Transcripts For CNBC Squawk Box 20131010

On the sidelines of an asian summit, treasury secretary assured partners. China is the biggest holder of u. S. Debt. It holds about 1. 2 trillion. Fidelity says it no longer holds any u. S. Government debt that comes due in late october or early november, around the time the nation could hit its borrowing limit. The nations largest money manager has been selling Government Debt holdings over the last couple of weeks. Fidelity says it expects the debt ceiling issue to be resolved. Thats the good news. But passette manager says its taking steps to protect investors. Bill gross says differently. Were doing just the opposite, probably buying what fidelity is selling. I appreciate the problem they have with their Money Market Funds. If, for instance, theres a technical default of a day or even a certain number of hours, then a Money Market Fund possibly has to mark down that debt to zero and it breaks the buck. You know, so Money Market Funds, fidelity Money Market Fund might want to avoid that situation. Pimco doesnt have that particular problem. And on a different note, gross is saying now that the nomination of janet yellen to succeed ben bernanke says the central bank probably wont end its quantitative easing for a year. You know, bill gross says certain thing and the markets have turned against him, but actually with that particular fund, theyve had a nice little run. Interesting listen to go bill gross. I see what hes saying now, that those are different worries. But im glad we ran that whole sound bite. The journal says economists see the nominee as slightly nor dovish has bernanke. And i was thinking about, okay, so slightly more dovish. And then i thought about how dovish bernanke is. And being anywhere even more thats like for you, andrew, thats like saying, slightly crazier than ted cruz. For like for someone on the which when you see i mean, thats what a democrat would you know how crazy they think ted cruz is. I did see some stuff about janet yellen. They pointed out that shes not a constant dove. I know. Liesman has said that, too. But then the journal is a free market. Theres a guy named tobin that she studied under would is a super keynesian. Hes a 50s to 70s, everything is through keynesian measures and shes an accolade of his. So the journal has that to chew on. Well see. Im glad that Everybody Knows who she is, shes been there. And theyre really youre not seeing anything in the market that is uncertain or surprising about janet yellen. Its stable, its continuity. The policy continues as it is. I did see one interesting thing. It talked about how back in the 80s, she and her husband, who were both economists, talked about how they were going to find a babysitter. They decided they wanted to pay their babysitter higher than the prevailing rate for their son because they figured a happy babysitter was that auto Morning Money this morning . I believe it was in the new york times. They figured that family, that two economists and the son is an economy. The president was pretty funny yesterday. He said you can imagine dinner at the yellens. Whew, wow. Theyre crazy. Theyre crazy. So now theyre going to the white house. And im i dont even want to say anything like no, no. Because the white house, they think its funny to say this is not a negotiation. Just because theyve said this will not negotiate. So this is not a negotiation. I dont care what you call it, lets have that conversation. Then the other thing, did you see the medical device thing . If you make up the 30 billion or whatever, then we can do this. So, oh, is it a thaw . Is it a thaw . Weve got a week to go. At least theyre talking and at least theres a plan. Remember, just three or four days ago, we didnt see a plan for how they would be able to come to the table on both sides, feel like theyve accomplished something. There is Corporate News today. Your hair looks wonderful. It does. Thank you. Hes been teasing me about this, andrew. He thinks i shouldnt accept compliments. I shouldnt say thank you when someone said that because all i did was pick the color. She has new color and got rid of the highlights. She said wow, thank you. My response to him is next, tie, joe. Someone picked it. I think andrew is crazy today. Hes like gallagher or something. Thats wild for you. You are stepping out with that one today. Its usually solid. Ive worn this tie on the show many, many times. And i like it. Thank you. In Corporate News, chevron is warning that Third Quarter earn earnings will be significantly lower than last quarter. Due to earnings in the refining division. The downstream stuff. Fuel margins were squeezed and that has been sort of the state of affairs for all companies for the last few quarters. You think with oil way up where it is, these guys you would think gasoline prices would be higher and you think they would be making more money but theyre not because of refining margins. And set rick systems guiding Quarterly Results below analyst specations. I thought this was an orange jooul juice manufacturer. But its not. Its a Cloud Computing softwaremaker. And ruby tuesdays Quarterly Results missing the mark. Warns that samestore sales will be down in the high Single Digits this quarter, followed by improvement hopefully in the coming quarters. And zumiez clothing retailer you might just spell it out. Zumiez. Do you know what it is . Yeah, i know that. Really . To tell you the truth, i dont know much about it. The girls dont shop there, but ive heard of it. Reporting slightly better than expected. Andrew, do you know what i did this morning . Downloaded ways. You downloaded ways . Yeah, i did. And i found a place where you can hit mall and it will show you where the malls are, with the gas price res cheapest. I saw that. I had a hard time trying to get me to be part of the thing, of the you know, do i get points. If youre driving, you should not be playing with it at the same time. No, okay. You dont have that i dont have that problem. But its kind of cool because its a everybody is involved. If dallas traffic jam, you tell someone. And it knows on its own, as well, because it knows that your car has slowed down. Does it do it on gps, too . Yeah. What if you pull over on the side of the road . Then it wouldnt know whats going on. But what its looking for is two or three cars all at the same place, so it knows everyone is slowing down. But it has three different routes with hugely different times. Did you follow it . Yes. Was it right . It was. And unlike google maps, i dont believe the have you ever noticed it will say how long to your destination . And it will be 20 minutes and 15 minutes later, it says 20 minutes and its like, thats not fair. Though i will tell you, going the because ways. Occasionally if youre on google maps, it will show you a thing, if you say on it, it will say ways is reporting that theres a delay. So its all going to come together. They the to get to the Global Markets report. It is time to get on to the Global Markets report. Carolin roth is standing by in london this morning. Is ways a big deal in london . I dont even know. She may not mow what were talking about. I dont think so. I dont think so, to be honest. But hey, lets move on to the european markets. Were seeing optimist here on our side of the ponds on hopes of a debt deal between republicans and democrats. Thats why weve moved off those onemonth deals from the stoxx europe 600. Just off session highs. By and large, seeing gains for these european core markets. Were seeing the ftse up by 1 . Keep in mind we have a boe decision coming up in less than an hours time. The dax is gaining 1. 3 , bouncing back from three days of losses. The cac adding 1. 5 and the mib in italy, its been outperforming the rest of the pack over the last couple of days. And that continued today. Uk yields were at a sixweek low on the back of disappointing data. All eyes on the boe has it comes out with its rate decision. Many people say its going to be a smooth transition. Were not speccing any change in terms of asset purchase. The italian yields falling to 4. 3 . This auction tbill, that was successful. Back to you. Carolin, thank you very much. Right now, we go to washington and to john harwood. John, the markets seem to be buying into this entire idea that there is some potential buying, there is something in sight. Are they right to hang their hat on this . I think theyre right. I think weve gotten to the point of the Football Game where were no longer throwing incomplete passes, where theyre moving the ball towards the goal line. We havent scored yet. Havent resolved the situation, but it appears that were moving in that direction. Republicans are essentially conceding that the end defund delay obama care effort is not going anywhere. And they are moving towards an alternative strategy to get to some sort of deficit negotiations. Which is a good thing. Which is administration can engage in. And i think so long as the outcome of the negotiation is not deck tated in advan dictate then the administration can talk about the negotiations theyre talking about setting up alongside the shortterm raising of the debt limit and reopening the government. Youre bringing tears to my eyes. Maybe thats not so bad. People say how ugly everything is. And then i was looking up that churchill quote, which i dont like about the americans finally do you know, they finally do the right thing. You know, shut up. Youve got a lot of stupid things in the uk, as well. But, you know, i hate to say its kind of true. Did he just tell becky to shut up . No, no. But i mean, i dont like dont you ever say that to becky quick on our air. He wasnt. I knew what he was saying. You know, your dye job is nice. Your job looks nice. John doesnt color his hair. Do you think i put that gray in there . I think it gives you a lot of credibility. It otherwise might be gravitas. Now, being 35, now it looks like you know wa youre talking about. I refer to it as premature gravitas. You know what we talked about . I dont want to get no, im not going to get into it with you. I love the redskins. I dont know what to do with it. I think if it offends one person, you probably need to do something about it. I dont know what to do with that, john. I know youre a huge fan. You know, its a tough one. So dont even answer. But im im going with the name that i grew up with. It doesnt need to offend you. If it offends anyone, then it probably is something you know, goodell is in a tough spot. Thats his problem. Im a fan. Its not my deal. They were going to change the name of the Washington Redskins because they didnt want to be associated with an offensive term so they were going to change it to the baltimore redskins. How about the blackhawks, the chicago blackhawks, f the famous native american seminoles. But i saw a Washington Post article this week that said its not a question of if, but when. Youre not native american. Actually, i am thats wa goodell said. I am like an eighth native american, cherokee. Im not even kidding. Really . Yeah. You are, becky . Yeah. Maybe my mom is an eighth and im a 16th. So i can say it, there. Wow. So are you offended . No, but i dont think its fair because i dont really you know. Which eighth . My moth is an ath and im a 16th. All right. John, dont screw this up, okay . You know, well see. Youve got about 20 republicans. I think 18 to be exact going to the white house today. To try to discuss what the potential solution might be. You know, democrats continue to hang firm with a little bit of initial internal squirming amongst themselves about their strategy. Resisting the piecemeal funding of the government. You had some tension between the District Of Columbia officials and democrats over rejecting a republican bill to restore funding for the District Of Columbia. But it does seem that theyve been Holding Together by the fundamental elements of the democratic strategy. And i think youve got the members of the Republican Leadership who are now really searching for a solution and i think theyre going to find it. John, do you think this goes down to the 11 hour . Are we waiting until wednesday of next week . Well, it takes some time for all this stuff to process, but the republicans are talking by the end of the week of moving a bill that raises the debt limit for a short time and sets up this negotiation. I guess one question is going to be a potential hangup is do you both raise the debt limit and reopen the government with a similarly shortterm continued resolution at the same time . Is that one vote . Is that two votes . And then do you have the faction thats been pressuring boehner insisting on unacceptable conditions from a democratic or senate or White House Point of view on one of those bills . You know, there are plenty of land mines. I dont want to be overly rosy about it. But i do think that were in the if a phase where theyre looking for a way out and a its good. You look at david just quickly because we have to go, but pointing out, we all know this, that 250 billion a month, 80 of the spending is already spent. Its on auto pilot and the president knows that and democrats know that. So i mean, in the end, everybody has the same end goal, just different ways of getting there. Its unsustainable and it robs from it gives to the current generation and robs from future generations. Is there anything positive about this episode, and i hesitate to say that there is. It is the fact that it is the ultimate recognition that cutting the budgetary part of the government is out of gags. Now it is time to look at the entitlement side of the budget and the administrations positive is look at it open to both ends of the solution. Theres a bit about youre spending too much and theres a bit about the revenue coming in is too little. Republicans are going to resist the latter part. The administration is going to insist on it. And i think the zone that were in is that if you have a small deal, a very, you know, shortterm deal to alleviate the sequester, move to entitlement cuts, my guess is the administration will take something without revenue of any significant size. They have some user fees and call that revenue, whatever. But the more ambitious attempts that you make to reign in Social Security and medicare, chain cpi means testing all those things. The bigger you go, the more the democrats are going to say we have to close some tax loopholes and get some revenue. If the republicans are committed to not doing that, smaller deal. But this is where the conversation needed to get to and we seem to be finally getting there. John, thank you for that. We are going to go all the way from washington to china. As is often mentioned, china is the biggest holder of u. S. Debt and eunice yoon joins us with perspective from there this morning. Good morning, u. S. Eunice. Good morning, guys. The chinese are definitely hoping that the people in washington work this out. Even the chinese premier has been weighing in on the sidelines of a summit here in asia, the chinese premier was speak, secretary of state john kerry and said beijing was paying great attention to the goings on in washington. Xhien hes officials have been boasting their concerns about whats happening in d. C. Theres one official earlier this week who said that the clock is ticking and that the u. S. Really needed to safeguard chinas investments. As you guys have said, china is a major holder of u. S. Treasuries. It has 1. 