Transcripts For CNBC Squawk Box 20100514

good morning. another day, another investigation. this time, it's word that the s.e.c. is probing banks and muni bond sales. follow the money, weekly in-flows and out-flows painting a picture of just what global investors think of the markets right now. and a bumpy pass to the new normal. pimco's ceo, mohamed el-erian shares his outlook as "squawk box" begins right now. good morning, everybody. welcome to "squawk box" here on cnbc. i'm becky quick along with joe kernen and carl quintanilla. in our headlines this morning, the s.e.c. is reportedly investigating whether wall street banks used their own money to bet against municipal bonds that they had sold without proper disclosure. "the wall street journal" says that the regulator is looking at trades of municipal credit default swaps. the fact-finding probe may not result in formal action, but it's one of many cases we've heard about recently that result in -- >> another day, another investigation. the senate is passing fee restriction owes debit cards. it's all part of the financial regulatory reform push. it would force big banks to reduce fees for drit card/debit cards transactions and force store toes offer discounts if they use cash or checks. mastercard says the change will reduce competition and hurt consumers. >> how does that hurt consumers? >> i'm not sure. >> i can understand maybe reducing how much they pull in. >> they would argue their fee structure goes up and eventually it's going to get passed on to the customer in some form. in a separate vote, yesterday senators passed an amendment for governments to caset up a dleerg house to match rateding agents randomly. final approval of the financial re fo reform bill will be next week. are you super sized? >> no. the mcdonald's people love that comment, by the way. when you said something like don't come back too fat or don't break the door when you come home. >> did they get mad? >> they were not thrilled. >> you sent things that looked like they were milkshakes with whip cream on top and with swirls of caramel -- >> here? >> yeah. and they decided to go with shrape. >> you finished yours, i guess? >> no. no, god. i mean -- and i also have a really -- i have a true weak spot for ausage muffins with eggs. and there were those, too. and i only ate half. >> what is the discipline? sglaus of these viewers that say i have a mass bodyweight index of 40. and i don't. >> 45? >> 39. but the camera adds 10 pounds. i'm not -- >> wow, that is the gut cam. >> tuck your shirt in. >> my wig is -- anyway, new data this morning on where global investors are putting their money. for the first time since january, there were in-flows. we had ubs yesterday and they made a big deal out of this, that they had gone favorable to the u.s. versus emerging markets and everywhere else. that seems almost like after what happened the last two weeks, that seems like something that you would automatically do, doesn't it? i can't wait to have rogoff on at 7:00. for a long time, he's been writing about this. the whole notion, the reason you formed the eu and got the euro was so that you could have the same sort of -- >> buying power. >> and the reserve currency to borrow at low interest rates which allowed all these countries with terrible credit to borrow at low interest rates which put them in the me the mess they're in right now. >> and who was on our air the other day that said the euro is a great bull market currency? it's not a great currency when things start to break down. >> it coincided with a groekt of another instrument. >> but it allowed greece to borrow at rates that the entire euro zone -- it allowed greece to borrow at the same rates as germany. germany has a good economy and greece didn't even have an economy at all. >> just like homeowners here, some were no doc and some were 30-year fixed. >> anyway, you're wondering about that in-flow in the u.s. equity funds. it was 14 billion. can commodity sector funds absorbed a record. in europe, focused equity funds saw record net inflows of $477 billion, but the majority headed to german etf in a flight to quality. emerging market equity funds had outflows. >> ecb's president jean claw trichet says that the central bank will mop up the liquidity primarily created by government bonds. trichet tells the german newspaper that it is ecb is not embarking on quantitative easing with its purchases and will not push up innation. >> banks borrowing less from the fed's emergency lending program during the last week. the credit markets are getting a little better. banks averaged $5.2 billion in daily borrowing, down been $5.4 billion the previous week. >> you did mcdonald's yesterday. is this a coincidence? one nation overweight? mcdonald is mad at me for -- why do you do mcdonald's one day and we do one nation -- >> we cover the news. that's why. would you not say obesity is an economic force in our economy inspect. >> i wouldn't go back to back with a mcdone al's day. >> some night, we'll put them back to back. we can play them simultaneously like this. >> that's the last time you have skinner on. did he realize that one nation overweight was -- >> i left that out. >> what did you eat, seriously? >> for breakfast i had the apple dippers, you know, just apples. >> with caramel? >> no caramel. >> what did you dip in it? >> and i followed that up with a sausage mcmuffin and hash browns. at 8:30 eastern, we have april retail sales. the headline numbers expected to rise. not at the previous month's rate. and at 9:15, which is after this show is over, i'm not going to read this. i don't care. no, industrial production comes and then at 9:55, consumer sentime sentiment. finally, at 10:00 eastern, business inventories. does it matter if a tree falls in an empty forest? there are viewers watching all day long and into the evening, too. >> very discriminating. pimco releasing its global outlook report. i got the chance to catch up with pimco's mohamed el-erian yesterday. and ask him what is the most likely scenario over that time period. >> we still think, in fact, we're even more convinced, having reviewed all the research and information, that if you look through the five years, we are on this bumpy journey to a new normal. we say be careful because the distribution of outcomes is flatter so there can be many different outcomes. and the risks are fatter. but basically, we are all living through a different world, becky. and every day we see evidence of it, just what happened last week examine this weekend in europe is yet another evidence of something that was unthinkable that happened and we expect there will be many more unthinkables in the next three to five years. >> we'll have more of our conversation throughout the morning. this is for all the guys who sit down and say, here is what we think is the most likely scenario. they bring in some outsiders. one of those outsiders happens to be rogoff. but again, this is their three to five-year outlook. after 2 1/2 days of arguing, they decided yes, the new normal is still the most likely scenario. >> oh, they went back and revisited whether it was? >> yeah. they go back every year. every person in the rooms room gets one vote. they sit down with everybody in the room. everybody gets one vote. they argue out everything based on what they've seen and they say, this is still the most likely scenario. >> are you going to talk about whether or not there was dissession among the group? >> they didn't tell me. they come to one opinion based on everybody's vote in the room and that's the vote that carries. >> some day, you know, it will be different this time. but most of the time, it's not different this time. so they're saying it's different this time. >> they're saying it's different this time. they say the world is on a journey to an unstable destination through unfamiliar territory on an uneven road and critically having used its spare tires. >> until you get to ask bob doll about this, i don't really think i'm going to -- i want to see what's comment from his firm and see whether they feel the same way. >> what you think is interesting about the way -- >> i'm not trying to stir anything up. >> no. >> but i'd like to get a -- if you go to into a doctor who says you've got -- i don't know. what have you got? you've got some kind of rash. and you say i want to get a second opinion, right? >> what i will say is interesting about this, which i didn't realize, i went into the conference room where they all sit down and beam in people from overseas to do this. they bring in a group of people who are brand new at the university of harvard and different places, they bring them in because they have not drunk the kool-aid of pimco. >> academics? >> greenspan is on their advisory board, too. you have a lot of different people in coming through. rogoff is one of them. greg was another one. >> they didn't bring in bob doll, though, from blackrock? >> no, they did not. >> i want to see what he says. we're going to be looking at some sustained weakness here. dow futures are down about 60 points or so. a lot of data, industrial production. oil, a lot of debate continues, i guess, about the future of offshore drilling. there are at least two stories on the front page of the sometimes. 10-year note today, the real story is the euro. dollar, at the highest since august of '09. more people thinking about this. in fact, here is the note center jpmorgan. the you for ya triggered by the eu measures seems to be receding. finally, gold, which has been doing pretty well here, even in the face of a stronger dollar, up 16, almost 17 bucks. wow, has nothing to do with the dollar, right? >> no. more to do with the euro. >> people are saying 1.20 at the end of the year for the euro. and within two years, maybe parity. >> we had a guest on who said maybe last week who said by the end of this week parity -- not, no, by the end ooh this year. >> something big would have to happen. they would all have to default. blackrock and pimco are huge competitors. they both have trillions of dollars under management and it's a heated battle. there's competition. and this, i think, serves to make them both better, which is the reason that -- >> and because you like to see arguments. >> well, i don't know if i'd say that, but i do like to see both rise -- maybe them both better and stronger. and i love mohamed, he'll say, joe, you're mocking me. it's unnecessary. >> but we do respect all these guests' opinions. >> we do. >> anyway, that strong dollar carl was just talking about is almost $48 billion from china's reserve. the country has previously reported that its foreign exchange reserves rose by $47.9 billion in the first quarter. but that understated the true reserve growth of $95.5 billion because of its currency asset israel ewation. china's reserves reduced the valuation of the forex holding. residents in rich areas of athens are scrambling to hide their swimming pool. why? because a french newspaper reports that greek tax authorities have resorted to satellite images now because none of them admit that they have a swimming pool to identify the owners and make them pay. supposedly one out of 10,000 actual owners of swimming pools admit they have a swimming pool. they're subject to a tax, but if you don't pay taxes, nothing is subject to a tax. about 300 households in the north of athens have declined owning swimming pools. oh, here it is. tax authorities have sdofd there's 17,000. 300 have been declartd. 300 out of 17,000. there's a slight taxation issue. >> there's a lot of chatter about this over there last week. how do you hide a pool? >> i guess if you took a tent that looked like -- a tarp? >> that looks like green bushes or something. >> you could camouflage it, i guess. >> or you could just pay the tax. >> no. no one pays any taxes at all. but they do like to get paid for it. >> off pool as a luxury. >> trust me, if you lived there, you would want a pool. >> it is hot, you're right. let's get overseas and go to london where guy johnson has the latest out of europe. good morning to you, guy. >> oh, boy, speaking of pools. >> green piles is what you need. that is the way a lot of people get around it. blue tiles, easy to spot. green tiles, not so easy. that is probably true, unless it's a green thong. then maybe it's camouflage, but really, you don't want to camouflage that. let's not dwell on that thought. yeah. i'm conjuring with images and i don't want to be on that. becky was talking about parity by the end of the week. 1.2450. a big trigger pb taking that out within the last few minutes. so there is a lot of pressure piling back into that trade. here is the explanation i'm getting from people i'm talking to right here. it's tough to be short of the peripheral bond markets at the moment simply because of the risk of central banks setting in and being on the other side of that trade and killing ow that one. the focus is now shifting very much entirely on to the fx market. that is where the train is now being taken and that is the reason why we're seeing more volatility now in the fx side of the equation rather than the bond market side of the equation where spreads are beginning to tighten up a little bit. as i say, this move here, keep an eye on it. as we all know, you guys have been talking about when we start to see more weakness coming through in the euro/dollar, that does have a republicel effect out across the bulk of asset classes. anyway, swimming pools, that is the subjects that is definitely deserves more time and attention. >> it does. you know, guy, watching gold and oil over the past two weeks is so confounding, too. it's almost -- i mean, it's like this. it's very uncharacteristic. dollar versus gold, all these things are breaking down right now and it all has to do, i think, with europe, right? with the euro. >> yeah, absolute lit. and eventually, gold has been