Transcripts For CNBC Squawk Box 20130226

Good morning. The days top stories, the Global Markets. Political paralysis, the point of that in italy spooking investors and lead to go a selloff on wall street. And then asia follows suit overnight. European stocks are tumbling on upper trading this morning. It is tuesday, february 26th, 2013 and squawk box begins right now. Good morning and welcome to squawk box here on cnbc where thirchx feel a little under pressure. Im Andrew Ross Sorkin along with joe kernen and becky quick. Well, becky quick is off today. She will be back tomorrow. Global markets focusing on italy this morning. Sylvia berlusconis center left rivals won parliaments left house, but failed to win an absolute majority in the upper house. This is creating uncertainty. Berlusconi has ruled out an alliance with former italian Prime Minister mario monti. Hes arguing the results reflect unpopular discontent with stocks. We saw sharp drops, italian yields jumping. Check out early stocks in european trading. This morning, we have red stocks across the board. Germany, close to 2 off and france over 2 and the ftse down materially. U. S. Stocks to drop yesterdays session on that uncertainty in europe. Stocks steadily declined throughout the day. And accelerated losses during the final hour. The dow and the s p tuning in their worst days of the year. Major asian markets also trading lower. Exporters exposure to europe, they were hit particularly hard, as youd expect. And u. S. Equity futures at this hour, we have green arrows and things might turn themselves around today. Fed chairman ben bernanke is going to be heading to capitol hill this morning for day one of his hemp free hawkins testimony. Hes expected to defend the Central Banks bond buying and likely one that automatic spending cuts pose risk. Cnbc is going to have complete coverage all day. And our guest host this hour is ready to tackle all of these issues. This yesterday was thanks. We saw yesterday and you know hes not becky. You did say here with becky. He was sitting right there. He looks nothing like her. Every morning when you say the same thing i know. Andrew and cliff. But before we get to home depot and is home depot is out and were going to do this as quickly as possible. But there will be political maneuvering on what happened yesterday in the markets based on the sequester the. And because people dont watch it as closely as us, theyre going to see the sequester is now starting to come to the floor and theyre not going to tie it to italy because its hard to connect the dots to italy. But we were up like 80 points and people knew full well that there was no talk between the parties in washington and it wasnt until this happened in italy, which shows you that once again the idea that europe and 2013 was going to be a back burner issue, thats not we knew it wasnt really the case. This supposedly is a vote to not go down the paths of austerity and just getting their labor structure more akid to free markets, etcetera. I just wanted to get that out. Steny is going to be on. And i love steny. But you think this is going to become a talking point. I think this will be a talking point for people who say we cant handle the sequester. That italy thing on the sequester. Stock futures up today. Home depot is reporting 68 cents a share, ahead of expectations and revenue is up 18. 2 billion versus 17. 7 billion. Thats pretty big, a 17 billion Share Repurchase authorzation. I dont know the time frame on that, but compared to what the market cap of home depot is, thats still a pretty significant number, 95 billion market cap. The stock, unclear where its going to open, 63. 50 to 65. 87 on that chart. You can see its down, lowes ended down 5 yesterday, andrew. But remember how that was but that was 200 points, up, down, up, down. That was more, i think, more market related. Dont you think . So we blame italy . Can we blame italy on lowes . Well, we can blame the overall market being down 200 points. Ge was down significantly yesterday. It had been up earlier. The dividend at home depot, in addition to that 700 billion repurchase, the dividend was raised by 34 . Its a 1. 8 yielder now. So add another third on to that, it gets up into the close twos. U. S. Samestore sales, do you see that number in the u. S. . Home depot, up 7. 1 . This might be somewhat sandy related. Thats what people are looking tore. But theres also a 53week is it this a 53week year . It is. But youre going to get a bump on the extra week, as well. In this past quarter or this year . No, no, for last year. Maybe it did, then. Samestore sales up 3 in the fiscal year for this year. Lets check on the broader markets this morning. The tenyear is you can see home depot which is now indicated down 1. 66. Were at 1. 87 and that is not surprising that were starting to see a slight slide back into u. S. Assets. And i know that the euro got killed against the yen and other currencies. You can see 1. 30 this morning. Euro versus the dollar. Gold has been in and extended down trend. You know, not really seeing a big rush to when theres uncertainty, you think maybe gold is going to go up. Its up a little bit, 1590. And i dont know what oil should do. Were down about 81 cents now at 92. 30. Okay. Lets go see our friends overseas to find out whats going on with the market out of europe. Ross westgate is standing by in lobbed for the report. Ross. Hey, andrew. I see red there. Thats not a sea of red. Only about 40 stocks out of 600 at the moment on the Dow Jones Stoxx 600 have green on them. You see the top line above me here. So some serious lows. First thing this morning, number of italian banks limit down, as well. Lets show you where we stand. The ftse 100 the best performer. The cac 40 down 2 . The xetra dax down 1. 8 . We saw the ibex in spain down off 3 . Here is the italian market. Ftse mid down 4. 6 . I talked about those italian banks. The biggest players are seeing the biggest losses. Unicredit down 8. 2 , as well. Back into the 7. 3 . And as you might see, expect a sharp spike higher in italian yields. Now, the tenyear yesterday we were trending about 4. 24 . Were currently trading at 4. 74 . We did get up to 4. 86 . We had a sixmonth tbill auction this morning, yields sharply higher than that in january. We picked 50 basis points higher today, 1. 23 . Bid to cover was down, as well. And its going to be important because tomorrow weve got us a fresh tenyear auction for italy and suggestions are that the price will be sharply higher. Well see how demand is. Its going to gear a fresh test for the italy post this italian gridlock projection. Whatever happens in the election, at least some political stability and this was the worst Case Scenario. And now, its questioning the whole Reform Program in italy, as well. Remember, the omt program, which has done so much to support these italian markets and italian yield curves is predicated on having a government in place and can deliver the reform for the ecb. In the back of traders minds is whether were putting in a disconnect before that. Euro dollar got hit, as well. Not quite there at the moment on euro dollar. 1. 3095. A little above it as you can see. But nevertheless, European Assets getting walked at the moment. Thats where we stand. Back to you. Ross westgate, thank you. Lets get to Michelle Caruso cabrera from rome. Get the u. S. Copy elections italian style. Its hilarious. I love the comedian who got twice as many votes as monti. Monti wanted austerity. We dont like it here, either. Then berlusconi, 76 years old, theyre saying its not necessarily that hes alive. Its maybe hes undead. They have a great piece with a lot of key points, but thank god we sent you over there, even though, you know, you like going over there, anyway, but its nice that youre there for this, michelle. What can you tell us . Yeah. What we have this morning is complete and total gridlock, stalemate, there was 130e6d to away clear outcome from this election. There were numerous reports out this morning highlighting what happened here. Let me give you one example of what citi wrote, for example. Shock waves across the market. This is what happens when the worst case comes through. High Political Uncertainty is negative for investments in italy. So this is quite bad. Remember, this is a parliamentary system. So even though someone yesterday got the most votes, they didnt win. That is luigi bersani. Berlusconi and grillo got a lot more votes than anyone expected. Thats what led to gridlock and so no one is in control. Silvio berlusconi, sounding exhausted, called into one of his networks this morning to chat with the news anchors there. First of all, he doesnt think there should be new elections, which is a possibility. When he was asked about Interest Rates rising in italy, he said, dont worry about Interest Rates. They are an invention. The markets are a little bit independent and a little bit crazy. And the fact that the spread is widening compared to german Interest Rates, why do we have to compare ourselves to the germans all the time . We dont have to. He hinted to a coalition with the left. He didnt say he would do it. The other thing he said was he was hoping that mario monti didnt even get 10 , didnt get into parliament at all. He said if that had happened, he would have gotten drunk, but hes decided to give away those bottles of wine to his friends. Beppe grillo, the comedian that you talked about did phenomenally well. He boasted about the fact that they did this without money and without reimbursements for their costs. Remember, if you have a Political Party in italy, the taxpayer reimburses you your campaign costs. There are only two parties in this election that refuse to accept the money. The comedian grillo and then this very small pro market party that unfortunately did not do very well. Why do we care . Remember, italy is the third most indebted country in the world. They owe the world 2 trillion euros. They stopped growing in the mid 90s. Their revenues are going down and costs are going up. They must change that or at some point they cant pay anybody back. Weve seen that movie before. Back to you guys. 128, 126 debt to gdp. 10 unemployment. Yep. Unemployment among the young, 36 . Four straight quarters of recession. I wanted to point that out to you about the young. A lot of those young men, you know, theyre living at home, michelle, which makes it tough over there. I dont know whether you but didnt that do that when the economy was good . Yeah. But im just talking about for your situation. Because anyone that you meet, you just have to make i dont know. Some kind of alternative that i dont know. Anyway, i dont know what to think of italy at this why are you laughing . Never mind. Staying in a nice hotel. Go ahead, andrew. You know, can i tell you, i go ahead, michelle. On twitter a lot of the people are saying oh, the italians are crazy, the italians are this. I dont think the italians are that crazy. I think theyre angry that germany is telling them what to do. They dont like that. They see that as an invasion of their sovereignty. Mario monti was not elected. Whats happening here is theoretically undemocratic. Theyre not completely crazy at this point. Michelle, walk us through what happens next. Thats the part im still unclear about and i think its part of the reason why the markets are as uncertain as they are. So you ask numerous people. We hired a student who is get ago ph. D. In political economy who explain the election process here. What happens next . Will there be another election . Italians are quite physical. They do this. They dont know. There are a myriad of possibilities. Somehow miraculously there could be a government formed because parties that hate each other decide theyre going to work together. Will an election happen in a month or six months . The establishment wants to delay elections because they think if there were new ones immediately, the comedian would do even better and perhaps win the whole thing outright. So they dont want that to happen. So it is impossible to know at this point. Thats why youre getting the reactions in the market. Its so frustrating for italians. Theres a call to change the legislation around elections so that this doesnt happen again. Because they just cant stand the uncertainty, either. So who is in charge, though, of figuring out what happens next . So all the people who got elected last night go into parliament now. And in theory, bersani, the guy who got the most votes, can try to form a government. One possibilities thats been talked about is the one thing that the vast majority of those elected who agree so is changing the laws around election. We may get parliament to go in. They may do something related to, you know, the election process, and then we start all over again. But the people who got elected last night in theory are in charge, but also in theory, they couldnt pass anything of meaningful reforms. I will bet you that you can walk around over there, youre in a beautiful place right now, but youre not going to be able to tell theres a whole lot going on there. Youre right. It wloox like a beautiful day. Italy, how bad can it be . Youre in italy. Let me ask one other question. And the pasta is always phenomenal. Exactly. Anything outstanding in italy, not outstanding in the of course, the food is outstanding. Is there any budgetary issues that need to be dealt with in, say, the next three months . So what we have to watch for is their debt calendar, right . Were going back to the days whenever italy needs to borrow money, how much did it cost compared to the last time . Both italy and spain front loaded as much as they could at the beginning of the year. They were debt rollovers. They knew they had to redo their debt at a certain amount for the year. So they did as much as possible, as they could early on to get very low Interest Rates. And remember, this country has a primary budget surplus. They can live with higher Interest Rates for much longer than greece did, for example, which never slipped on to a primary budget surplus. And the rising so were going to start watching their debt calendar. They were at low rates earlier this week, like historical lows, right . So theorizing from low rates, right . Yeah, exactly. Exactly. 36 unemployment. Ming the young. Remember, its 50 plus in greece and spain. The uk is not good. The two tier system, particularly in italy. Michelle caruso cabrera, thank you. Smart moving sending our chief International Correspondent over there. Management here and her over there. Still to come this morning, searching for opportunities amid this weeks Global Market selloff. Two investment ideas from our guest host and then in the next half hour, weve got squawk box newsmaker former treasury secretary Larry Summers is going to join us. Find out what he makes of the situation in europe and the looming sequester here at home. But first, as we head to a break, check out u. S. Engt futures. Stay tuned. [ male announcer ] it was designed to escape the ordinary. It feels like it can escape gravity. The 2013 cclass coupe. Starting at 37,800. Welcome back to u. S. Equity futures right now. Were going to get back maybe a quarter of some ovs losses we saw yesterday if it were to open there. Its about 58 points on the dow. It wont get us back to 14,000, but its a start. European stocks this morning down in this from 1. 25 to 2. 14 . In france and that is the story. What happened in italy, which well be talking about all morning long along with the sequester. Making headlines, more americans fell behind on their auto loan payments in the last three months of 2012. Transunion, the Credit Reporting Company says the rate of auto rate payments at least 60 days overdue climbed to 0. 