Transcripts For CNBC Squawk Box 20150520

Pipeline on shore and hasnt stopped at this point. Crews are trying to contain the mess. Right now lets get to the market business of the morning. You can see this morning the futures are missed. Up by 5. 5 and nasdaq down by 0. 5. They say the country will not be able to make an imf payment due without its international lenders. The euro hitting a two week low on renewed concerns about athens debt and in Corporate News the Justice Department expected to announce a settlement with five of the worlds biggest banks. Theyre accused of rigging the currency market. Fines are seen topping 5 billion. The first out of the gate. The swiss bank says it will plead guilty and pay 545 million to u. S. Authorities. A possible change in u. S. Tax regulations would effect the spin off in alibaba. Its working toward the plan spin off in the Fourth Quarter and ads it understood the irs statement was not specific to the company. It was a statement made yesterday about shifts in how they were going to be approach approaching spin offs and whether that effects this and also depending on what happens to yahoo japan. These were the ones already in the works. Correct. And then whether they think theyll get it done in the Fourth Quarter. The meeting at 2 00 p. M. Eastern well get to see just how dovish these people are at this point. Wouldnt be surprised to see some dovishness. They get scared of their own shadow at times. Among the Companies Reporting Quarterly Results before the bell target staples, hormel and lowes. Just hitting the tape and fell short of estimates even though home depot was pretty good hes fighting to reduce bail condition and it will determine whether hell be expedited to the u. S. It was looking at an article i saw yesterday by one of our competitors that was tracking at t versus apple. Its already doing better. And they call it the dow jinx and well see how long it lasts and it just also happens. Apple made a base here and it looks like it wants to take on 800 billion and then who knows, maybe its a trillion. No tv right . Did you talk about that yesterday . No tv. I thought they said that later in the day. We said it here yesterday. That was two days ago i dont want to say it we were probably a little late to the game yesterday. Two days ago. Yeah really. But just to be clear just to the physical theyre not going to make a fiscalphysical tv but theyre going to make a better box. An awesome crazy box. I thought it was going to be an ultrahigh def. I dont think you want to get into the hardware business. Then all of a sudden what is apple only going to be one company left in the United States . Start making breakfast cereal . They dont need to do everything do they . I would not make a tv. The way they do style and the way things work but who knows if apple can make a tv. When you look at all the competitors in that phase theyre getting out of that the thing that worries me the most is apples data is much more secure and the data is more and more important and valuable. The most important market to them is one more problematic for them that is a fundamental challenge. Apples plan over the longterm, i dont think they have one. In terms of controlling that market. Absolutely. They want to be a global company. China has been a good market for them. Theyve been a great market for them. We pay that price every day. I thought you were going to say, wow, i wish i hadnt done ultrahigh def. Wow, it ruined that. But this is worse than high def porn the way we look on certain days. A little hot in here this morning. Is it . Yeah. The lightning . Do you think if you make public your concerns. I dont think anything will work at this point. Im giving up. But you continue to drink and smoke every night. Thats what it looks like. The lighting here is a little harsh. Some of your vices are. Coming out. We cant cover things up anymore with the make up room. Lets get to todays stocks to watch. Shares of etsy is under pressure. The online seller of crafts and other items posting a wider than expected loss. It will increase the pace of hiring and spend more on hiring. Check out pep boys shares jumping on being approached by a takeover. They approached the topic of purchasing a retailer. Its up by 7 . United technologies is reportedly talking to possible buyers for its aircraft business. One issue, a 3 billion tax bill is said to be holding back interest of Big Companies. Lets check on the markets this morning. Take a look at whats going on. Off by about a point and nasdaq up about a point and a half. Lets take a look at whats going on across the bond there. You see thats a mixed picture there as well with the dax and cac off marginally. Lets go over to asia and see whats happening there now. Its a mixed picture across the board. The nikkei is up not bad. Close to a better and hang seng is off and lets do oil. Crude, 5862. I want to talk to ian about crude in a moment. Lets take a quick look at the ten year. Finally should we do the dollar or the gold . We have a mixed picture in the currency world. Do you want to talk markets . Sure. Lets talk about it. Check out gold prices by about 1. 20. Joining us to talk broadly on the markets is the u. S. Equity and derivative strategist at ubs. Thank you for being here today. Looking at the markets its been surprising to see the markets hitting new highs. You have people talking about how stock could be overvalued at this point i wonder what you think is driving things here. The market is acting as a discounted mechanism here. Looking through all of the worries. Whether its the economy, earnings flows, valuation, et cetera, geo politics obviously, looking through and the message is the Global Economy is going to get better in the second half and into 2016. So discounting all of these things there arent many alternatives when youre looking at the fed reluctant to raise rates. We flipped the play book from last year. U. S. Stocks rising. Oil moved back up. The dollar has been falling recently. Maybe a bottom but the dollar falling and will look past to better Earnings Growth for the second half of the year and better Economic Growth as well. A lot of that is noise. If you look at the moves weve seen in the dollar. Youre probably thinking thats noise and you want to figure out whats happening with the economy and what do you expect for the rest of the year. We should see an economic rebound in the second half of this year. We expect the dollar to resume its strengthening trend but at a much slower pace than last year. We saw massive strengthening of the dollar and 26 and the market was moving around there. But tapering was tightening and 12 plus months into the cycle so the rate hike itself isnt going to set markets off on the down side or on the side for another tightening move by the fed within the bigger cycle. Do you think the bigger issue is that the consumer is hanging in there . Or all of the weak numbers is that because people are still spooked by what happened in 2008 . Theyre not ready to take the savings they have seen and put it back into the economy . Theres definitely an element to that. The memory of 2008 does linger but it is our expectation that as we continue to see the jobs numbers remain reasonable and we continue to see gasoline being reasonable at some point the consumer will rebound and in the past this is usually happened sort of 9 to 12 months after the oil price first starts to fall and were right at that sweet spot just when economists have more or less given up a lot of hope that its going to happen. So thats a potential upside surprise for markets. Also savers have been getting nothing. The implication is that 25 turns into 50, 75 100 and demographics as well, right . We have an aging population. So people that rely heavily on bonds and income also getting nothing finally seeing some light at the end of the tunnel. What do you expect to see with the stock market by the end of the year . Additional gains . We do. We expect a return of around 7 to 8 and 4 Earnings Growth. Geopolitical. The dollar and the United States looks more stable. How much of that do you think is already baked into the price. It is remarkable the resilience and the threats to europe are such that the european markets can have performed as strongly as they have. Its essentially a look through and realization that rates are as low as they are so stocks look good in general. I want to thank you both for coming in today. Thank you. And our guest host this morning as we said earlier is the president and founder of the group also editor at large Time Magazine and foreign affair columnist for that magazine. Ian has a new book out. Stood the big day . Were out. Officially launch day. Its called super power. Three choices for americas role in the world. Congratulations on the book. What number book are we on now. 9. 