hitting records in sterling and also in the euro. so it's really probably a better trade if you're in those currencies rather than being in the dollar. >> i think oil is down know for the year, is it not? >> i thinkite pretty flat. >> it's around flat, but it's given back all the gains from the low to mid 70s to almost the 90s. >> in very short order, too. >> just be careful what you say from now on, please. you saw that euro -- it's where where you said it. it's unbelievable. say 1.30 by the end of the week. >> 1.30 by tend of the week. >> all right. or 1.15. anyway, we're counting down to retail sales numbers. right now, let's get to our task force to talk about allow the markets will be reacting today. joining us now from nomura is david hessler and phil orlando. gentlemen, thanks for being on set with us here today. phil, you've been watching what is happening with the euro. it's been an awfully strange iraqi all week. it's the popular call that the euro is going to weaken versus the dollar here. but i think this is something that we were on to fairly early. the second half of last year. the rally in the euro versus the dollar didn't make a lot of sense to us in terms of where we saw the central bank activity and the economic activity in those two sections of the world. we've been on this trade for a while and we agree that the dollar is going to paris over the week. that's the direction that we're going to see the dollar/yen relationship? >> well, from a currency standpoint, we've had a short euro trade on for some time. and that's been successful. and then in terms of sectors, you probably want to be underweight in developed european economies than overweight in emerging economies or the u.s. that's the weigh we've been playing it. >> and david, the economic trends, how is the situation changed over the last couple of weeks with what's been happening in europe? >> well, europe is getting worse and the u.s. is clearly getting better. when the year started, we thought the economy would be looking okay by now, but it's looking a good bit better than we expected it to do and a good bit of it is going to be in focus this morning with retail seams numbers. consumers are doing much better. i'm not sure how much worse it's gotten. the whole of europe is probably not too much at the beginning of the year. but the disparity is getting wider with the u.s. getting better. >> some people are saying this is a sharp recovery. there are a lot of ceos who have industrial numbers that show that this has been a real sharp snapback. but obviously, there are still a lot of risks out there. how do you try and figure out what's going to be the theme that takes over? will this growth continue? >> it does look like a v. we've gone from deeply negative growth to pretty good solid growth numbers. but to get to a true typical post war recovery theme, very well to be looking at growth numbers for the u.s. economy. they would be upwards of 6% or 7% of gtp over a period of many, many quarters. the difference in perception reality right now, to me, is focused on those who look at the growth numbers are feeling pretty good. i'm one of those. i think that the growth numbers look forgpretty good. but if you look behind the numbers, we're very, very depressed in many parts of the economy. the unemployment is clearly almost at 10%. we have housing starts a long way from what used to away horrible scenario. and, you know, the previous recessions, we won't get to the low point of the previous recessions in housing starts until the end of next career. >> that's because there is so much inventory to burn off. >> that's true. and a lot of sectors of the economy are still operating way below normal. manufacturing is starting to revive. >> so how do you come down on this? obviously, things have turned around quite a bit in the united states. you like that market better. but do you worry that there's going to be something that chop tess knees out from that recovery? >> well, and we saw that a week ago. what we ultimately come back to is the fundamentals of the market. agree that the rate of unemployment is still much higher than it should be. but that's a lagging indicator, just to discourage workers. and the underlying data point, weekly jobless claims, layoffs, nonfarm payroll webs that's suggesting it is where it is. in housing, i think it's low because of the expectations of the anomaly of these foreclosures. we've been potentially underbuilding to try and stop that imbalance. but we're starting to see an uptick in new home sales, inventories, normal inventories have come down. interest rates are still relatively low. we think the housing market is short of at an inflexion point here that will demonstrate better numbers over the course of this year and over the course of the next couple of years. >> you mentioned that that euro trade is a much more crowded trade. there are a lot of trades getting crowded. looking at the united states as a safe place, do you feel comfortable being in a crowded trade and knowing that you feel confident with things or do you start to look around for other ways where you can make more of a yield? >> we've got a diversified global portfolio. but the big one here in terms of assetelcation is this. cash is paying you nothing. 10-year treasury yields are sitting at 3.5%. we think that number is going to work up to 5.5% over the course of the next kunl of years. so the only game in town is equities. the good news and bad news. we've had an 80% rally over the last 14 months or so. the bad news is that that rally over the course of the next year or so will be relatively muted. i'd rather take a 20% move in equity hes over the next year or two rather than a -- >> but when we have these discussions, we hear from viewers who say, it doesn't matter if i'm earning nothing in my bank account. at least i'm sachg my principal. there are those who argue, i'm just worried about losing my principal. >> that's because the fear and greed trade is still on. investors are still remembering what happens 14 months ago and it's still fresh in terms of what happened last week. >> and that's, i guess, good as long as the fear factor is still out there? >> absolutely. we've still got that proverbial wall of worry right now. we're willing to, i guess, make that leap of faith that from a sustainability standpoint we're not going to roll over into a double dip. and in terms of corporate earnings and economic growth will continue to improve and equities, as a result, are the place to be. but that is a nonconsensus view. the consensus is that things are still very fragile, that we have that double dip scenario on the table and investors are still stre concerned. >> new normal is consense justice? >> well, we would agree that this fourth quarter gdp number that we saw, which was a 5.6% gain, that that is going to be the peak of the cycle. our view, however, is that while we slow down, we slow down to let's call it a four percentage number. >> that's not a new normal. you heard our discussion. do you agree with pimco? >> we think that while we're not going to roll over into a double dip, we are going to continue to grow. >> most folks think that the economy is going to roll over or if it does continue to grow, grow at a subtrend level. and we're not there. >> isn't the real concern that if there's another shot, ala europe, any kind of liquidity credit related thing here or abroad, that there are no more policy levers politically that the u.s. can put on, can turn on? >> it's difficult to turn them on. we've used an awful lot of policy levers. the federal reserve has opened its balance sheet to all kinds of measures that we would have never considered before. and i'm not convinced that the fed will need to do more on those things. we have other crises that we're likely to see. the u.s. state and local government faced serious problems. i live in new jersey and, you know, it's not a comfortable place to be. and that may be the next crisis to hit. i don't know. certainly there's enough sdres distress out there to be worried about it. and, you know, a few month ago, greece was seen as a minor problem that became a major problem. so it's very difficult to see where these things come. but so the attitude and mood of investors, with the thing i worry about about, say, equity, is not that the fundamentals eernt recently sound. but, you know, who is going to be pulling money out of wherever their safe haven is right now to put it into equities when you don't trust wall street because every day you pick up, there's a new s.e.c. fraud case that the administration is hyping or alternatively, you have a 1,000 point implosion in a nano second in the stock market. scarce me. >> phil, gentlemen, thank you very much. coming up, plunging. video game sales. first, though, as we head to break, a look at yesterday's winners & losers. [ telephone rings ] [ ring ] [ "catch the wind" plays ] what is the sign of a good decision? in the world of personal finance, it's massmutual. find strength and stability in a company that's owned by its policyholders. ask your advisor or visit massmutual.com. good morning. welcome back to "squawk box" here on cnbc. we are approaching 6:30 east coast time, about 30 seconds. i'm joe kernen along with becky quick and carl quintanilla. super sized. you look good. you look good coming back. >> really? >> i'm looking at you, you've been looking at me. video game sales plunging last month. they say this is one of the largest declines in the last decade. nintendo's wii was the toll selling console. i guess there were no new big titles. is there something larger happening here? some secular change? >> everybody has these things now. you know that the play station 3 hooks you up to the internet to play with other people on the internet. so you don't just have to play with yourself. you can play with -- i'm not falling for it. >> yeah. anyway, in washington, which is what apparently the president told rush limbaugh about a golf game. >> i'm behind on this. what happened? >> i guess there was a mediator who said for the good of the country, rush, you should play with -- and, you know, i don't know -- >> play golf. >> you should play golf. >> although limbaugh has -- >> yeah, i said this will -- limbaugh said, this will never happen. there's no reason to ask. he could never play with me because the liberals would have a blank fit. it starts with s-h, ends in t with an i in the middle. >> little kids everywhere. >> yeah. someone else did it, apparently, and the answer that came back was tell rush to go -- he can go play with himself. >> well, i thought that this was according to a new book and rush hasn't commented on it. >> right. >> right. but when they reached out to him to try and get comment on it, he didn't comment on it. >> well, he did comment on it because he said, they must think i'm bill clinton. that's what he said yesterday, you must be mistaking me from bill clinton. >> you're up on things. >> it's all on page 6 for the last couple of days. . >> washington, a senate subcommittee is setting a hearing date for wednesday to examine the causes of last week's stock market plunge. yesterday he said it was normal, the plunge is when you go ahead a lot of sell orders. >> a penny for accenture? >> well, when you don't use market limits. >> but if you put in limit orders and let's say it's a $40 stock, you put a limit in at 45dz, you ride it down with wherever it goes. >> well, in that case, some of these guys should be happy with a penny -- if you bought it. >> or if you sold it, too. >> in the stockbroker's business, it's limit production. and the guys know what is on the books and they'll -- >> talking to some of the traders in chicago yesterday, the conspiracy theory is that the flash crash was designed and executed by the s.e.c. to promote financial regulation reform this week or next. >> what? >> kind of like the goldman conspiracy theory. >> goldman and they're looking into everyone else and al frankel now wants to run a ratings agency. and he's not joking. >> he's not joking? >> no. >> he's quite serious. >> he's very, see serious and it's a serious senator. it's just hard to take him seriously. in the "wall street journal," that's the lead editorial today. let me just see what they call it. uh-oh, i don't have it. this is taking too long. here it is. al franken wants a cartel and a trial lawyer heyday. he said he wants a finra type situation where a group of government wisemen decide how to get the ratings agents to rate them all. >> that is a new idea. coming up, we'll have more of this morning' top stories. plus, we will talk financials. washington's reform attempts, the industry's biggest fears. d# 1-800-345-2550 if it was up to me? tdd# 1-800-345-2550 investment firms wouldn't even dream of overcharging people. tdd# 1-800-345-2550 in fact, they'd spend all of their time dreaming up ways tdd# 1-800-345-2550 to give us more for our money. tdd# 1-800-345-2550 i guess i'd just like to see a little more give tdd# 1-800-345-2550 and a little less take, you know? tdd# 1-800-345-2550 if it was up to me, they'd spend a lot more time tdd# 1-800-345-2550 worrying about my bottom line. tdd# 1-800-345-2550 (announcer) at charles schwab, investors rule. tdd# 1-800-345-2550 are you ready to rule? ♪ well, look who's here. it's ellen. hey, mayor white. how you doing? great. come on in. would you like to see our new police department? yeah, all right. this way. and here it is. completely networked. so, anything happening, suz? she's all good. oh, my gosh. is that my car? [ whirring ] [ female announcer ] the new community. see it. live it. share it. on the human network. cisco. senators have been tacking on reforms to the financial regulation bill. john is the ceo of rbc u.s. wealth management. he joins us here on set this morning. congratulations. >> well, thank you. >> you take the chairmanmanship