4 in the quarter. That remains, though, at the lowest level since transunion began keeping records way back in 1999. Lets get to the National Forecast alex wallace. Good morning to you, guys. Its snow, snow, more snow. Some of the same areas that were impacted last week dealing with it now across the plain states and the midwest. Wichita, still snow there for you. In fact, youve picked up about 7 inches and were still dealing with the snow. More to do with it as we work our way across missouri. And up around chicago. Well eventually start off as a bit of rain. Here is todays forecast. Snow across the plains in the midwest. Working on off towards the northeast as we head on into tomorrow. Well continue to deal with it around chicago, moving into lower michigan. So detroit, youll have to deal with some of that snowy weather and eventually the northeast, again, will have to deal with that threat for the wintry precip, including a good chunk of new england by the time we get into thursday. How much are we talking about . This goes through thursday in the morning hours, generally 3 to 6 inches in that blueshaded areas. But there will be some pockets of 6 to 12 inches. Again, shovelble snow to deal with here. By thursday morning, into the northeast, good news for the ski resorts. But boy, oh, boy, it will be tough to get there with a foot to a foot and a half across parts of new york state. Then theres the wet side of things. Very heavy rainfall to deal with across parts of georgia, into north florida. Weve been tracking strong storms. The area in the red watching for some severe weather. Guys, back to you. Thank you, alex. Our guest host this morning has managed its you manage 30 billion . Not by yourself. Im the top of the pyramid. 30 billion in fixed income investments. Bill cutwater. Thank you for being here. We have a couple of things to talk about. We talk about italy. Do you care . Is the market getting rattled nor the right reasons, for the wrong reasons . I think for the right reasons. Whats pushing policyholders forward is market volatility. And when draghi came out, to remember back a few months and instead, well do whatever it takes and created the omt. Weve got a very, very calm market and too calm in my opinion. So i think in a per verse way, maybe a flash of volatility. Putting pressure on markets might move that volatility forward. So we do care. Its creating volt tilt. Is volatility opportunity in your world . I think if you have a 12month horizon, we like to take a long view. Are you talking stocks or bonds right now . Mostly bonds. I need to know because you said the markets got too calm and there was a lot of volatility. Youre talking about bond markets. Yeah. I think the bond market is coming down through time. We chopped a huge amount of tail risk. We may debate, is this the end of the euro . I dont think it is. I think people are a lot calmer. I think youre seeing that at least in the United States stock market. Its pretty calm. Bond spreads havent moved all that much right now. And so its something to watch, for sure. I think if we get a real flareup, spreads widening dramatically and rates in italy moving north of 5 , well take a look at the assets and say, gee, there may be some opportunities here. If we look forward 12 months, were pretty constructive on the growth of the world in general. Contractive. When did this come . Instruction. People good word. Im constructive on the market. What does that even mean . Cautiously optimistic. Replaced that. But so just reading through lines the credit markets had been an issue. In the last year, youve seen a lot of healing and it got to the point where you thought other markets could do better and you still feel thats the case . Yeah, i think thats the case. If you look at the performance of the bond market, its almost like the dogs have adachted. Those sectors of the market that had been unduly beaten up, number one performers last year, 16 return, high yield, bank of finance the, bond paper 12 , 13 . These are equitylike returns. I think were not going to see that, however, this year. The high yield market backed up a little. But rates backed up briefly and prices went down. But now theyre oxygen, right . Theyre not portending any no. Theres no signals there, theres no caution flags there right now. Right now, theres no signals. Predictably, they leaked out a little bit. High y50e8dz bonds are still outperforming yeartodate. Closed the day yesterday, 1. 5 unannualized. And i think theres another divergence we need to watch this year in the bond market. The bond market is a few markets. The Interest Rate market is driven by treasuries. Talked a lot about that one. And the spread markets, the risk markets. Its a tale of two cities and how you think about that in 2013. I think youll have some opportunity to soften that blow depending on what youre investing in in the bond markets. Coming up, uncertainty in europe and a looming sequester in the u. S. Ben bernanke prepares to testify on capitol hill this morning. It looks like youre getting ready to right. No. This mornings top stories and the market reaction, next. Platform from charles schwab. Tdd 18003452550 gives me tools that help me find opportunities more easily. Tdd 18003452550 i can even access it from the cloud and trade on any computer. 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Price is right no problem, they make you feel like youre a family. Get a Synthetic Blend Oil change, tire rotation and much more, 29. 95 after 10. 00 rebate. If you take care of your car your car will take care of you. Good morning and welcome back to squawk box here on cnbc. Im joe kernen along with Andrew Ross Sorkin. Becky quick is off today. Our guest host this hour is cliff horso, cut Water Asset Management who manages 30 billion. 30 billion. If you could just skim a little, no one would know. How much do you have on you . How about that. How much do you have on you . I think ive got a buck or so. Its a nice suit. The people that give him 30 billion to manage dont want to see him exactly. Our top story, the Global Markets and european uncertainty in italy im just happy this dude is back. Sylvia berlusconi, center left rivals won parliaments lower house, but they failed to win an absolute majority in the upper house. He argues the Election Results reflect popular dealership discontent with the austerity measures and thats the problem because the country has to institute certain things to make good on its promises. Which allowed it to borrow money. Italian banking stocks were halted limit down initially. Once they opened, there were some sharp drops, italian yields jumped and european stocks in early trading are lower, but orderly. I would say its the worst you see is 2. 25 . Over in asia, you can see that the yen went up sharply against the euro as a result. Youre seeing 2. 25 pullback in the nikkei and some spread numbers on the other asian markets, as well. Exporters with the exposure to europe will be hit particularly hard, as you could expect. And u. S. Stocks sold off yesterday. We were up about 80 points initially and we closed down 2 hup. Its almost a 300point swing, but were indicated to go back about 52 points. The other story to watch, fed chairman ben bernanke is going to head to capitol hill this morning for day one of his Humphrey Hawkins testimony. This comes around a lot and its only twice a year. We constantly are saying it feels like it. A lot which shows you how quickly were aging. What do you think its going to say . The sameold same old. Even after the minutes . Last week after we were all in a panic last week . You cant figure out what a guy anticipates m. O. Is. I know his m. O. We just call helicopters in for a reason. He has not disappointed. And maybe weve needed it. A lot of people would say otherwise you look at how japan did everything. Im just saying that after last weeks mini selloff, after the minutes, everybody had a minor freak out. Hes not the guy that said maybe were worried. No, none of them. Its some of the other more hawkish guys. He can accompany that. Im going to tell you what hes expected to do. Can it you . Hes expected to wow. Hes expected to defend the Central Banks bond buying. Hes like to warn that automatic spending cuts pose risks. Month. Yes. Hes going to say that . Yes. Who is going to have complete coverage all day . A network that starts with a c. It does. Starts with a c and ends with a c. Were going to have complete coverage all day long, obviously. Joining us now, paul schatz. Chris corso continues with us. Paul, do we need to Pay Attention to what the chairman says today . I could probably write it right here about the see zequester an about qe and Interest Rates, right . Joe, i think you did a good job. Lets go home for the day. See you tomorrow. Thats what i mean. Theres no question bernanke is not going to were not going to surprise the markets. If you go back in the last five years, they have quantitative ease, then disavowed it. Then theyve quantitatively eased and disavowed it. They pull in the reigns quickly. This is scripted. This is not something new. You may have more hawks on the fed now than four and five years ago. This is a coordinated effort within the fed so we dont have Economic Conditions cranked up. Hes a maestro, actually. Where are you on the sequester, paul . I think most of these government things are predicted in advance. I think if we sell off in a see zester, i think its a buy on the news. If we rally, which i dont think we will, you can probably sell it. I can the italy thing is a footnote for a day or two. I think sequester is a footnote for maybe at max a week. But, again, i dont think this is a big deal. We all know its going to get resolved. Boehner is going to stomp his feet. The president is going to stomp his feet. In the end, we know theyre going to have these spending cuts. They always go down to the last hour and make a settlement. Whether its today, tomorrow, the weekend, theyre going to settle it. Then were going to move forward and look behind us and say, whats next on the list . I would think some day if we keep settles things like this with a 1 trillion deficit that that could be taken negatively. And, joe, how long have you been saying it for . A trillion there and a trillion there . Eventually, it becomes a large amount of money. Were there. Listen, at some point sooner than later, the bond vigilantes are going to come pout. I dont know if its in 2014 or 15 or 16, but remember how quick it took in europe . Europe, everything was fine, fine, fine, and over a period of two months, everything just blew up. If we dont get our act together, its going happen here. And the sky is falling, the sky is falling, at some point, the bond market is going to say enough is enough. I dont think its in 2013. I think bonds are fine this career. But at some point in 15 or 16, enough is going to be enough sxweer going to be in trouble. Unless they do something about it. Hopefully our politicians see the light at the end of the tunnel there. So for mike, crazy to almost think that you see a few cuts just to know that we can because i dont think we can. I mean, am i crazy to want to see a few cuts, the show that our government doesnt have to be as bloated as weve let it become over the past eight years . I think its maybe not the expected. But it would be a great elixir of the market. As a symbol . I think this is the way its going to happen. Its not the way we would do it. Cant you do it across the board, andrew . Do it equally. If youre too big, too wasteful you could. And by the way, we may. I think what might happen here is since we approached the march 7th date as the negotiation date because thats when we furlow government that perhaps theres a small deal in there that rearranges how these cuts occur, a little bit more freedom want and that is a potential shortterm solution. But your guest was right and we need to deal with the bigger problem. And theyre quite large. Yeah. Even the sequester did i not doesnt talk about the big issues, entitlement. Right. But the key question is, when does the bondage of that vigilante say, enough is enough . Its not going to be 13. Every time you see a hiccup in europe, guess what happens to the bonds . Im not convinced that the market was saying, we know theyll have an 11th hour deal. I think the market is saying i dont think if we have an 11th hour deal been. Were calloused. This market is very calloused. I think part of the story playing out is the opposite of what obama is saying which is fire and brimstone and rockets. I dont believe the if you do the math, its 85 billion, but its spread out over time. I think the bright red was 45 billion by september. Its 0. 25 . In and of itself, its not a big deal in this economy. And is we wait a month and the fed puts 85 billion back into the market, dont they, andrew . But not in the economy. The economy doesnt take it, huh . But, you know, i think the big point is we have a we and in the context of how does it matter is how does the market react to it . And thats the thing to watch. How does the market react in europe . I dont know that its italy. Italy is okay. Even the austerity in italy, its not all the same. It has been tax hikes. The spending cuts, that side of austerity always turns out bad. Spain. Spain has a different issue. Theyve had real cuts. Yeah. And unemployment, theyve had real cuts. And the market has forgotten about the fact that we need a banking unit. That market has backed off. If you dont get that, italy is in big trouble. Spain is in big trouble. Paul, thanks. Cliff is with us for the thanks, guys. You, too. Coming up, our newsmaker of the hour, former treasury secretary Larry Summers is going to join us. Uncertainty is the word of the day. His take oefrg from europe to the u. S. See zester when squawk box returns. But before we head to that break, we have some sat news to report. Former Surgeon General c. Everett coop has died. He was the nations leading spokesperson on health during the reagan administration. He became possibly the best known Surgeon General in history. He focused americas attention on the aids he dek demic and railed himself against smoking. He has died at the age of 96. [ engine revving ] [ male announcer ] every car we build must make adrenaline pump and pulses quicken. To help you not just to stay alive. But feel alive. The new cclass is no exception. Its a mercedesbenz through and through. See your authorized mercedesbenz dealer for exceptional offers through mercedesbenz financial services. We dont let frequent heartburn come between us and what we love. So if youre one of them people who gets heartburn and then treats day after day. Block the acid with prilosec otc and dont get heartburn in the first place [ male announcer ] one pill each morning. 