9 books. But most of them were academic and you would not have picked them up. We certainly wouldnt have launched them here on squawk. Anyway the subtitle is three choices for americas role in the world. So the obvious question is what are the three choices for americas role in the world. I think the response is to start we do have choices. Despite that American Foreign policy is in decline the United States is not going to only do one thing and i think well see that in the 2016 elections where Foreign Policy is a big part of the conversation. Very quickly, the three, indepenceable america. The idea that we don want to play a leadership role but no one else is going to and no one else can or wants to and given how bad that means the world is going to turn out, not just the middle east but eurasia and more broadly, what will happen with the allies we have to continue to promote our values and be as much of a leader in alliances and global architecture that we can. Second is money ball america which i probably shouldnt use because the oakland as are in the toilet right now. The old moneyball. The idea its very unsentimental. Its were not going to promote democracy when people wont listen. Were not going to force human rights on countries that are able to say no and the middle east is too much of a disaster. Were going to really focus on the investments that are going to provide not values but value back to the american investor. Its much more looking at the u. S. As a corporation and how will we run it to maximize it. And you think washington is going to run this country like a company. I would make the argument that when Hillary Clinton was secretary of state her strategy did not work the reset to russia for example, really try libya, only pinpoint and get rid of gadhafi and dont spend money on it and focus on economic state craft. Focus on the transpacific partnership. That was the beginnings of that kind of policy. Hilary was the one that said how can you criticize your banker on human rights talking about china. Thats a very moneyball approach. Was it the country as a foundation or Clinton Foundation as a corporation. I knew you would spin it the other way. Nonpartisan. Oh, yeah exactly. So did george. He did his best. With what happened should we care about that . The white house said theyre not going to like their light their hair on fire and theres people with skin in the game said we took it and cost a lot of american lives and now we lost it but it wasnt isis that had it last time. This was a whole new enemy or do we look at it as the same kind of hard liners. Does it matter that its lost . Does it matter that baghdad is 70 miles away . It matters for the iraqis a great deal. The question is does it matter for the United States. Not with moneyball. Most importantly it doesnt matter with independent american. The third choice which is a real choice saying lets lead by example. Dont demand respect by saying you have to do this. Command respect by having people capital, actually come to the United States. We should be too big to fail. So for lots of americans that are agitated but cant find it on a map. Do you have a deal to copromote your books . Is that how this happened . Hes pitching too big to fail and youre pitching was this all agreed upon. Its a whole royalty scheme pretty much. Lets go back for a second theres a real question. When you have marco rubio standing up and saying im indesensable. Lindsey graham is going to get in the race because he knows Foreign Policy and saying we have not done nearly enough on any of these fronts you still have to say what exactly are you going to do and why . How much is it going to take . I dont happen to believe after hearing everyone from washington yesterday saying we must destroy isis and the same people saying no boots on the ground i dont think those things actually go together. But how about the strategy so far is raepeaping rewards. Is that still kind of true that theres success with the way we tackled isis so far. I think if you ask in terms of the resources that the americans have actually put toward it and the level of direct risk to the United States one could make that argument. In terms of whether or not iraq and syria are getting worse, the number of refugees the instability thats coming to countries like lebanon and jordan and turkey also going across the mediterranean. We put boots on the ground to get their financial guy supposedly and the timing was interesting that they fell almost at the same time. You want them to fall before you did that right . Better to have the good news the reveal should be later but of course they got him when they got him but the real point there is the reason you send boots on the ground for that American Special forces is because you believe youre going to get a lot of intel out of it. Its targeted. Obviously were not going to spend 6,000 boots. Were going to send what was that 40 or 50 boots. But the geo political danger in the middle east is great. The saudis doing very badly and the iranians are going to help us on the ground. Nobody can think thats going to be a good fit over the medium term right. I just i dont know. Did he join twitter so that we wouldnt talk. Thats what all the networks talked about. I didnt talk about that one bit yesterday. Not you. We talked about it. Such a cute conversation with bill clinton. We are going to talk about ramadi. We have colonel jacobs joining us. Coming up why shares of lowes under pressure this morning. But first heres a look back at this date in history. E announcer ] your love for trading never stops. So open an account with schwab. And when a market move affects, say a Cloud Computing stock youre holding, we can help you decide what to do. With tools that help you see how market activity is affecting your positions. So when the time comes to decide whether to scale in or scale out. You can make your move wherever you are. And start working on your next big idea. Lowes earnings and revenue missing the mark this morning. Senior analyst covering retailing and hard lines at jp morgan chase. Its a tale of two cities with lowes and home depot. Were trying to put our finger on what the difference is. Do you know . If you look at the gap its 70 execution and its 30 location. Markets rebounding faster on the housing side. They have very high exposure to california florida, nevada and they have better street level locations. The other 70 is daytoday you know face to face interaction with the customer having the right products in the right place at the right time. They dont know how to do that yet or have tastes shifted . I think it theyre trying to get there. If you have a good experience at home depot youre likely to go back there. They not only have to screw up the opening door to lowes but you have to have a good experience to want to go back there. Five years ago werent the rolls switched . It was more about ten years ago when lowes was doing much better then. At home tee po you go in and some people thought it was a sears where you might not see anyone that works there the entire time youre there. Now he did a great job obviously but the same thing happened to lowes. Who took their eye off the ball there. Like many what i would describe as atrofied Growth Companies they waited around for the macro while home depot focused on execution. They started to turn the ship back in 2012. They are closing the gap versus home depot. Comps trailed by 180 points. That was 2 to 300 basis points but it takes time and clearly the execution still not up to par. Do they still get mileage out of being different than home depot in terms of the experience. Does that still work or do people just go to the one thats closest. Ive been in one recently and was put off by they didnt have a lot of items in stock. This is a one off experience. I walked in. Some stuff i liked. You were looking for drill bits. No, for stuff for the bathroom to change out a lot of the fixtures and things. This could be a one off experience but chris whats your experience with it . What have you heard . If you look at the in stock rate at lowes its lower than home depot. Its better than three years ago. Theyre changing the way they planned the business. Changing the way they allocate inventory. Tots to the question on the experience in the store, lowes does better on bigger ticket projects. They have more kitchen and bath and appliances. The market is coming their way but home depot is not standing still. As they go more toward big ticket home depot is putting a lot of dollars behind that to go after where the consumer is heading. Actually lowes stock has done better anyway in the past year but results havent seemed to werent born out by that. All right chris. Thank you. Thank you. Do you go there and see whats going on all the time . Is that your job . You have to do that . Yes, we donation wide spring store tours. Come on. Yes, we do. We have been in d. C. Miami, new jersey, San Francisco. Your people. Its not you. Your people do that and report back to you, right . I do it as well. He has to see it with his own eyes. Youve never stepped foot in either have you . Home depot i have. Light