the government? and i think basically the idea is if the government guarantees were taken away for these companies, there would be systemic risk. and really that's what we're trying to measure. we're so interested in systemic risk, it's a key part of the legislation. it's a key cause of the financial crisis. but really, who do we mean in and how do we measure that? >> why is bac at the top? >> let me tell you what it's about. what we do is we measure, using market data, so that we can have early timing. there's no internal privileged information involved. we use market data to see how much the stock of any one of 100 companies would go down if the market declines by 2%. then we say, in a crisis, it's going to go down a whole lot more than that. we extrapolate that. and we see how much you would expect the stock market to decline for each of these companies in a crisis. and compare that with our debt level and see who would be facing capital shortfalls. and that's where creditors come into play, where the systemic risks start spreading around the system when you get these companies short of capital. so the reason these companies are there is because they have a lot of debt. so if their market price falls a lot, they are facing capital shortfalls. >> two questions, though. first of all, your rankings don't match up with the credit default swaps that are trading right now, which jpmorgan, for instance, i think is trading at 77 whereas citigroup is trading at $1.44, meaning jpmorgan people are willing to make a bet twice as much as citigroup. these risk assessments aren't generally with the credit default swaps traders necessarily in line with what they see. and second of all, how do you take anything into account that's off balance sheet? whether it's a repo 105 or any other transaction that we may not know about? >> good questions. first of all, credit default swaps are how much you would lose in a bankruptcy. but if you've got government guarantees, it's not clearly a measure of what the systemic risk really is. so there's a problem today with matching the credit default swaps. but we actually have a second approach which is using credit default swaps that we're still working on. second of all, we don't have private information. how do you get all the interdependency and off balance sheets? these rankings are based on the assumption that the market actually knows this stuff. >> isn't a lot of this going to be dependent on the degree to which crediteders are forgiving or maybe a surprise investor like a buffett comes in from outside to supply capital? a lot of this you can't -- it's hard to model, i guess. >> it's hard to model that. but what we're relying on is that the market actually values that. the market sees that. how much did -- goldman was seventh last week. they're third this week on our rankings. you know, they'll probably drop back down again as their market share stabilizes. but what we want is to get the most recent information that the market has got on who is systemically risky so we can get an early warning system. >> but the early warning system may be not something that gives you more than a 15-minute warning or something. if the market starts to figure these things out, right? because like you said, if you can make such a major move over the course of a week -- >> a pretty major move in the market price. >> but models aren't perfect. they're only as good as the information. >> our view is this is really a screening device the regulators might use to decide who they really want to go and study. and they want to look at the books. they want to look at all the interkek interconnections, the counterparty exposures and all this stuff. but who's on the list? >> isn't that all thrown out the window in a liquidity panic, which is what really happened in 2008? and you look forward six months, all the capital they ever wanted was raised. so how do you measure the capability of these firms to bring in excess capital in bucket loads and stop it? >> but as an investor, aren't you making that decision all the time? aren't you saying, if there is another crisis, which of these companies are going to actually be able to raise capital and which ones are not? >> until it's not a clean and clear market and the government's in there saying maybe we take over the whole thing, then unfortunately all this falls apart, which is frightening. >> we have to go. but the fannie, freddie and aig, they're there because you're assuming they weren't backed up. >> they are there because if those backings were withdrawn, they have lots of debt. their stock price would fall like a stone. >> i thought they could have been there even with the government. they'd still be there. i would think if you look -- if you actually backed out the government involvement, i figure they'd be in the top three. >> even if the government does get involved, it doesn't necessarily mean you're going to get wiped out. >> that's right. i mean, we're talking, of course, major moves in equity markets. i mean, something like that we have already saw in 2008. and we're trying to do an extrapolation of that. obviously, there are errors in that. >> is it for shareholders or government to use in deciding who's big to fail? >> it's designed for the government to use not decide who's to big to fail but who to do preventive work on to see if you can get them out of the too big to fail category. i would imagine shareholders would also be interested because they'd probably like to know, who do we think is going to do badly if there's another crisis. and another crisis is something shareholders ought to be worried about. >> thank you, professor every thank you, "squawk" laureate? what do you think? engle? >> squawk laureate is good. >> thank you, professor engle. earnings in goldman dominating the action on wall street once again today. up next, the "traders edge" as we count down to the opening bell on wall street. all right, we are counting down to the opening bell on wall street. joining us now is art cashin, director of floor operations at ubs financial services. art, there's a lot we've