24 hours. Zero heartburn. [ male announcer ] how could a luminous protein in jellyfish, impact Life Expectancy in the u. S. , real estate in hong kong, and the optics industry in germany . At t. Rowe price, we understand the connections of a complex, Global Economy. Its just one reason over 75 of our mutual funds beat their 10year lipper average. T. Rowe price. Invest with confidence. Request a prospectus or summary prospectus with investment information, risks, fees and expenses to read and consider carefully before investing. Welcome back. U. S. Equity futures up about 52 points so far. We opened 80 points higher yesterday and thats now how we end it. Making headlines, a white house adviser says that the Obama Administration will soon renew efforts to push Cyber Security legislation through congress. The Cyber Security bill died in the senate in november amid fierce opposition from businesses that were campaigning about overregulation. I dont know how you do Cyber Security. Its a tough one. Its a tough one. Will it be a hindrance to companies and their ability to do business . I dont know. Maybe it would. Not as bad as getting hacked or closed down, right . Thats a problem, including this next issue were going to be talking about. President obama urging compromise in congress as the deadline for the sequestration looms. Meantime, Global Markets dealing with the uncertainty in europe. Former treasury secretary Larry Summers. Good morning, larry. Good to be with you. Lets talk sequester first. We can get to italy, but when you think about whats going to happen at the end of the this week, the assumption in the markets is that were going over. If you listen to the folks in washington, the world is going to come to an end. If you listen to the folks on wall street, its no big deal. Who is right . Look, the world will still keep turning. But this is a selfinflicted wound from which we have nothing to gain. Hundreds of thousands of jobs will be lost if this plays out over a long time period. The most powerful country in the world is canceling military deployment, that its leading military figures think are essential, not because of any fundamental problem, but because of a political squabble. That is not how the greatest country in the world should be governing itself. This should be brought to a conclusion. It should be brought to a conclusion with balance. That means doing things on the spending side, that means doing things on the revenue side. The sequester was designed to be unacceptable to both sides. It doesnt include the kind of bounce and closing loopholes the degree of medical certainty democrats professor. It doesnt include the kind of approaches to entitlement thats republica republicans prefer. It is nobodys choice. Thats why it shouldnt be happening. We should be moving forward with the balanced approach. Larry, i talked to a lot of people yesterday and we made the point that its discretionary. Thats not really the biggest problem that we face. Its entitled. But then i had pushback from people who say even on the discretionary side theres huge amounts of ways, maybe 100 billion, maybe 200 billion of Duplicative Program webs things that just arent run well. So this is a blunt instrument, i admit. But do you think it would be possible to find 85 billion a year to cut if it was done in a surgical way . Could we i know you want balance, but the republicans think that they already gave in to the balance side of the equation with revenues the first time around. Theyre going to keep saying we did this. We didnt get anything from you. Isnt it possible to do pure spending to sdo 85 billion in a year . Joe, lets understand the facts. This is round three. In august of 11, you had spending cuts that were far larger from the discretionary side that were far larger than anything that happened in december. So right now, were way imbalanced towards more spending cuts. Thats number one. Number two, in the very short run, theres no meat cleaver that is going to do things other than damage. I dont think firing people who were running aids clinics is cutting waste. I dont think putting teachers on furlough is cutting waste. I dont think taking the civilian workers when our country is still at war at the pentagon and putting them on four days a week work is still waste. Let those who think theyve identified waste and no doubt there are efficiencies that can be found put their proposals forward and let those proposals be weighed in the context of a balanced approach. The question isnt whether we should leave any category immune. The question is whether we should have a balanced approach. And to assume, before anyone has laid out any kind of vision of how that 85 billion a year could be cut, that it must be possible and that Everything Else has to be ruled out seems to me to be a extraordinarily irresponsible approach. Of course there are instances of waste in the federal government. There are also instances of huge unmet needs of diseases where we could find cures that save tens of thousands of peoples lives in the next several years. But were cutting the budget instead and denying ourselves the chances to find those cures. Of Infrastructure Investments where were risking more bridges collapsing and all were doing is cutting budgets. So the question in the discretionary area isnt whether theres waste. Hvk theres waste. The question is, given how far weve cut it, how much more can we cut responsibly, especially if we do it with a meat cleaver approach and shouldnt we, instead, be stepping back, allowing time and doing something where everything is on the table . Where entitlements are being addre addressed, where revenue res being addressed and where, above all, containing that growth of Health Care Costs to where, look, we as a country spend almost twice as much as the rest of the world for worse health outcomes. That has to be the right kind of approach. Thats what i think we should be moving towards. Larry, weve been talking about a grand bargain for a long time now. Is the hope from the administrations perspective if we can get through 2014 and maybe change what the electorate looks like, then youre going to get there or is there really an opportunity in the next 12 months before we get back to the next election as many cycle to actually do something . The president was very clear. The president was very clear in december that he wanted to do revenue increases, that he wanted to close and that in tht context he was prepared to take a hard look at containing the growth of Health Care Costs by looking very hard at medicare. The president s been very clear. The president s been very clear that that offer is still on the table. So from the administrations point of view, from the president s point of view, i dont think theres any desire to see this carry out beyond 2014. The president wants to see confidence renewed, and an important part of that is addressing the long run fiscal picture. Okay. Before we let you go weve got to get your views on italy and whats going on there. How important is whats happening in italy to the Global Economy and to the markets, in your mind . Look, it certainly cant it certainly cant help. Weve had a remission in europe now for some months. And the fear always was that there would be some bit of political instability, and uncertainty, that would upset it. So were all going to have to watch it. Very very carefully. My sense is that core commitment is there to keep europe going. To keep the euro system intact. And that, just as watching american politics is better if you dont watch it every day, and get concerned about every twist and turn. That the same is going to be true in europe. But certainly, people are right to be more anxious today than they were several days ago about the situation in europe. And i must say, i feel good that mario draghi, who is a responsible adult, and stands somewhat outside the political wrangling of the head of the ecb, has i think made clear that that institution is prepared to do whats necessary to keep the euro system functioning. Okay, Larry Summers, thank you for helping us. Good to be with you. See you soon. In the next hour, House Minority whip steny hoyer. Were going to have his take on the looming sequester. [ engine turns over ] [ male announcer ] we created the luxury crossover and kept turning the page, writing the next chapter for the rx and lexus. This is the pursuit of perfection. [ male announcer ] you are a business pro. Executor of efficiency. You can spot an amateur from a mile away. While going shoeless and metalfree in seconds. And you. Rent from national. Because only national lets you choose any car in the aisle. And go. You can even take a fullsize or above, and still pay the midsize price. Now this. Will work. [ male announcer ] just like you, business pro. Just like you. Go national. Go like a pro. Want to thank joe for joining us for the hour. We appreciate it. Well see you again soon. Coming up, story of the day. Europe stocks trading lower over there, because of the uncertainty out of italy. But u. S. Equity futures pointing to a positive open. The full story when we return. [ watch ticking ] [ engine revs ] come in. Got the coffee. That was fast. Were outta here. [ engine revs ] a talking car. But ill tell you what impresses me. A talking train. This ge locomotive can tell you exactly where it is, what its carrying, while using less fuel. Delivering whatever the world needs, when it needs it. After all, whats the point of talking if you dont have something important to say . But at xerox weve embraced a new role. Working behind the scenes to provide companies with services. Like helping hr departments manage benefits and pensions for over 11 million employees. Reducing document costs by up to 30 . And processing 421 billion dollars in accounts payables each year. Helping thousands of companies simplify how work gets done. Hows that for an encore . With xerox, youre ready for real business. Volatility is back. New fears about italys Election Results and the deadline for tax spending cuts weighing on investors around the globe. The s p breaking below 1500. The dow down more than 200 points. Guest host and market pro Jason Trennert is here to talk about yesterdays move and what you should be doing with your money now. Time to get defensive . Some 46 billion are expected to be axed from defense budgets. We have names in the sector that can survive the sequester. Plus, House Minority chip steny hoyer on avoiding tax spending cuts and where we stand on possibly getting a deal in congress, as the second hour of squawk box begins right now. Good morning, welcome to skk skwk here on cnbc. Im Andrew Ross Sorkin along with joe kernen. Becky is out today. Fake a look at the futures. We have green arrows after what was a tough day yesterday. Dow looks like it would open up about 47 points higher. Nasdaq up about 5. 5 points. The s p 500 up 3. 5 points. Lets get you through some of the Morning Headlines that are making news this morning. Home depot beating expectations earlier this morning. The company reporting 67 cents per share. Thats three cents ahead of estimates. It is raising its dividend by 34 , and its also announcing a 17 billion buyback. Were going to be hearing from brian nagel from oppenheimer about these results. How they compare to lowes, and what to make of the Retail Sector after yesterdays selloff. Stocks open higher now. Its higher . Yes. The Global Markets focusing on italy this morning. Silvio berlusconis center left rivals won parliaments lower house but they failed to win an absolute majority in the upper house. Berlusconi has ruled out an alliance with former italian Prime Minister mario monti. He argues the Election Results reflect popular discontent with austerity measures. And cnbc contributor gem ma godfry is going to join us to tell us what this all means for the market this morning. Getting a better idea of the budget cuts due to kick in at the end of this week, several budget agencies are speaking out on the potential impact and more speak out today. Communities around the country, of course, bracing for the impact. Minority whip steny hoyer is going to join us in just a bit to discuss the possibility of avoiding the sequester, which im sure, the possibility of that anymore and where we stand on getting a deal done before that deadline. It was a near 300 point swing for the dow yesterday. When the dust settled, the major average declined by about 2 across the board. Worries about italy and europe coming back to the floor joining us on set is steven roche, Yale University senior fellow and former chairman of Morgan Stanley asia, who refueled on his way to asia in italy a few times, and our guest host jason trenne trennert, whose mother was italian. Thats right. And who wears very pinstripey suits a lot of times. Yeah. I spend a lot of time there. What was your mothers name . Disenna. Jason disenna trennert . You got it. Are you ready . Im ready. I know a lot about steven, when i do decide to talk to you, you feel like are you ready to talk italy . Im always ready to eat italian food, joe. I am, too. Or to go there. To go there, yeah. Which is why, i dont know if id ever get it together in italy. Because i would let someone else do it, wouldnt you . I would be i think we should move the show to italy for a week. Oh, my gosh. Pick your city. Venice. Im thinking the squawk set, amalfi coast. Im thinking that would be good. Amalfi coast. Capri. We could do that, too. Were going to talk about the lots of good great place. But it matters, jason, and we dont want to make light of 36 youth unemployment, 128 debt to gdp. They were getting some labor reforms going, getting some doing some of the things necessary to live up to their commitment to the eu. Does this throw a wrench into the works . I think we should be thinking about it. The somewhat untold story is that you heard of this guy before this . Absolutely. Was he funny. Hes funny. It would be a little bit like jackie mason . No seinfeld. Robin williams or somebody. He was big in the 80s this guy. He also has been a big part of the political satire, all the rest of it. Very, very bright guy. But you know, its almost an a listic party. Its july real just truly a protest vote. To my knowledge its gotten over 25 of the vote, the latest thing ive seen. Monti is the best of the best. I honestly believe that is one of the, you know, on democracies its easier to give stuff away. Two years ago he had just started and i asked why are these pictures of monti in a beach chair. And they all said send monti to the beach. That was two years ago. Yeah, hes only been in there a group grillo is moving. Fivestar movement is only three years old. Its a very organized, almost like organized occupy movement in that its used the web very, very effectively, and its completely just tapping into the idea of its an antiprofessional Political Movement which is to say, its the same issues that we have everywhere. Thats why i think its significant. And it would be interesting to see if grillo could actually export this in other parts of the euro land. To see where it is not that. The word contagion is the word that people are worried about right now. In italy. Look, joe, i mean the markets have been presuming that the euro crisis is a done deal. So, yesterdays vote obviously raises the big question mark in that regard for a very large economy in the eurozone. And weve still got problems in the smaller southern countries. And a big one, spain. So the presumption that the euro crisis is over, because mario draghi issued the magical words, ill do what it takes, today teams like wishful thinking. Weve got the same story playing out in japan. The last time i checked the u. S. Wasnt as strong in the Fourth Quarter of last year. Weve got the looming fiscal deadlines every few weeks popping up in our country that makes the italian drama look stable. The underpinnings the Global Policy and Economic Framework are very much at odds with the strength of the equity markets around the world, and thats something did you just say that the sequester is a much bigger deal for us than italy . Well, i think, you know, the fiscal debate is unresolved. We kicked the can into an alley, a dead end alley, not down the road, and i think certainly these fiscal issues are going to come to a head at some point in the first half of this year. Would you just close this 85 billion by raising taxes . No, i wouldnt do that. What would you do . I think given the dysfunctionality in the congress we do need a grammrudman type rulesbased action to deal with issues that the politicians not simpsonbowles . Grammrudman . Thats where the sequesters came from. And the president s screaming about it the last time i checked. He did actually sign the budget control act of 2011. Do you think that the sequester can be dealt with with a scalpel as opposed to a cleaver . This is what we talked to Larry Summers about, whether theres actually 85 billion in cuts. Theres 85. Of course theres 85. Larry, larry raises sort of the human issue of what acrosstheboard, meat cleaver approach would do, and so if he doesnt like that, then hes got to come up with some very specific excesses that can be cut. And i listened to him carefully with Great Respect for larry but he was complaining about, you know, not being able to cure diseases, and take care of kids. But what did he offer in terms of actual counterparts to the spending cuts . Depending on where you are, jason, both sides have very different view points of what weve done over the past couple of years. In terms of whether weve actually cut more, or whether weve actually raised taxes more. The republicans think that they caved and that they raised taxes. They did cave. Larry just said that in 2011 that we cut so much that were at 2. 