bulbs. Theyre right here. Light bulbs. Thats mine. Important things. Flash lights. Flashlight batteries. I spend more time in the stores than you guys do. When we come back this morning, the Iraqi Military suffering another huge loss. The key city of ramadi the latest taken over by isis. What this means to the United States and the world right after this. Excellent. Researching a hunch, and making a decision. Time for a change of menu. Research and invest with e trades browser trading. E trade. In the us, three in ten College Students drop out. But how can you spot whos at risk . The one who lives far from campus . The one who works the night shift . The one with new responsibilities . One thing cant tell you, but the right combination can. Universities are using ibm analytics to understand pressures in and out of the classroom some expect to cut dropout rates by twentyfive percent. Ibm analytics is working to make education smarter every day. vo rush hour around here starts at 6 30 a. M. On the nose. But for me, it starts with the opening bell. And the rush i get, lasts way more than an hour. announcer at scottrade, we share your passion for trading. Thats why weve built powerful technology to alert you to your next opportunity. Because at scottrade, our passion is to power yours. Welcome back to squawk box everyone. The iraqi city of ramadi is under the control of isis despite months of u. S. Air strikes and training of the iraqi army that ran from the fight. The u. S. Forces sacrificed so much in that city during the iraq war. Richel has more on that. For the hundreds of thousands of u. S. Troops that fought in the iraq war, the loss of ramadi is painful and personal. Back in 2004 brian was one of many marines that made ridding ramani of islamic radicals his mission. We need the iraqis to cooperate more. Back then it worked. Ramadi was hard fought and won. But today the city is in isis hands and now a business man in new york hes heart broken. Wondering was it worth the sacrifice. For us its a big blow. We fought for that city for a reason. If it was that important for us to fight and die for it should be important to keep. And its important not just for americans but the iraqis as well. With ramadi gone whats to keep isis from baghdad less than 70 miles away . The answer could be these men. Ma malitias backed by iran. Iraq is imploding and washington is trying to manage it by Remote Control through groups with competing agendas. A decade ago hundreds of americans gave their lives in the fight for ramadi. Not just american soldiers and marines lives but civilians and iraqis fighting with us that lost their lives. Now a sense of accomplishment of those that served in iraq is being chipped away one city at a time. Richard engle, nbc news. Joining us is jack jacobs and our guest host this morning. Colonel, what happened . The iraqis who we spent a lot of Time Training and equipping decided they werent good at what we taught them to do and ran away. Its courage and bravery and willingness to lay your life on the line. You have to be serious about the objective and the iraqis like the United States dont really have a strategy. We just have tactics. I had read though, tell me if this is correct or not. I read that the americans asked the iraqis not to send in additional troops. They wanted the local troops to be fighting. Its a suni area so you need suni people there and theyre not up to the task. Would it be better if it was like korea where we still had guys there. Cynics would say there was an election coming. It was a first time promise that we would get out and we got out too quick. Would it have been preferable to leave u. S. Troops there. You dont know the objective. No im convinced we dont have an objective. What should the objective be . In this case . What should it have been. It should have been not to go for the first place. We talked about that a little in the last three weeks. If youre intent on holding on to iraq its going to take at the very beginning of the war in iraq several hundreds of thousands of not like korea weve got 27,000 people there. Several hundreds of thousands of americans right there for decades. Will the administration set its hair on fire there. I dont think the administration has any hair to set on fire. Nothing at all. The objective of the administration is to leave. It has been for a long time. So well give baghdad up . I think so. I think the administration will give anything up. I talked to secretary gates yesterday. Hes been critical of complete absence of a Foreign Policy strategy in the middle east but also has been saying if you just provide sort of a relatively small number of special forces on the ground that he actually believes that that could really turn the tide to both engaged directly and a lot of those people are there and as of yesterday theyre saying were sticking with our strategy. Is gates to optimistic . Yes, terribly optimistic. Despite the fact that he was secretary of defense he never spent any time on the ground. You know at the end of the day it always takes more resources to hold on to an objective and you might win a battle or two but if want you want to do is hold on to the objective, whatever it happens to be it takes many times as many people as you think and just sending some special forces or Even Special Operations Forces there, additional equipment which is what hes calling for, more training, mobile training teams and so on not talking about anything that is going to change the ultimate result. It takes a lot of folks on the ground to get it done. Is there any political figure in the United States of note today running for president or not thats articulating a strategy or the resources that would be required to turn this around, in your view. No none is. Theres people saying what we need to do is a better job and to say in a larger sense what secretary gates is saying but they have no idea how to operationalize it. Its one thing to say what we really need to do is win in iraq but nobody has any plan to do that and nobody has any understanding of what the political will is in order to accomplish. And we havent even mentioned syria. Right . No who is on the other side. Were on both sides of the game over here. Were the air force supporting iran in iraq and were on the other side of the trend in syria. Things sound awful if you look at the headlines and try to strat apologize where they go whats the best Case Scenario in any situations . The best Case Scenario for our situation. Containment where the Islamic State is not able to maintain itself because it runs otolaryngology of money. Its not good at governing the infrastructure and as things continue to get worse other countries in the region recognize for the near term they have to cooperate more. Youre suggesting the wars with iran, what were those about . Did iran want iraq will they finally end up getting iraq after all is said and done. Thats why the colonel and i were talking about this before. Thats why they were so up in arms. Youre suggesting the only way we win is the unforced error on the other side. If you ask me given whats on the table, given what people are talk about. Not were going to win but people talking about the resources theyre going to apply it seems that containment until i. S. Implodes is the best reasonable out come. We have been talking about the military instrument of power and before here right in this very place i suggested some time agatha our focus on the military instrument of power alone is not a good idea. You can actually achieve any objective and ian just mentioned something really important. Focussing on other instruments of policy particularly the economic issue in the policy we have him. We didnt care about him but we cared a great deal about all the information he had. We know where the cash employeesflows are and who the contributors are. If we keep operating in that environment and trying to use other instruments of policy in order to not alter the situation but contain it well, in fact be able to contain it and it requires the instrument of diplomacy too which means putting the squeeze on iran to preclude what youre talking about. But when netanyahu was here he said you know isis is bad. Iran would be worse. So i would think sooner or later the world will not allow isis to exist. I dont know. So then iran displaces isis. Is that okay or worse than isis. Hillary clinton when she answered her six questions yesterday the one substantive was on iraq where he said the iraqis are going to have to fix iraq. That doesnt sound like a solution for destroying isis. That sounds like a not clear that people want this to be our problem and i understand the white house setting its hair on fire. They dont if jacks right. It will take hundreds of thousands of forces for a decade or longer. Two possible outcomes. One is what youre talking about. Iran takes over and they control the whole place. Theyre our friends now anyway. Correct. Were on their side. Correct. The second is