3 trillion in u. S. Tbills and whats interesting is the way its been playing itself out in the state press. Because a lot of times in washington has a misstep, that gets played up in the chinese press. But this time the reaction is much more muted. It appears that the government is sensitive to the Public Opinions here. Because over the past couple of days, theyre saying quite a bit of anger online about whats going on in washington. But a lot of that danger is not directed as washington but its directed at beijing. There are many people who have been questioning the government here and asking why beijing have you put so many of our eggs into one basket . Guys. Great question. Great question. I guess the question would be or the point that the government there might make is where should they put it instead . Do you find a more stable market somewhere else . The u. S. Has been the safe haven and it just so happens that china has a lot more money to plow into a market than anybody else does. Well, thats definitely true. And so if you talk to but a lot of people on the ground dont really understand that. In terms of whether or not were seeing any selloff or anything like that with u. S. Treasuries in china, i was telling a lot of people because i was curious about this myself. So far, we havent seen any signs. But a lot of the triggers that ive been talking to said that they are sensing triggers. And theyve been point to go some of the data that came out of japan recently, some of the data out of japan showed japanese investors have been selling foreign bonds at record levels last week. And just a couple hours ago, the Hong Kong Exchange issued a statement oh, yep. Is this headlines news . Is this front page news in china right now . Yeah. This is it, this is the biggie . No, no, its front page news. Yeah, it is a biggie. But the way its playing itself out is very, very straight. And the sense is that the the government doesnt want to draw criticism itself for having so much of its own money in u. S. Treasuries. But one pointed i wanted to bring up with what happened in the Hong Kong Exchange, they issued a statement saying theyre valuing u. S. Treasuries lower. They are now going to apply, tledz, a haircut to the valuation of u. S. Treasuries used as collateral. So the bond traders i was talking to said that is already a sign. Youre starting to see an impact, people getting more nervous out here about whats happening over there. Eunice yoon, thank you for that report. Its become ago geopolitical issue, not just a domestic one. We appreciate it. The taliban, have they weighed in on this . They own tbills . No. Theyre making fun of us. They said were sucking the blood from our people or something. I dont know. Ill give you the quote. When we come back, if we have a chance. But i read that and i thought, oh, god. They think were pathetic, too. So thats bad. And then people got stuck on this roller coaster that i was on that goes like this. Where . Down in orlando. Lets not talk about it. Anyway, coming up, a mobile carrier getting rid of some luke rafb fees. But first, the cards. I think the cards might be better and it will be a better series against the dodgers blue. They will be advancing. This is setting up to be maybe a classic world series. Well see what happens. But ill tafb either the cards or the dodgers. I got to see a little bit of this last night. 61 was the end of the first part. We go to the championship series next. Begins friday in st. Louis. Now a check of the National Weather forecast with julie martin. Guys, we have a couple of big storm systems to deal with. That low pressure we have auflt coast, that is a big one. That is the one thats going to cause dreary weather all the way from new york city into the outer banks of north carolina. So were looking at rain for the next few days here and possibly even some minor flooding. Coastal erosion, that kind of thing. Here is a better look at that system and where it is right now. Just sitting off the coast here, its going to be slowing making its way up towards new york city. The rain moving in later today. And some pretty strong winds associated with this. So travel in the northeast could be a real nightmare over the next couple of days. Today, were expecting minor delays in and out of new york airports, also in and out of washington reagan. So be prepared. Could be a little bit bumpy in terms of air travel today. More squawk box when we come back. Time now for the executive edge ptmobile is getting rid of international data. Tmobile doesnt have as many business customers as its rivals and its looking for way toes differentiate itself from the bigger competitors. Does smib have tmobile . None of us do, i think. In reading the whole thing, i needed your expertise on it. It sound like they dont really have any customers. Its like, hey, we arent going to change the customers we dont have. None of their customers travel. They have nothing to lose. They have customers in the u. S. Who dont travel abroad. But theyre trying to steal attractive to customers who pay for other carriers. But once they got them, they wouldnt be able to charge. But at least you would have them. Its a nice carry. The question is will businesses move their entire networks . But the big question with tmobile is what are the odds of survival, longterm, in your view . I think they realized that. And i thought they should have let that go through. I would argue its offers like that that are going to force at t and verizon to keep the rates down. Antitrust. Now you have an upstart would is doing inventive things paying off for consumers. Ultimately, the next time verizon thinks about hiking the rates or whatever, theyll say, oh, our competitor over here is doing something different. We have to consider that. So your antitrust upbringing, your dad is the antitrust lawyer, paying off for consumers. I did. Oh, sorry. Are you guys back sfp. Other. You know what you are . Youre kind of the you throw the puck down. No, im more like the vana white. Im however here in the box waiting for you throw the ball up and tip it up. Oh, i get it. Jump ball . Jump ball, throw the puck down. Wells notice. Weve all heard about these things. When the s. E. C. Announces a wells notice, we do sit up and take notice. But listen to this, 20 of the wells notices that are issued are never actually theyre dropped beyond that. Theyre ner actually investigateded beyond that. This tool is used to alert people that the agency might take enforcement action. In most cases, the s. E. C. Must decide whether to go ahead with enforcement action within 180 days of issuing a wells notice. We take paengz when we hear Something Like this. I wouldnt have guessed 20 of them are dropped. I couldnt make heads or tails of this piece. Once you know youre getting you know, you can go talk to them. You can go talk to them. But thats called prosecutorial discussion. Cant you talk them out of it . Hopefully if the facts are different than the s. E. C. Thought, the s. E. C. Says but if im an investor, though, i would i may not have realized that 20 of the time they dont do any further investigation. Thats pretty good odds if youre willing to buy on a drop of a stock, right . I dont think its good odds. I think 80 means that they have that. Yeah, but when you hear about a wells notice, its usually an insane takenus selloff. But if you can convince them they dont need to do it, then you can convince them. He gets out of a lot of things. But not because he didnt do it. No, im not saying that. But you can plead your case. And you should be allowed to plead your case. I think this is a great process. And im actually, in an odd way, happy to hear that 20 of the cases actually decide, maybe they dont have to my concern on it, though, is that you assume theyre guilty when you hear Something Like this. Theres a quick assumption that the agency has hard evidence. This dedont have hard evidence, maybe they shouldnt announce it yet. When you get sent a wells notice, unless it gets leaked to the press i thought you had to report it. I dont believe that the wells notice initially gets sent out publicly. I thought you had to report it. I think its reported. I think it is reported, but i dont think its reported immediately. I guess it may depend on when your next earnings filing comes up. It could be that you have to disclose it if you have any announcements coming out. If your earnings are probably coming touts next day, you probably have to announce that. No . I think thats right. But i dont think about individuals. When i hear Something Like that. I assume the s. E. C. Had some sort of information they were moving on the to hear 20 of the time they drop, ta makes me think they didnt have that information to begin with and it may unfairly tarnish some of these companies. Anyway, when we come back, u. S. Equity futures have been trading sharply higher. We were looking at triple digit gains earlier and those dow futures are still about 112 points above fair value all on the hopes that a deal could get done in washington. There have been some hints at compromise. Gop leaders are headed to the white house today. Were going to talk about the art of getting something done. At a ford dealer with a little q and a for fiona. Tell me fiona, whos having a big tire event . Your ford dealer. Who has 11 major brands to choose from . Your ford dealer. Whos offering a rebate . Your ford dealer. Who has the low price tire guarantee, affording peace of mind to anyone who might be in the market for a new set of tires . Your ford dealer. Im beginning to sense a pattern. Get up to 140 in mailin rebates when you buy four select tires with the Ford Service Credit card. Whered you get that sweater vest . Your ford dealer. If yand youre talking toevere rheuyour rheumatologistike me, about trying or adding a biologic. This is humira, adalimumab. This is humira working to help relieve my pain. This is humira helping me through the twists and turns. This is humira helping to protect my joints from further damage. Doctors have been prescribing humira for over ten years. Humira works by targeting and helping to block a specific source of inflammation that contributes to ra symptoms. For many adults, humira is proven to help relieve pain and stop further joint damage. Humira can lower your ability to fight infections, including tuberculosis. Serious, sometimes fatal events, such as infections, lymphoma, or other types of cancer, have happened. Blood, liver and nervous system problems, serious allergic reactions, and new or worsening Heart Failure have occurred. Before starting humira , your doctor should test you for tb. Ask your doctor if you live in or have been to a region where certain fungal infections are common. Tell your doctor if you have had tb, hepatitis b, are prone to infections, or have symptoms such as fever, fatigue, cough, or sores. You should not start humira if you have any kind of infection. Ask your doctor if humira can work for you. This is humira at work. The Wright Brothers became the first in flight. [ goodall ] i think the most amazing thing is how like us these chimpanzees are. [ laughing ] [ woman ] can you hear me . And you hear your voice . Oh, its exciting [ man ] touchdown confirmed. Were safe on mars. [ cheers and applause ] hi. [ baby fussing ] welcome back, everybody. Its time for todays planner. Treasury secretary jack lew will testify before the Senate Finance committee and we will have complete coverage. At 8 30 eastern time, we will get weekly jobless claims. We will be getting these nebs. Its one of the few economic reports being released during the Government Shutdown. And we have plenty of fed speak coming up today. Jim bullard will be speaking at approximately k89 9 45 eastern. John williams will be speaking, as well. Thats your squawk planner. Andrew, over to you. Thank you, becky. Bill daley is here, former chief of staff to president obama and former commerce secretary under bill clinton. We usually only see you in a box from chicago. Thats correct. Help us here. They think theres a thaw. Were saying theres a thaw. Is there really a thaw . I dont know if if its a thought or just relation that there is a deadline and washington does nothing without a deadline. Whether its the 17th or 18th or whatever it is, its upon us and they have to do something. And i think the longer we saw with the shutdown earn president clinton, the longer the shutdown goes on, the first week, ten days, people deal with it. But it begins to build and people begin to get ticked off. So theres that piece of it and then theres the default. And youre starting to see markets and internationally, i saw your piece earlier, people are laughing at us. After they stop laughing, then they get nervous and then they think we have gone off. There is a conversation happening today. Not a negotiation, but a conversation happening. I dont know the difference between a conversation and a negotiation. Please, give us no, no. All of this is negotiation. When the president did his press conference two days ago and said, im open to discussing all of these things, thats part of a negotiation. As i look at it, all of this is moving and part of a negotiation. Its a beginning of a dance and, you know, at some point, theyve got to actually do you believe the 17th day is a real deadline . Well, you know, when we went through this in 11, there was an auction shortly after whatever date it was. Is it the day were totally out of cash . No, its not. But there is a point where you have to draw a line and i think the 17th is when all of the extraordinary steps have to be taken and then you begin to get into an area that is dicey. So people made the point that sometimes parties that are in power sometimes overplay their hand. And im just wondering, for a while, it looks pretty good for the white house in that they had these guys kind of in a trap. And the guys that were in a trap didnt know what they wanted and as time went on, i think the realize realizes its going to be the u. S. And im the president of the u. S. And this is the first time in history Something Like this would happen. And its really everybody gets tarnished, doesnt it . Again, go back to 11 when we had the downgrade. Everybody got hurt. So the president understands and i think thats what the comment i refer to earlier or two days ago in this press