5 its totally out of balance now. Weve got 2. 5 dollars of spending for every dollar in taxes. You only cut 2 . Or youve only cut the growth in spending. You actually havent cut any spending at all. Thats one way of defining it, i guess. In washington. I was sitting here, i would rather find 85 billion and not i think you could do that easily. In the context of whats the 3. 5 trillion dollar budget, finding 85 million, it wouldnt be popular, of course, but beg ars cant be choosers. Were in a situation now where the feds buying close to 80 of the net new issuance of treasuries. Were in a situation i mean if this were that easy where you could have Central Banks print money and have politicians spend it, there would be no need for Free Enterprise system. We could all go home now. There would be no this would be a cruel fiction. Thats the world this whole country. So, this is clearly not this is clearly not the longterm approach. The sequester, what happens . Immediately, none what went into the market . Not much, i think immediately, no. Because then youve got another series of things going on. Three weeks does it matter because people think its going to be fixed. Its one thing i can say is theres a fair amount of policy fatigue among our clients which, if we have a Washington Office that focuses on these things, and people are saying, i just have to find something thats working. You know, i cant worry about it. I cant worry about that. So thats part of it. I also think okay. So whats working then . Where do you go if you want to avoid all of these issues . Right. Well you can take a look at profits werent particularly strong last year, but what is working is equities as a default, as a default asset class. But we just heard from steven that maybe equities may not continue to work. I dont know if thats where youre going with this. But they may work the way they have been given theres this underlying problem which we still have not solved. Listen, i think the one thing you need to know is tenyear treasury yields are less than 190. Youre getting negative yields on treasuries, i think which means it isnt financial repression. The equity markets have priced in solutions to a lot of our problems. Solutions to americas fiscal problem. Solutions to the eurozone you think its solutions to the japanese inflation. Not no i think the market wants to look through these impediments to solving problems so the presumption is, you know, the policy guys would fix it. And that thats that tested yesterday, and certainly could get tested by the combination of sequester, debt ceiling, debt limit. You know, weve got several big bumps in the road coming up. And maybe your point on fatigue of the policy to date finally just says, you know, enough. Or they say you speak italian . I do. Wow. You watch your Favorite Movie of all time . You think that it portrays italians in a negative way . Well, i would choose one of the nearrealistic films from italy itself. I wouldnt choose one of the mafia movies. [ inaudible ] i cant do that. Andrew thinks were talking about the deficit right now. Thats the thing. G4, g3s, right . Talking about good fellas. All right. Anyway, so its a good day for to talk sequester and italy, i think. And bring it home. Were going to talk more about that as we go on. Italy needs a sequester. Maybe italy needs a sequester. Maybe we need a guy like berlusconi. We had one. Right . We had one. Lets bring him maybe well elect his wife. Anyway these two guys will be with us for the rest of the hour. We are watching the shares of home depot this morning. The company reporting earnings earlier in the show. What the Home Improvement giant is saying about Business Conditions and the state of the economy next as we head to break. Im not saying that this seems like berlusconi is i know. I love im glad hes back. I mean if you got a guy if the richest guy owns a bunch of tv stations, let him run italy he should be king. Not premier. Check on european markets after yesterdays wild ride. Squawk box is back with more on what you can expect today. Still to come, defending your portfolio. With spending cuts looming, find out which defense stocks you should be targeting. And which you should be blowing up. Its the latest in our whats working now series. Defense stocks. Everyones retirement dream is different; how we get there is not. Were americans. We work. We plan. Ameriprise advisors can help you like theyve helped millions of others. To help you retire your way, with confidence. Thats what Ameriprise Financial does. Thats what they can do with you. Lets get to work. Ameriprise financial. More within reach. Welcome back to squawk box. If you knew what happened during the commercial breaks. Oh, boy. Checking the futures. This feels like a reality show sometimes. Futures are setting up nicely. Dow looks like it will open up close to 50 points higher. Nasdaq up 5 points. The s p up about 4 points. Lets talk about home depot. They just reported Fourth Quarter results earlier this morning. Joining us from new york, brian nagel, oppenheimer and cosenior Equity Research analyst. Brian, thank you for joining us. We talked to you yesterday about lowes. You were relatively happy about lowes in you put them side by side, though, it looks like home depot makes lowes look like a joke. Did i say that aloud . I just did. Maybe a little strong. Home depot is a much better report. And lets go through some of the big numbers, things that most people are paying attention to, the 17 billion buyback and raising the dividend 34 . Was that in your calculation . We had we had assumed that in our longerterm models. The companys been pretty clear about its intentions to return excess capital to shareholders. So, those two announcements today were consistent with the longterm plans. Yesterday, tried to pin you down on what is going to happen visavis the sequester and retail, and what we think is happening. You didnt want to go there. But i got to try it again today. You have any new views. I know its only 24 hours later. Look, yesterday, too, i look at Home Improvement retail and i think whats really driving this business, this sector, home depot and lowes is the improvement of the u. S. Housing market. We think about the sequestration or the, you know, now higher tax rates, there are areas of retail that could have an impact. But Home Improvement retail just doesnt seem to be one. I think this is much more driven by the Housing Market right now which is getting better. When you do your projections at this point, do you expect the sequester to happen . Do you expect it not to happen . Do you expect it to happen for the next two or three weeks and then theres a new deal . What when youre modeling things out, and not just on home depot and lowes but overall, whats sort of the take inside oppenheimer on this . Well, the take, when i look at retail, my basing assumption, this goes back to pretty much all these different government issues of the past couple months, i assume that something eventually will get done. So, you know, for the consumers its largely going to be a nonevent. Thats usually the tack i take with our models. Go ahead. I dont have a specific factor in my models usually but thats the mentality i take. Brian, Housing Market is getting better. Talk about the consumer getting better. But off of very low levels. Assumption growth rate in the u. S. Has been on a fiveyear down trend the likes of which weve never seen. Housing starts are still less than 1 million units. How can a company like home depot sustain recovery, when its still very subdued environment. I view that as a positive. What ill say to that, i agree with you, the Housing Market has shown some signs of life here. Overall still very weak compared to historic levels. But today home depot, a 7 comp. The way i look at that to say if home depot can do these kinds of results in a subdued housing environment, whats going to happen when housing continues to get better . Thats really where, you know, what i think takes home depot stock higher from here. The question is will it begin . Will the markets, the economic fundamentals continue to get better and be enough to continue to prop up the stock by home depot or even lowes . Yeah, my look, im not initially a housing analyst. When i do look closely at home depot and lowes results for hints at whats happening in housing i see momentum. I think it was interesting today in home depots report. Something we tell in our research, but its ticket sales, the ticket. You know so traffic improved but also ticket. Some of that was reflection of sandy, people buying generators early in the quarter. I think it also reflects people starting to do some of that remodeling activity, kitchens and baths. To me thats a real side of underlying momentum in the business. Brian, were going to leave it there. Good to see you two days in a row. We have more Retail Companies with earnings in the next few days . Weve got a bunch. Actually auto zone is out. We have macys too. Were going to see you very soon, im sure. Thanks. Coming up, uncertainty in italys election putting a damper on whats been going on. A nice global rally that weve seen this year. The country is facing political paralysis now. Markets around the globe are reacting to the results. But i guarantee you it would be a great place to be in rome. Nobody is giving this a thought. It is. Well have more on why the outcome of italys elections in just a minute. [ male announcer ] ive seen incredible things. Otherworldly things. But there are some things ive never seen before. This ge jet engine can understand 5,000 data samples per second. Which is good for business. Because planes use less fuel, spend less time on the ground and more time in the air. Suddenly, faraway places dont seem so. Far away. Is moving backward. [ engine turns over, tires squeal ] and youll find advanced Safety Technology like an available headsup display on the 2013 lexus gs. Theres no going back. Did you know Katherine Hepburn won the most oscars . Nine, i think. Three. And dana no, i forget. But daniel daylewis has now won more than any other man. Jack has won a few. Jack. Yeah, right. Check futures right now. Green arrows across the board. Things are setting up nicely, after a tough day yesterday. Dow looking like its going to be up about 53 points, nasdaq up almost 6 and s p 500 a little over 4 points. When we return uncertainty over italys Election Results driving much of the action in overseas markets this morning. Were going to hear from gemma godfry next on the political situation and what it means for investors. Still to come, spending cuts and the markets. House minority whip steny hoyer is here to talk about what needs to be done to strike a deal before the sequester deadline. Squawk box is rising above and giving you the knowledge to make smart investment decisions. And its only on cnbc. Profit from it. How do you keep an older car running like new . You ask a ford customer. When they tell you that you need your oil changed you got to bring it in. If your tires need to be rotated, you have to get that done as well. Jackie, tell me why somebody should bring theyre car here to the ford dealership for service instead of any one of those other places out there. They are going to take care of my car because this is where it came from. Price is right no problem, they make you feel like youre a family. Get a Synthetic Blend Oil change, tire rotation and much more, 29. 95 after 10. 00 rebate. If you take care of your car your car will take care of you. [ babies crying ] surprise your house was built on an ancient burial ground. [ ghosts moaning ] surprise your car needs a new transmission. [ coyote howls ] how about no more surprises . Now you can get all the online Trading Tools you need without any surprise fees. Its not rocket science. Its just common sense. From Td Ameritrade. But at xerox weve embraced a new role. Working behind the scenes to provide companies with services. Like helping hr departments manage benefits and pensions for over 11 million employees. Reducing document costs by up to 30 . And processing 421 billion dollars in accounts payables each year. Helping thousands of companies simplify how work gets done. Hows that for an encore . With xerox, youre ready for real business. The music says it all. Italys election rattling markets and reviving concern over instability in the debtplagued eurozone. Cnbcs chief International Correspondent Michelle Carusocabrera joins us now from my favorite city, rome. Good morning to you, michelle. Hey, good morning, andrew. So, the outcome of the elections, completely inconclusive. So we have political chaos in italy, and that has sent the european markets, the italian markets, into a tailspin. Sharply lower. The euro has moved lower. We started to see these results yesterday. Italian Interest Rates are starting to rise, as investors are very nervous. We got another reminder of why investors care so much about the italian elections this morning. Italy, the government, borrowed money. 8. 75 billion euros, 11. 5 billion dollars. Look at the Interest Rate that they had to pay on these sixmonth tbills. 1. 24 . Last month, when they did the same operation, it only cost them 0. 