something that joe biden said. Its going to dissolve into component pieces. Sunistan and thats going to generate a longterm regional level. I believe thats true. Wait long enough and even joe is going to be right. You have to be as old as i am. Even just you have to live long enough to see joe be correct. His idea was we dont let it happen. We force it to happen. What we have discovered in the last decade is we cant force anybody to do anything. All right. Thanks. Sorry. Well thank you. Coming up a norwegian cruz ship runs a runs aground. Plus Johnson Johnson ceo. Sis coe ciscos new cfo kelly cramer. Check out the dollar going the right way in terms of what im concerned. Stay tuned. Well be right pack. Welcome back. The latest drama on the high seas with cruise lines. A norwegian ship running aground on a reef after leaving bermuda for boston. Small boats, divers and tug boats circled the cruise liner carrying more than 2600 passengers and more than a thousand crew. 4,000 people. The norwegian dawn ran aground. Not don. Dawn. Ran aground after a temporary malfunction and iltsts steering system forced it off course. Theres the reef. High tide pushed it off the reef. Never going on a cruise. Thats the bermuda triangle. Its around there. Its exactly there. Bermuda is a very cool place. A lot of folks happens on the weekend. Beautiful golf course. You have to fly everything in. But worse than the caribbean. The food is worse. They dont grow any the fish is not so bad. But its still close. It is close. I dont know. But its not warm in the winter. Like south carolina. Kind of. For now. Like it a lot warmer. Maybe. Check out this story, an Auto Industry writer crashing the new camaro at a launch event. This is a nightmare for anybody thats ever done this. Check this out. He approached a hard turn at the racetrack in detroit. Oh boy. Oh geez. Tires screeched. The reporter penned an apology saying he was going too fast on a track in a car he didnt know. Who pays to fix that . I dont know. Poor guy. Gm. Thank you. Poor guy. I dont think its it was a layup. I walked right into that. Coming up when we return concerns of possible change in u. S. Tax regulations could effect yahoo s planned spin off in its stake in alibaba. We have that story and a lot more when we return. The promise of the cloud is that every organization has unlimited access to information, no matter where they are. The microsoft cloud gives our team the power to instantly deliver critical information to people, whenever they need it. Here at accuweather we get up to 10 billion Data Requests every day. The cloud allows us to scale up so we can handle that volume. We can help keep people safe and to us that feels really good. Welcome back to squawk box. Yahoo stock falling sharply after reports that the irs is considering changing the way it treats taxfree spinoffs. Joining us to talk about it victor anthony, managing director at axiom capital management. Good morning. Good morning. Does this matter . Theres a question mark about this. There is. I think the irs officials statement was somewhat ambiguous. It wasnt clear whether or not it applied to spinoff submissions yesterday or any future submissions they received. He said they were going to suspend evaluation of any spinoffs. I happen to think this doesnt apply to yahoo at all. Yahoo put out a statement and says they understand the irs statement is not specific to yahoo s plans spinoff and reflects no change in applicable law and does not affect previously filed ruling requests. How do we know that . I hadnt seen that but thats essentially what i was thinking. How do we know that theyre not going to move the goal posts . Listen i think Marissa Meyer yesterday said that their spinoff was on track for the Fourth Quarter. Id hate to think that she was blindsided by the irs statement. Its not like the government is consulting with Marissa Meyer before they decide to make statements. They have lawyers back and forth that talk. But if in fact theyre going to change the policy which would be a broad shift in terms of how spinoffs are taxed correct. You could imagine theyd try to do this not just on future deals but choose a date and do it retroactively, no . But i think the way he made that statement, i think it applies to any sort of future submissions. Based on that that you just read it seems yahoo has the same opinion. That is the view of yahoo . What does this do in terms of the yahoo japan piece of the action and whats going to happen to that . That could complicate matters in the future because that hasnt really been submitted yet. I think yahoo has plans in the future to possibly spin that off as well so well see how that goes and what potentially happens, but its a much smaller impact. Youre looking at roughly just 4 billion taxes. So what would the tax bill be if this was taxed on a normal basis . About 16 billion. 16 billion . Right. Its a huge tax bill. Right now the stock is pricing in a fully taxed scenario at 40 a share which i think is irrational. Joe, you havent piped in with the question is yahoo patriotic, trying to skip out on the taxes. I thought you would try to give me or ian a hard time about this. No. Thats what you always bring up. I dont think of taxes in terms of that not paying them you know that. I wasnt really paying much attention to your interview actually, but go ahead. Thats okay. Is yahoo unpatriotic . I dont think so. You know i think these are the rules and they play by the rules. These are tax rules. I couldnt come up with that question. Ask your own questions. That is my i know it is. Well no but thats one of the youre channeling it. I was trying to channel what i thought you would do to me but that is a real question. Its a fair question given the political environment today. But these are the rules and yahoo is playing by the rules and everyone in the past has played by the same rules. What does yahoo want when they are exposed as an operational company. I have the yahoo core business worth between 5. 5 and 6 billion, so thats what the core business is worth. Longterm is that an independent company . I dont think so. So what happens . I think when they rid themselves of ali baba shares i think someone comes in and buys yahoo is that a twoyear proposition . For some of the tax implication, right . They cant just sell themselves immediately. Precisely. So youre looking at more than two years from now, correct. Thank you for coming in, appreciate it. Sure. Coming up a squawk box news maker, former treasury secretary Larry Summers will come by. Stay tuned, squawk box will be right back. E financial noise financial noise financial noise financial noise u. S. Stocks at an alltime high. Markets in japan surging. But the euro falling again overnight. Former treasury secretary Larry Summers is set to give us his read on the Global Economy straight ahead. Plus jobs in america created by china. New data on where chinese are investing. And the colonel is back. Nowadays youve got your International Space station, your doublesided tape your cargo pants. You seen these pants . Thats too many pockets. Kfc bringing back the iconic chicken salesman. Will it be enough to retake the u. S. Chicken crown from chickfila, as the second how were of squawk box begins right now. Oh the sun shines bright on my old kentucky home live from the beating heart of business, new york city, this is squawk box. Welcome back to squawk box here on cnbc first in Business World wight. Im joe kernen along with becky quick and andrew ross sorkin. With us izzy ans ian bremer author of superpower. You know what, people at home are saying im not going to work because they only got to two of them so this may be theyre going to take the later train in. Checking the markets this hour u. S. Equity futures after struggling a little bit yesterday are up 19 points or so. It was interesting to watch once again how we dealt with good news. Good news on the housing front. Suddenly rates backed up again, the dollar strengthened. We dont know what we want. Do we want good bad or just right. Its like the three bears. Overseas, japan, the nikkei jumped to a 15year high on upbeat economic data. And the euro fell to twoweek lows overnight, but not 1. 10. Remember 1. 