conference was they have to get out of this box. Politically, yes, the republicans put themselves in a box. They put themselves in it and now theyre trying to get out and the democrats and the president specifically has to help them move forward. The president , obviously, would get hurt. Should the president accept a deal, meaning a shortterm, four weeks, six weeks and were going to set up a Super Committee or some kind of something . Does that make sense to you . Its an out. Thats kind of what they tried to do the last time. They had a Super Committee and that worked well. But it got us off the deadline and got off the ledge. Youll be back on the ledge six weeks later, depending on how things go. But my sense is that they will remember. I think the minority is in the house or the majority in the house, pardon me, republicans put themselves in the box with the obama care thing which is going nowhere. Now theyre off of that and now theyre moving on to some things that there may be an ability to give by the president , by democrats and the congress and move on. Because everyone obviously is going to get hurt terribly. You said nobody in washington can do anything with regard to the deadline. Does that mean you probably dont get a solution until wednesday next week or something. I think the weekend is the most important period. I think if you get closer to the 17th, what youre seeing in the markets will begin to unless theres a real sense that progress is made. And ill bet you my sense is that all the speculation today on this show and in the press is that there is a thawing, as you called it. And thats all people need to nobody really thinks were that stupid. Even the Super Committee that you just mentioned, when the president is on now, do you see how often he says i cut the deficit in half since i was elected . I dont know how it happened. I know the sequester had something to do with it. But will we look back on this and say, yeah, there was act money and there was arguing, but this does work. If we havently do something with entitlements and address these things, five years ago we may look back and say, oh, this isnt so bad now. If you look at what has happened, the deficit has come down. Sequester was ugly, nobody likesed it, but it is working. We did a fairly substantial cut of spending in 11. And all these things, even though the Boles Simpson Commission had a larger number, the truth is, a lot has been done. All these people laughing at us. Putin, worth 100 billion, hes laughing at us. The taliban is saying were sucking the blood from all these people are taking shots. It is embarrassing, though. It is. Susage making and democracy. Well, we always say were so polarized we cant get things done. I think we get things done in the most complicated way. We have to get to the crisis, we have to get to the madness as opposed to letting them work through, what they used to do, the bulk of funding or financing. Its ridiculous. And talk about jpmorgan. Give us your two cents real quick. What do you make of the government going after jpmorgan . Because they make a lot of money and theyve done real well, i think jamie is as good of a ceo as there is in any industry. Mistakes were made. Obviously, the two big things theyre after are mistakes that bear stearns and Washington Mutual made. Jpmorgan came in and rescued both of those companies in a way. They were good deals for jpmorgan. I think its unfortunately, but, you know, were still trying to get so fair, unfair for the government to pursue these cases . Well, the government has to look at them and pursue them. I think theres a bit of an aggressiveness here because of jamie notoriety. And the fact is jamie has been successful financially. If they were on their knees, they probably wouldnt be so anxious to try and palm that. Do you want to come back and be the chairman of the company . Im happy, thank you. Fair enough. Still to come on squawk box, named investor game chanos on a lot of stuff. Really, more of his he has five interesting issues about a lot of stuff, about the commodities super cycle, china, even about computers. And how theyre now all distributed, which stels bad news for Companies Like hp. Well be right back. Americans t. They always have. They always will. Thats why you take charge of your future. Your retirement. Ameriprise advisors can help you like theyve helped millions of others. Listening, planning, working one on one. To help you retire your way. With confidence. Thats what Ameriprise Financial does. Thats what they can do with you. Ameriprise financial. More within reach. Thats what they can do with you. Sometimes they just drop in. Always obvious. Cme group can help you navigate risks and capture opportunities. We enable you to reach Global Markets and drive forward with broader possibilities. Cme group how the world advances. Still to come this morning, behind the wheat of luxury. Bentley is flying fur. When squawk box comes right back. Bny mellon combines Investment Management investment servicing, giving us unique insights which help us attract the industrys brightest minds who create powerful strategies for a countrys investments which are used to build new schools to build more bright minds. Invested in the world. Bny mellon. [ male announcer ] eeny, meeny, miny, go. More adventures await in the new sevenpassenger lexus gx. Lease the 2014 gx 460 for 499 a month for 27 months. See your lexus dealer. Bentley reporting a 9 sales increase worldwide over the first three quarters of 2013 with sales up better than 15 in the same period in the americas. Joining us now in front. Well, were going to look but its a little dark outside. We came inside. Bentley motors president and chief operating officer. Good morning. Good morning. Thanks for coming in. My first question was, i remember because im old, i remember when i couldnt tell a difference between a bentley and a rolls. And that changed in 1998, right . Yes, we have had a long history together between 1931 and 1998. But in 1998 its been good to stand an your own, too. And you distinguish yourself with the two door, thats what people, a lot of us here in the u. S. Say, wow, what is that . It transformed our company. Yeah. Just to give you a figure. In 2003, we sold 1,000 cars worldwide. The success of the gt and four years later we sold 10,000 cars worldwide. So our business increased by a factor of ten with this new investment. When i talk to you i almost feel like i understand french because its kind of french. I would love to. Been able to change the way its the greatest accent. As long as you can understand me, its fine, you know. Its beautiful. It is. I would stay single, if i had that accent. And the car. You can do some damage. Do you have one of those at home . Yes. Lets look at these. Now you are selling so many more cars. We need to clear it up. China, they are hurtling into the luxury market in so many ways. Down 20 in china for a very good reason. Yes, in the last year we are in china. Of course, this year we didnt have there was no flying spur. And theyre waiting for the four door. The car was just introduced to the market last month. And it was long awaited and, of course, this number. It wasnt like there was a slowdown in luxury watch sales over there. Because the economy. And we use that, chanos is coming on, they use that as an indicator. Nothing to do with them being weak. It was if they liked the flying spur. The overall market is declining. But we are dominant in this market to a market share of 35 , 40 . And our numbers will look a little bit different. So in our main markets remain the u. S. Would you like to triple in five years . Would you like to more than triple . We dont have this kind of forecast. Its very important production is linked to demand and supply should make sure that desire remain intact and sales remain strong. Well, beautiful cars, some day, maybe, right, andrew . Get jeeves. One day. I wait for you. You will be great your english is so much better than my french. Thats the one thing i can tell you. One of the most beautiful try to get one of those beautiful cars. Yes. Some day. Some day. Well keep working hard. Well have to work very hard. When we come back, weve been talking about the futures. I love having a free checked bag with my united mileageplus explorer card. Ive saved 75 in checked bag fees. [ delavane ] priority boarding is really important to us. You can just get on the plane and relax. [ julian ] having a card that doesnt charge you foreign transaction fees saves me a ton of money. [ delavane ] we can go to any country and spend money the way we would in the u. S. When i spend money on this card, i can see brazil in my future. [ anthony ] i use the explorer card to earn miles in order to go visit my family, which means a lot to me. [ laughter ] [ female announcer ] each one of us is our own boss. And no matter where you are in life, ask your financial professional how lincoln financial can help you take charge of your future. House leaders huddle as the deadline draws near. And bring your brooms because its a mess. We get the long and short of what it may mean for your investments from squawk market master jim chanos. Meet the man once considered to replace jamie dimon. He joins us for a special interview. And rising above the washington debt ceiling debate. Hate to break it to you, friend, your balloons getting ready to pop and that balloons filled with your own butt toots. Working to solve the nations fiscal crisis. Johnny isaacson and gene shaheen join us to discuss their plan as the second hour of squawk box begins right now. Good morning and welcome to squawk box here on cnbc. Im andrew ross sorkin. Take a look at the futures. See how things are setting up today. We have do have green arrows across the board. Perhaps the result of a perception we have a thaw going on. You can never really know. Dow looked like it would open up about 130 points higher. And the nasdaq up about 27 1 2 points. Lets get you through some of the morning headlines. The president s going to be meeting with 18 House Republicans today in the latest effort to break the impasse over the Government Shutdown and debt ceiling. The debt ceiling will also be the focus of congress this morning when treasury secretary jack lew testifies before the Senate Finance committee. That testimony begins at 8 00 eastern time and well have full coverage of secretary lews appearance as soon as it begins. Also, advertisers taking the mobile market more seriously than ever. Mobile ad spending totaled 3 billion in the first half of this year. That compares to 1. 2 billion in the same period a year earlier. Also, the numbers of u. S. Homes entering the foreclosure process, they fell to a sevenyear low during the Third Quarter. Realty track saying the foreclosure actions were started on just over 174,000 homes, the lowest since the Second Quarter 2006 and that number was also down 39 from 2012s Third Quarter. Not bad. Youre really acting like youre interested in all these things, thats good, i guess. Youre arguing no, the way giving it a lot of feeling like a true like an anchor professional. Like taking notes . Yeah. Exactly. Help me. You would say is that the 700 points we lost and the move in the onemonth bill and credit default is due to the, when it seems to be dissipating and moves up, you need to be i dont think you need to be so no perhaps, you say straight up. No perhaps. Its not up on chinese manufacturing. No mr. Shorty, hes not going to help. The things you are short are due to other things being really bullish, which is good. Like fraccing is great but might hurt the big Oil Companies. Its like pcs are bad but distributed computing is going to be the winner. Its like im seeing Creative Destruction and youre seeing these things happening. Good morning. Good morning. Am i right or right . I think its part of it. Its nice youre not going to be totally our guest host is jim chanos. He needs to introduction. I was getting a car when i came in. Look under your suit for a small yeah, exactly. First of all, the markets are indicating they think washington will reach a deal. All of wall street thinks theyll reach a deal. If not, wed be a lot lower. There was a small probability it wasnt happening, but it wasnt zero. Now closer to zero. Well see. Theyre meeting, trying to give boehner a way out of this. That seems to be the obvious negotiating strategy here on all sides. If the moderate sort of win and boehner wins and the white house wins, how does the tea Party Faction of the party look at that . Or do you have enough of the party . The Republican Party who goes along with this who can say these are things we can live with . Willing to split the vote. Thats unclear. Even in the in the articles youre reading today, they polled even some of the guys maybe not necessarily the tea party, but some of the far right guys that said, yeah, lets do this. The question once they sign the debt ceiling then, you know, then what . Super committees again . Thats the first as conservative republicans, which you, i know in your view thats redundant. As conservative republicans warm to the idea of a shortterm but i bet youre not going to hear that from joe barton. No, theres a few. Congressmen that dont go along with this idea. They are. They come from districts where they might even be left of their average constituent in some of those. Yeah. Thats why i try to tell you at times. There are places in texas, places where when the other day you ask, do these people have any backing anywhere . There are some places with serious backing. Serious backing. Where if you dont toe the line, youre a moderate republican, youre out in the next primary. You know, when they do it. Someones going to challenge you. There are places like that. Jim, this isnt something that you would short, though, right . When youre looking at shorts . No, were not trading our positions based on sequester, Government Shutdown or god forbid, you know, no debt ceiling. I think everybody wants that resolved. Doesnt really affect. And remember, were hedged all the time. Its not a market call. You do have some broad themes, some of which youve talked with us about before. Including hp. Youre short on hp and still short on hp because of the decline in computers and pcs . We had data out after the hp meeting yesterday indicating the decline is accelerating in pcs. Meg whitman seems to be more optimistic than we are. But i will say that at the meeting yesterday, theyre now talking about revenue declines in 2014. Thats not what they were saying before. So in effect the guidance keeps coming down at that company. Theyre talking about lots of restructuring, talking about margins improving and im hard pressed to see how margins will improve at any of their businesses given the secular head winds going on. Would you write this down to almost zero . Do you think theres no future for a company like this . Well, look, they have a lot of different businesses. All of these businesses are declining right now. So i think thats the problem. That theyre all under assault. And the question is, can you turn around a tech company . Ibm is a very difficult undertaking. Well see. I guess my point is, you are not somebody who jumps in and out of positions. I think i should sometimes maybe. But we stay with these things. If the companys still getting worse. Then we think its probably a secular short. Mobility is king. Its going to be distributed now so that, you know, the cloud is going to be cant they somehow isnt that going to be a big enough business for a lot of people to play in . It could be. Hp is not going to be typically these businesses, its almost winner take all. Is it one thing we always grapple with is whether as we go from analog to digital whether, is it a much smaller total number . I would think its we worry, will we get enough digital nickels to replace it. Isnt it going to be huge for everybody . Well, you bring forth new businesses. The digitalization trend has brought forth great wealth and new businesses. Its hurt the old business. Its also been generally deflati deflationary. Less money then, it is less . Yeah, i think so. Where do you come out on apple, by the way . Long apple. Long apple . Yeah, long apple and samsung. But, again, i caution people when they look at our sec filings understand that our longs are generally offset fundamentally against things were short. So thats part of your dell dells no longer no. Thats so you consider youre long on apple, part of your short thesis on hp . Yeah, with think the architecture right now is beating out the intel architecture. What does that say about microsoft . No opinion. Theyre kind of in between. Although they seem to be totally dependent on what you think is going away. Well, not really. Theyve moved to the cloud and theyve got services and theyve got theyre trying to move even though you think pc software when you think microsoft. Yeah. You do, dont you . They have their own issues and trying to make acquisitions around it. You play google . Because its moving too fast . Again, we dont see google as a stand alone either way. We have no opinion on it. But the pc area is under pressure. Theres just no doubt about that. And if you look at the numbers out last night, down 8 , its always seemingly now worse than people think of flat to down a couple percent. I think it continues to accelerate on the downside. Part of hps story is they do think theyre a major player in the cloud. If you dont think they are, who are the top three or four that are were long workday versus one of the cloud shorts. The cloud area is also a little problematic. Amazons a huge player in the cloud. And a fun fact about amazon. Do you know who makes amazon servers . Amazon. Is that true . They make their own hardware. Yeah. Tells you about the hardware size of this business. What was your offset on the short side . Wonderful thing about the short side i always have to disclose what im short. And we have a fun one that were short thats an accounting nightmare but well leave it at that. What . What . Were going to be with you for another almost two hours. If you give me the keys to the bentley, ill be happy to disclose it. Its no skin off our nose if you take the bentley, we dont own it. So everything that samsung and apple thats your digital plays . Well, again, i think those are good hedges. But its not just hedging, you like therell be a digital its an interesting company. In spite of just being yeah. I think its outright very, very cheap, great returns on capital, invests and expenses unlike a lot of guys like hewlett and guys that acquire r d. Samsung actually does it home grown. How long have you been long apple . Probably now for about a year. Since it started heading down. All right. How much time . Our other hangs are not as long with him. I dont know if we need to do it all right now . We do have we want to do china. Weve got to get your update there and id like to know what you think about europe because, i dont know, people are buying greek banks. Are you . No, were not buying greek banks. Youre greek. I am. I was there this summer. Do you have an account . I dont have an account, but we know a little bit about greece. Youve been to the harbor there. I have. Its great. We were in athens a month and a half ago. Look, greece has its issues. Have you bought an island yet . Theres a couple for sale. Theres a couple for sale. Ive got to work on the bentley first then the island. But the theyre getting their act together slowly and surely. Before interest, its a big before. This year, so greece is probably hitting bottom. The problem with distressed buying in europe is not the same as doing it in the u. S. Where we have an established court system. Europe is not that easy on that front. You know, you always have to worry about the excess profits, speculators tax of 2016, whatever the case might be. All that kind of stuff. Yeah, absolutely, absolutely. Im just saying, its not as cut and dried for the flood of american distress money that made its money from 09 to 2012. Do you still need bribe money . To be able to do as the romans do in a lot of mixing metaphors here. But in parts of europe, you probably need to play a certain way over there if you want to win, dont you . You see, quick to put on short selling bans, its not a friendly environment for private capitalists over there. I think people have to be careful on that. Spain and portugal . Same idea. The Banking System there is slowly Getting Better because of the ecb. Right. I dont think its going to be a vtype recovery as in the United States. Quickly on china, discussing the issue of the shutdown here and the debt ceiling and the political issue, which is that china is taking heat itself for all of the money its loaned us. Yeah. How does your thesis work into any of this . It doesnt really affect it. Chinese have to put their foreign currency reserves in the trading partners currencies. Remember how they get their reserves, big misconception about that. If i make bicycles in china and sell to walmart, i get dollars from walmart. I go to the peoples bank, trade my dollars in for yuan and were in currency right now. Youve got basically thats how it happens. There are liabilities against those foreign currency reserves. Its not like its sitting all by itself in a piggy bank. Its foreign currency trade from the trade flows. And theyre going to be upset if we dont pay our interest. Okay. Jim, thank you, youre going to be sticking around. Yeah, couple hours, right . Yeah. Well try and figure out that cloud story you wont tell us. Although we could give him the keys i dont care, take the care. Leave the kill switch on so you cant start it. Im going to try this. Up next, corporate headlines and stocks to watch at the bottom of the hour, where is the bipartisanship in d. C. . We found two congressmen working together to fix the nations debt problem. Senators Jeanne Shaheen and Johnny Isakson at 7 30 eastern. Squawk box will be back after a quick break. Its been a big week for squawk box as we help investors rise above the debt threat. Alan krueger. Negotiations under the threat of default. Former white house chief of staff john podesta. I think we need to move forward with some ability to move past that october 17th deadline. Equity Group Investment chairman sam zell. If we do not reach consensus and bipartisan scenarios, were going to have problems. Energy titan Boone Pickens. This looks like its a mess. We wrap up the week with one more management guru. Jack welch speaks to squawk straight from the gut. Squawk box where Business Leaders rise above the washington rhetoric. Owe here at a ford dealer with a little q and a for fiona. Tell me fiona, whos having a big tire event . Your ford dealer. Who has 11 major brands to choose from . Your ford dealer. Whos offering a rebate . Your ford dealer. Who has the low price tire guarantee, affording peace of mind to anyone who might be in the market for a new set of tires . Your ford dealer. Im beginning to sense a pattern. Get up to 140 in mailin rebates when you buy four select tires with the Ford Service Credit card. Whered you get that sweater vest . Your ford dealer. A confident retirement. Those dreams, theres just no way were going to let them die. Like they helped millions of others. By listening. Planning. Working one on one. Thats what Ameriprise Financial does. Thats what they can do with you. Thats how ameriprise puts more within reach. Welcome back, everybody. Take a look at the futures this morning. And yes, they are up triple digits. Dow futures up about 121 points above fair value. S p above 14 points on the hope therell be some sort of thank you, definitely. Were up 130. Well take it, right. Lets take a look at stocks to watch this morning. Chevron and were going to talk about the Oil Companies. Chevron warning that Third Quarter earnings will be lower in the Second Quarter due to in its words significantly lower earnings from downstream operations like refining. Few margins there were squeezed. And i will give you a hint that you may love fraccing but you may not like the big Oil Companies, right . That is correct. Well talk more about that. Citrix, this is a Cloud Computing software maker. Hmm. Thats not the one. Some contracts were delayed. And Quest Diagnostics expects to report 1. 02 a share. The company saw deteriorating revenue late in the quarter and experienced an increase in denial rates. Does that mean Insurance Companies are denying the payments . Well, you can imagine if you just said i want, you know, dozens you want the works. Of expensive tests that maybe may or may not yield, you know, anything that you can use then you say no, youre not going to do those things. I go to a Quest Diagnostics place once a year. Theres a blood place that draws because, unfortunately, with this job, you cant if you have your checkup and go to get your checkup and they tell you you cant eat anything but youre here all morning. Like on a saturday. Yeah. There should be a Blood Pressure machine right onset here. Like gordon gekko had one on his treadmill. You go to thailand, you know, i hope you take a blood test when you come back. Weve talked about that before. Ive never been to thailand and we have some viewers. Im just making that up . Yes. Where were you . Cambodia. You had to go to the doctor . An ear infection. An ear infection. From the pool. Yeah, people always get that in the pool. It happens. It does. I have swimmers ear. It was swimmers ear. Thats what it was. Ive got my own fantasy. Anyway. Mens warehouse has adopted a poison pill after rejecting a takeover from joseph a. Bank. Not banks. Im inclined to say banks. But they make it very clear on the commercial they dont. They say the offer undervalues the company. It will grant shareholders the right to buy more common stock at a discounted price. Up next, crab fishermen are in a pinch. Apparently. The deadliest catch may become the dreariest catch if the shutdown continues. A closer look at the ripple effects next. Squawk box will be right back. 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So she could take her dream to the next level. So we talked about her options. Her valuable assets were staying. And selling her car wouldnt fly. We helped sydney manage her debt and prioritize her goals, so she could really turn up the volume on her dreams today. And tomorrow. So lets see what we can do about that. Remodel. Motorcycle. [ female announcer ] some questions take more than a bank. They take a banker. Make a my financial priorities appointment today. Because when people talk, great things happen. Now the answer to todays aflac trivia question. Which sports team does quicken loans ceo and frequent squawk guest dan gilbert own . The answer, nbas cleveland cavaliers. All right. Fishermen in the barring sea are feeling the Government Shutdown. The shutdown means no crabbing permits are being granted. And without those licenses, dozens of vessels will remain docked indefinitely. Their captains legally barred from setting baited traps. The closeout would in turn financially swamp hundreds of fishermen who earn half their annual pay during the fourweek king crabbing spree. Only a fourweek season. It cost the boats an estimated 1,000 a day to idle at port. Another thing its affecting is the auto industry. Last week, when an allelectric tesla motors model s caught fire, the administration was unable to send investigators as it normally wouldve done. And tsa was forced to furlough the entire vehicle defect team. Was not able to conduct new safety investigations or continue with existing ones. The agency has not been able to process new recalls from automakers, meaning theres no Public Notice on the governments recall website and its halted work on setting regulations for the industry. Also saw they were sending food into the grand canyon because there are a few thousand workers still there. A lot of them are workers who do things like change the sheets on the Hotels Living paycheck to paycheck and dont have food to eat at this point. Wow. How much globally, how much is 2. 3 trillion as far as a loss would go in bond portfolios . The imf, im thinking about too big to fail too. The imf says when the fed starts exiting and longterm rates go up a point, they calculated global bond Portfolio Market losses will total 2. 3 trillion is it a lot . Our subprime market totally was between 1. 5 trillion and 2 trillion at the top in 06 and 07. Yeah, exactly. It was the transmission. Theyre saying thats how big that market was. Describing the process of normalizing u. S. Monetary policy as unprecedented and complex. Theyre saying at this point its unclear whether the Global Financial system can withstand 2. 3 trillion of course it can. Of course it can . Yeah, because were not going to use mark to market accounting. Were holding it until majority. The losses will never be recognized. Youre asking like thats a bad thing. Sounds like you wish they were. Now were glad we didnt do it at the bottom of the financial crisis. When you cant sell anything doesnt mean theyre worth zero. We changed in 2009. Im clear. Which do you think we changed the accounting rules basically saying you could hold basically they made it easier to hold securities due to temporary Market Conditions meaning you could predict what the market was going to be, but thats a whole separate issue. So now in effect that these kinds of longterm bonds will if the market goes down, theyll say well, these are temporary Market Conditions, of course, and we dont have to recognize and what is the Federal Reserves portfolio . How big is it . How much of the 2. 