74 . So already, the market is charging them a lot more due to nervousness. We care because italy owes so much money. More than 3 trillion u. S. Dollars. Theyre right behind the United States and japan, only third in the world when it comes to debt. And theyve got to roll over 300 billion euros worth of debt this year. Lets show you what happened. Lets go to the wall graphic. We can show you all of the candidates. There was supposed to be a clear winner when all the numbers came in last night. That didnt happen. Instead, the three guys on the left call it a virtual neck and neck tie. Thats im oversimplifying it. Bottom line the only thing we can say with real clarity is that mario monti was a definitive loser. He did not do as well as expected. Silvio berlusconi and the bomb hedian beppe grillo did far better than expected. Heres what the professor of Political Science at American University in rome described it. Italy is in chaos. There is no clear government available, the predictions were wrong. And the real winners were beppe grillo and Silvio Berlusconi. Both of whom, by the way, have criminal convictions and Silvio Berlusconi would have to go to prison. Keep that in mind. So the italian newspapers are always so fun to read, and they have very definitive political alignments. Some would say like in the United States. This newspaper is owned by Silvio Berlusconis brother, and the headlines is the berlusconi miracle. It makes it sound like he won. You know, mentally he won. He did far better than anybody expected. Months ago people left him for dead and he totally disrupted this situation. He isnt the outright winner, though. The other proberlusconi paper has this on the cover, always has a cartoon. Here he along with beppe grillo are raising champagne glasses, and the headline says that silvio the lion has crushed the jaguar. That would be a reference to the leader of the leftist party, bersani, who did not come out the clear winner as people had expected. Joe and andrew, back to you. Were going to be watching the events unfold throughout the day, ee if theres any clarity about what happens next. People really dont know. Can they possible form a government . Will a miracle happen . Will they have to go to elections again . And whats going to happen to italian Interest Rates over the come weeks. Michelle we have Jason Trennert here, he speaks fluent italian. He cleared something up about the comedian. He said he is more like a robin williams, sort of a smart, witty comedian. Not like a gallagher with the melons or like a jim kay why i or Something Like that. And that makes a difference, right . Yeah. You can be funny, but not slapstick. Its like intellectually funny. I mean you cant just dismiss the guy, right . Oh, no, you absolutely cant. He totally captured the disgust vote, i would call. But his platform is all over the place. He said he wants to give 1,000 euros to every italian. He says they shouldnt pay back the debt. Weve heard that before from latin american leftists. He says there should be term limits. Then there are people in his party who are fascists. And there are people in his party who are to the right. Its a mess. Its not a really clear platform. What he did capture, though, was the deep unhappiness of the italian population. The antiestablishment. But get this i mean berlusconi did very well, too. And he is the establishment, right . So its a very divided population. I think its, you know, i like it. Because we have candidates over here, and you cant just pigeon hole in the same way. I mean you got berlusconi. We know what hes all about. Then you got the comedian and the tell know contract and the commie basically. So we know four caricatures of who we have. Hes a former commie, excuse me. Anyway, Michelle Carusocabrera, thank you. Doing that tough duty, as she always does. Check out the european markets right now. And joining us now from london is gemma godfry of brooks mcdonald asset management. Shes also a cnbc contributor, and gemma, one thing i took from your notes is that and if you connect the dots, its italy, which is large enough on its own, as a part of europe, but its also, it makes you wonder about contagion again. Because the entire continent is facing austerity and its really easy to chafe under austerity. Exactly. I mean, our view on the italian elections is that obviously this has been a shock to investors and theyre often key reasons for concerns. Were also saying that its a fantastic buying community. Just calling on your analogies with entertainers, you can kind of liken it to lets say Jennifer Lawrences performance at the oscars. You know, her falling down the stairs, a complete shock. But, the followup interviews really showed her, allowed her to shine. And likewise the italian elections a complete shock to investors but potentially a buying opportunity. So the three reasons why were concerned. First of all, on the political front. The labor reforms that are crucial to the growth, make it unlikely theyre going to be implemented with reform actually leading the way, and a Hung Parliament hampers progress. Secondly, on the financial side, the lack of a parliament means that they are unable to find a memorandum of understanding to get support from the ecb to try and tackle these now unsustainable borrowing costs. And then finally the point that you mentioned before, the market risk, now saying banish these elevated levels and obviously the u. S. Markets sold off heavily again yesterday. That gives us, of course the concern. But again there are some reasons why you could be buying into the market. Tell me those. Because i dont know why any of this sounded like a buying opportunity. Those are the reasons why were concerned. However, what it does mean although the new labor reforms might not be imletted, we think that the status quo is going to be maintained. So the reforms have already been pushed through are going to be continued. So from an economic standpoint, yes youre not getting that best Case Scenario the market was hoping for, but more of the same. And then what were seeing in terms of market is more of a shakeout. Were seeing huge swings in markets, which shows at least shortterm traders, and a shorterterm investors, are taking risk off the table, which provides entry points for longerterm investors that really have been desperately waiting on the sidelines, and finally, it means that youre seeing this profit taking, because of the italian elections, the u. S. Spending cuts, uk downgrade and thats providing attractive entry points to International Firms headquartered in europe. That are cash rich and over the longerterm we have confidence are going to be producing profits going forward. With all due respect gemma i thought your first three points on why to worry were far more compelling on your rationale for viewing this as a jumping back off of the steps in the Academy Award type buying opportunity. Gemma, what happens next . Napolitano is likely to announce an interim government. And when are the prospects when would you have a certification of the results . And when, also, would there be new elections if they were unable to come up with some sort of Coalition Government . There have been talks maybe of september, and the next few months, bringing another election. What it does mean is obviously theres going to be continued uncertainty. And the likely outcome now, obviously, analysts have been wrong before, is the parliament situation where its actually bersani kind of in charge of one part of the house, and obviously berlusconi on the other side. And the concern being, obviously, that neither of them are proreform. But, however, bersani is probusiness. And it is likely that theyll continue with the reforms already in place. And berlusconi has been punished before. One of the crucial elements, the ecb that its important to note, is the ecb actually released figure figures detailing their bond buying activity over the past couple of years. What it shows is at times when italy pulled back from and actually renegligented from their reform, and the ecb stopped buying the bonds. So this is a clear message that they are going to have to continue. That they cant go down that route again otherwise there will be future weve got to go. Yes or no, has the higgs boson particle actually been identified . Its being investigated and its a very exciting thats not yes or no. Thats not yes or no. Particle. Not your ph. D. Is in particle physics, isnt it . Or whats it in . Pardon, sorry . Your ph. D. Yeah, i focus on yeah, well it wasnt a ph. D. But i did focus on quantum physics. Yes, a very exciting part of physics. Isnt that what yours was, joe . Molecular biology. Even smaller. Way smaller. Much smaller. Anyway, gemma, thank you. Thank you very much. All right. Physics yeah. Market. I showed something where there was no actual answer. Economics. I didnt have to come down to a specific number. Weve got to talk a little defense. Weve been hearing about the sequesters impact on defense stocks. Theres just one headwind to consider if youre thinking about investing in the sector. The managing director and Senior Research analyst at Cowen Company joining us now on how investors need to have a differentiated approach in defense stock picking. So, first of all, lets just get it out on the table. You think the sequester cliff were going over, im assuming . My guess is yes. Okay. So if that if thats the assumption, how do we differentiate the different defense stocks out there, and what do you think of them . , well i think one wants to be very cautious on the pure play big caps, the weapons producers, because we see no way that sequester is going to be evenly spread over programs. That makes no economic sense. Neither party is for it. So, we think theyre going to start reviewing the weapons programs, particularly because we have a new secretary of defense, and thats going to create headline risk for the major stocks. So lockheed martin. Who else is on your list that we should be very cautious about, first . Before we get to the others i think pretty much all of the defense big caps, Companies Like northrop grumman, raytheon, also with the in that bucket. I think someone like boeing, we like but thats just because of a commercial side of the business, because we think the 77 grounding will be lifted in the next couple of weeks. So we like stocks where you have commercial participation. You say that putting aside the sequester, defense stocks tend to underperform in years after president ial election. Why is that . Well, thats because in years of president ial elections, no candidate ever talked of killing a program. Because programs represent jobs, and jobs vote. The year after elections, or two years before the next election, thats historically when people have made the changes. And while we have a secondterm president , were going to have a new secretary of defense with presumably different priorities than his predecessor. Lets get you through some of the stocks that you do like. What do you like in this space . Well, i said, we like boeing, because we think that the faas going to lift the grounding, and we see strong cash flow over the next couple of years. We like multiindustries. Companies like United Technologies or Smaller Companies who will benefit from the grinding recovery in the u. S. Economy, and recovery in china. Lower commercial aircraft r d and recovering after. Jason trennert, looks like theres a fair amount of bid for higher defense spending outside the United States. Are there any companies within any Defense Companies in the u. S. That, lets say, would help japan or help other countries that may be seeking to increase their defense spending . Well, yes. Certainly, you know, saudi is buying a lot of weapons systems. You know, its a plus for various companies, for example, in boeings case, 41 of their defense backlog is foreign. Its going to rise. 28 of their defense sales. So its definitely an offset to the headwinds of whats happening here in the u. S. Okay. Were going to leave it there. Thank you. Appreciate it very much. Terrific. Thank you. Coming up, steny hoyer, House Minority whip, former leader. What it will take to avoid billions in spending cuts. Ready to take effect this week. That interview is next, right here on squawk box. music throughout why turbo . Trust us. Its just better to be in front. The sonata turbo. From hyundai. Bjorn earns unlimited rewards for his Small Business. Take these bags to room 12 please. [ garth ] bjorns Small Business earns double miles on every purchase every day. Produce delivery. [ bjorn ] just put it on my spark card. [ garth ] why settle for less . Ahh, oh [ garth ] great businesses deserve unlimited rewards. Heres your wake up call. [ male announcer ] get the spark Business Card from capital one and earn unlimited rewards. Choose double miles or 2 cash back on every purchase every day. Whats in your wallet . [ crows ] now wheres the Snooze Button . President obama urging congress to take action as automatic spending cuts are set to take effect the end of the week. Representative steny hoyer, House Minority whip, joins us now. Leader hoyer, last time i saw a great maryland game. Wasnt it a week and a half ago . I dont know what youre really, there are glimpses of brilliance, steny. Weve got a really good team, joe, but they dont play consistently. Theyve knocked off some big teams. They do. They beat duke. Its going to happen, probably, steny, dont you think . Ive got a couple of big picture questions to ask you, for you to answer. Yesterday we had roger altman say what weve got to do is do like 9 billion this year, and then back put the other 78 billion along with the other nine years and not get rid of the overall cuts but just back end load it. Does that make sense . Are we sure the economy is going to be more able to withstand this a year from now than now . Well, i think that does make sense. I think roger altman is correct on this. And, in fact, thats what, of course, simpsonbowles recommended, as well, as you recall. And domenici rudman. All the bipartisan commissions have said look the economy is still trying to get going, its going, but not fast enough, we need to create more jobs, grow the economy more, so dont tamp it down in the shortterm. But in the longterm get us to a fiscally balanced position. I think that will give confidence to the market so i think that recommendation is a good one. In fact, joe, as you know, Chris Van Hollen on our behalf has offered that two weeks in a row. We werent here last week, we werent working last week, notwithstanding the specter of this deep acrosstheboard cut thats being proposed. The fact of the matter is we have nothing on the floor to do that. I think altman is correct. What we ought to do and what weve proposed and what were going to propose again this week is to make cuts, to have revenues, to make cuts, balanced package, about 100 billion over ten years, do it in a way that will not harm the economy but will get to the fiscal discipline that we need. Do you think the other question, this big picture question, if you were a surgeon, you could find 85 billion in the discretionary side that is duplicative or waste or whatever. Youre not saying that we couldnt find a way to do that, are you . I think thats correct, joe. The problem is, that the republicans in the house of representatives, we cant put a bill on the floor. They can do that. They can put forward a bill that says here are how were going to cut the 85 billion. They havent done that. Weve been in session now for two months and the republicans have not put a single bill on the house floor which they have sole responsibility for doing, which have accomplished the objective, and replaced the sequester. Everybody agrees the sequester is irrational because it cuts the highest priority and the lowest priority the same amount. That doesnt make sense. We all know it doesnt make sense. But very frankly, ive been here for some time, as you know, joe, and year after year, long before 2010, year after year we had republicans offering 5 , 6 , 2 cuts across the board. Most appropriators and most members of congress, republican and democrats, have opposed those bills, but it is a consistent policy of thinking the way to cut is just across the board, without the specter heres my one other question. You saw the payroll tax. We know that tax probably does hurt job creation somehow because it hurts the consumer. You see the austerity that europe has tried to orchestrate. A lot of that was in tax increases. Republicans at this point are chafing at the idea of balance and more revenue increase. Do you ever worry that, along with the obama care and what were going to pay in extra taxes there, along with what you got with the fiscal cliff negotiations, do you ever worry that maybe that always talking about revenue could eventually hurt job creation and come back to be counterproductive for what were trying to do here . Joe, i think we have to look at that. But the fact is, no, i dont worry about it. Very frankly, when we had the clinton rates in place, which were not close to at this point in time, we had the best economy that you and i have seen in our lifetimes, frankly, in the 1990s. There were a lot of factors surrounding that. Particularly the i. T. Explosion. Right. The Information Technology explosion was the driver of that. But the tax policies that were in place did not tamp that down. And, in fact, the fiscal stability, the fact that we had a balanced budget for four years during the Clinton Administration gave confidence to