14 i said its got to go down from there. You were right. Im going in a month. And i think 95 would be good id like to actually be able youre not getting 95 in a month. You dont know we cant. Ill bet you 10. I would just prefer to go where my dollar is actually worth more than would that not be awesome to go and actually be making money . Good for you because i might just stay there. Wow. Special planning thats what i like to see. Lets tell you about some of the top stories at this hour. An earnings miss for lows and the stock is down sharply. The Home Improvement retailer earned 70 cents per share, four cents shy of estimates. Also big news the Justice Department planning to announce resolutions with some of the worlds biggest banks. They are accused of rigging the currency market. Total fines seen topping 5 billion. And attorney general Loretta Lynch will hold a News Conference at 10 00 a. M. Eastern time. Also ubs already agreed to play guilty and they paid 545 million to u. S. Authorities. Were also watching shares of yahoo this morning. Theyre bouncing back right now after getting slammed late yesterday. At issue was concerns we just talked about, a possible change in u. S. Tax regulations would affect the companys planned spinoff of its stake in ali ali baba. They say it may not relate or impact this particular decision. Of course we dont know where that stands at the moment and people are taking bets. Yesterday Dallas Mavericks owner and shank tank investor mark cuban gave his view of Economic Growth. We feel growth whether its at the mavs selling tickets, watching the nba ticket sales, all our little companies, it feels like its growing. Having seen the gdp reports before, the 0. 2 and having everybody feel like things were going backwards, i didnt see it. Hes in texas. Hes in texas. Oil prices are starting to pick up a little bit and maybe thats a direct reflection of what hes seeing but lets see what our next guest feels about the economy. Larry summers, former treasury secretary, its a pleasure to have you here today. Good to be with you, becky. Whats your broad take on whats happening in the economy right now . The u. S. Economy is growing. Its growing faster probably than in the First Quarter. Its going to probably grow for the four quarters of this year somewhere in the low, mid2s. Thats not inspiring performance but thats hardly a reversion to a recession. I think there probably were some abhorrent elements in the First Quarter, but i think we still have a serious challenge of getting escape velocity and reachieving rapid growth and that along with inequality has to be a central issue for us going forward. Last night i spoke with mark lazari and he laid out his thesis for why weve been growing at a lower than expected gdp for so many years. He said its because regulators have cracked down on the banks in such a big way that credit is not available to anybody who actually needs credit. Large companies, wealthy people can get credit. Middle class people cannot. Smaller companies cannot. And that when youre in an easy credit environment, that fuels a booming economy that we are not going to get back to that. He says its that simple. Do you agree or disagree . I think i disagree more that i agree. Theres plenty of cash thats not getting spent. Plenty of cash that Small Businesses have. Plenty of cash that households have. So i think there are issues of Small Business Credit Availability that require attention, but i think that theres a broad phenomenon that there isnt quite enough demand in this economy and its not growing quite rapidly enough and thats holding back investments by firms. If youve got excess capacity why invest more. So id like to address the issues that you described. I think in particular theres a problem for middle class families who are looking to buy houses that the credit standards which were much too easy a few years ago, the pendulum swung too far and theyre probably too difficult right now. But i dont think you can blame all of this or most of this on those kind of phenomena. I think a very important thing, issue for the United States is whats happening in the rest of the Global Economy. You know everybody wants to export capital. And whether its because qe is succeeding or because qe is failing, theres downward pressure on the euro. Each of the major emerging markets is its own story, but its a story that ends in attempts to export capital and we end up as the destination for that capital and that hurts the competitiveness of u. S. Producers. So i think its a much richer kind of story. Just to be fair you also pointed out that there are ghosts of 2008 that are still around, both in terms of what corporations think and in terms of what consumers think and that its hard to recover from Something Like that and that people dont put a lot of faith and necessarily spending money where they would before. Part of this is people have long memories with these things. I think thats probably right, although if you look at measures of risk aversion they dont look especially high. And if it was dominantly that, you expect measures of risk aversion to look high. I think we need to do more to get this economy going. Thats why ive talked about the importance of stimulating both Public Investment getting us past a crazy low level of infrastructure spending. Crazy in a macroeconomic sense because people need to be put back to work. Crazy in a microeconomic sense since we can borrow money and we have payoffs more than zero. Equally weve got all kinds of barriers to private infrastructure, whether its building Oil Pipelines or replacing coal with healthier fuels or assuring an adequate broadband infrastructure. This is a moment of epically low capital costs, a moment of epically low employment and so theres lots of opportunity to find people to do the work so its cheaper than its ever been and we are doing less than its ever been. It really makes very little sense as a National Economic strategy. Hey larry, could we agree and come to a meeting of the minds on a combination to address income inequality. Could we agree that growth would almost work at this point because the labor market is tight enough to where we got better growth youd probably see some wage growth. So we both want growth and we could do a combination of ways of stimulating growth. Not just redistribution not just necessarily raising the minimum wage but maybe to progrowth strategies whether its helping corporations with the tax rate or with the territorial system or Something Like that . Could we do both to narrow the income inequality . Joe, i hadnt really thought of you as a party to negotiation. Im trying to on economic strategy. Look, i think what you just said is what ive been saying for a long time. See, thats what i wanted to hear. I want approval. Well and that was it. Here you go. I think that we need a strategy. It cant just be one thing. Public infrastructure, private infrastructure. I agree with you that the right kind of Business Tax Reform would make a positive contribution going from here. I think we need a globally oriented strategy. Weve got weve got to open markets in the United States. And we both want to build keystone. We both want to build keystone. I understand why people are worried about trade. The reality for better or worse is that weve got an immensely open market. Given that weve got an immensely open market when you have trade agreements theyre mostly about what happens in the other countries and how their markets are getting more open. And thats why the great irony of free trade agreements is that theyre great what do you make of elizabeth warrens argument . Senator warren has made a number of arguments and i think that on the one hand the kind of concern that she expresses that policy in the trade area has been excessively driven over time by Major Corporate interests, i think thats a legitimate concern. Going back to the clinton administration, one of the biggest regrets president clinton has expressed was the excessive efforts to protect intellectual property that made aids medicines very very expensive, so i think thats a valid concern. Thats why nobody should judge this until they see the actual agreement. On the other hand, you do have to really be willing to see the agreement, look at the agreement which shes not. Stack up the consequences for workers versus the consequences for businesses and i think when people see the agreement, my best guess is that theyre going to think that on balance if youre an american worker, anything what you gain from more export opportunities and what you gain from Cheaper Products is going to be larger than whatever you lose from a greater possibility of displacement but weve got to wait and see on that. I also think if i could just one other thing looking to ian. Whatever you think about what should have been done five years ago, given that the United States has committed itself in a major way to tpp, for this to fail after the United States was embarrassed with respect to the Asian Infrastructure bank after a whole set of other issues for this to fail now would really be a terrible blow to our country. Im glad you said that larry. The number of economists that i hear whether its ckrugman or others that are complaining about tpp is very concerning. So youre on record tpp is something we clearly weve got too much risk about that to back away. It looks like the Obama Administration has finally, albeit belatedly, got behind it. Looking at this aibb debacle where all of our allies except japan basically jumped rope and we say youre pandering to china, how much of a loss is this to you, and how should we have addressed it . I think its something that is more symbolic than it is itself going to be a large thing. That bank was going to exist, was