3 trillion will they be eating . Pretty big. A lot . Half . I dont know. Found something worth reading. Did you see the big news on the ft . I know weve got to go. Theyre going to one version globally. You know how they have millions of regional versions and announced a big plan to overhaul the paper. The u. S. Version . Just one. The digital version. I dont know, its going to be the digital version. The whole goal is to move everything online and theyre going to put it in the paper. Its a total mind shift in terms of how people do their day job. Lets tell you about a few other headlines this morning. Jack lew is set to testify before the Senate Finance committee. Hes going to be doing that shortly just about half an hour from now. Hell be warning about not raising the debt limit. Well have complete coverage coming up at the top of the hour. Fidelity investments has sold all the shortterm Government Debt in a sign of possible u. S. Default. Fidelity expects the issue to be resolved but it wants to protect investors and as we heard from bill gross earlier, hes going to be a buyer. Has been a buyer of a lot of those bonds. Its a different situation for fidelity where you have the money markets. If they were forced to mark to market. They could be forced to mark those things and that could break the buck again. Although the Government Shutdown has posted several reports that were due out today, we will get the weekly initial jobless claims report that is coming out at 8 30 eastern time. Economists are looking for claims of 311,000 up from 308,000 the week before. And we have a big news story on wall street this morning. Meredith whitney launching a long short equity hedge fund. No word on how much capital shes raised so far. Kenbell capital also showing that whitney requested to deregister her Meredith Whitney brokerage business and this is being positioned two ways. One is shes going off to launch a hedge fund. One is she decided to get out of the business and move this way. What do you think of this . You know, i wish her luck. Is the Research Business such a lousy business . Does this determine if she cant make it work, does that mean nobody can . Well, meredith is known, i think, for her skeptical views on things. And being a skeptic hasnt been very profitable. I think im not sure a Long Short Hedge Fund is going to be profitable. Maybe a long hedge fund. She could stick to things she knows, though. I remember when she started making market calls. She had a big city call and she was making market calls for a while when she came on here. Yeah, i think the markets overvalued, the s p, i know the consumer and i kind of kidded around with her about. She could do banks, right. I think she could do shes very smart. I spent time with her two weeks ago. I think her work is terrific. All right. Okay. Well, we wish her well. Tough business, though. Coming up next, finding friendship across the aisle in washington can be tough these days, we found two senators who are working together on a couple of shortterm debt fixes that could end the Government Shutdown. Theyre going to join us after the break. And then he ran Jpmorgans Investment Bank and was once thought of as a possible replacement for jamie dimon. Jes staley. Squawk box coming back after this. Sometimes they just drop in. Cme group can help you navigate risks and capture opportunities. We enable you to reach Global Markets and drive forward with broader possibilities. Cme group how the world advances. I have obligations. Cute tobligations, but obligations. G. I need to rethink the core of my portfolio. What i really need is sleep. Introducing the ishares core, Building Blocks for the heart of your portfolio. Find out why 9 out of 10 large professional investors choose ishares for their etfs. Ishares by blackrock. Call 1800ishares for a prospectus which includes investment objectives, risks, charges and expenses. Read and consider it carefully before investing. Risk includes possible loss of principal. Welcome back. President obama is expected to meet with the House Republican conference later this morning. Our next two guests are here to show bipartisanship exists in washington. Theyre calling on congressional members to rise above Jeanne Shaheen. And senator Johnny Isakson, good morning to both of you. Good morning. How do we get from here to october 17th and make it all work out . Do you have a plan since youre both standing right next to each other . Well, the fact that people are talking, i think, is very good news. Our plan is really senator isaksons legislation that was introduced several years ago that i joined him on. And that is to look at the budget process and see if we cant bring more sanity to the budget process. And thats what the biannual budgeting bill would do. Were in this problem were in today because we havent done our job. We need to restructure the way the Senate Appropriates and the way we set our budgets so we dont run out of money at the end of the fiscal year and have a crisis every 12 months. Explain exactly what youre proposing. Basically, its a biannual budget where you appropriate for two years in the oddnumbered year. You do oversight and accountability in the even numbered year. If we were looking for savings rather than appropriating money and trying to bring home the bacon . And, you know, 20 states have biannual budgets. I had one when i was governor of New Hampshire that worked very well. We brought in the budget on time and i think if we had this kind of system at the federal level we would avoid some of the grand standing that goes on around the budget, it would really give people a chance to look at what programs are effective, where we can find savings, where we need to invest and thats what the bill is all about. Realistically, practically, what is the chances you can get your colleagues on both sides of the aisle to actually agree to this . It seems the current structure and nobody thinks the structure is a good one, but it does allow for all the grand standing you talked about and so many people in washington and congress depend on that. Well, this year in the budget debate, we offered the biannual budget as an amendment to the budget. We got 2 3 of the senate, 67 votes in favor of it. I think thats a good sign the senates ready to make a change. What is your sense on the possibility that we actually do have a thaw here . Is it okay is it acceptable if we get a process, meaning we extend the debt ceiling for four weeks, six weeks, eight weeks and theres some kind of special supercommittee, is that the right way to go . Well, obviously, i think we should open the government, raise the debt ceiling to make sure that businesses and have some certainty that the economy doesnt crash. If we can get an agreement in the shortterm that allows us to get to that point longterm, im willing to take a look at that and see if its something we can support. I agree, we dont need a Super Committee, we need to work this out ourselves. Its our responsibility the American People are counting on us. Senators, we appreciate it. You guys are models for hopefully everybody else in washington. Well see whether you can get everybody in line. Thanks. Thank you very much. Super models. I dare say. Uber models. Uber. What is that . Super models uber is like is it higher than super . I believe. Kate kelly with an uber special interview. A man once thought to be a potential successor to jamie dimon. Futures up now up about 120. Dont miss power lunch today. Theyre taking your questions about how to protect your money in the current climate. There it is. How does that work . Its got the number thing, ask cnbc. Hashtag, thats what that is. Thats at 1 00 eastern. Its been a big week for squawk box as we help investors rise above the debt threat. Former council of economic advisers chairman alan krueger. They shouldnt be having negotiations under the threat of default. Thats what banana republics do. John podesta. I think we need to move forward with some ability to move past that deadline. Equity Group Investment chairman sam zell. If we do not reach consensus, do not reach bipartisan scenarios, were going to have problems. Energy titan Boone Pickens. Looks like a mess. We wrap up the week with one more management guru, jack welch speaks to squawk straight from the gut. Squawk box where Business Leaders rise above the washington rhetoric. In a world thats changing faster than ever, we believe outshining the competition tomorrow requires challenging your Business Inside and out today. At cognizant, we help forwardlooking Companies Run better and run different to give your customers every reason to keep looking for you. So if youre ready to see opportunities and see them through, we say lets get to work. Because the future belongs to those who challenge the present. Welcome back to squawk box. He was a power player at jpmorgan, now managing more than 17 billion in credit and derivative products. Kate kelly with a very special guest. Kate . Well, good morning. Thank you so much for joining us. Managing partner from Blue Mountain capital. Tell me a little bit more about your thoughts on the debt ceiling and whether were getting close, what it would mean if we got there. Well, first, its great to be with you guys here. I think as i said the other day, i think it would be incredibly destructive to the Global Economy if we actually crossed the debt ceiling or the debt default issue. Calamitous was a word you used earlier this week. I mean, the entire the commerce globally is fed by the oxygen of finance. And what really is a foundation of that oxygen is the u. S. Government bond market in the sense that it is a riskfree asset. You take that away and make it a risk asset. You essentially will shut down the oxygen that funds the economy. And while we have oxygen flowing, sort of feels free and easy, you turn off the oxygen of commerce and well feel it immediately. And it would be calamitous to the system. Were already seeing signs with fidelity. If we hit the debt. If we have a default, what do you think would be the first market to crack . Well, we have sort of three dates we have to keep our eye on. October 17th, october 24th, when theres a refinancing of treasuries, and october 31st, when theres a Coupon Payment. One of the things were going to start to see early and weve started to see it now is how will treasuries begin to trade before the 17th, immediately after the 17th, but going into the 24th . And the other one is, will the market begin to say i dont want to own a Corporate Bond that has a Coupon Payment on the 31st. The market may be given some credibility we could be reckless to go over the line. As we get closer, the real market that will start to make the reaction if theres any possibility of crossing that line will be the equity markets. And what about the repo markets which were so key. You remember this in 2008. You know, youll see it in the repo market. And that begins to break down, then were in serious trouble. Youll see it in the Money Market Funds. Remember, in the last crisis, people started to give cash to banks which they did not want treasuries, they did not want Money Market Funds. We get to that sort of level of panic and thats when the markets will really crack. Okay. Tell us a little bit about whats working for you guys this year at Blue Mountain capital. Youve had a couple of interesting theses that have played out, no . Well, its an interesting market where what we know for sure is that we are in quantitative easing. Markets are liquid, Interest Rates being held down very low and theyll stay low for a good period of time. That is creating appreciation and asset values from the stock markets, credit markets. One of the challenges, however, is because the economy is still weak, theres not really an underpinning of Economic Growth to drive those valuations. Its because of quantitative easing as opposed to Economic Growth. And one of the things we do know, at some point the fed will have to take its foot off the quantitative easing. For us at Blue Mountain capital, we have been responding to the liquidity but also been cautious because of the lack of directionality we see in Economic Growth. And what weve done in financial terms, weve added convexity to our portfolio. Meaning youre trying to kind of hedge yourselves from the wild swings. You might buy options as opposed to the underlying equity. So were spending money to give insurance because volatility has been low. Interest rates are low. So that allows convexity to be a reasonably cheap way to manage the fact that we are concerned of the lack of directionality. And you saw it when the fed went through this exercise around tapering or not tapering. The big issue is, Monetary Policy has a weak transmission to generate Economic Growth. I can see andrews wheels turning. I want to go one other direction. Only got another minute or two with you. Which is this. Wind the tape back for a second, talking markets here. Right. One of the conversations coming up a couple of times. We had bill daly in the 6 00 hour. I want your jpmorgan view. You know, theres a view that a lot of people in the top ranks have left jpmorgan in the past year, year and a half, right . You left. What do you make of the bench . I think jpmorgan is an extraordinary institution. You still got a lot of friends there. Youre not anxious or unhappy . The economy and the Global Markets need large, strong universal banks that are well run and that are functioning well. I think the bank is investing a lot to get there. And im a big buyer of jpmorgan. You were there when all this other stuff has gone on. Are they being unfairly targeted now . Is it fair, unfair . You know, when we have the economic crisis that the world went through in the United States in particular in 2008 driven by a lot of mistakes made in the financial industry, theres a lot that has to be corrected and the banks including jpmorgan should shoulder a certain responsibility for that. But there is a point that we need strong banks. We need to get the past in the past and begin to move forward. Did you buy the critique, though, that jamie dimon has pushed out some of the best players around the hoop at the top . You know, i think that jamies got a lot of talented people around the bank is 260,000 employees around the world. Well be fine. Weve got to wrap it. Quick question, at Blue Mountain, you hold city group and aig, which have done well so far this year. Jpmorgan you invested in personally . Because i worked there for so long and i believe in it. One of them, weve been constructive on the large u. S. We do think a lot of progress has been made in terms of recapitalizing the banks, making the Insurance Industry more transparent, making the Banking Industry more transparent. And weve seen that in appreciation in the large cap financials in the u. S. Thanks so much for being with us. Back to you guys. Thank you very much. Appreciate it. When we come back, jim chanos with sound investment advice. And we have jack lew hitting the hill. Well bring you his comments and the market reaction. Squawk will be right back. Your representatives in congress have failed to compromise, failed to do the job you elected them to do. So we called someone who is used to dealing with deadweight. Sorry, brother. Tomorrow on squawk box, darrell from the walking dead will join us onset. You dont owe us anything. Dont miss it. So i c an reach ally bank 24 7, but there are no branches . 