the investing community that their investments would not be eaten up by inflation, or by government policies. So, no, im not worried about that. What we do need, however, is a balanced package, over ten years, big, bold, balanced package. I think that will give extraordinary confidence to the marketplace, and will grow our economy, irrespective of the taxes. Now when i say that i want to make it clear i dont mean that we can have tax levels so high that we undermind incentives but were nowhere close to that. Representative hoyer, didnt the grahamrudmanlike sequestration provisions really set the stage for this fiscal balance that youre alluding to under bill clinton . Doesnt it show that congress is incapable of doing these things on its own, it needs to be constrained by more of a rulesbased budget control mechanism . Well, of course, thats not what this what were talking about now. This sequestration is not a longterm. Its a single event at this point in time. The fact is, though its a tenyear program. Because well it is a tenyear program. Because you guys cant get your act together in the congress. Theres no doubt about that we cant get our act together. We did get our act together in the 90s. Every republican opposed it of course, in 1993 we adopted programs that our republican colleagues said would destroy the economy. They were dead, flat wrong and what we did was we adopted a pay as you go with a bipartisan agreement between the first george bush and dick gephardt, then in 1997, between Newt Gingrich and bill clinton, and that balanced program allowed us to have a very robust economy in which we grew 22plus million jobs during that time. Steny so a balanced program will get us to where we need to be. Unfortunately our republican colleagues are not looking at balance. All right, steny, thanks. Working on that statue. I dont know, its not a good time in washington for i dont think anybody wants to build a statue to any member of congress right now. Yeah, all right. Anyway, thanks. We appreciate it. Anyway, coming up. Much more on the markets. Plus earnings from retail giant macys. The number and reaction from the street just ahead. And speaking of earnings, the ceo of Tenet Health Care. [ male announcer ] you are a business pro. Omnipotent of opportunity. You know how to mix business. With business. And you. Rent from national. Because only national lets you choose any car in the aisle. And go. You can even take a fullsize or above. And still pay the midsize price. I could get used to this. [ male announcer ] yes, you could business pro. Yes, you could. Go national. Go like a pro. Welcome back. We want to thank you for sticking around for the hour. Thank you. Before we go, take a look at futures right now. We do have green arrows as the market sets up nicely for the day ahead. When we return, more on the markets with jeff kleintoper from lcl financial. Plus earnings from macys coming up. And later, the inaugural cfo Council Launches today. Cfos of starbucks, cisco, united, lincoln, procter gamble, johnson johnson, chevron, Td Ameritrade, wells forgo and ford are all going to be serving on the council for the next 12 months. Were leveraging the cfos unique perspective and expertise to complement our coverage. Were coming right back. [ engine revving ] [ male announcer ] every car we build must make adrenaline pump and pulses quicken. To help you not just to stay alive. But feel alive. The new cclass is no exception. Its a mercedesbenz through and through. See your authorized mercedesbenz dealer for exceptional offers through mercedesbenz financial services. Tdd 18003452550 hours can go by before i realize tdd 18003452550 that i havent even looked away from my screen. 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Tdd 18003452550 call 18665160492 tdd 18003452550 and a trading specialist tdd 18003452550 will help you get started today. Transit fares as in the 37 billion transit fares we help collect each year. No . Oh, right. Youre thinking of the 1. 6 million daily Customer Care interactions xerox handles. Or the 900 Million Health insurance claims we process. So, its no surprise to you that companies depend on todays xerox for services that simplify how work gets done. Which is. Pretty much what weve always stood for. With xerox, youre ready for real business. Markets pulling back sharply. Can bulls recover after the dow and s p posted the worst losses of the year . We have strategists standing by to talk equities. The fed. And the italian elections. Several chief Financial Officers from Top Companies will be part of the cnbc cfo council. These Business Leaders will bolster our coverage of earnings in the broader economy. Well kick off our series today with the cfos of Family Dollar and Td Ameritrade as the third hour of squawk box begins right now. Welcome back to squawk box here on cnbc, first in business worldwide. Im Andrew Ross Sorkin along with joe kernen. Becky quick is off today. Our guest host Jason Trennert, chief investment strategists at strategas research. Were going to have more from him in just a minute. But first, got your Morning Headlines with joe. I think youre watching some tape, as well. Watching macys reporting 2. 05 a share. That is excluding items versus expectation. Of just 1. 83 sorry, expectations 1. 99. Six cents ahead. Sales number was 1. 35 billion versus 1. 3 billion. Fourth Consecutive Year of double digit growth in earnings. An then ive got a longer fiscal 2013 view of 3. 41. And revenue at 27. 64. For our guidance. They see 390 to 395. That is that is pretty they see 390 to 395 and the estimate is still 341 i think. Yeah you know what i think . Thats this years estimate. So theyve got it wrong on the ticker. Next year theyre looking for 381. But still above the 390 to 395. Stock closed yesterday at 38. 52. So thats real right there up 1. 09 for macys. And weve talked about how the job at lundgren has done at macys. Because it has, not easy. Inventory, you buy doing it, too. He does. He was like cut out Martha Stewart. You know, its a whole other thats an ugly situation. But i think hes going to win. What do you think . I dont know where its unfortunate. I think really . You really anyway we will talk to retail analyst matt boss a little later this hour. Fullfledged Department Store i cant imagine. You need, and i think he does thats one of the most important things. Get a team that knows what, you know, consumer tastes are. Because if you order too much stuff then youve got discounting, margins go. I cant imagine. Can you . I cannot. Especially in this type of environment. Nominal gdp is about 4 . Which is about as low as it gets without being a recession. Actually since 1960. 4 inflation would be normally considered a recession in this country. So you really have to have your wits about you to produce 4 on samestore sales. Lets talk about another retailer thats reporting earlier this morning. That was home depot. They reported earnings of 67 cents per share. Three cents ahead of estimates. Company also raising dividend by 34 and announcing 17 billion buyback, and of course, you know, talk about retail and talk about the strength of the consumer in housing. Thats a nice little point to put up on the board, right . They beat on the earnings, they were better than most. Daytona 500. Thats one way to see it. I think theyd remember have the better earnings. Lets also talk about politics in italy. The deadlock in italy. No Group Secured a clear majority in the parliamentary elections. Silvio berlusconis center left rivals won parliaments lower house but they failed to win an absolute majority in the upper house. Comedian Beppe Grillos Antiestablishment Party won the most votes of any single party, taking 25 . Now, its time to make a deal. Thats whats on the table. The candidates expected to try to form a coalition to avert a second ee ligs. Berlusconi has ruled out an alliance with mario monti arguing that the Election Results reflect popular discontent with austerity measures. Take a look whats happening as a result of all this. U. S. Equities sold off sharply yesterday, as it appears the worlds third most dead country was pulling away from its commitments to austerity. European equities at this hour, you can see we do have some red arrows across the board, pretty much almost all of at least 1. 5 across, then go to asia overnight, see what happened there. See a similar story. But, take a look at u. S. Equity futures here and its a different story. Green arrows after a tough day. Maybe thats a function of putting together what happened yesterday in the markets after those Election Results, and those countries did have an opportunity to take all this into account. Yeah, i think one of the things that happened at the end of yesterday, you had a big bond market rally. And i think thats very important in terms of the sustainability of whatever move youve seen in the equity market. So if you saw some real credit deterioration, i would be much more worried. I talked to tur technician chris barone this morning, he said, sentiment has gotten and you know, weve all sticked together. Before we knew this was happening . No, i think it was just ce n serendipi serendipity. But listen, i think thats one thing where, there is support of the market in the s p around 1470 and i think deterioration here in the states is a very important thing to look at. All right. Meanwhile the bernanke set to testify on the hill today. Before we hear from that professor, professor bernanke, were going to hear from another professor, i like to call him what gives that is our chief economist steve liesman. Are you embracing that now . I can go whatever you got at 8 00 in the morning, joe. Just not in a position thats what i mean. At 4 00 in the afternoon. Gemma said you have a ph. D. In physics. She said i dont have i thought she did. Like al gore, when i was interviewing him, said you have a law degree, you went to law school. And he does not. And he doesnt. When i call you i do not call myself an economist, i call myself i dont call you on economist. Chief with a word missing that is silent. What would cause you in the next couple of days to just go, im just flabbergasted . Well, hes going to be in an interesting position right now which is how does he characterize the second half of qe . The first half is engrained. I think its done. I think theyll do qe through june. But i think the problems going to be what happens in the second half. How he categorizes it because remember he does not want to leave the board where the board is not ready to go yet. But i think he also doesnt want to do awaythe presumption on the part of markets that theyre going to be buying assets in the send half. But you were saying earlier this morning, joe, that you thought it was boring, it was a done deal. And i want to turn to another issue that i think could be potentially really interesting today. The big issue today obviously is going to be the sequester with congress. Pepper the chairman for answers that back up their view on the way out. Thats normal congressional testimony by the chairman. But theres another looming issue. The possibility of losses to the fed stemming from these massive asset purchases doing right now. And that could mean a decline of revenue to the federal budget of as much as 80 billion. Whats 80 billion . Just about equal to the sequester being debated right now. Its a big deal on the fed right now and it could have an impact on what were talking about, which is how much qe does the fed do for the entire year . And well see today if it becomes a big deal in congress. Just a reminder. Where does the fed get money from that it gives to the treasury . It buys assets, collects a coupon and sends that money above its expenses to the treasury. So 91 billion in 2012 and it gave the treasury 80 billion. Again, a number thats about equal to the sequester. But if Interest Rates rise and or the fed sells assets in a rising Interest Rate environment, that income could disappear. Of course, heres why. Interest rates in the banks to secure excess reserves that these big payments to the banks, capital losses on asset sales when rates rise obviously assets would lower coupons plus David Greenwell from Morgan Stanley along with former fed governor and two others presented a paper on friday morning of these losses. In their projections, income falls to zero in 2016 if Interest Rates rise 1 above their baseline then the fed actually will book a loss. The big worry on the fed if you thought congress cared now about fed policy, its going to care a whole lot more once fed policy directly affects the federal budget, and results in a decline in and results in large bank payments. Now the feds going to argue or some will argue that if payments to treasury quadruple the annual average before the crisis, add it all to the and its really hard for the fed to book a loss over the course of the whole cycle. But congress, not going to care what it got before. It wants to know whats coming in now. And some fed officials are seriously worried about the blowback from congress for big payments to the banks. No payments to the treasury. Andrew . Okay. Steve stay with us for more on the fed, and the market reaction. Were joined by jeffrey kleintop, chief strategist at ltl. And guest host Jason Trennert. You were nodding your head while steve was saying nodding like no, not yes. I think with all due respect to steve i think this is somewhat of an accounting fiction. The fed shouldnt be taking, theoretically the fed shouldnt be taking any risk with the taxpayers money at all. If it has this incredible power. And before bear failed the feds Balance Sheet was 800 million. And now as we know its over 3 trillion and its on its way to 4 trillion. I think the bigger issue not disagreeing with what i say though. No im not. Im just thinking in the context of the fact that 50 of our debt now matures in the next three years by the treasury, weve increased the debt from 10 trillion to 16 trillion in the last 4. 