going to finance whether we were part of it or whether we werent part of it. But i think its the kind of thing that will happen more and more if we dont support the existing International Financial institutions. We drove reform at the imf to give emerging markets more choice and more role there. Five years ago. And we have not been able to pass it through the congress. What do we expect to happen . You know that thats a failure in many directions. I have to say that i think your audience, the kind of people who are your audience the Business Community has not leaned into that issue. They have not worked at it the way they could have. I think it would have made a difference. Real quick, you mentioned inequality and one of the questions i had, politically Hillary Clinton has said one of the ways to fix inequality is you need to quote unquote, topple the 1 . Is she right or wrong . Skblp i think the key is not anyones income going down but whos is going up. I think we have to have the consequence that the share of income going to the middle class is higher than its been historically and that cant happen since all the incomes add up to 100 without some other incomes adjusting. But i think the right key has to be to be lifting people up. As a matter of arithmetic if you raise the share of the middle class, youre going to lower the share of somebody else so in that sense i aagree. But i think the focus has to be on whose income you want to raise, not on cutting anybodys income. You just said if the pie grows, hes talking about a percentage of the grows. You want it to be a zero sum game so badly but its not. I dont. Im trying to understand his view. Well, its not that difficult. Welcome to my world. There is a difference good changing the shares of income and changing the levels of income. And if we successfully raise middle class incomes in this country without changing other peoples incomes, as a matter of arithmetic, the share of income going to the middle class will rise and that will mean that the share going to the top will decline. But it will mean that we will be a better country. And thats where our focus ought to be and, yes, as mrs. Clinton and many others have said more progressive taxation looking at Corporate Governance issues there are a variety of parts of an agenda that will do that but the right focus shouldnt be tearing anybody down it should be lifting people up who havent seen the kind of progress they should have seen for a long time now. Secretary summers, thank you very much for joining us. We really appreciate seeing you. Good to be with you, becky. Coming up when we return a platinum Portfolio Update from martin sass. He says uncertainty is creating opportunity. Find out if hes changing his picks. Then a squawk master talks mma. This is off to the fastest start in deal making since 2005. And china creating jobs in america. We have more coming up in just a little bit. Squawk returns in just a moment. The design evolves the engineering advances. But the passion to drive a mercedesbenz is something that is common. To every generation of enthusiast. The 2015 dream machines, from mercedesbenz. Todays icons. Tomorrows legends. Visit the dream machine event today for up to 3,500 towards purchase. Platinum portfolio outspacing the s p. Up 5. 9 year to date compared to the s p thats up 3. 3 . Martin sass joins us now and why hes doubling down on his picks this quarter. I thought, marty, we went over some of the top five yesterday and you were in there. Your picks have done pretty well, i think. And we had a guy on yesterday, its like when you get dealt a hand and you are playing poker, can i have four. Its like thats a i almost said it on the air but thats a pretty bad hand. He traded in all three, didnt he and got new ones . Its like never mind. Im hanging in there. Which one . Three stocks. Activist American Airlines and apollo group. Apollo group is controversial, is it not . Yes. Of the three, activist and american have been great performing stocks for years. Apollo is really depressed. This stock is down from 33 at a high a year ago to 21. Where i think the opportunity lies. Its out of favor, its hated, its depressed. This is 165 billion alternative Investment Management firm. Right. As you know more and more money is going into alternative investments. Their realizations have declined because they have been in a harvesting phase in their private equity funds, so realizations went down performance fees went down distributions went down. Now i think were at a reflection point. Theyre going to start deploying capital. They have 28 billion of dry powder for opportunities. They are going to do an ipo, their Insurance Company athena. The stock will yield 8 this year and i think its a call on growth in credit and growth in cash flow in a company that i think has a 50 upside just to get to the value of the sum of the parts of apollo. You would think that because theyre harvesting that its an environment where its not a good time to be buying. You think its a good time to be deploying capital . Theyre going very slowly and very carefully. Do they have the expertise to do it globally . They have a tremendous global footprint. Theyre buying cheap assets distressed assets which is their expertise out of banks in europe. So distressed Financial Institutions have to sell assets. Theyre there with a lot of dry powder to buy them cheaply. Okay. For actavis, how much are you up . We talked about it at 44 a share when it was watkins pharmaceutical years ago. So it started as watkins. Now its 300 . Yes, its 299. And as crazy as it seems, the stock is still cheap. So actavis has transformed itself massively. It started out as watkins, it baut actavis and most recently closed on allergan. The pipeline of drugs will drive growth organically we think of 10 a year on the top line and 15 on the bottom line. It trades at 13. 3 times our estimate of 2016 earnings. Large pharma competitors, which grow much more slowly at 16. 9 times. So i think it still has yet to get recognized. They can pay more for stuff too. They have a very low, 8 tax rate. Andrew did you buy any . Youd be up patriotic to buy some. Im not allowed to buy any. No i know. But every week theres another generic deal or something here and actavis is dechblgtfinitely going to be playing. Watkins was like a startup. Its just exploded. But i think theres a lot of legs to it. And amr, cramer was talking about it doug parker was tweeting about it a great ceo, one of the best in i dont want to get andrew started on the monopoly that u. S. Airlines are enjoying right now. Its hard. Its barrier to entry. Youve got to buy planes theres routes. Talk to the emirates. This is the problem. Global perspective, right . Theyre just supporting labor and they can build the airports they want to and they have already crushed the europeans. I just wonder if you think thats coming over here too . Well, thats the problem. Clearly the Emirates Airlines is being subsidized and its unfair competition and they are coming here. And american is screaming down in washington. Ive seen it all, delta i know. When you look at the big picture in the Airline Industry demand is continuing to increase. Capacity is being constrained. Prices are relatively well controlled. Down 1 or so in fares. Cash flow is exploding. American has an extra kicker which is the synergies from the merger with what year is it . Were in 2015. 1981 merrill lynch, the biggest producer in the office who we all looked up to said i give all my money to m. D. Sass. How long is that . I would if i could. But hes hes the man. Hes the man. Anyone at home needs anything from me. Marty, thank you. Well see you again soon. When we come back this morning, the colonel is back with a new look. Kfc taking on chickfila with a brand makeover. We have that story next. Time now for todays aflac trivia question. Who received the first call ever made with a portable cell phone . The answer when cnbcs squawk box continues. Ah aflac . Aflac i thought you said this guy was the best . Oh, hes a horrible stylist. Gah . But hes the best at paying claims fast really. Mmhmm. Paid mine in just one day. One day . Yea. Aaaflaaaac in just one day, we approve and pay. One day pay, only from aflac. music boys . music stop less, go more. The passat tdi clean diesel with up to 814 hwy miles per tank. Hurry in, and you can get 0 apr for 72 months on 2015 passat tdi models plus a total of 1500 in available bonuses. When youre not confident your companys data is secure the possibility of a breach can quickly become the only thing you think about. Thats where at t can help. We monitor Network Traffic worldwide, so we can see things others cant. Mitigating risks across your business. Leaving you free to focus on what matters most. Now the answer to todays aflac trivia question. Who received the first call ever made with a portable cell phone . The answer joel engel, research chief at at ts bell laboratories. Welcome back to squawk box. On our watch list today, earnings