24 7. Im sorry, im just really reluctant to try new things. Really . Whats wrong with trying new things . Look mommys new vacuum cat screech you feel that in your muscles . I do. Drink water. Its a long story. Well, not having branches lets us give you great rates and service. Id like that. A new way to bank. A better way to save. Ally bank. Your money needs an ally. We are back with our guest host jim chanos, president and founder. Hes going to tell us about some big shorts it says here in a few long bets. Tell us about big shorts and long what have you been talking about . What we havent talked about i want to talk about the fraccing a little bit. Yeah. Youre not the first or only person to say its transformation in so many ways for the industry and the country. Its certainly a plus. And you talk to people at dow chemical and theyll tell you this is a game changer. But since im a glass half temptemp empty kind of guy, theres a downside. The coal industry, for instance. Forgetting the epa which has its own issues with the coal industry, i think its bad news generally for global coal. Its more and more countries switch over to natural gas, not just going to be the u. S. , ultimately itll be china, ultimately itll be europe even more so. So coal will be under pressure, i think globally. And i think that is just a secular problem for that industry. Cheap gas burns better, easier to transport and ultimately will be easier to transport globally. Does that translate into names . Most of the leverage coal guys you can assume were short. Almost all problematic. What about why are you short theres problems for european lng . What is your thesis . Well, no, i think that one of the one of the things were watching it hasnt happened yet, but theres 200 billion worth of lng plants on the drawing board in australia. And all of it is based on the fact that prices versus 350 for an mcf in the United States. Thats because its not i mean, normally, arbitrage would immediately get it the same but you cant move it. But you will be able to and it costs roughly 3 in mcf to liquefy, roughly 3 to transport. That means basically 10. Yeah. All of these plants are basically break even between 10 and 12. Theyre starting to build and i would be really concerned right now if i was australia building these plants. The worlds a funny place. Mr. Putin may decide to sell gas to china and japan if the europeans decide to frac. You know. There was just a big fine, what the greeks are talking about. I mean, to the extent and the uk has begun. Is to the extent that gas is and some of the biggest fields in the world, by the way, are in germany. So the if europe decides to get its act together and be less reliant on russia, that could go to china and japan. All right. Well talk Oil Companies at some point in the next hour. Much more from jim chanos plus squawk box coming back with a lot more. Dow looks like it would open up about 115 points higher. The ocean gets warmer. The peruvian anchovy harvest suffers. It raises the price of fishmeal, cattle feed and beef. Bny mellon turns insights like these into powerful investment strategies. For a university endowment. It funds a marine biologist. Who studies the peruvian anchovy. Invested in the world. Bny mellon. Easytouse platform. No, thank you. We know youre always looking for the best fill price. And walk limit automatically tries to find it for you. Just set your start and end price. And let it do its thing. Wow, more fan mail. My uncle wanted to say thanks for idea hub. He loves how he can click on it and get specific actionable trade ideas with their probabilities throughout the day. [ male announcer ] open an account and get a 150 amazon. Com gift card. Call 18883303136 now. Optionsxpress by charles schwab. Welcome back to squawk box here on cnbc. Im becky quick along with joe kernan and andrew ross sorkin. Right now, though, were going to get to Steve Liesman with breaking news on treasury secretary jack lews congressional testimony. Calling it irresponsible and reckless saying the u. S. Should not be that in a position of making choices of which bills to pay. No way of knowing the damage that could be caused by such prioritization. He said prioritization does not solve the problem. Hes warning on payments of medicare, Social Security, veterans benefits. Saying how are they supposed to choose. He says congress, no congress has allowed the country to default. And congress should fund the government and end the standoff in no uncertain terms. Hes saying that. The biggest threat to the economy hes saying is a selfinflicted wound caused by this crisis. Its hurting the economy right now beginning to stress Financial Markets. He cites the vix, a recent auction where Interest Rates tripled. He also says q4 growth could decline by as much as a quarter point. And theres talk about it being if it goes on longer a point and a half. Higher rates he says have real impacts on real american households and citing large government payments not be made between october and november 1st. Saying the stock market could tumble. The shutdown, as i said, could impact growth by as much as a point and a half. I dont think its any surprise he wants this done. I think the story here is going to be i believe pat toomey is on the committee questioning him today. He has a bill in congress that would force a prioritization. Review the story that says the treasury says we have no law no basis for saying pay interests. Well, heres the prioritization we want you to do. And thats been blocked by the democrats because i think they dont want this to be painless. I think you look at the idea of a default technically and technically a default is not paying the interest on the treasuries. But it seems like a difficult argument that we dont owe Social Security and veterans pretty big political default not paying Social Security and political. I think both houses of congress the idea, i dont want to be in this position of saying im going to pay and this is demagoguing the issue here to be fair. China, japan, and the bankers, their interest. But not Social Security and weve been through, by the way, you know, that if you pay this, you cant pay that. It is real that if you do get into a situation where the debt ceiling is not raised, youve got to get rid of 1 of every 3. And you can close the faa. Something has to go away. Not like this partial shutdown were having right now which seems to be peanuts. Probably by the first. Probably by the first. If we went over by the 17th, thats where we think well get so much, you know action in the market. Thats why i think worrying all the way going all the way to november 1st is probably hopefully just worrying about the worstCase Scenario. Its fun to talk about, i guess, if you like to scare yourself. But it probably isnt something that actually is very likely. You know, ive thought a lot about that, joe. And youre right, it looks like lets not jinx it. Theyre meeting today. We should just stop talking . No, but lets not talk about, you know, breaking the buck and well, thats what fidelitys doing. I know. If you got to the 18th or 19th, there would be an uprise why is that cool . Why is that, like, oh, its not the 17th, its the 18th. Its not the 17th, its the first. I think you would see the uproar from the markets after the 17th. Or ahead of it. I think they were already setting washingtons always going to do as far as theyre setting up for the 31st, i think. But having said all that, we talked a little bit before, i think offcamera. You have Government Entities having to prioritize already in the municipal area. Detroit, talking about stockton, california. Do we pay retirees . Do we pay bondholders . So this is increasingly as time goes on because of our debt problem, you know, an issue one thing we havent talked about. The cost of interest for detroit, for example, right now. Its for all of michigan. It actually had an impact on all of michigan. The union markets been surprisingly well behaved across the country, specific places. Puerto rico. Michigan across the board because in the past they had not seen these types of reactions. And i remember, i havent seen it in a few weeks. But at the time, it did create problems across michigan. I think its important to note that all of this is occurring when the entire world is right here in washington for the g20, Imf World Bank meetings. The u. S. Has gone from being the exemplary child to being the problem child. The last time these guys met, we had better growth, greater deficit reduction, fewer problems in the rest of the world. And thats what was in the statement. You can expect, i think, from the g20 statement to note that, guys, we need you to get and youre beginning to hear comments from International Officials about this. Chinas talked about it, japans talked about it. Everybodys saying this is not the right way to go. Id still take our deck of cards. Should we take this whole you told us everything. No, i dont i think the q a is whats going to be interesting. Well worth watching. Im tired, though. What if they make a deal . What if they make. You can take were going to take them. Its my decision. What if they make a deal when is the meeting today . This afternoon . I think it is this afternoon. We dont need to do this. Might be a better solution. Does anybody else hope they have a way that we dont have to do this . I mean, the idea that we have to a fishing trip . Yes. Never mind. Thats tragic. Its tragic. Talking about Social Security. Come on. Heres the question, is it okay to do a 60day thing here . Yeah. Is that good . Thats good enough . Turned out good last time. He talks about if theyre actually negotiating the full 60 days. I asked the same question a couple of days ago. If theyre negotiating during that time. Did you see no. In the okay, its just that 80 is already spent of everything we do, 250 billion a month is done with the entitlement stuff. And were only playing around with 20 . We need its entitlement reform. Right. Its not a republican and democratic. If we do anything thats what we talked about this earlier too. We should have been watching that. Years from now. Years from now we may look back. We may be locked in some and say, look, look how we did it back then. It was ugly, we got it done. Just like the sequester now. It was a Super Committee didnt work but the deficits cut now. I think its going to be hard to look back on this time. And say that im not saying its a golden age, but we get it done. We wait to come out of the financial crisis. What did you get . Like nine hours sleep last night you woke up so optimistic . Did you have a good dinner and a good evening . We dont need to set up a Coalition Government with 12 different entities . No. It finally worked. Its the orange tie is what it is. Every time you wear an orange tie, youre more optimistic. That might be it. That might be it. I was spooked by this fidelity thing last night. Bill gross is doing the opposite. Thats fine, but theres a lot of money out there that has to be concerned about breaking the buck. Bill gross cant buy all of that paper. And i found out eightday paper, eightday maturity on it, its like 50 basis points. They are theres a little bit of a fear factor in a very narrow slice the plumbing issues are real issues. I get spooked because that reminds me what happens, jim . Can you do repo . And does it, you know, do we declare a default on . Producing leverage in the system quickly. What happened last time when the buck was broken and the fed stepped in . It was a big point in the crisis. One of the big sign posts of the crisis i dont think the public realizes. Guaranteed everything. Theyll never do that again. No, they cannot. Oh, under dodd frank. They cant. But i want thats an interesting point. Is that a huge point if they cant do it under dodd frank . I think thats a big point. Heres the thing, there are plans being made for what jim is talking about. But what i hear from people is that nobody really knows if these plans will work. And thats one of the reasons guys are getting out of the way. They dont feel comfortable if they segregate the securities upon which theres no interest being paid theyre not going to have a problem its not being done in time. Ive had discussions with clients and were a little bit different because we hold short positions. People are going to ask the same questions they started asking. How are you accounts segregated . Where are you doing your prime brokerage business. Those kind of conversations are coming back because of this. I had a twitter follower. This is like thats an addon problem. But the issue is that this is all selfinflicted. This does not have to be happening. Thats why its controllable. And i remember, steve yeah. Just last time we had the rise above stuff, you really didnt want to participate with the buttons or any of that. I was a little uncomfortable. Exactly. In the general news business, you know, the guys wrapping themselves around the pole because of the they love all this trouble. And this is similar in the Financial News business. Looking at the terminal ending of the worst Case Scenario and talking about it when all likelihood its like maybe less than 5 chance. That they go through the debt ceiling. That we go to november 1st without doing anything. So i shouldnt talk about . No. You should wear your button. And you should say rise above, mr. President. No . Reached the debt ceiling in may, using extraordinary even though youre always anxious, you like being anxious. Hoping for too big to fail. Theres a possibility that even if we even if we do get a deal before november 1st that actually the markets themselves and we break the buck and all sorts of other look at whats happening today, 122 points based on guys going there. That being they could never do it again, but i didnt realize we might be in a situation like that. They could do something but theyll need the treasury secretarys signature so itll be essentially a political action. You need one with a magnet . I need to point out i think youre correct in that in the following way. Anything you say about this pessimistic or optimistic is effectively a political statement. In that theres a faction of the Republican Party that wants you to believe that reaching the debt ceiling is not a big deal and the Democratic Party wants you to believe its a catastrophe. And they want the pressure on the republicans to understand. Thats why we want guys theres a different dynamic. In 08 it was because of concerns of credit. This is a deal that can be done. A