in november of this year. >> i do, yes. >> do you think the debate is going okay? is congress keeping focus as we, day-to-day, talk about what amendment is in and what amendment is out? >> actually, i do think they're doing okay. the political process is like the market. there's a lot of noise day-to-day, even hour to hour right now, amendments being offered, people, you know, voicing and impressing and all of that. but if you step back and look at the longer process, the house reported out a bill that is in really good shape. the senate brought to the floor a pretty good bill. unfortunately, it didn't have bipartisan support. so what you're seeing now is a whole bunch of amendments being offered up for consideration and some of those aren't particularly well considered. >> we knew this would happen when it went out of committee, right? >> right. >> we're not going to do this in the little house, we're going to do it in the big house. >> that's right. >> that's what happens when you get 100 senators tossing their vegetables into the soup. is the trend to have more information populous or -- >> well, that's the trend. the leadership wants to get a bill out by the end of the next week, wants to get it into conference committee with the house. then they get to get a bill signed by president obama by the 4th of july which will be symbolic and all of that. so i think we've seen most of the amendments we're going to see and most of the ones we're seeing, the new ones, are populist. we have a couple in, i saw there's one in on rating agencies, which really hadn't been the focus that much of regulatory reform. we knew that was coming. but i think most of them are in reaction to the system that we saw from goldman and that's the populous -- we're not seeing a lot of amendments involving fannie or freddie. >> no, not yet. but let's not forget, this is chapter one in regulatory reform. >> do you think there will be a chapter two? >> there has to be a chapter two. >> they say that's too important to be done in this bill, we're going to save that for later and later never comes. >> fannie and fredly won't happen in this bill. then they're going to hand over to the regulators the task of rule making. that's going to take a couple of years. once that happens, they can turn their attention to fannie and freddie. and then there's another chapter, which is what's going on in europe with the basul committee, where they're writing new capital liquidity and leverage rules for banks. this is going to take years. >> do you think, in the meantime, the individual investors' trust in markets can survive, especially after what happened last thursday? >> there's no question that investors are still trauma advertised by what they went through in 2008 and 2009. >> and thursday didn't help. >> thursday did not help at all. it reminded them of just how terrifying that unexplained volatility can be. and there are several things you have to do in order to get investors to believe again that if they put their money into stocks and bonds, mutual funds, it will grow in value over time. regulatory reform, though, is one of those things. that is a necessary step to restoring investor trust. >> john, conventional wisdom right now is that the derivatives being tripped from the banks, that proposal, the expectation is that that will go away at some point after blanch lincoln gets through her primary. but politico points out this morning that conventional wisdom has been wrong at every step of the way. if that remains, this idea that banks will not be allowed to continue with their derivatives program, everybody from fed chairman ben bernanke to sheila bair have weighed in and said, they think this is a bad idea. if that goes through, how does your organization feel about that? >> it is a bad idea. the -- what it will do is it will require financial institutions to take capital from their balance sheet and move it into separately regulated affiliates that do swaps. >> meaning letters regulated? >> well, i'm sorry, separate and affiliated subsidiaries. but the point being that capital moves from here over to here. where it sits today, the yamt supports things like market making, like investment banking, like lending to businesses. and if you take it off the bank's balance sheet and force them to capitalize a new derivative subsidiary, you're reducing the amount of capital to support lending and get the economy going. >> if that derivative amendment remains in the bill and it passes, how do you feel about the process at that point? >> well, i think it would be a mistake. is it the end of the world? it is not tend of the world. it would just make -- it would reduce the ability of financial institutions to support the economy. which is really what financial institutions all to be doing, right? we have a means to an end. we are a means to helping the economy grow. and if you make it harder for us to do that, then there are going to be consequences. now, you may say it's worth the cost, but in this case, nobody believes that pushing out derivatives operations into subsidiaries is going to help. >> we'll see what the final bill says, if there is such thing as a final bill. >> there will be a final bill. they keep changing the rules. it's great to have you. >> thanks very much. appreciate it. if you have any comments or questions about anything you see here on squawk, e-mail us, squawk@cnbc.com. a quick break now, the picture from the futures pits when "squawk box" comes right back. boss: y'know, geico opened its doors back in 1936 and now we're insuring over 18 million drivers. gecko: quite impressive, yeah. boss: come a long way, that's for sure. and so have you since you started working here way back when. gecko: ah, i still have nightmares. anncr: geico. 15 minutes could save you 15% or more on car insurance. welcome back. let's go to the futures pits in chicago. bob iaccino of lotus broke yaej group.com is with us. 1.24 in euro and oil is going down. it's interesting, bob, but i don't know if you can sdmran it to me. >> it's interesting. do you remember the movie "a fish called wanda". >> yes. >> michael taylor tried to kill the woman with three dogs and one of the dogs would get killed. that's what i feel like. every time i walk out with a dog, somebody drops something on one of my dogs. it's been traumatic. we talk about the investor that got trauma advertised in 2008. we talked about them last week, trying to get back into the market, trying to find an openling and then something like last week's flash crash happens. the last time i was on, i talked about a strong 2010 in toward the end of the year. i still believe that from a standpoint of earnings, but you know, i have to see some verb. ite not seeing any verb in the market. >> it's weird, because we came back strongly on wednesday. it's like, wow, this is unbelievable. look at this. look at technology. and then yesterday, just been to the close and down today. it almost looks like an inflexion point where we made it back 75%, 80%, now all betts are off. >> it was strange, joe, because did that 400 points feel like 400 points? i remember glancing up at the tv every 30 seconds and i just couldn't believe that we were rallying the way we were. phones weren't ringing the way they normally were. there was no volume to it, no excitement behind it. it almost seemed like a sigh of relief rather than a rally. getting back to where we were before the flash crash, imagine that shock from the retail investor, the investor in the street who now seems to be saying, we're back to where we were before. i finally got back in. just get me out. i don't want to be involved any more. that's what this sell-off feels like. >> can you explain oil? >> yeah. i mean, i think it's just a global weakness scenario. explaining oil has become very difficult. over the last five years, commodities traders, stock traders have had to become oil-specific experts along with gold and metal. it's funny -- >> look at that, do you have a monitor? down 15%. >> yeah, i do. >> up 8%. yeah, just in the last month. that's a complete disconnect. >> yeah. i don't think there's a belief in the global recovery any more. and i think that seems to be affecting oil affecting oil prices. having said that, i'm a big believer in little antidotal evidence. when i walk in the trading floor every morning, i like to see what charts people have left up from the night before because i'm one of the first ones here. what i see a lot of lately is silver. they think gold might be overdone. i think gold will come off from 1,300 once it gets there. silver is the chart i have seen up more than crude, more than gold, more than the s&p in the home of the s&p. >> bob, thank you. >> thank you. >> you are very welcome. how many dogs do you have left now? >> one. >> you have one left. all right. >> she's deaf so even when i dwroel get out of the way she can't hear me. >> good luck. >> the old steven wright joke. i had a dog named stay. not working for you? the ceo of mining giant bhp billitton. marius kloppers. take a look. european trading this morning under some pressure. this comes after a lot of weakness in asia. the ftse is down by 1.7%. the cac 40 is off. >> if the euro acts like this, what does it say about how 4x traders feel about the rescue plan for europe? that's the proxy for thumb's up or thumb's down on the efforts of imf and ecb. >> comments from german officials say that greece can adhere to the austerity measures but they have to come out and reassure people who have doubts about that. >> tortoise walks into a bar and orders a drink. bartender gives it to him. i was wondering if you have seen my brother. i don't know. what does he look like. that's it. go ahead. >> did you understand that at all? >> all tortoises look the same? >> if a tortoise orders a drink from a bartender and then says have you seen my brother, the bartender would remember whether -- >> maybe there's a lot. maybe you would say you're a turtle, why are you talking? >> how about the ten-inch penis, do you want to hear that one? we saw him the other night. >> we saw jeff at the party. >> he knows that we play that all the time and he loves it. >> he laughs just like that. >> he laughed over our shoulder and that made all of us turn around. exactly like that. >> we'll get more top stories and "squawk" goes back to school. our guest host today, harvard professor is here. he predictsed the failure of large banks in america and now he says more bailout for european countries are coming. our guest host former imf chief economist and harvard professor ken rogoff will tell us which country can be next plus a overhaul on ratings agencies. >> digging into the economy with bhp billiton. we get his look out for the economy and tells us what kind of demand he's seeing from customers. long-term strategy. pimco has a new lookout for the next three to five years. this is an exclusive interview you can't afford to miss. >> the facts confirm that we're on a bumpy journey to a new normal. >> this hour of "squawk box" begins right now. good friday morning. welcome back to "squawk" here on cnbc. i'm carl quintanilla along with becky quick and joe kernen. we have the former director of research at the imf and a professor at harvard. we'll get more from professor rogoff. markets and global economy in just a moment. first a look at the morning top headlines. >> futures under pressure after what we've seen in asia and europe. the euro actually weakening even more in the last hour or so and that's put additional pressure on these futures. dow futures down by 59. nasdaq down by 11. s&p down by seven. the senate approving two amendments to the financial reform bill. the new rules seek to curb conflicts between ratings agencies and wall street banks. there will be a clearing house acting as a middle man between the credit issuers and ratings agencies. they have all come under fire for contributing to the financial crisis. the s.e.c. is investigating when wall street banks used their own money to bet against municipal bonds they sold without proper disclosures. "the wall street journal" says the regulator is examining trades of default swaps. the paper reports that the fact finding probe may not result in any formal action. also, spain's too biggest unions are planning a one-day sector strike. this is aimed at bringing government costs under control. the strikes are scheduled for june 2nd. spain's government is looking to close its budget gap by cutting public investment spend big some 6 billion euros. >> investors looking ahead to fresh economic data this morning. our guest host in studio this morning, ken rogoff, professor of public policy at harvard university. ken is the former director of research at the imf and author of the book "this time it is different" which is part of the conversation we were having earlier. one second. bear with me as i welcome professor rogoff to the show. we were talking off camera about whether this debacle in the eu could have been predicted. i wanted you to say it was obvious from the start because i have read some of your stuff. when you give almost a reserve type currency to greece and allow them to borrow it at these low rates that are really credit worthy institution deserves, you are just asking for trouble down the road. you don't think the entire system is flawed. >> well, i mean, it was nuts to let greece and portugal in as quickly as they did. it wasn't in anyone's interest. they had the 60% debt limit that didn't come close. they just looked the other way and decided not to worry about it. >> those numbers were a joke. >> they weren't meeting them even with the official numbers. so it wasn't -- greece had been at high inflation, default not that long ago. portugal had an imf program as recently as 1994. that's recent in the scheme of things. there was this arrogance. i read the paper the other day talking about