from target expected around 8 00 a. M. Eastern time. Then after the closing bell well be getting results from sales force, l brands and williamssonoma. Central bank watchers expect a dovish tone but we may get a better read from the feds plan from a speech by janet yellen on friday. And spotify is holding an event at 11 00 a. M. Eastern time in new york. The tag line weve got some news. John ford has more on what to expect in the 8 00 hour coming up in just a bit. Johnson johnson holding its biannual pharmaceutical analysts meeting today will focus solely on the largest of j js three Business Segments and meg terrell is there. Meg . Good morning, joe. Were here in New Brunswick where the pharma event is about to kick off in an hour. Some breaking news coming to you right now. J j saying that it plans ten new drug filings by 2019 each with the potential to exceed a billion dollars in revenue. So potentially ten new drugs being filed by j j by 2019. Thats the breaking news crossing just now. The company also says its business has been going strong. Its the Fastest Growing part of j js entire business. Its launched 14 new products since 2009 seven of which are on track to bring in more than 1 billion in 2015. Some of the new drugs will one for multiple myelopa, a drug for depression resumearthritis and psoriasis psoriasis. Based on phase 2 data that it will present in a couple of weeks, theres new news coming out from j j. As the business has been doing really strong though potential generic competition coming to about a third of the business. Just in the next few years. So some challenges potentially down the line but a lot of growth. J j will detail all of that today and well talk with the ceo in the next half hour so a lot to stay tuned for. Back to you guys. Is that let me see, im trying to figure out where that ranks in terms of is that the biggest that might be the biggest. Is it bigger than glaxo at this point . Yeah, its well above i think its almost the biggest, is it not . J j is the Biggest Health care company in the world. Its pharmaceutical business is its biggest of the three. Pharmaceuticals brings in 32 billion in revenue annually. They also say its the second fastestgrowing Pharma Company in the world. And they have done a lot of acquisitions in the past. Nothing that i can recall that recently though. I wonder if so their research is probably done with some of the Biotech Companies, a lot of it by some of the Biotech Companies they bought in the past . Absolutely. They have been doing a lot of smaller deals, a lot of licensing deals. Just yesterday after the close announced an equity stake in akiloon to focus on hepatitis c drugs. Theyre also said to be a bidder for another company so while theyre thought to do mostly smaller deals, they clearly may not be afraid to spend more for the right product. Yeah i wonder where theyd go. Well does gorsky what did you say, 33 goes off patent . Potentially between 2017 and 2019. So they have got to deal with that. All right, meg, well see you thats at 8 00 right . Top of the hour . Thats right. Perfect. All right. Thanks. Mcdonalds moving on another dow component. Mcdonalds just brought back the hamburglar. Now kfc is bringing back the colonel. Hes a different guy, though. Hi folks, its me colonel sanders. Ive been gone for a while and, boy, howdy, have things changed. I kind of recognize that actor. Good gig for him, good gig for him. Remember the guy in who is he . I dont know if i like the idea of bringing back a guy whos kind of playing thats not the colonel i remember. No its not. Wendys was bringing back wendy and now im okay with it. I just dont like change. Oh its Darrell Hammond. Anyway, three new commercials you didnt know who it was. Do you know that actor . You didnt recognize the face . It was Darrell Hammond, the snl impressionist. Hes got a beard on and made to look like the colonel. Hes great. I like when he does clinton better than the colonel. Anyway, kfc lost the top spot in the u. S. Fried chicken market to chickfila, according to 2014 data released by Janney Capital markets. That might be good. Knowing that its Darrell Hammond makes me more likely to like him. But i dont like a jokey colonel. I remember the colonel being serious. Who wants to see an old southern remember when they made the burger king guy with that weird, very freaky head . The freaky king . That scared me. Chicken needs more substance. Purdue is the most recognizable chicken man. Theyre trying to relate more to the authenticity of historic chicken trends. This guy is going to be funny. Bring back a southern plantation owner, i dont think, unless it was ton in a tongue in cheek way. I dont like change. It takes me time to warm up to it. You too now . Yes. Im reaching that age where change bothers me. Well youll never get to my level. Coming up squawk market master, Scott Spurling weighs in on the strongest First Quarter for m a since 2007. Well be right back. [ male announcer ] your love for trading never stops. So if you get a trade idea about, say organic food stocks schwab can help. With a trading specialist just a tap away. Whats on your mind lisa . Id like to talk about a trade idea. Lets hear it. [ male announcer ] see how schwab can help light a way forward. So you can make your move wherever you are. And start working on your next big idea. Its time now for a game of lets make a deal. Global m a volume. Thats the highest level since 2007 and its up from 732 billion in the First Quarter of last year so what will drive the merger mania heading into the summer . Join us on set this morning, scott sperling. Now newly minted of Madison Square garden. How many board meetings have you been to . A couple. And you own this building across the way. Yeah. Radio city. How many rangers games do you have access to . However many i pay for. Good answer. So in terms of m a first of all, i was going to say do we think well see a lot more. But do you believe that m a is a barometer, a forwardlooking or backwardlooking barometer of where the economy is and where the market is . I think its a forwardlooking barometer in the sense that people engage in more m a when they have an expectation of stability or better growth going forward. And i think one of the things that youve seen is a level of comfort amongst large strategic players with the stability that theyre seeing in the marketplace for the foreseeable future. Now, again, we all may be wrong or people may be wrong about that, but i think it does signal some level of stability. I think it also signals the fact that you have two other factors that are very important here. The first is obviously, very low cost to undertake transactions. That low cost is in both the form of the Debt Financing thats available, large strategic players are financing deals at 2 Interest Rates. Obviously the math works really well at reasonably high multiples from a stock perspective if you can do that and the second is organic growth is hard to come by so people are looking for acquisitions not just for the first order growth effect but theyre looking to buy companies where the organic growth of what theyre buying may be superior to what their core business is and so therefore, reposition themselves. Do you have any worry though that some of these valuations are now completely out of control . Im thinking of biotech. Sure. We see headlines come across with premiums of 30 40 50 60 70 . Or even down multiples down in the 20s. For example, on those transactions. So break it into two categories. One category is there are a lot of smaller biotechs that are being acquired because they have really important science that larger player can leverage its Distribution System and its ability to exploit that science more aggressively. Those are multiples that are being paid basically for the science itself and perhaps for the fact they have already gone through some of the Clinical Trial issues that often eliminate other drugs. So those are big numbers, but in the context of the larger but what percentage of those are going to be writeoffs in two or three years . We dont know do we. However, i would note that the nature of the tools that we have today to understand both diseased states and the nature of the impact of therapeutics on diseased states is far advanced over what it was three years ago. And, therefore, the probability of success i believe is hire in that sector. By the way, its not a sector we play in but i think its a very important discussion. One of the discussions weve had this morning is yahoo news. Well call it irs tax news on how the irs may treat spinoffs in the future. A, do you think something is going to happen and then what are the implications . I dont know whether or not its going to happen because again its hitting all of us. The second is obviously, that it may reduce a mechanism for shareholder Value Creation that theres been a lot of pressure on the part of activists and others for corporations to utilize. Could that have a dampening affect