deal that can be done. People can do it. And therefore, i think the dynamics are a little bit different. Okay, guys. Were going to take a quick break. Because jack lew will begin his testimony. Well bring you some of his comments live. And then like an oasis in a desert, temporary reprieve, well bring you those numbers and market reaction. Dont go anywhere, were coming right back. Your representatives in congress have failed to compromise, failed to do the job you elected them to do. So we called someone who is used to dealing with deadweight. Tomorrow on squawk box, darrell from the walking dead will join us onset. Dont miss it. Opportunities arent always obvious. Sometimes they just drop in. Cme group can help you navigate risks and capture opportunities. We enable you to reach Global Markets and drive forward with broader possibilities. Cme group how the world advances. Welcome back to squawk box, everyone. The futures this morning have been indicated sharply higher. Triple digit gains for the dow futures about 121 points above fair value. S p futures up by 14 points. There could be signs of thawing in d. C. Theres hope for that. Our guest host is jim chanos and well be listening to treasury secretary jack lew in a moment to hear more about what he has to say. Its hard to figure out how to time this. This is not our game, were not traders, not playing macro fiscal stuff in the u. S. Just trying to figure out companies and industries. Sounded like you were doing a little bit of planning. Well, again, as fiduciaries for peoples assets, we have to make sure theyre safeguarded as best as anything as we did in 08. Thats not to say its the same situation. I dont. I think its selfinflicted. You have to ask the right questions, make sure things arent being rehypothecated which was an 08 problem. Go back and brush off your back office 101 if youre a money manager. What are the right questions . I get the feeling were not askinging the right questions. Well, what happens to treasury securities if theres a default. How are they treated as collateral . Thats the crucial question that anybody thats in this Business Needs to ask themselves. If the treasury was to prioritize and make payments on treasuries, making first payments on treasuries a top priority, would that make all of these concerns go away . Or would you still be thinking about, at least for the markets perspective . Well, again, im not an expert there, but i think it would depend on the definition of default and who would define it. Again how banks would look at their arrangements and agreements and act accordingly. And everyones going to ask in their own selfinterest. When do you think that begins . Meaning its possible this would start early next week. Yeah, right now, people are reviewing all the stuff this week. Theyre starting to talk to their brokers and lenders. People are putting their ducks in a row with the assumption something will be settled and this will all not be necessary. Right. But if you think thursdays the day, do you start moving . When do you press the button . Were not leveraged so i dont know, but any leveraged player has to be asking themselves that question. Were looking, again, at orrin hatch, the Ranking Member of the judiciary committee. Thats not a rise above button, but it resembles a rise above button. Which he was you just said pressing a button and now youre talking about a button. That is not one. I might go up and get mine, though. Wouldnt it be cool if lew was wearing i left mine down here and i think someone snaked it. Im going to wear mine to show that liesman will not wear his. Well take the comments when he begins speaking. But i do want to ask you, again, about the fracking thesis you laid out. You dont think its necessarily good news for them. Were short two different groups of the major Oil Companies. The big majors and others have had a great business thats becoming a mediocre business right now. Their problem is finding costs and ultimately what were really phenomenal type businesses, 20 , 30 return on capital businesses now are on the margin, you know, not very profitable in terms of new investment. Because fracking. No, separately from fracking, oil costs are the finding costs are so high in markets like, you know, deepwater drilling, dealing with mr. Putin. Also, the arctic. These are all much, much more expensive places to be doing business. 120 doesnt cover it . Not very much. I mean, its amazing how much costs have gone up. Conseque consequently, Companies Like exxon who used to do share buybacks and pay hefty dividends in effect now financing those. Theyre not covering it anymore. Thats number one. But theyre in a lot better shape than the national oil guys. Petrobra and Companies Like this who are pass through vehicles for their citizens. That is, they cannot charge full gasoline and diesel prices, for example, in brazil and meanwhile, they have to do business with brazilian suppliers. And so theyre getting it on both ends in a way so western shareholders and bondholders are subsidizing the citizens of brazil. Its political vehicles not really a business. Batistas problems. Unbelievable. Well, it raised issues about the estimates of his oil finds. Did you call that right . You can never borrow the stocks. Did you know anybody that looked at that empire a couple of years ago, it didnt make any sense. But the stock power was incredibly hard. It was a big number. What does it tell us about petrobra. The transparency of that whole empire and what happened in brazil. I think i read in the notes that in fracking the output drops dramatically after the first year and the second year. Keep drilling, yeah. Even fracking which we see as a great boon for the American Economy and for the potential return of manufacturing in the United States, it may not pay off as much for the guys who are actually doing the drilling. For some of the guys who paid too much for acreage, clearly its been a struggle. Other people have done a better job like eog resources, some of the players are struggling to cover their debt service and their obligations to drill more holes under their leases at 3. 50 gas. Its an area that you have to do fundamental work on. You cant just say, oh, this is bullish or im going to buy natural gas producers. They all have different Capital Structures and lease obligations. We had Boone Pickens on yesterday and we continued talking with him yesterday. One thing he pointed out after the show is he has a hard time thinking youre going to get back to 10 natural gas again in his lifetime. Every time you get around 5 or 6, there will be all kinds of wells. Natural gas is produced like other stuff is produced oils and liquids i dont know about lifetime and but and he certainly knows a lot more about than ill ever know. But on the other hand, it does seem that natural gas has been for a while. And production, basically is still increasing. Even down here. People thought at 3. 50, production would flat line. Youve always been youre an enigma for me, i wish i could talk you into certain viewpoints, but Central Planning is always something you really raise an eyebrow to. Even in the u. S. , yeah. But my point is have we learned anything about investment . We have to let the government invest . The government does a bad job of investing, even here. Exactly. Youre still able to lean way left even though you know a lot of the renewable stuff, the wind stuff, the solar stuff, that was like you know, that was like throwing water into look whats happened. They didnt think about fracking when they were funding solar whatever it was, look how the free market once again dictated that money flowed downhill where the most efficient way to derive energy was from. And all the best laid plans are these really smart people and really smart president and really smart czars of all these things, they had no idea what to do. I agree with that, joe, but you also do need some government framework. Okay. Free market to excel. Do you want to invest do you want to borrow another 500 billion from china to invest in stuff . Theyre not going to were not listening to this, but is he testifying . Whats going on . No, what often happens. Hes giving a speech. Thats why senators and congressmen hold these hearings so they can grand stop at the top and tell you what they think. Youd almost be youd be tricked into thinking hes testifying. For you because its orrin hatch and hes a republican. If mark warren or oh, yeah, this guy has some good stuff to say, we should be taking taking his sweet time up here. Thats what they do. They bring these guys so they can and hes now finished his testimony. Now for the witnesses. The hearings for the senators and members. The secretary has couple three minutes after 9 30. Youre in a twoshot, jim. I dont know why. So we all have a chance a chance to answer his questions. Our questions, mr. Secretary. Thank you, mr. Chairman. Chairman baucus, Ranking Member hatch and members of the committee. I appreciate the opportunity to appear here today and i appreciate the invitation to discuss the potential impacts of a failure by congress to increase the debt limit. Congress has an important choice to make for the American People. And congress alone has the power to act to make sure that the full faith and credit of the United States is never called into question. No congress in 224 years of American History has allowed our country to default and its my sincere hope this congress will not be the first. Among the risks that we control, the biggest threat to sustained growth in our economy is recurrence of manufactured crises in washington and selfinflicted wounds. Unfortunately, today we face a manufactured political crisis that is beginning to deliver an unnecessary blow to our economy right at a time when the United States economy, the American People have pain stakingly fought back from the worst recession since the great depression. In addition to the economic cost, the uncertainty around raising the debt limit is beginning to stress Financial Markets. At our auction, fourweek treasury bills on tuesday, the Interest Rate tripled relative to the prior weeks auction and reached the highest level since october 2008. In measures of expected volatility in the stock market have risen to the highest levels of the year. The only way to avoid inflicting further damage to our economy is for congress to act. I know from my conversations with a wide range of Business Leaders representing industries from retail to manufacturing and banking that this is a paramount concern for them. Thats why its important for congress to reopen the government, raise the debt ceiling and then to work with the president to address our fiscal challenges in a balanced fashion. Republican and democratic president s and treasury secretaries alike have understood the importance of protecting one of our most precious assets, the full faith and credit of the United States. President reagan wrote to congress in 1983 and i quote, this country now possesses the strongest credit in the world. The full consequences of a default or even the serious prospect of default by the United States are impossible to predict and awesome to contemplate. Denigration of the full faith and credit of the United States would have substantial effects on the domestic Financial Markets and on the value of the dollar and exchange markets, closed quote. If Congress Fails to meet its responsibility, it could deeply damage Financial Markets, the ongoing economic recovery and the jobs and savings of millions of americans. I have a responsibility to be transparent with congress and the American People about these risks. And i think it would be a grave mistake to discount or dismiss them. For these reasons, i have repeatedly urged congress to take action immediately so we can honor all of our countrys past commitments. The Treasury Department is regularly updated congress over the course of the last five months as new information has become available about when would we exhaust our extraordinary measures. In addition, treasury has provided information about what our cash balances will be when we exhaust our extraordinary measures. As our forecasts have changed, ive consistently provided updates in order to give congress the best information about the urgency with which they should act. And last month, i met with the full membership of this committee to discuss these issues. Treasury continues to project that the extraordinary measures will be exhausted no later than october 17th, 2013. At which point the federal government will have run out of borrowing authority. At that point, we will be left to meet our countrys committees with only the cash on hand and any incoming revenues placing our economy in a dangerous position. If we have insufficient cash on hand, it would be impossible for the United States of america to beat all of its obligations, including Social Security and medicare benefits, payments to our military and veterans in contracts with private suppliers. For the first time in our history. At the same time, were relying on investors from all over the world to continue to hold u. S. Bonds. We are just a few seconds away from weekly jobless claims. Well continue to listen in to jack lew, but in the meantime Rick Santelli is standing by with those numbers. Go ahead and give us those numbers, please. All right. Initial claims are 374,000. And keep in mind our last look was 308,000. So, you know, i think that a jump of this magnitude does call in the question so many issues. We all know trying to explain this number without looking at whats going on regard to Government Shutdown, nonessential versus essential employees is going to be difficult. Ill leave that to others. But suffice it to say it hasnt moved the market much but the market template is set. As youve all been discussing this morning, we have a positive equity market. And what it may reflect about traders assessment of whats going on in d. C. And, boy, maybe better than i am with regard to the way they can divine that. And thats having an effect on Interest Rates which really especially in the long end have been very contained, 270 on a tenyear, and everybody, of course, are looking at t bills. But to put in perspective, if there was a problem of the government truly not paying interest payments, still trading at four basis points. Rick, can i interject . Apparently the Government Shutdown and computer problems in california. Yes. And thats what im looking. Theres going to be a lot of stories explaining this rather large jump. But at least it is a number and theres a lot of debate on the floor, becky, to be quite frank with you that, you know, there was a time for many, many, many quarters where a lot of my trading sources on the floor would tell me, you know, the equity market doesnt really Pay Attention to the fundamentals like the fixed income market but, of course, we all need