they want to add more countries given the situation. it's just not in anybody's interest to expand this thing so fast. >> and now shock and awe and we're at 124 on the euro. >> the german people were in shock. the weakening euro isn't necessarily bad. they need to grow. it's not growing. having the euro plummet is fantastic for germany. >> that is still people voting with their feet on whether they believe that the bailout is going to work, no? >> for sure. for sure. i mean, the euro declining is not saying, hey, we're not worried about what the ecb is doing. we're not worried about that we used to think that everyone was going to be like germany and now we're worried that everyone is going to be like this. obviously it's not good from that perspective but i do think that it's really part of the medicine for europe here. their weaker currency may give them more growth. hurts us in the united states, by the way. we compete with them across a lot of fronts. >> you wonder how much -- i look at oil and wonder what that's saying. supposedly we're not supposed to worry about europe. it's not a big enough player to counteract china and emerging markets for us here in the united states. why is oil acting like there's a global slowdown right now and is this a time to invest in equities anywhere if europe is a problem? >> first of all, joe, the standard & poor's 500 is sitting higher than it was 15 months ago. we're still in a bit of a corrective phase that was triggered primarily by the situation in greece and crisis with the euro. so the markets are in a very fragile state. the price of crude oil will reflect sentiment in the market and right now it's a derisking sentiment. now, you are correct that europe -- this recovery has not been about europe. it's been led by the emerging markets. a strong export led recovery in the u.s. it's not all about the u.s. consumer. it will not be an even road to a higher plain. it's going to be bumpy. this is a bump. it doesn't mean it's the end of the recovery. we're going to have positive gdp growth this year. we're going to have strong profit growth this year. and maybe next year, too. that's the current consensus. that may change. >> should we worry about investing in the stock market because our recovery will be impacted by a slowdown in europe or because of the worry about a spreading contagion of credit defaults that eventually goes to spain and then maybe u.k. and then we look at ourselves and what we've done here? >> this gets back to the rocky road part of the equation. let me say this. investors need to pick their spots. now, i am underweight consumer discretionary stock because of concerns over wage growth. i'm underweight bank because i'm not completely comfortable with capital adequacy measures. that doesn't mean the whole stock market is going to be bad. if you're concerned about inflation, stocks offer you some protection over a period of time. if you're concerned about monetary debasement, stocks offer some protection. during periods of mild deflation stocks have done well, too. they won't work under every scenario but for investors who can stomach the volatility stocks at this price level which is average valuation level for stocks will make sense. now, gold might be more timely for those with a short-term horizon. >> this a reflection of the end of the last financial crisis or is it the beginning of what we're seeing in europe or the beginning of a new stress? >> well, it is a very typical aftershock to have sovereign debt crisis follow banking crisis and we found that we had been talking about that for years. it's not surprising that government debts build up. they can't all afford to pay for them and anything that shakes up the global economy is not good for highly indebted players even if it had been completely something else. europe has been incredible. which way will it go. there are all these political variable. it's hard to call. >> that's a sarcastic cover. it's not different this time. it is but it's not. i'm confused. a sarcastic cover but it is different. >> people always say this time is different. it's supposed to be sarcastic. >> it rhymes with things that happen in the past. >> absolutely. this was a called shot. i had been shocked if we hadn't had sovereign debt crisis. there's this extra layer. europe is huge. it's a bigger economy than the united states if you put it all together. and so of course -- >> we can rely on other places or not. >> we compete with europe on a lot of fronts like our biggest exports capital goods. we compete on that front. by some measures they are our biggest export destination by value added measures. it's important. i don't want to say we'll melt if they have a problem. we won't. i think howard had it right. it's a bump in the road. it's a significant one. typically it's also true that these are aftershocks and not something that just goes from bad to worse. >> could this fall apart? the trillion dollar bailout itself, we heard that there are all kinds of things that have to get passed by the german parliament. is this necessarily a done deal? >> it's a fig leave for them to bail things out. it's not a done deal. when you look at who put in the money, it's not like germany put in all of the money. portugal did. greece did. spain did. ireland did. italy. i mean, you know -- >> nothing on the scale of what germany put in, right? >> to get to the total number, germany didn't put in nearly half. the germans know at the end of the day they'll pay a lot more of it and there's a bit of flavor of california bailing out arizona here. >> does the ecb now risk suffering from some sort of credibility crisis or do people have faith in the institution now that they seem to have flip flopped on their principles? >> i think embarrassing is not the word for it. it's a traumatic moment when on one day they say we will not do this. >> we haven't talked about it. >> we will not buy debt. we haven't talked about it. a couple days later give us what you got. it's a big deal. that said, i think things have gotten worse. what were they going to do? i thought they should have let portugal and greece go before doing this. >> by go you mean restructure? >> yes, in some structured way. not overnight but they should have smoothed the path for that. they were going to have to do something like this. this was coming. there was no avoiding this. the question is where do you draw the line? i imagine at the ecb there was a lot of debate about that. we saw that. there was disagreement. >> would it have been possible to let them restructure and foam the runway and not cause a collapse of confidence among even northern and western european countries? >> it was risky. they couldn't do it overnight. what they really needed to come in and say we were going to put in safeguards. nobody even believes what they did. by making it so expansive and by saying we never made a mistake, they are speculators. there are speculators against the euro. if we shut them up for a while, everything is fine. that's nuts. if they really are drinking the kool-aid and believe that, then we have something to worry about. >> and s&p and moody's said your debt doesn't look that great and then the cdo -- there wasn't a cdo they didn't like and tried to say something about europe and we're going to get new ratings agencies. >> who regulates the ratings agencies? it's not just the united states. what the europeans do matters to. they care a lot about it. if they say something too aggressive, they'll get stepped on. they're in a tough bind also. >> we have to say good-bye, howard. i was going to -- are we in -- are you a pimco or blackrock guy? >> i think we can do 2%. is that new normal? i don't know. i think we can live with that. >> that's kind of like pimco both sides of your mouth. >> where's the over/under? three? >> do you think we're going to be better off in two or three years or worse off on the fiscal front? if you think we'll be better off, you'll be okay in stocks. >> goodness. >> all right. ken is headed for the hills. thanks, howard. >> any comments or questions this morning, be sure to e-mail us. our address is squawk@cnbc.com. you have gotten good jokes this morning. >> a pirate walks into the bar -- i can't tell you that one. >> when we come back, awards to the finest research teams on the street. one of the winners, stife stifel nicolaus. >> time for today's aflac trivia question. the 17th amendment overrode the power of state legislators to elect what federal officials? the answer when cnbc's "squawk box" continues. how come? well if you're hurt and can't work it pays you cash... yeah to help with everyday bills like gas, the mortgage... ...and groceries. it's like insurance for daily living. so...what's it called? uhhhhh aflaaac!!!! oh yeah! that's it! aflac. we've got you under our wing. a-a-a-aflaaac! >> now the answer to today's aflac trivia question. the 17th amendment overrode the power of what legislators to elect what federal officials? the answer, united states senators. >> we were going to show you futures but maybe the more important number right now is european markets with ftse down 1.7%. a lot of skepticism about fiscal austerity. and then there's this report in the spanish newspaper that last friday when they were all talking about the greece package in brussels, sarkozy threatened to exit the euro zone if they didn't pass the greek bailout package. >> if people are already talking about pulling out of the euro zone? >> according to this one newspaper. who knows if it is so. >> it goes to show you that france is one of the most successful economies in the euro zone which is a common carry on the entire euro zone, is it not? >> they had the french zone in africa they were in a currency union with before. they can go back to that if they don't like the euro. >> france is not germany. they are probably number two but it's a distant second. >> distant second in credibility for sure. >> good yogurt. creamy sauces. wines. wines aren't bad. all right. >> the senate moving forward on financial regulation reform approving key amendments. joining us now is the ceo of stifel nicolaus which came in second in the 2010 rankings of research firms. ron, congratulations. that's a big accomplishment because this is a firm outside of new york where a lot of times those rankings start out and focus on the new york banks. >> we were also number one in "the wall street journal" rankings. we invested in research analyst and not cdos so we've done well over the last couple years but thank you. >> what do you think about regulation? it's looking at a lot of your competitors a lot more closely and as you mentioned you focus on the analysts. >> financial services reform i think they used to say it's the economy stupid. i think it's synthetic cdos. people are not focusing on the fact that the real problem here that we need to look at is synthetic cdos. there's no security out there where you can bet trillions of dollars and not impact supply and demand. "the wall street journal" has a story that says cds is essentially insurance. the key word is essentially. it's not insurance. this concept today that you can bet without having an insurable interest in muni bonds is crazy stuff. we need to focus on this. >> is it okay if it was regulated and on an exchange and people watched it closely? >> and margin involved. >> there should be margin. even the commodities market ultimately requires the delivery of the underlying commodity. in this case, you created a huge market where you can effectively bet without delivering. >> you can do the same thing on the s&p futures. should we not have futures trading? >> they're not a one muni bond. i can make the argument on a huge market like that that you can make bets one way or another but the futures do show open interest and you have an idea of what the open interest is. synthetic cdos were not around ten years ago. it's a huge change in the liquidity and the way people bet on the markets until we figure that out, all of the other discussion is -- >> what about the notion that you need to give bears an avenue to express their views on the market and if it happened earlier, we wouldn't have built the bubble. >> or those that save billions of dollars by hedging their risk. >> key point. bears should be able to -- >> or hedgers. >> think about it, you're hedging an interest that you own. as long as you hedge to short a stock, you need to take delivery and have possession of the stock. to create a naked short on anything with no underlying collateral being taken back puts too much leverage on the system. >> they can have margin requirements. that's hard to see why they don't and they're large enough that i don't know -- and have them on markets. have them trade transparently. there has to be a way to do it so they know what they did. that's for sure. >> we've had markets that have operated for 100 years and we have not except for the last ten years allowed naked shorts betting against securities that you don't own. synthetic cdos allow that occur. the financial services reform -- i don't know the answer but we better look at that before we talk about the other stuff that really is -- >> there's still questions about what happened last thursday in the markets. we don't know exactly what caused that sell-off and what brought things back. there are a lot of questions that are out there but do you think the regulators are at least on the right track? >> i think that when you see things talking about fiduciary duty and understand that everyone needs fiduciary is not understanding how markets work. i don't think they're on the right track. everyone's hearts and minds are in the right place in washington but there are core issues we need to deal with. not that investment banks have to be a fiduciary. every security is buy and sell. who am i a fiduciary with? >> you disagree with some of the s.e.c. points they've made against goldman and morgan stanley? >> absolutely not. i don't know what happened at goldman. i won't make a judgment on two e-mails. we have operated for years under fair and equitable principles of trade and broker dealers need to do fair dealings. if you believe what you read, my analogy would be if you want to bet on a coin flip and i'm flipping the coin, that's fine unless you're handing me a two-headed coin. then i might need to tell you, carl, it's a two-headed coin. if i didn't do that, there are laws in place to deal with that. >> the other peg would be i want to see the coin first. it's up to me to look at the coin. >> yeah but i think most people think that if i'm an independent flipper of the coin you won't always look at the coin. it's just -- the point is there are laws in place to deal with that. in fact, cases have been brought under laws. we don't need to write new legislation where there are new laws in place. we miss the core fundamental problem of what caused the financial crisis in my opinion. >> ron, it thank you very much for your time. really appreciate it today. >> do you remember albert brooks? i say it here and it comes out here. i'll do that for robert who sent this in. a termite walks in and asks can you tell me where's the bartender? coming up, an exclusive interview with marius kloppers. "squawk box" will be right back. >> as we head to the break, here's a look at the widely held stocks. "squawk box" on cnbc returns after this. ♪ it's finally friday and i'm free again and i have my motor running for a wild weekend ♪ ♪ it's finally friday i'm out of control forget the working blues and let the good times roll ♪ welcome back. look at markets. we're off the lows but sustained weakness as we go into a friday. a lot of concerns about europe which we'll talk about in a bit. shares of video game makers may be worth watching today. research firm mpd says video game sales fell 26% in april compared to a year earlier. 