5 years the bigger issue is what happens to interest expense for the federal government much more on the lack of revenue that youre going to get from the fed. The bigger deal in my view im not disagreeing with what you said. The bigger issue, though, is really what congress itself is i mean it would seem to be a little cheeky of the and i think this is beyond congress anyway to be candid. But i think it would be cheeky of congress to point the finger for the following reason. Whether it matters or not, its something that matters right now to members of the fed, and the market cares a lot about how much qe is coming. You saw that last week, and maybe we saw that yesterday, as well. So to the extent that this issue of capital losses or potential losses or end of remittances to the treasury motivates fed policy thats why i think we need thats the big risk to the markets, right . I mean steve as you talk about, you know, the concern among the fomc members that theyre going to get the Balance Sheet to a point where they run a greater risk of going hat in hand to congress. Thats something they want to avoid. They want to maintain the independence of the fed. Thats their legacy they have to protect no matter what. If you take a look back at years when the fed started to communicate that theyre at a turn in policy as they go back to 1990 for. Back to 2000 for. Earlier in the year they started talking about normalization of policy later in the year. Those were years of single digit returns for the stock market, and a lot of volatility. And that may be what were facing this year. Jeff, do you really think there are members of congress that really want to see a normalization of fed policy . To the extonight which they want the fed to stop buying treasuries . I dont get that. I dont get that sense. No, i dont think so. And i think i think the fomc does worry about it. I think youre right. But i also think, you know, its not a its not a democracy on the fomc. Its a benign dictatorship. You know, ive gotten to the point where if a person is sneaking doesnt have a beard and isnt bald, i pretty much stop paying attention. I think that the only guy that matters is bernanke and i think hes all in. I got to get a question to jeff. Assuming and i dont know if were still on this, that bernanke is not in this job a year from now almost certainly he wont be. I really think thats so if that is the bet, jeff, take us through. What happens . Lets say you get yellen or i dont know who else. And you have this dictatorship, does it continue, do you think at any slight change could sort of shift the mentality . You know, i think the feds communication and transparency is going to continue to evolve over time. It will likely evolve under yellen, but the basic idea of qe slowing or coming to a stop near the end of this year or early next year, is probably going to remain the case no matter who is head of the fomc. Whether its bernanke or yellen or another one of the centrist members of the fed. And again, that means some volatility for the stock market, and thats why youve got to be out there buying the dips and seeking yields and go active with your investment. To be very cautious around this kind of an environment. Youve got to look for the opportunity, because youre going to get them here as the market pulls back around these concerns, around where policy may go. Remember monetary policy, very positive right now. But could certainly turn negative along with fiscal policy, as we get later in the year. Okay. Were going to leave it there. Youve got to stay constructive. Got to stay constructive. Always great words of the National World constructive moving forward . Moving forward. Jeffrey rise above. Rise above. Stay constructive. Jeffrey, thank you. Steve liesman, thank you basin, youre going to stay with us for the rest of the show. Coming up on the squawk ceo call Tenet Health Care reporting. Were going to talk with the president and ceo. After the break. Today marks the launch of the go back. Teleprompter. Adding to our coverage of the thats not nice. Trevor fetter. Were going to kick off our series with the chief Financial Officers of Td Ameritrade at 8 40 eastern time. The good thing is thats an inside joke. No its not. [ male announcer ] at his current pace, bob will retire when hes 153, which would be fine if bob were a vampire. But hes not. Hes an architect with two kids and a mortgage. Luckily, he found someone who gave him a fresh perspective on his portfolio. And with some planning and effort, hopefully bob can retire at a more appropriate age. Its not rocket science. Its just common sense. From Td Ameritrade. Welcome back to squawk box this morning. Making headlines, jpmorgan is holding an investor day in new york. Ceo jamie diamond set to speak early this afternoon. The bank is expected to announce Cost Reductions this year including reducing head count by about 4,000. Our Kayla Tausche is there and continuing to bring us headlines throughout the day. Tenet health care came out with Quarterly Results about an hour ago. Earning 52 cents a share in the yearago period the company had some debt extinguishing charges. The estimate 68 cents but some items involved. So unclear the stock tough to say where its going to open. 36 bid 38 34 ask after a 37. 63 close. Talk to the president and choer Trevor Fetter from dallas. Trevor, do you know, 58 cents, good quarter . I mean you did have some positive trends in terms of of more admissions and people i guess utilizing Hospital Services more. That sounds like not necessarily a great thing to happen, but its were in that period position where in a slow economy people use hospitals less which is really hard to understand but it happens. Weve actually had our strongest quarter and Fourth Quarter in ten years. Its our ninth Consecutive Year of Earnings Growth. Actually a very solid quart er e had terrific growth in outpatient visits and emergency room visits and surgeries. So i think the analysts as they react to it will see a very solid quarter. Came in above their estimates on ebitda which is the principle measure of earnings in our industry and above our midpoint in our consensus. The bottom, the always eps is stuff so ebitda was above what analysts were expecting . Yeah, exactly. View it as a very good quarter. Best one in ten years. Could you just an overall question, trevor, outpatient surgeries, what do people slshs people put off outpatient surgeries in a weak economy . What kind of surgeries are we talking about . Not necessarily just elective surgery, but how do you delay things like hip replacements or well, during the, you know, depth of the recession we saw market decrease in several elective type of surgeries, including things like joint replacements. People opting to live with pain instead of having the surgeries performed. And even the birth rate dropped and so we saw a drop in births. All of that has been coming back within about the last 18 months. And our statistics in surgeries in the Fourth Quarter were very strong. All those metrics i mentioned were up, you know, 7 to 9 . Thats very strong growth. Wow. So even birth rates dropped. We have got to get this economy fixed. I mean people arent even they dont even feel like so theyre so depressed theyre just laying around, trevor . Thats sad. Look the best thing for our business is when, you know, a growing economy and you have people with jobs who have insurance through their jobs. That translates to strong growth. And the obama care, youre good there. And hospitals love it. Youre going to be youre finally going to get paid on you wont have any of those of those accounts receivable that you can no longer collect . Well, it wont eliminate that problem entirely. But, there are, you know, substantial problems for us, our company for example, incurs about 450 billion a year in uncompensated care and cost of that care we provide. And the we have taken significant cuts as obama care was, you know, initially implemented, but we will see increases in coverage, and actually our companys very wellpositioned for that because we have a large footprint in states that have very large uninsured populations today. You know i think about all the tremendous veils that tenet has been through over the years, and at this point could you finally say that this is a great business to be in . Youre doing gods work, obviously. Youre helping people. But the profit incentive does help you innovate, does it not . Well, its interesting. Being a Public Company in this industry means were, you know, in about 15 sector thats about 15 of u. S. Hospitals. And that accountability that the Public Markets demand cause us to innovate, causes us to have lower costs. And to have a value proposition. We deliver Higher Quality at a lower cost than our competitors and thats the way that we grow. Weve been early adopters of health Information Technology and one of the statistics we reported today were very proud of is our ability to contain costs, particularly in the supply chain. Just been outstanding. So, we are constantly pressing to lower costs, greater efficiencies, higher productivity. Out of our capital, and our Human Resources. And were very proud of the story. As you mention its been a long turnaround, but im particularly gratified at nine Consecutive Years of Earnings Growth and improvement in margin et cetera. Cant remember the low, you were two bucks . I hate to say it was even below a dollar. We did a reverse, call it 4. But still the stock is nearly at ten times where it was at its low, which was just three and a half years ago. Thats because of you, trevor. Obviously. Its a great team ill tell you. 63,000 people. You got texas, perry is not going to do the medicaid thing. But rick scott flipflopping and hes doing it now. Youd rather have all the governors do it, wouldnt you . We would rather see the medicaid expansion. But take texas in a weak i should im sorry weve got a hard break. Okay. I apologize. Thanks for having me on. Youre very welcome. Coming up were launching a special series, a cfo council. Were going to do that next. With the spark cash card from capital one. Boris earns unlimited rewards for his Small Business. Can i get the smith contract, please . Thank you. Thats three new paper shredders. [ boris ] put em on my spark card. [ garth ] boris Small Business earns 2 cash back on every purchase every day. Great businesses deserve unlimited rewards. Read back the chickens testimony, please. Buk, buk, bukka [ male announcer ] get the spark Business Card from capital one and earn unlimited rewards. Choose 2 cash back or double miles on every purchase every day. Told you id get half. Whats in your wallet . Your Financial Advisor should focus on your longterm goals, not their shortterm agenda. [ woman ] if you have the nerve to believe that cookie cutters should be for cookies, not your investment strategy. If you believe in the sheer brilliance of a simple explanation. [ male announcer ] join the nearly 7 million investors who think like you do face time and think time make a difference. Join us. [ male announcer ] at edward jones, its how we make sense of investing. Coming up, macys reporting Fourth Quarter earnings and revenues above expectations. Were going to go through the retailers report with analysts next. And still to come today marks the launch of cnbcs cfo council. Chief Financial Officers from Family Dollar and Td Ameritrade are getting ready in the green room. Were going to have some of yesterdays selloff equities. Consumer trends and their Global Economic outlook when we return. I know what youre thinking. Transit fares as in the 37 billion transit fares we help collect each year. No . Oh, right. Youre thinking of the 1. 6 million daily Customer Care interactions xerox handles. Or the 900 Million Health insurance claims we process. So, its no surprise to you that companies depend on todays xerox for services that simplify how work gets done. Which is. Pretty much what weve always stood for. With xerox, youre ready for real business. announcer scottrade knows our and invest their own way. For. With scottrades smart text, i can quickly understand my charts, and spend more time trading. Their quick trade bar lets my account follow me online so i can react in realtime. Plus, my local scottrade office is there to help. Because they know i dont trade like everybody. I trade like me. Im with scottrade. announcer scottrade. Voted best Investment Services company. Welcome back to squawk box. Some stocks to watch this morning, dow component home depot reporting Fourth Quarter earnings of 67 cents a share, three cents above expectations with revenues also above consensus. Then, the Company Announced a 34 dividend hike. Not bad. And a 17 billion stock buyback. And jpmorgan is holding an investor day in new york. Ceo jimmy dimon set to speak early this afternoon. Did you know this . I did know this. The bank will announce it expects 1 billion in Cost Reduction this year, including reducing head count by about 4,000. In this country. The action is coming in 2014. Consumer bank is going to cut between 3,000 and 4,000 jobs by the end of next year excluding the Mortgage Business and the mortgage banking unit is going to cut between 13,000 and 15,000 positions by yearend 2014. As for regulation, jpmorgan cautions that impending Regulatory Framework could cost up 10 of market revenues and our Kayla Tausche is there. She will continue to bring us headlines throughout the day. And a followup to a story that we talked about yesterday. Yahoo this story is on the front page of all the newspapers this morning. Its a tech company, which you think is leading the way. Yahoo Human Resources sent an internal memo on friday requiring Remote Workers to work at yahoo offices by june. The memo said, in part, being at yahoo isnt just about your daytoday job, its about the interactions and experiences that are only possible in our offices. However Richard Branson begs to differ. The Virgin Group Founder wrote in his blog that yahoo s move is, in his words, a backwards step in an age when Remote Working is easier and more effective than ever. He continued, working life isnt 9 00 to 5 00 anymore. The world is connected. Companies that do not embrace this are missing a trick. Talk about Work Life Balance and women in the workplace and all sorts of issues and there was this sense that because she was 37 years old, talking about marissa mayer, and she just had a baby, she was going to be even more progressive, if you will, about the Work Life Balance. But shes trying to bring back what google had did or done so well, which is put everybody on the campus 24 7. Ultimately her job is to make money for the shareholders, joe. Its not to create a social experiment. Its wonderful if you can do it. But you know, shes the person at the end of the day that will be held accountable for the success of the company. And i can see how people would be upset by this by the decision. But ultimately, again, she has really one master, which is the shareholders. And you. Were going to talk all through the show. And you, thinker that you are, Trevor Fetter the Tenet Health Care guy said that nobodys having babies during a recession. Iught that you point out. Theyre all living with their parents. People move back home. Hard to do that all dressed up with nowhere to go. You remember george costanza. Right. Tried something at his parents house. Its a bad idea. The door opens. Yeah, exactly. Leave something in the room . Anyway. I cant believe how quickly you so you do think about these things. I do think about these things. Absolutely right. People living at home are not making babies. Anyway, macys out with Fourth Quarter results earlier this hour, reporting earnings and revenue above analyst expectations. Joining us with some reaction is jpmorgan retail analyst. Matt, you can help us, because were were used to talking about Goldman Sachs being a black box, not knowing how they did things. I dont know how a multiline retailer would do things. I dont know how its managed to where you dont end up with a bunch of stuff no one wants to buy and then you discount it and Everything Else. But Terry Lundgren apparently either has the right people, knows how to hire the right people, or knows how to do it. This has been how many years now . So its been a threeyear transformation, really, since they reorganized the company in 2009. And you know, like you said, i mean, its been more than impressive. 