numbers, accurate numbers. The Labor Department saying about half the claims increase was because of californias technical issues. It was an increase of about 66,000 from the 308,000 to 374,000 this week. They say about half of that is because californias technical issues. We have had some pretty interesting numbers that have come out over the last three or four weeks, rick. Absolutely, absolutely. And once again, i dont know where all this is going to end up, but there are many signs in the marketplace that traders are cognizant of this because they havent been hiding under a rock. And we could debate what the impact on the market has been, what it is today and what it may be going forward. But in the end, just like the what the feds going to do with the purchasing program, its our best guesses and opinions. Rick. Thank you very much. We will, again, point out for anyone just tuning in the labor number, the weekly jobless claims in at 374,000 up from 308,000 last week and better than the estimate of 312,000. About half because of the Government Shutdown and about half because of technical problems in california. I know, you know, youre torn. You dont like being anxious, right. But you are thinking tbtf 2. A sequel. But did you hear the threemonth bill . The one thing rick said. Four basis points. His point was, four basis points. Yeah. We are coming up its doubled. Yeah, its doubled. Were going to take a quick break, well be back with more of the testimony. So she could take her dream to the next level. So we talked about her options. Her valuable assets were staying. And selling her car wouldnt fly. We helped sydney manage her debt and prioritize her goals, so she could really turn up the volume on her dreams today. And tomorrow. So lets see what we can do about that. Remodel. Motorcycle. [ female announcer ] some questions take more than a bank. They take a banker. Make a my financial priorities appointment today. Because when people talk, great things happen. At a ford dealer with a little q and a for fiona. Tell me fiona, whos having a big tire event . Your ford dealer. Who has 11 major brands to choose from . Your ford dealer. Whos offering a rebate . Your ford dealer. Who has the low price tire guarantee, affording peace of mind to anyone who might be in the market for a new set of tires . Your ford dealer. Im beginning to sense a pattern. Get up to 140 in mailin rebates when you buy four select tires with the Ford Service Credit card. Whered you get that sweater vest . Your ford dealer. Welcome back to squawk box. Steve liesman has been listening to the q a period with treasury secretary jack lew. Steve, what do you make of it . He was asked the question, could he prioritize . And he was saying, we dont know how you would do it. The Administration Process will not permit the system to work and make those kind of statements. You cant make them pay some bills and not others. The system is designed, he says to pay bills not to not pay bills and theres a risk, i said as i said of a mistake here. Lets go back and listen to jack lew being grilled about this issue of can the treasury prioritize if the debt ceiling is not raised. All the services that relate to government activity were happening. Didnt take into account any layoffs that might occur, didnt account any reduction in payroll or payroll taxes. I have to assume that the estimates from before a shutdown are likely not to be an accurate predictor of exactly where we are. And a computer how do you reprogram computers . Well, mr. Chairman, i have to tell you, i dont believe there is a way to pick and choose on a broad basis. The system was not designed to be turned off selectively. So anyone who thinks that it can be done just doesnt know the architecture of our multiple Payment Systems that are very complex. They were designed properly to pay our bills not designed to not pay our bills. It doesnt work. You know, i think prioritization is just default by another name. Saying we will default on some subset of our obligations. But by definition if we dont have enough money to pay all of our bills, we will be in default on our obligations. I want to be clear about the administrations position on the debt limit. As i understand it, the position is that the president will only accept the socalled clean debt limit hike with no other accompanying policy or fiscal considerations attached to it. Weve been listening to treasury secretary jack lew being questioned by the Senate Finance committee. Right now orrin hatch is asking questions. Well be back with more after a quick break. A free checked bag with my united mileageplus explorer card. Ive saved 75 in checked bag fees. [ delavane ] priority boarding is really important to us. You can just get on the plane and relax. [ julian ] having a card that doesnt charge you foreign transaction fees saves me a ton of money. [ delavane ] we can go to any country and spend money the way we would in the u. S. When i spend money on this card, i can see brazil in my future. [ anthony ] i use the explorer card to earn miles in order to go visit my family, which means a lot to me. And his new boss told him two things cook what you love, and save your money. Joe doesnt know it yet, but hell work his way up from busser to waiter to chef before opening a restaurant specializing in fish and game from the great northwest. Hell start investing early, hell find some good people to help guide him, and hell set money aside from his first day of work to his last, which isnt rocket science. Its just common sense. From td ameritrade. Welcome back to squawk box during the break. Steve liesmans been listening to the q a. And we heard the beginning of orrin hatchs question. I think that is whats still going on. A followup to secretary lew. Whats it about, steve . Hatch asking secretary lew how long do you want to raise the debt ceiling for . Lew saying more certainty is better for the economy, uncertainty is bad and saying that we want you to raise it for as long as you possibly can time wise and saying, oh, great, when do you deal with the debt . Lets listen to the questioning now. The soninlaw spending weve enacted thus far is turned off. When its come to so much as solutions to our entitlement Spending Program or problem, all i hear is that negotiations only proceed if first we pass a clean, continuing resolution and a clean debt limit increase. What does it take beyond a guarantee to the president and Congressional Democrats that they first get yet another tax hike or that the sequester be undone to talk about entitlement reform such as the ones ive proposed in which to date have been met with total scienilencem the administration. Is it reasonable to say that there can be no negotiations unless theres another tax hike when we know this very day that disabled American Workers face a benefit cut of 20 or more under current law when the Disability Trust fund is exhausted in 2016 or earlier. Senator, i think the record is clear that the president has negotiated, has wanted to negotiate and remains anxious to negotiate on a bipartisan basis to have a fair and balanced approach to dealing with our fiscal problems. Its not clear to me. Hes been on the verge of disagreements twice until it was not acceptable to republicans in congress. He was prepared to do hard things. He was ready to have an agreement twice he put in his budget tough policies, that many in this committee find very challenging because he wanted to make clear to settle our fiscal matters in a way to the medium and longterm. I think the president s record on being willing to negotiate is clear. Very briefly the trajectory of our deficit. I would know when the president took office in january 2009, we were in the middle of the worst recession since the great depression, we were in the middle of two wars and we had a deficit 9 of our economy. We cut that in half, were making progress. We have more to do, but i dont think its fair to say that we are in the same place we were. Weve made tremendous progress. Senator biden. Thank you, mr. Chairman. Mr. Lew, it seems to me in the event of a default or near default, the dominos are going to fall fast and hard. And those hit early on will be older people who depend on their own Retirement Savings to get by. These are the older people who saw much of their life savings evaporate during the recession and theyre struggling just to get those private savings in effect back to the water line, back to where they are. Be as specific as you can with respect to what default or near default would mean for those seniors who depend on their private savings. Senator, i can only begin to imagine what it would mean to a retired american who relies on Social Security as their major or sole source of income if we had to tell them their check was going to be late. I remember my late mother lived on her Social Security check. Many of us have relatives who lived on their Social Security check. If the check didnt come, if they didnt have the ability to call someone to help them out, they were in trouble. Anyone who thinks thats anything short of default has never experienced what it means to live on Social Security. Turn to medicare. Private savings especially okay. I share your view about those others. I think the public has heard. And youve given some comments with respect to mortgages. But im concerned about those retirees and their private savings, as well. Retirees saw their private well, lets talk not just about retirees because workers have their savings at stake. The effect is the same, its just more immediate for retirees. Retirees have no time to catch up. We saw during the financial crisis peoples Retirement Assets fell quite dramatically in value. It reduced what retirees have to live on. It caused anxiety amongst most working people how are they going to catch up for the ground they lost. Were now in a place where because of the resilience of the American People, the recovery and the American Economy. The good policy decisions made by congress and the Federal Reserve board. We are in a better place. We have a lot of work to do, but i think you can see from the economy people are beginning to feel that the economys moving in the right direction. Now, if you create a crisis that causes assets to shrink in value for retirees, they dont have a lot of time to catch up. So even if it all writes itself over a period of time for those retirees, you know, theyre in a pretty bad spot. So i think its very unfair to have manufactured crises that have a real life impact on working americans and retirees who ought to be able to worry about market risks, not government policy risks. Let me ask you about the effect of default on the deficit. We know that budget sequestration is not exactly were going to slip in a quick break and when we come back. Well have more of the q a period with jack lew when we return. As we head to a break, though, take a look at u. S. Equity futures as the secretary has been speaking. Were talking about the dow opening up about 101 points higher. 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. The debt limit in the past has been used to enact deficit reduction policies, i quote Congressional Research Service Since 1978, congress has voted to raise the debt ceiling 53 times, 27 of those or 51 , the debt limit increase of tied to other reforms. I assume youre aware that more often than not the debt ceiling is raised with other policy or reforms. If youre so aware of that history, why do you and president obama continue to use the talking point that negotiating on a debt limit bill is unprecedented when the facts demonstrate otherwise . Well, senator, i dont think that is an accurate version of history, certainly not what i recall, having lived through many of the budget debates overs last 39 years. Overly three of them have involved the debt limit. Its not the case that most budget agreements involve the debt limit. If you look at those that did involve the debt limit, several of them the dealt limit was just added on to a bill. It was not driving the debate. What i think changed in 2011 is the affirmative case was made in 2011 that a certain faction im not saying its people in this room but if a certain faction did not get their way thats not how our democratic system works. A minority cant do that. Secretary lew, before i got on to my next question, at least you we are going to take another quick break and return with more questions and answers from secretary lew. Here we are, me and you on the road and we know that it goes on and on [ female announcer ] youre the boss of your life. In charge of making memories and keeping promises. Ask your financial professional how lincoln financial can help you take charge of your future. Oh, oh, all the way oh, oh welcome back to squawk box. Lets return to washington where treasury secretary jack lew is testifying before the Senate Finance committee. Do we pay for education, do we pay for our troops . American people dont want that. They would certainly want us to pass a clean debt ceiling bill and avoid those awful choices. But id like to talk about the other. By the way, one of these debt ceiling deniers i read in the new york times, a congressman named brown, he also said much of what he learned in medical school were lies, they came from, in his words, the pits from hell. If were letting people like this lead us, god save america. Now, id like to deal with the second issue, which is the timing. In my view we are like a blindfolded man walking towards a cliff. And if we keep walking in that direction, very soon we will fall off. We may fall off on october 16th, we may fall off on october 17th, we may fall off on october 25th or 21st but we will fall off. The most important thing is we dont know which day well fall off. The markets are somewhat mist i call. They could a day or two before october 17th come to the view the u. S. Is going to default, anticipate that, treasuries go down in value, much of our Financial System freezes and were back where we were in 2008 when aig failed. I just want to ask you this question to be clear, isnt there a risk almost every single day starting around october 17th, even perhaps a day or two earlier and getting worse, we cant tell exactly which day after that we wont have enough money to pay our bills and default could occur, even if you laid out the most meticulous plan in the world . Well have a lot more of jack lews testimony. Well thank our guest host jim chanos for being here. That is it for us today. Squawk on the street begins right after this very short break. Im carl quintanilla. David faber is in larue, texas this morning. Whether its yellen, whether its the news that the president is going to meet with gop leaders, negotiators theyre calling them this afternoon at 4 45, futures look pretty good here, jim. Futures have had a nice couple of days, the nikkei up 2 . What do you make of whats coming later on . They w