26%. that's the fourth biggest year over year drop on record. industry was hurt by a lack of new game launchers. california governor arnold schwarzenegger will outline plans for budget cuts today after the state legislature failed to take action to close a budget gap after four months of debate. as if greece didn't have enough problems, a greek tourism industry group is expecting a 7% to 9% drop in revenue this year. the group says the drop in revenues come from lower prices. tourism accounts for nearly a fifth of the greek economy. >> the strikes don't help much either. >> you would think americans would go in droves. >> they're not doing themselves favors when you hear about people getting killed in street riots. >> where do you keep your yacht? >> what does that mean? >> you like the good life. the way the greeks did in the early days. >> i want to a lot of places. is that the first place you go? >> you're not defensive about this. >> i'm not. >> let's get to the trading block for a look at what's moving oil, gold, foreign currencies. the director of currency research, tom o'brien with gold report, kyle cooper, director of research for iaf advisers. boris, you are using the words grossly oversold on the euro, right? >> yeah. >> why? >> technically. there is no reason to buy it. we had a rally in late asia today and it ran out of momentum and 125 was too tempting a target and shorts took it out. this morning we took out the 209 low so far. you know, the question of it being grossly oversold is a technical bounce. the trade is so crowded and sentiment is so negative against the euro right now, the put/call ratio is at an all-time high that we'll need to punish the late come shorts for a bit. long-term structurally it looks weak. >> what are traders trading on the most? >> you know, if you take away one thing out of this whole currency crisis, it's that cash flow is king. basically i think the critical idea here is that deficits are not even -- not even debt to gdp but it will an issue of trade. that's why u.k. is vulnerable as we go forward. we're talking about france. france has a huge amount of cds outstanding against it. there's a lot of bets against u.k. against french debt as we go forward. and whether you think these synthetic tools are good or bad, they are signaling the speculators feel there's a tremendous amount of credit risk outstanding against those entities and that's driving currencies lower. the only currency amongst majors that have good support is the swiss. they went to negative it tif intere interest rates. >> it's a good problem to have. others wish they had that problem. tom, let me turn to you. do you think gold well above 1,200 is due for a pullback? >> i do, carl. this is why. we have a deflation event happening right now. there will be huge currency event. the dollar right now, dollar index, wants to go to 89. where is this event going to come out of? it seems copper is off the highs. xau and indexes for equities can't make the highs. we have gold pushing 1250. that tells me we have an event that will happen here and now. it's a debt event. everyone is broke. so the bottom line is that you don't want to be long gold when gold pulls back. gold likes to pull back 100 to 200 bucks at a time. >> the dollar will win this round you think and gold hits what? do you think it might go to triple digits or close? >> i think gold will pull back to 1,075. i think it's a big event. it's showing right now. it's showing today. it was showing last week. that last week was a currency event. that was the yen going. that was the euro going. this dollar, people are fearful. they're going into the dollar. the dollar is going to win this round. they want to put their money into the dollar. >> you have been long gold since 300? >> long gold since 282.50. that's right. >> i can't believe what i'm hearing when we book a gold bug we've never had a gold bug come on and say gold is going down. >> two hours before the producer called me, i put out for my clients saying take that money off the table. i told them that. that's the reality. the market is deviant. no doubt about it. >> if we're out of money -- i heard people say the world is out of money. we already spent everything living the way we have. that would seem to be -- you would still buy gold even if there was a deflationary event. >> i wouldn't buy gold -- >> as an answer to the currency. >> it will continue lower. the dollar is the best currency and people go to it. if we learned anything in the debacle in 2007 and 2008, that dollar went higher. gold went to 681 coming off 1,083. the dollar still buys you dollars. >> that's painful. let me get kyle in. i wonder if you can address what's happening with gold and what's happening with crude. is that just the difference between trusting paper assets versus trusting industrial assets? >> i think boris nailed it. cash flow is king. right now you just have many more financial players than you do physical players in the crude market. with the dollar strengthening, it's been an inverse correlation between crude and the dollar and with the dollar strengthening and as your other gentleman just said regarding the dollar is the best one out there of a weak lot. the dollar strengthened significantly. crudes off a substantial amount. the dollar flow from financial sector overwhelms the physical players. >> where do you see it short-term? >> i think we can continue lower. the inventories in cushing oklahoma which is a physical delivery point for the nimax crowd market are record all-time highs. i put out weekly charts and had to adjust the scales on my charts to accommodate the high levels of storage there. so i think that it becomes reinforcing and now with the crude contango, crude is trading $10 higher than it is for current spot month. that's huge financial incentive for anybody who can physically take crude to go arrange storage, put it into storage, sell it on the future and make a huge profit. that almost becomes self-enforcing so you have inventories continue to climb increasing money flow on the financial side and there are more of those than physical players. you have physical players buying adding to storage, reinforcing the view that the financial players want to sell it. it will stop when it stops. >> what about this big spill in the gulf making people think we won't have as much offshore drilling in the future and won't get as much oil. won't that put upward pressure on the price? >> it could. we only produce 1.3 million barrels out of the gulf of mexico. it may slow stuff down but there's a lot of production out there and that production hasn't slowed yet. unless it physically affects the flow, that becomes a future issue and not really a current issue and that really could be a justification for prices higher later. we have plenty now. it might be an issue in the future. it's not today. >> tom, appreciate that. kyle, thank you very much. boris, thanks, guys. interesting stuff. >> it is getting more jokes that i'll tell you off camera. i have another good one. >> bhp billiton ceo will join us here. don't go away. >> as we head to the break, check out what's still to come on this morning's show. "squawk box" returns right after this. as having to decide to go for it? at the hartford, we help businesses of all kinds... feel confident doing what they do best. by protecting your business, your property, your people. you've counted on us for 200 years. let's embrace tomorrow. and with the hartford behind you, achieve what's ahead of you. ♪ mining companies up in arms over australia's proposed plan to impose a 40% tax on all resource profits. joining us is marius kloppers, ceo of billiton. we think of australia and how well it's doing and the great resources. this is sort of biting the and that feeds the nation? why the 40% tax? >> i think what you said is what the australian public feels. the mining industry carried australia through the recession and i think this tax is opportunistic to fill a budget gap. >> would you call it like a windfall profits tax? >> i would hate to call that. we worked hard for those profits over the years through ups and downs but this is clearly what i would call a retro active tax grab. >> a retroactive tax grab. i like that. it's done. it's official. it's not going to be repealed. how long will it last? >> the plan is to table the bill in the middle of next year. this a consultation process. you have seen the mining companies are up in arms about this. we think it's unfair. we think it will limit investment in the long run and decrease prosperity. >> is the government now left of center in australia? >> we've had a labor government for the last 2 1/2 years or so. >> you would call that a stark contrast to the previous? >> there's certainly a long history both on labor and liberal side of tax stability in australia for decades. this is a very big change. >> what are the consequences? what happens now? maybe some of the unintended consequences. >> the unintended consequence here is that firstly if you take something where there's been an implicit agreement not to change the rules of the game, people are going to worry about what comes next. second thing is if you put your tax at a level where it's not the same as brazil, canada, the other mining countries, then people are going to over time think about moving their capital to different places. >> are you thinking about that right now? >> we certainly are an international company and i think an event like this gives you pause about the stability and you certainly think about where are you going to invest the next dollar. >> what's your take on china right now? is it hoarding? is there an imminent collapse? >> a lot of people here in the u.s. -- i was at a mining conference this week. a lot of people worried about a property bubble and they sort of extrapolate the u.s. situation to china. my belief is that it's different. it's not been used as a source of consumer financing. china will let the steam out of the market but we are very optimistic about that market. >> still? >> absolutely. certainly from a resources perspective we think it will keep on growing. i'm far more concerned about discontinuities. >> you don't worry about -- you can't, obviously. >> we have 100 people or so doing business over there selling $50 billion worth of product there a year. it's been a good place for us. we've done good business there. >> ken, is it different this time in china? >> i'm with you on china being a good story and if you're making a 15-year investment into mines, you just forget it. china will provide it. no discontinuities. they're an emerging market politically, socially, financially. i just am skeptical that china is this time is different story that we won't have a business cycle anymore because we have central planning. >> no doubt they're going to slow down the economy to below the 10% mark. i think the chief aim is to just keep inflation under control. the indicator i watch is what is the inflation level and that's what they -- >> i'm picking up on discontinuities remark. that's what they're trying to do. will they always be successful in engineering. gentle slowdowns is tough. >> people feel they will overreact at some point in time. over the last couple business cycles they've been remarkably effective in their policies. >> absolutely. >> all right. people don't drink fosters in australia? >> i certainly have never. that may be because i'm so african. >> never mind. so you can't answer -- you've never been to an outback steakhouse in australia? >> as a vegetarian, i probably haven't done that either. >> this isn't working at all. >> you are off the rails. >> who will win the world cup? can the u.s. beat u.k.? >> i don't know. i'm going down to the games and i think it will be a great party. >> did you know you would field these questions? >> i had no idea. as an australian you have to be equipped for sports questions. >> have