been talking about today. one thing we haven't spent too much time on, though, is the situation in greece right now. apparently, those bonds right now are trading above 8.3%, the greek ten-year. that's got a lot of people concerned. is that something that's having much impact on the floor there? >> not directly yet in the fact that the currency hasn't moved too much. there's a meeting, supposedly, to take place, and when the news comes out from that, then maybe things will change, but the currencies really are having a kind of neutral effect. that's why you see gold is virtually unchanged, oil unchanged and the futures are pretty much unchanged. so, it looks like a neutral opening. >> earnings this morning for the blue chips have confirmed what we've been watching over the last week and a half or so, as the numbers have come in stronger than expected. that has that surprised people? >> i think so. there was a little scoffing about whether the revenue lines were up. they weren't in all cases, but nevertheless, it was good enough. and more importantly to the traders down here, the market is strengthening in its technicals. it's overbought, for sure, but you've got things, advances and declines, new highs, a variety of other things are giving real, real support here to the market. so, even though it's up in slightly heady territory, it's got a good underbase to it. >> art, thank you. we'll talk to you later this week. we want more on your thoughts on goldman, too. >> okay. >> see you soon. >> our guest host is bob albertson of sandler o'neill. financial sector watcher. you'd better move fast because there's not left for you to watch. that's how i want to start this discussion. all right. lehman's gone, bear stearns is gone, merrill is part of bank of america. there are a couple left standing, you know, like goldman and morgan stanley. >> sully. >> goldman no matter what happens, greenberg said it was gone. >> it was gone a year ago. >> well, there's a couple remaining, but government's going to take care of those. why? to what end? >> well, obviously, it helps those who survive because you've taken out so much competitive capacity. i don't understand why you've picked on the financial sector as the focal point of the problem. they were a participant at the end. >> can it be -- >> why don't you go back to where it started? i'm looking at a silly graph here that shows me home prices to income in 2002. you knew it was crazy. >> then? >> you didn't even have to wait until 2005. this is what we need in a systemic risk regulator, not, you know, who's the vulnerable one if there's a tornado, but rather, predict the tornado, get ahead of it. >> i'm sure there's a lot of people that hate wall street that lied about their applications for mortgages, too. >> i know, and we've got to get the emotion out of this, particularly in congress, and the reform bill, it's going to cause a lot of problems. by the way, it ain't just the reform bill. you've got explosive capital ratios, mark to market going up in connecticut with nothing holding it back. you're seeing the tip of the iceberg -- >> but you're not arguing we go back to leveraged dynamics like before? >> of course. leverage was the problem. >> some companies might need to raise money or sell debt. we may need wall street. someone should tell the administration, some day you may need wall street to do some -- government can't do everything, carl. >> how are you going to do it without a financial sector, without a market? >> we've run out of time. the stock of the day is next. so many choices from blue chips to the star of the afterhours trading last night, apple. we'll get the winner next. hey can i play with the toys ? sure, but let me get a little information first. for broccoli, say one. for toys, say two. toys ! the system can't process your response at this time. what ? please call back between 8 and 5 central standard time. he's in control. goodbye. even kids know it's wrong to give someone the run around. at ally bank you never have to deal with an endless automated system. you can talk to a real person 24/7. it's just the right thing to do. but there is one more thing. >> i was just trying to add up the market capital of the four dow components that reported. not sure it's below apple, but it's darn close. anyway, apple the stock of the day, going to be up another 5% or so, which will put it at about $230 billion in market cap. >> yep. >> blowout number. >> robert, thank you for your time. >> good to be here. >> robert albertson joining us today. make sure you join us tomorrow. "squawk on the street's" coming up next. live from the financial capital of the universe, this is it, "squawk on the street" is back after a 22-hour break. good morning, everybody. i'm mark haines. >> and i'm erin burnett. big news broken by steve liesman driving goldman sachs shares higher this morning. details in a moment. but first, earnings central. four dow components reporting. first mcdonald's. the bid-ask is -- eh, mildly higher. first quarter profit comes in just above $1 billion, beating estimates. boeing's bid-ask pretty quiet. this as the airplane maker reports first-quarter net profit of $519 million. that was enough to best estimates as well. >> best estimates. >> better estimates, i should have said. >> united technologies, meantime, is also bid higher. 20% boost in profits is the reason. that was also better than expected. profits have continued, by the way, across the board to top targets, both on the revenue line, which everyone's been waiting years for, and the profit line. at&t shares, we'll show you that. they also came out with earnings. they were short of expectations. stock is going to open pretty much flat. they earned $2.5 billion. they're blaming the miss on a health care-related charge, mark. keep in mind, most of those charges, though, are not cash, so that's a little bit suspect. and they should have had the boost from the iphone. all right, we have mcdonald's and boeing analysts minutes away. futures right now are looking a little bit lower, but as you can see, fair value discounts all of