20 Earnings Growth compounded over three years, plus, you know, and we think that given the guidance that they just outlined this morning, which historically is more on the conservative side, you know, we think it continues for the next two to three years at least. Which a compounding story like that is very powerful in this backdrop. So, who would be the most important person afTerry Lundgren, the buyer or the buyer or different departments or im just trying to get the nuts and bolts of how you really run a retailer the way its supposed to be run. I think its actually a great question. We sat down with the cfo, as well as ceo Terry Lundgren about a year ago, and you know, terry actually outlined the Inflection Point in this story, he believes, was about a year ago in the summer. And what he said was, thats when he really transformed the selling organization from just basic selling to service. And so i do think it comes down to the nuts and bolts of whats happening in the stories. Both at core macys and at bloomingdales and i think that selling culture moving forward to service has been so very important. And that comes down to localizing the assortments and really catering to that core customer, and you know, i think the other piece that theyve done a really good job at is broadening the customer base. I think macys is one of the few retailers that both have the high income demographic, as well as the low income very comfortable in their stores, they offer the right product at the right prices. And again, i think thats the powerful combination that they have that a lot of their competitors dont today. So right. Because you either go to a measly i cant even say it without saying needless markup because its so expensive and then youve got the, a low end, and you never see both. Security there now . I do go i love the store. I do. But you will youll buy things that are twice as good that cost five times as much. A lot of times. You have a question . Yeah, so matt, one of the first things they tell you in economics is that everything is at the margin. And one of the things that a lot of people like me got wrong is that we expected the payroll tax increase to actually have some sort of impact on samestore sales. It doesnt look like its had as big an impact as people like me would have expected. Do you disagree with that . Or how do you explain the difference . Listen, i think its a choppy backdrop. I think that the consumer is stretched today. But i think macys is in the right place at the right time. The reason i say that is i think they have companyspecific initiatives and drivers that are setting them apart. So for example this omni Channel Initiative that they speak of which is essentially the ability to service an online sale using their entire store fleet i think thats really powerful, and when you look at the numbers and you see, you know, 50 online growth that is just, you know, this just went live in q3 which obviously still has legs ahead i think thats whats separating macys. This organization just really kind of hitting stride and secondly these drivers which they have in place which will be there for the next couple of years. I wouldnt say the payroll tax is not having an impact but i think macys is able to offset it with what theyre doing. Matt, thank you. Absolutely. Andrew, did you hear, afTerry Lundgren, the next most important person at macys that orchestrated all the success, cfo. Cfo. You know you know what were starting today . Cfo council. Cfo council. Were going to have a couple cfos on and then were going to do this more. Because sometimes i think ceos, god bless them, but theyre kind of like figureheads sometimes. And its down in the nuts and bolts, the nuts and bolts, cfo may actually dont they have funds and stuff, too . Actually thats some of the stuff weve talking about. I wouldnt sign i wouldnt sign for what goes on here. I would not be responsible for what happens on this show. Were going to have our cfo council in just a few minutes. We might ask that question. In the meantime lets get a check on the markets. Rick santelli joins us from the cme in chicago. Kevin ferry also at the cme and Jason Trennert, of course, is our guest host. Good morning, guys. Good morning. So set us up in terms of the market day. Im going to go to you, rick, first. In terms of how youre thinking about it. What were going to hear from bernanke, and really does italy matter . I mean it mattered a lot yesterday, but have we gotten over that already . Well, i think that, you know, we dont live in a very pragmatic world. And i think thats, you know, the leadin im going to give you both to the fed and italy. I think, with regard to italy, it isnt trying to press americans, or asian opinions, to how ignorant voters were at the polls. That isnt the story. For how the credentials of the politicians fit or dont fit. Or whether they follow through. Its very simple. Its a referendum on the euro, but even more importantly, it shows that bureau contracts that have lots of power post crisis are always missing the only element that really matters. Next the quirks of Human Behavior and i think thats really the issue. Whats going on in italy isnt unique to italy. Its unique to any of the southern countries that are being somewhat financially saved by germany, and the relationship that exists in that kind of parental relationship, and then throwing the voters. They dont care about what the last administration did. The populist notion will win out which means everybody ultimately needs to sink or swim on their own moral behavior. Kevin . Do you care about italy . Well, i would just say im not the guy to ask. If the market is on expertise about italian elections, youre talking to the wrong guy. How do you explain what happened on markets yesterday . Some people trying to say its the sequester, im not sure thats the case either, though. Let me take a shot at it, then. Okay. So we talked for several weeks or months about the fact that the currency markets were where alled action was, right . The one thing i would say if you look at the market after the fact of what the numbers came out last night is that it was a massive liquidation trade. So maybe what we did yesterday was put the idea of risk on to bed. Because if you were short the yen and long the or short the bond and long the s p and you thought that your risk was off, you got religion yesterday about midday. So, hopefully thats what we saw was a liquidation of what was a Fairly Extreme positive position. If the catalyst was italy, so be it. But i think its where we go from now, you know, the bond market has responded again higher here in the states. So that well see how that goes with bernankes speech. But, i think the real session is that people were well into a trade that began around thanksgiving, and youve got a catalyst that caused people to liquidate. But theyre not necessarily deteriorating the overall view just yet. Okay. Rick, kevin, were going to leave it there. Thank you very much well see you very soon. Up next, were kicking off a very special series, cnbc has assembled a council of chief Financial Officers, from some of americas Top Companies, and theyre going to add to our coverage of the markets, the economy, and corporate earnings. First up, Family Dollar cfo mary winston, and Td Ameritrade cfo bill gerber. They will join us next. [ male announcer ] you are a business pro. Executor of efficiency. You can spot an amateur from a mile away. While going shoeless and metalfree in seconds. And you. Rent from national. Because only national lets you choose any car in the aisle. And go. You can even take a fullsize or above, and still pay the midsize price. Now this. Will work. [ male announcer ] just like you, business pro. Just like you. Go national. Go like a pro. You name it. Ive hooked it. But theres one. One thats always eluded me. Thought i had it in the blizzard of 93. Ha never even came close. Sometimes, i actually think its mocking me. [ engine revs ] what . quattro welcome back to squawk box. Were launching a new initiative today. Our cnbc global cfo council compromised of chief Financial Officers from many of the nations Top Companies. These cfos are going to be with us for coverage of Macro Economic issues and corporate earnings with insight from their business, both domestic and global. Today were joined on set, our first one, this is huge, mary winston, cfo at Family Dollar stores and Td Ameritrade cfo bill gerber. Weve got a lot to talk to you about. Joe, we were talking at the break, we should just bring the viewers into the conversation. Youre the cfo. Correct. So the relationship between the cfo and the ceo, and theres the comptroller. Right. Who you got the big vision guy. The cfo dont really know whats going on. He doesnt know whats going on. Well basically. So you guys are probably the real point men for whats really happening but you dont sit around like an accountant, cpa doing numbers and stuff. You have a staff, and the comptroller has a staff that does that. Right. Youre helping the ceo wheres the coo in all of this . Now there are cfos and coos today. At Family Dollar we all three and we work in partnership. I as cfo partner with our coo and ceo to understand where the business is going, what the environment around us is, what we need to do to of course, correct it, if thats the case. Where we want to invest our assets, how we want to return value to shareholders. What to do with corporate cash. What to do with corporate cash. Its a partnership. Managing the Balance Sheet as well as the income mostly managing the Balance Sheet. What about signing all the dots . Were talking about starbucks and you were joking a little bit. Right. About that. That changed when you like to start signing these documents did it change the way you thought about what was going on . I dont think it changed much. You know, you sit there, all the time, and these are our financial statements, mary thinks about it, too, and you really dont i mean, these i was kind of signing away all the time anyway, so signing an extra form really didnt bring any trepidation into my life that was i would agree with bill. I think its something that you take very seriously, integrity of the financials. Your name is on the dotted line. I think even before we had the relations that we have now i think cfos always took that role very seriously. Why do you chafe at managing the income, i dont mean finagling the numbers well, thats usually what people the ceos whole job is to try to increase profits. You dont want to just sit there deciding how much debt or equity to have. That would be i agree with that. So you do have to manage debt. The whole job is managing youre managing the expense side. Exactly. And so, you know, thats part of our job is to make sure the dollars are spent wisely. I want to talk to both of you about this. Talk to us about the consumer. Where you see the consumer right now. Given what weve heard out of walmart. Given what we heard out of home depot, out of lowes, where do you think the consumer is right now . I think it was a challenging time and an uncertain time for the consumer right now. In our particular business, our average customer makes less than 40,000 a year. So, the things that affect the economy, the uncertainty, the increase in the payroll tax, or you think the expiration of payroll tax i do think people are feeling that, yes. For real . Yes, i think we are seeing that. Gas prices, certainly. In our case anything that takes money out of our customers wallet gives them less money to spend in our stores. So, i think all of these things create nervousness for the consumer, and i think there are sometimes political dynamics going on that they may not even fully understand the ge tails but they know its not good. So whether its the sequester situation, or what else, it just creates anxiety for the consumer and changes their buying habits. And what we see in our business is more of a focus on consumables so people will buy food, they will buy cleaning products, theyll buy the things they need to support their families on a daytoday basis. And they may forego some of the discretionary items. Its a different type of consumer. Very different consumer. We were talking about that off camera. Our clients are, i think cautiously optimistic about constructive on the market . Yeah, yeah, and i think the markets done better. Have you seen more interest, are you yeah. Really . Were seeing a lot more interest. And our trade has been in the december quarter we were talking about that, again, summer quarter was tough. And we had a very low trading. I think it had to do with the election, and the cliff, et cetera. And january you saw marked pickup. Is it new customers coming and saying oh, my goodness, ive got to move my money over to td and start trading . Or people who have been having money sitting in td doing nothing, that they are now putting to work . You know, we do have both. So we have 6 million clients, and you know, we have and those clients right now have ca their accounts. And so theyre actually looking to do something with the cash. In terms of enhancing shareholder value, what would you say is the top of the list as far as your investors . Is it dividends . Is it cap x . Is it merger and acquisition, something along those lines . In our business right now, its cap x. Its investing back in our business. So weve set our Investment Priorities to be our top priority is investing back in our business. Were opening 500 stores. So were in a business thats growing rapidly. While we are seeing pressure on our core customer, were seeing other customers who werent maybe shopping in the dollar channel, moving into our channel. And thats the Fastest Growing segment of our customer base. So were investing back in our business in the form of cap x. Dividends would be second as a way to return value to shareholders. Do you feel like you sometimes are laboring in obscurity . Are you wearing a tie . Is there a ceo envy . I see a tie. Look at that thing. I mean, is that like i want to be noticed . Thats exactly it. I mean, that is not i did notice it. The media ceos dont even wear ties. Theyre too good for that. I do stuff here, too. Were going to have breakfast together. We are. Looking forward to it. Our special thanks to bill and mary. Thank you. Coming up, stocks on the move ahead of the opening bell. Well get to jim cramer when we return. With fidelitys new options platform, weve completely integrated every step of the process, making it easier to try filters and strategies. To get a list of equity options. Evaluate them with our p l calculator. And execute faster with our more intuitive trade ticket. Im greg stevens and i helped create fidelitys options platform. Its one more innovative reason serious investors are choosing fidelity. Now get 200 free trades when you open an account. Lets get down to the new york stock exchange. I said inadequate, i wasnt talking about you, jim cramer. C. F. O. S, theyve got to step out, with ties and things. If lowes was good, home depot was like a home run, right . The market faked out a lot of people. Lowes was fine. When the market turns down, suddenly we try to find things that we dont like. If this market turns down today, well find things we dont like. Home depot will say the guidance wasnt that great. This was a terrific quarter, joe. Big dividend, big buyback. If this market turns down, home depot will go down because of a comedian whos apparently doing pretty well over there. Exactly. How about macys . Did you get on that bandwagon a while ago . I have liked Terry Lundgren for a long time. Because he happens to run a retailer very well. Macys i think is taking share from jc n krrkcpennejcpenney. I think macys kills them and macys still taking share. Hard to sell to highend and lowend. I dont know. When youre in that position, its like you are. You cant manufacture it. You cant sell the j gatsby and tom jones. Its never worked. Macys comes as close as you can to almost doing that. They get high end and lowend people there. They do. They have great sales, proprietary Martha Stewart which we find out wasnt that proprietary. I think theyre doing a pretty good job in this. I know it all comes down to cnbc testimony, how much martha loved macys. Maybe it was a double Terry Lundgren hanging up the phone. When was the last time you hung up on somebody . I try to stay off i dont start the phone call. I started texting, i think its better. Several stocks on the move. But only one can be the stock of the day. Well tell you which one to watch. Revolutionizing an industry can be a tough act to follow, but at xerox weve embraced a new role. Working behind the scenes to provide companies with services. Like helping hr departments manage benefits and pensions for over 11 million employees. Reducing document costs by up to 30 . And processing 421 billion dollars in accounts payables each year. Helping thousands of companies simplify how work gets done. Hows that for an encore . With xerox, youre ready for real business