you heard of victorian bitters? >> i have. >> i rest my case. up next, we have more on pimco's report on long-term outlook. why ceo mohamed el-erian is convinced we're on the road to the new normal. stay here. "squawk box" will be right back. this is an annual process at pimco. they meet with insiders and they argue for 2 1/2 days to try to figure out what exactly is happening. i got a chance to catch up with pimco's ceo mohamed el-erian yesterday and ask him about the process and the report's conclusions. >> once a year we've been doing this for over 30 years, we go away and we think as a group what is likely to happen and not what should happen because that's the easy part. what's likely to happen over the next three to five years based on three inputs. first, outside speakers. we want to have outside perspectives. secondly, we ask our brand new staff who haven't drank the pimco kool-aid and don't know what the politically correct thing is and we debate and discuss vigorously and we come up and try to figure out what is likely to happen over the next three to five years. think of it as establishing the guard rails on a freeway. you want to make sure that whatever you do every day, which means what lane you're in, how fast you drive, that is consistent with the way the freeway is heading as a whole. that's how we think of it. it's a guard rail that we think should govern how we position ourselves over the next three to five years. >> what's the most likely scenario over the next three to five years? >> it's a hard one. we are more convinced having reviewed all of the research and information that if you look three to five years, we're on this bumpy journey to a new normal. we say be careful because the distribution of outcomes is flatter so there could be many different outcomes and details -- risks are fatter. but basically we are all living through a different world, becky. and every day we see evidence of it. just what happened last week and this weekend in europe is yet another evidence of something that was unthinkable that happened and we expect that there will be many more unthinkables in the next three to five years. >> did the giant aid package, the $1 trillion, did that avert problems and chaos for good or is this a temporary fix? >> we fear it's a temporary fix. it simply is throwing more debt at debt already. the issue is one of debt and solvency. liquidity can help you for a while but liquidity is not a solution to a solvency issue. >> and the new normal, that's the most likely scenario to come out of all this? >> that's the most likely but we have to spend a lot of time reviewing and looking at it again and the hardest thing is not noting that things are different. we know sovereign risk issues are important. we know regulation is straining. we know unemployment is high. the recovery isn't as robust. it's how you put it all together. this is a time of change and people have to navigate it carefully. >> that means you're not all in on the new normal. it means you take new normal as most likely scenario but you have other bets placed too. >> when you get new information, you have to be brave enough to step back and state your prior so in the piece we put out we said these are prirs. do they con fimpl or do they supplement? absolutely. this is -- you should not be at a certain view if the facts change. we're on a bumpy journey to a new normal. >> that's mohamed el-erian talking about this rigorous and thorough process we go through every year at pimco to come up with three to five-year outlook. they bring in outsiders and one of the outsiders they brought in this time around is our guest host today, ken rogoff. professor rogoff this is interesting to see how he had do this. they try to bring in outsiders and people who maybe aren't drinking the pimco kool-aid is how mohammad put this. he would like to see outside interpretations and have people bring up these ideas. they agree their on the path to a new normal and this is a very, very bumpy road. >> i don't think i ever met such a big group of people that actually read my book opposed to just bought it and put it on their desk. it was amazing. mohamed el-erian is very articulate. i first met him when i was at the international monetary fund and i'm embarrassed i didn't know who he is. this guy comes into my office and new everything. he was at harvard as head of the endowment there. very impressive team. >> one of the things they mention in this secular outlook we operate with reduced tolerance for policy errors and a new model of state capitalism that's being formulated on the fly. do you have a lot of concerns about that? >> i mean, the state capitalism is more to me china getting bigger and we're not and so sort of a weighted average of the world is more towards state capitalism. i mean, in the united states we're certainly taking a shift toward europe. i don't know what europe is doing. i can't tell if they're out drinking latte trying to decide what to do with their debt. i think the big shift is that you have these countries that are state capitalism already getting bigger and that gives it a bigger voice in the world. >> ken, thank you very much. we'll talk more about this again. ken is our guest host today. >> when we come back, the ceo of the chamber of commerce in the u.s. on the trade mission. find more partners, create more jobs. tom donahue will be our special guest. of all of the american titans we profiled this week, google is the youngest. how the search engine made it big-time when "squawk" comes back. rising above the day-to-day swings of the market. pimco's mohamed el-erian providing an outlook for the next three to five years. more of pimco's road to the new normal. >> normal! >> the youngest american titan. google, the name that transformed an industry. now the search engine took the fast lane to become a profit power house. >> breaking news about the american consumer. the government's report on retail sales will be released at 8:30 a.m. eastern time. "squawk box" begins right now. ♪ >> welcome back to "squawk box" here on cnbc, first in business worldwide. i'm joe kernen along with becky quick and carl quintanilla. our guest host today ken rogoff, professor of public policy and economics at harvard university. a former economic counselor and director of research at the imf. he's with us for the rest of the show. he has a new book out which i'm so confused because it's called "this time is different" and it's sarcastic because this time it isn't different but it is different. is that it in a nutshell? >> i guess. >> the week will end with a flurry of economic reports at 8:30 eastern we have april retail sales. a headline number is expected to rise though not it at the previous month's rate and then things happening after our show is off the air. at 9:15 industrial production. 9:55 consumer sentiment. 10:00 eastern business envicinie inventories. let's check out futures. not looking good if you're long this market. i know you will watch it for us. carl? >> just play devil's advocate. s.e.c. is reportedly investigating whether wall street banks used their own money to bet against muni bonds that they had sold without proper disclosures. the journal says the regulators examining trades of municipal credit default swaps and the probe may not result in any formal action. banks borrowing less from the feds emergency lending program last week. more evidence credit markets are improving a bit. banks averaged 5.2 billion in daily borrowing. down from 5.4 billion the previous week. sharply below the high of 110 billion a day during the height of the financial crisis. >> pimco is out with its new three to five-year global outlook and after 2 1/2 days of rigorous debate, they came up with the conclusion that looks similar to the conclusion from last year. i got at chance to catch up with pimco's ceo mohamed el-erian in california yesterday and asked him about the like slly scenari over that period. >> we're more convinced reviewing all of the research and information that if you look three to five years we're on a bumpy journey to a new normal. we say be careful because the distribution of outcomes is flatter so there can be many different details. we're all living through a different world. and every day we see evidence of it. just what happened last week and this weekend in europe is yet another evidence of something that was unthinkable that happened and we expect that there's going to be many more unthinkables in the next three to five years. >> our guest host today is harvard economist ken rogoff. ed, thanks for joining us at the table this morning. we had a discussion going through the morning about this idea of the new normal and about what the risks are right now and where do you come down on this debate? >> well, it's been a normal recovery after a very deep recession we've had a very strong recovery. corporate profits have been remarkably strong. i've been surprised and expecting them to be good but not this good. there still is a business cycle. still a profit cycle. when companies generate profits, they start to hire people and start to expand. i expect that will be fairly normal. >> you expect that trend to continue. there are some different scenarios out there when you look at europe and other risks. what do you think gets us through that? >> there's a lot of talk right now about a double dip in europe. the euro is tanking and that's the bad news. that's also the good news if you're an exporter. everybody knows that before the euro, the greeks would have had just let their currency depreciate. that's what they're doing now. it just happens to be taking it down for the entire euro zone area and i think that's because the entire area has a problem and they're solving it in the traditional way with currency depreciation. >> do we have a global problem with the amount of debt we've taken on? do we have problems that could come back here in the united states on a state and local b e bas basis? >> i talk to institutional investors all the time and they're all convinced this will end very badly. they just don't know when and so they're extremely jittery. it doesn't make much to get them convinced that it's about to end right now. and, look, the ecb will lower the rate to 50 basis points maybe to zero and we'll have three central banks in the world with zero interest rates. that's the new abnormal if you will. and that will keep things going for a while until it doesn't. >> the pimco stuff is in there. it was a year ago when they first said this. you would have to say this is doubling down because the last year did not play out in any way, shape or form, like the new normal forecast that they gave. in fact, if it's a new normal, the new normal would be 80% stock returns which is in no way shape or form what pimco predicted a year ago. they may be right eventually. this is doubling down on a wrong call. >> what does new normal mean? it means unemployment rate will stay high forever which i don't really believe is the case. >> by the end of the year most economists are still expecting unemployment to be well above 8%. >> a i wouldn't disagree with that. >> that's normal. >> i don't think this is really a normal recovery. we should be growing a lot faster given how much we dipped. it's normal for deep financial crisis. the facts stocks have come up is pretty normal. >> the last two economic recoveries were viewed as being abnormally weak. >> jobless. >> as a matter of fact, i think it was about two or three years since until the last expansion until people feel comfortable about the labor markets. >> stronger than you thought and we were crowing about the jobs number. >> i think growth will not be enough to pick up jobs. it's a very long time coming. i don't think housing will come back. i bet it falls further. there are a lot of supports in the economy that eventually have to come off. i agree that we have a sound recovery. >> you are already seeing hiring picking up. if you asked most of the new normal crowd when companies will start hiring again, they would have said sometime in 2011. it's happening already. technology companies and finance companies. americans are really rising to the challenge all the time. they always surprise us. look at the strength of consumer spending. we'll see what retail sales do up ahead here. >> have governments used up most of their ammunition and if there's another big problem? >> i think what the naysayers and bears are missing here is productivity. productivity is the rodney dangerfield of economic variables. it gets no respect. productivity in america is at a record high. productivity determines the standard of living. productivity determines real purchasing power. i think most people will be surprised if i told them and i'm not making this up, real paperwork or inflation adjust paperwork at a record high and nominal term it's a record high. >> as a result of this, what happens to the market not only this year but next year? >> i think we'll turn through the summer. we have a lot of issue that again everybody thinks this is going end badly and maybe end badly this summer. we have to go through these issues with the euro and china tightening and all these bubbles that are supposed to burst any minute. i think the elections will be important and there could be regime change in congress in november and if there is, we want fiscal discipline and move back to sanity. >> everybody is bearish on the euro. everyone is convinced that china is a bubble that will burst. i think you have to look at positive. >> if you are looking particularly where at where people put money, where would you advise them? >> the summer is one of these opportunity times where you don't have to do anything today if you have cash. you just wait for your opportunity. >> opportunity being how much lower? >> opportunity could be like what we had the other day when the market was down 1,000 points. try to put an order in and buy anything at that low, you didn't get it. so i think there will be opportunities like that with volatility where you position and i would go for the global cyclicals. you have 5 billion people out of 6 billion that want to have a standard of living like the one we're enjoying. i think technology companies benefit from that. i think industrials do. commodities. so, you know, i think the global boom will trump a lot of these deflationary bubble issues that are out there. >> thank you very much for joining us today. great seeing you. ken will be with us for the rest of the hour. >> when we come back, the state of trade. the head of the u.s. chamber of commerce. google a power house and profit machine. how they rose to internet dominance is here on "squawk." welcome back. look very quickly. futures have been under pressure all morning. that pressure has increased as we went through the morning. a lot of that kicked off when the euro started feeling some pressure. it dropped down to 124. right now you see dow futures down by 70 points below fair value. also the strong dollar cutting $48 billion from china's reserves as well. the country had previously reported that its foreign exchange reserves rose by 47.9 billion for the first quarter but that understated the true reserve growth of $95.9 million because of currency and asset valuations. the weakness of nondollar currencies like the euro cut the valuations of its 4x holdings as well. our guest host today is ken rogoff. we've been talking with him about where things stand in the market. traders are anxious and moving around quickly. what do you make of it? >> i think the euro needs to drop with their problems. it's growth. if they don't have significant growth in europe, they're going to have huge problems ahead. everybody. now, i will say the euro falling helped germany. i don't know how much it will help greece and portugal. it's not helping them that much. >> makes germany feel like they drag them along even more. >> absolutely. the breaking point comes if it goes too fast and you start to see inflation, the german people will rise and revolt. that's really the powder keg here. they have to maintain stability. >> you say if there's inflation as if there's a question. >> i don't think it's obvious. eventually they'll have inflation. they're barely growing. it's not around the corner. what they are going out and doing is so out of the box i don't know what's happening or what's coming. the major thing going on in europe is they're not growing fast. they have tons of debt by all different measures. everybody. if they don't start growing, they're all going to have trouble. >> all of the fears of hyperinflation. >> next time i'm able to talk to you, do you have a good feeling for why europe is in this position? do you tie it to the state business model their governments have used? >> southern countries are one thing where they just got the euro. it was like giving your kid a credit card. they went crazy. you're a parent and you have to pay for it. >> the best european economy has lagged our economy here based on the entitlement state? >> they don't have population growth in europe and they don't have immigration as freely. it's more inflexible economy. tom sergeant at new york university studied this for years and any kind of shock, good shock, bad shock they have troubles but they're not as flexible. >> u.s. chamber of commerce is launching a campaign today to push for more free trade partners in the hopes of increasing exports and putting more americans back to work. joining us is tom donahue. welcome back. >> thank you very much. >> what are you going say in the speech? >> i'm following on the conversation that's going on there. we're going to say we need to create 20 million jobs in this country over the next ten years. and the best way to get started is to double our exports. we're the largest exporter in the world if you put goods and services together. we need to double that in five years and double it again. we've done it in the past. the president picked up on that in his state of the union address. actually used our language. we haven't done anything since because labor unions are opposed to completing these free trade agreements and moving forward in that regard even though it will create more union jobs than exist here today and we need to get on with it. that's what we need to talk about. >> you say there are 262 free trade agreements around the world, right, involving all countries. we have 17. >> yes. and those 17 -- we have ones with mexico and canada and then we have the central american ones which we got seven in a row. but we're falling far behind. the most important thing to note with canada and eu, they have made trade agreements with colombia. the eu made a trade agreement. our failure to close korea and panama could cost us between 300 and 500,000 jobs in the next couple years because our competitors are creating those trade agreements and will get those benefits and we'll continue to pay the tariffs they won't have to pay. >> i couldn't agree with you more. it's a scandal that we haven't completed the free trade agreement with colombia, with korea. colombia is one of our best friends in latin america and we just spit in their face and don't sign this. it's nuts. >> sign me up for those comments. you know, the president of colombia has been one of our strongest ally. he cleaned up the drug business down there. he's been with us on very, very difficult issues. and just because the unions who spent $450 million in the last election have got the heat on the president and the hill and don't want to move on this or anything else that looks like trade although i will give the white house credit, they're talking about changing our export control rules. talk is important. i hope we make that into action. we want to support them on it. >> what is the difference between the environment obama has operated and the environment clinton had when he passed nafta? labor participation, union participation is down from then. why is their voice more important? >> i think that there are three issues. we think unions were as big a player in the elections with clinton. second, clinton really understood business. he was very aggressive on it. he told the left or a lot of his supporters he was going to do the nafta agreement like it or not and number three, i don't think we had the same kind of economic circumstances of what's clear around the world when countries are in depression or recession, they immediately go to protecting their domestic markets and we need to get over that now because as you heard in the early part of the show, if we don't drive this economy and put more people back to work, we're going to continue to drive up our deficits both short-term and long-term and that's going to give us the kind of problems you're looking at in europe. >> tom, you've had some run-sin with the current administration, how many jobs do you want created? >> 20 million jobs in the next ten years. >> how many are you talking about public sector jobs? >> very few of them. well, at the rate they are creating public sector jobs, they may get larger percentage. >> do you feel like this administration gets it, the difference between public sector jobs and private sector jobs and do you ever really feel like at some point you're talking about wanting to add jobs but you make it very difficult for the private sector to add jobs? >> well, you know, uncertainty is the fundamental issue. you walk in to see a ceo today and say let's add 5,000 jobs in a big company, he's going to say what's the tax deal going to be? what's health care going to cost me? what about the climate deal? et cetera, et cetera. until they get some certainty on that, they're going to say let's use a little overtime. let's use part timers. let's not build into more overhead until i know what it is the government is going to do and that -- >> then you can blame republicans for that. uncertainty would go away if they would play ball and do the things that the administration wants to do and get it done and there wouldn't be any uncertainty. >> if you fix the uncertainty by going in the wrong direction and building a circumstance that it's impossible to grow jobs and grow the economy -- >> it's the policies that aren't being passed then. >> the policies create uncertainty in the mind of job creators. >> i'm trying to get you to say something and you're just -- >> i'm trying to say what i want to say. >> i know. you don't want to get into trouble again or something. you don't want to -- >> i'm in trouble all the time. give me a break. >> tom, always fun to talk to you. thanks. >> thank you. have a great day. >> sugar coat. say what you mean. coming up, breaking economic news. the government retail sale reports. >> and i love what you said. you're from harvard. you're the man. you are the man. and is luxury consumer showing signs of strength? we'll hear if the high end consumers made a comeback. 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[ female announcer ] the new classroom. see it. live it. share it. on the human network. cisco. take a look at the dow futures. quite a bit weaker. there are concerns out there as to whether or not europe will be able to stick to some of that fiscal austerity putting pressure on the euro and pressure on european stocks as you can see the ftse is down by 1.8%. the dax is down by 1.4%. we'll have much more of this to come. when we return, economic data of the morning. this is government retail sales report. we'll find out about the health of the american consumer in just a few minutes. hey, aren't you... supposed to be following that fidelity green line? well, yeah, but it keeps leading me back to my old office. i think it might be broken. or maybe it's trying to tell you something. yeah, but what could it be trying... oh, i left my 401(k) at my old job. and i left a jacket on the back of my door. but i think the line is talking about my 401(k). leave a 401(k) behind? roll it over with the company that's helping more people reach retirement than anyone else. when it comes to investing, never settle. fidelity investments. the government's retail sales report is about to be released. rick santelli is standing by at the cme group in chicago. our guest host, ken rogoff, is in studio. rick, take it away for the numbers. >> and the survey says up .4. twice expectations. a better revision than the last look from 1.6 to 2.1. let's take out autos. what do you have? up .4 which is pretty much what they expected. and a double up revision from .6 to 1.2. if you strip out autos and then pull out gasoline, it's also up .4. i guess it's like a full house. we have three fours here and the revision also just about double on that last look from .7 to 1.3. it's very difficult just looking at the retail sales numbers not to think that thing may be getting better from that perspective. we see preopening equities making a bit of a comeback but still not looking good. the euro currencies depressed over everything at this point and interest rates may be giving a little back but ease ed off. back to you. >> what is it, rick, with the euro? >> i mean, what is it? i can't believe that we just can't look around the globe and see countries that are having issues. see a contagion effect and see a common currency. >> they have a trillion dollars. that will fix it. >> there probably is a lot offed a addicts on the street, one could walk away and say the problem is fixed. did you really do anything for the junky? >> all right. >> well, where do you begin? >> it's up to you. >> let's just say at this point as far as euro goes, the whole family is at the table. there's a fairly vigorous argument going on right now. i don't know how it will resolve itself. it certainly is heated. and all the laundry is out on the table so to speak in terms of getting resolution to the problem. rick is right although today's retail sales numbers, the american consumer is not doing any worse but by the same token, it's overshadowed by what's going on in the euro zone right now. treasury market has a bid to it because of that very issue. and equities will not perform well despite reassuring news from retail sales. >> greece owed a lot of money. now we'll lend them -- i might as well say we because we contribute to the imf. we'll lend them more. they were having trouble servicing debt on what they already owed so now the debt will be more. will they be able to service any of this debt? >> they could but i would bet that they end up restructuring eventually if you look at the imf program they project them being in recession for a couple years having the debt higher than ever rell ative to income d the plans to lend them more eventually it has to go. >> when they were structuring and people don't get what they thought they had, is that banks in other european countries in southern italy? >> they're not that big by themselves. i think what the europeans were really scared of is how to deal with it now. they're hoping they grow. that they grow a lot. and then whenever something happens they can deal with it better and there will be less contagion. when you look at what happened with argentina in the 2000s there was concern that if argentina defaulted all of latin america would default but it happened late enough as the global economy was recovering that certainly there were echos of that. brazil got hit. it did not go as far as people worried. >> if the euro keeps going down, it's easier to pay back those debts. you can pay back twice as much because they are half of what you used to owe if the euro were to go down in half. >> it is easier to pay debts. that is one positive. it alleges diminishes a lot of the investments. the same argument we had about the dollar until of course everybody else's currencies boosted ours by relative value. you're right. >> they can export more. maybe there's a method to this madness. >> the message of the madness is that austerity is the answer in many of these instances but austerity over many years and the notion of how you price many years of promises in the turmoil of today is what happens when you have all your major g-7 countries basically debtors. >> joe, i got to say in being so cheered about the retail sales numbers, you know, the one other country in the world that consumes as big a share of gdp as us is greece. somehow it's not sustainable. our trade deficit is ballooning again. we're not exactly stabilizing. we're try to import our way out of the recession. it's good that it's stable but it's not a long run solution. >> even here you're talking. >> absolutely. >> all right. i'm going to let you guys go. the point you're making is that you're not expecting anything to write home about with equities near term then? >> i think that's true. there won't be anything to write home about in terms of equities technically and fundamentally. the correction continues. it's going to continue because there's a lot of uncertainty out there right now. >> all right. i'm going to let you guys go. unless you have something that can drudge today. what did you say? half a billion dollars isn't that confusing for fannie and freddie? >> half a trillion with a t. yeah. you know, it just seems to me that reforms should start with those minor little things that cost taxpayers a t first. t should be on top. trillion on top if you're doing reform. that's about all i have to say. >> we're also trying to get ken to have liesman and santelli testify at a hearing. >> i'm sure that will accomplish a lot. they don't need hearings. they know what the problems are. they just need to adjust priorities. >> maybe when the president and rush limbaugh play that round of golf you and liesman can go testify. schedule it the same day. >> i prefer just to be right here and talk about the markets in a nonpolitical objective way and actually highlight things when they are smelly and overlooked. how's that? >> all right. all right. good. we were just talking about -- >> i love you, joe. i'm not going anywhere. have a good weekend. >> you, too. i love you, too. i love everybody. >> before we go to a break, let's take a look very quickly at bid/ask for visa and mastercard. we told you earlier today about how the senate is considering different rules. mastercard is down significantly. bid is 214.06. ask is 214.40. there's a similar drop of better than 7% in the bid/ask for shares of visa as senate legislation would force big banks to reduce fees for debit card transactions and stores could offer discounts if they use cash, checks or debit cards instead of credit cards and charge business less for debit card transactions than for credit card payments. this is a cash cow for some companies. american express. let's look at that. down 2%. these are some significant concerns that are showing up in the premarket activity for these stocks. we'll keep an eye on it. >> when we come back, we'll finish up our american titan series from burgers and fries yesterday to clicks and search. talking about none other than google. how the powerhouse went from the dorm room to king of silicon valley when "squawk box" comes right back. ask me. even if you think your mattress is just fine... ask me what it's like to get your best night's sleep every night. why not talk to someone who's sleeping on the most highly recommended bed in america... it's not a sealy... or a simmons... or a serta... ask me about my tempur-pedic. ask me how fast i fall asleep. ask me about staying asleep. these are actual tempur-pedic owners! ask someone you know---check out twitter... try your friends on facebook. you'll hear it all...un-edited. ask me how it feels after 10 years. ask me if it's a good value. just ask me. there are 4 million tempur-pedic owners! and they're more satisfied than owners of any traditional mattress brand. ask me why i feel better every morning. ask me why someone who's never had an ache or a pain is in love with this bed. start asking real owners. ask me how we took the first step... take the first step right now! call or click today for your free information kit with dvd. call the number on your screen or visit tempurpedic.com. tempur-pedic. the most highly recommended bed in america. >> april retail sales out just a few minutes ago. we have the chief operating officer here to talk about luxury. the numbers were strong. big revision for last month up 1.4%. how is the american consumer faring right now? >> obviously sales have improved. first quarter we were up 10.8% which was quite substantial. only slightly below the first quarter. we went down in 2008 and '09. i think there's some pent-up demand. there's no fashion. the weather was great in march. early easter. all those things contributed to a spurt in sales in the first quarter. we expect to see some pullback from that in the second quarter though obviously april will be skewed in the mall sector by apple sales because we all saw the lines of everybody to buy the ipad and we expect big increases and have seen big increases in their sales skewing the numbers a little but things are positive off difficult number last year down 10% in our portfolio last year in sales. but we do expect to be making up a lot of that ground certainly more quickly than if you asked us a year ago. >> also, luxuries held in well. you have seen strong numbers. >> luxury was really hurt. sales clearly declined. luxury has clearly come back. >> back to levels it was three years ago? >> i don't think it's quite back there. you do see the iconic luxury brands. they retooled themselves to somi degree. lower price points within the brand. more importantly, i think the customer is looking for the authentici authenticity. i think the customer is looking for what they consider to be value in luxury meaning quality, longevity and style. they are tired of shopping their closet. she wants a new pair of shoes. >> i heard it was back. i was randomly walking down the streets of new york fifth avenue, madison avenue, lots of luxury retailers. it didn't seem like it was hopping. what gives? >> i think in new york also the europeans have pulled back. i think that it's natural given all of the uncertainty in europe. for instance, in miami, you know, or in florida in general, our sales continue to be very strong and that's a combination of luxury in our centers in florida and the brazilians and colombians. >> and florida bouncing back. >> florida is bouncing back clearly. and it's going to take time. you saw yesterday the related putting two towers in miami in bankruptcy. it will take time to sort of wash itself out. >> new york in particular was really helped out by the weak dollar when things were dragging along. now that you see the weak euro, a strong dollar, how does that wash out for the new york arena in particular? >> i think first of all new york will be driven by wall street more than anything. we see that at stanford as wall street customers get its bonus checks and feel confident, there is growth in that sector. obviously you are seeing increases. when you walk down fifth avenue, it's heavy tourism and that is impacted somewhat by the euro. it has to be. >> for a while you couldn't walk down fifth without giving directions to a european. >> there was a line in front of abercrombie that went around the block. that brand is particularly popular in europe. >> that might reverse itself depending on how far the euro goes down. >> it's not just euro going down, it's uncertainty in their economy. it's lehman like. 90% of our customers still have jobs as long as they feel comfortable they'll keep those jobs. when you look at the mall sector, only 1.5% of the customer households over 150,000 are out of work. as you go down the price point, the amount of unemployment increases materially until you get below 50,000 and there's estimates it's above 40%. >> above 40%? >> our customer is centered in that 75,000 and up household which is the core of the mall business. >> do you see an immediate reaction with something after like last thursday's numbers where the market swooned by 1,000 points because you focus on the higher net worth consumer, do you see a reaction to that? >> not in such a small time frame. if it had continued, i absolutely think you would have seen a reaction. it recovered relatively quickly and people -- you know, people make these decisions particularly discretionary buying decisions with an accumulation of inputs. all of these years different people come in to show how they'll predict consumer behavior and it's difficult because it's a psychological and emotional component to buying decisions but they are complex decisions and they aren't moved easily or quickly. >> what do you think are the most important things to measure to figure out where consumers will be next month, next year? >> in terms of luxury customer, steve said that wall street and the dow is very important. if everyone's 401(k)s and sense of security, that's a measure that's absolute that people can use to create a sense of comfort or discomfort. as long as it sits above 10,000, people will feel relatively comfortable in terms of where they are. housing prices for the most part are stable. there are a few markets where it is still tough. phoenix is still pretty tough. parts of california particularly inland empire can be tough. in general things are recovering. and for instance in l.a., our beverly center is a lot of asian tourism and that's obviously improved a lot as asia continues to be very strong. >> bill, thank you very much for coming in. great talking to you. >> thank you. >> when we come back this morning, the youngest of all of the american titans this week, google. rise of the internet powerhouse. we'll check in with maria bartiromo when "squawk box" continues.  we are wrapping up our week of "american i did tootitans" w google. maria bartiromo joins us with more from new york. good morning, maria. >> hi there, carl. thanks so much. it's hard to believe that google has only been a public company since 2006. even though it is still a toddler in corporate terms, google has reached into all of our lives, one search at a time. for the past decade, one word has come to define search on the internet, google. on any given day, around the world, google accounts for more than 63% of the searches performed on the internet. but being number one is not without its challenges. and today, google has many. in march, google officially pulled out of the world's largest and fastest growing internet market due to government censorship. that left investors wondering, did google make the right call in china? while congress may object google's side, investors are skittish about losing access to a market with 400 million users. as google's domination of the search market continues, it is also attracting attention from antitrust regulators. is bigger necessarily better? google's $750 million acquisition of mobile advertising provider admob, is being reviewed by the federal trade commission. much like microsoft a decade ago, whose stock largely languished while it navigated the antitrust waters, google is feeling the heat. even with expansion, search still accounts for 96% of revenue, making many wonder, is google a one-trick pony? while google remains at the top of the search heap, investors looking for new revenue streams may be waiting longer than they'd hoped. has google lost its cool? google has struggled to keep up with social networking leaders. facebook's monthly page views in march exceeded google's by 3 billion. and apple could be hitting google where it hurts. with the unveiling of their mobile advertising platform iad. how will google respond to these challenges? the world will be watching. and of course, we will be watching as well. we will be looking at these challenges throughout the day today as our "american titans" series continues. coming up on "the call," i'll have an exclusive interview with nikesh arora, president of global sales and business development for google. for more on google, including a detailed financial profile and breakdown, check out americantitans.cnbc.com. and of course, we want to hear from you. find us on facebook or twitter. tell us, have you ever googled yourself? carl, have you? >> i think once or twice. i'd be surprised if someone said they didn't. but you know, it's interesting, maria, these big technology companies that have had explosive growth and are thinking about going into all sorts of different areas sort of reminds you about other blue chips we've watched over the past de or two. >> yeah, it really does, carl. because a decade ago we were talking about the dominance and strength and power of microsoft. but you know, even with that power and strength and really dominance in its market, the company languished for ten years because you had all of these, you know, agencies, government agencies looking at it, investigating various things. and of course, competition all around. and it feels a little deja vu right now. so, the challenges are certainly cut out, but you have to give google credit. it certainly is the powerhouse on the internet. >> we all know that, your expertise with the company. looking forward to your coverage today. >> thanks, carl. >> maria bartiromo. coming up next, parting shots from our guest host, ken rogoff, plus a check on the credit card giants taking a hit this morning after that move by the senate. tdd# 1-800-345-2550 to help with my investments. tdd# 1-800-345-2550 so where's that help when i need it? 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and they say, no, they can't cut that much because it would tell people what they know, and it would scare people. we had the euros in denial, saying no, no, we're not -- dragging their feet.