by impacting the stock market . Perhaps. Then theyre going to do it. But im thinking better for you. No, im thinking private equity if you cant do a taxfree spinoff, youll have to sell to somebody whos going to buy it. Well have to look at all the tax implications. Weve tried Everything Else well certainly do this. Even if you do a taxfree spin, there is also a role for private equity. I do think that we have gotten pretty good at buying assets and actually doing things to them to increase value. Even if you spin it off, youre not fundamentally change the nature of the operational efficiencies or its ability to grow. You are creating a mechanism for shareholder growth but im not sure that even the continuation of the ability to do these taxfree spins is a negative. Do you look at this as a time for private equity to harvest profits or do you see this as an opportunity to buy . I think it becomes harder and harder for you to compete against strategics in this environment. Clearly its been a good time for harvesting i think for us and the entire industry. There was a overamount of Portfolio Companies, if you will. Im not sure thats really a word. Of Portfolio Companies because of the recession, people were Holding Companies longer so youre seeing more harvesting in terms of the magnitude perhaps than you would in an ordinary cycle. But its been a good time to harvest because companies have been fixed, they have been made better. I think youre a big thinker because you just said something about people have the notion that people are overpaying for biotech. And what you said about there may be a quantum move in the next couple of years, because weve waited a long time. Weve had a lot of science build up and havent had the payoff in therapeutics. But all these companies, they are buying the infrastructure apparatus that have the research to turn this basic science into therapeutics. All the Companies Might be worth more than theyre valued at right now because theyre right on the cusp. I actually think we are. Im chairman of the board of brig hal and womens hospital. I am amazed at the nature and the progress of the research that you see not only from a basic level but the clinical application of those things. So buying research what it takes to do the research you can youre exactly right. So youre buying science, often very specialized science in an area and then youre using tools. Those tools used to cost tens of millions of dollars for next gen sequencing, for example. That has come down by order of magnitude and come down boy another order of magnitude. You may not even know the drugs in the pipeline you just know there will be many more drugs in the pipeline so that might be why maybe things arent overvalued. Maybe well find out later. Now again, the deal yesterday, thats a different sort of thing but i think a lot of the things that people say thats overpriced, its based on exactly what youre saying. Scott, thank you. Would you own shares of kkr, blackstone or anything like that . Im a believer in our business, so i havent looked i havent looked at that as a share ownership. Im kind of overweighted private equity already. Got it fair enough. Big movers this morning. We have your list of stocks to watch ahead of the opening bell. And then next and later, rather an interview with ciscos new cfo, kelly kramer will join us at 8 30 eastern time. Were back in a moment. Welcome back everybody. Lets take a look at a few stocks to watch this morning. Shares of etsy under pressure. They are posting a wider than expected loss. Stock is down by 17 this morning. Etsy says that it will increase the pace of hiring and spend more on marketing. Pep boys shares are jumping on reports that its been approached about a takeover. Golden gate capital and others have broached the topic of purchasing the retailer and that stock is up by 16 . When we come back this morning, a new report on chinas investments in the United States. Michelle has the highlights including top states for Chinese Investment, and which Chinese Companies employ the most americans. Stick around squawk box will be right back. Welcome back. Theres a new report out with chinas Foreign Investment in the United States. This as the u. S. Government says it uncovered a chinese spy ring allegedly stealing u. S. Technology. Michelle carusocabrera has more on this story. Chinese investment in the United States, long controversial. The headlines Many Americans are waking up to about this spy ring allegedly existing in the United States. One of the reasons why, because many people question the motives of Chinese Investment. Are they trying to steal technology. This report which is commissioned by the National Council on u. S. china relations, trying to ease those concerns and show just how important they think Chinese Investment is in the United States. Lets give you the number. U. S. Based employees who are on chinese payrolls number 80,000. Five years ago, that was less than 15,000. In 2000 it was virtually zero. The total amount to give yukon text Japanese Companies employ 700,000 americans, so its much much bigger. Chinese investment dollar figure 47. 5 billion. Very teeny when you consider that that is since 2000. 90 of that is in the last five years and theres roughly 1500 companies in the United States that are chinese owned. 40 billion in pakistan a week ago. If you look at it based on states, california has gotten the most nearly 6 billion. Texas is a close second. North carolina 5. 5 illinois 4 and new york 3. 8. For employees, North Carolina is actually number one, 15,000. Thats because of the research triangle. You know lenovo bought the pc business of ibm back in 2000. That was the first big chinese acquisition. You remember here. Were you here . I remember the newsroom was like oh my god. Chinese are boiinguying ibms pc business . We were happy. It was like take it. But it also marked this rise. They did something with it. I want to say 2003. I broke the story, thats why i know. Im just saying you could be right but i could say it was 2000. That was the last time you actually did that, i think. How long ago what was it 2015 . Tuchouche. The chinese version of cisco. They want to be in europe. Its not because europe is a great growing market its because they understand that theyre not going to be allowed into the United States in the same grow. This has been a congressional report about huawei telling companies not to buy. Number one, we have growing problems with china. Whats interesting, of course is that china is the only country in the world with a Global Economic strategy. They are putting over a trillion dollars at play. Theyre changing architecture not just the Infrastructure Bank but the bricks bank the China Development bank which is giving much more money than the world bank is. The initiatives which are going to be aligning countries and their economies towards china. Weve never seen a challenge like this none of us. And, you know the americans dont have a response to it. What i would argue on the other side is all of those people or all of those companies are countries that do alongside china are accepting tradeoffs. Capital flows that are restricted politically driven lending, et cetera et cetera. I fight back at the noegtstion that were supposed to have some kind of International Investment strategy. Where capital is treated best is where capital goes. Im not suggesting the United States should be doing the same thing as china, im suggesting that china is doing this now when theyre still far away from being the Worlds Largest economy and theyre on that track. There are a lot of countries that find that attractive. Sure. The conditionality that the chinese have when they give cash is not we want you to be a democracy, its like the imf would. Its we want you to align to our Stateowned Enterprises and i think thats a huge challenge for us. Ian, thank you. And by the way, the book again everybody is superpower. Check it out. Do you have the list of these people on the payroll . The individuals names . No. They did not publish that. Is steven roach on there . John rutledge . Hey, joe, the last time i brought up a deal was in 2004. Thats when that happened by the way. It was . Im embarrassed. No im saying lenovo. If i broke one, id have to work the rest of my career fixing it. Johnson johnson planning ten new drugs in the future. [ male announcer ] at northrop grumman, weve always been at the forefront of advanced electronics. Providing technology to get more detail. Detect hidden threats. See the whole picture. Process critical information and put it in the hands of our defenders. Reaching constantly evolving threats before they reach us. Thats the value of performance. Northrop grumman. Breaking news now. Targets results hitting the wires. With the trend toward Online Shopping and a hike in minimum wage, well take a look at how the company is planning to grow the bottom line. The numbers and the Market Reaction just minutes away. Plus Johnson Johnson set to talk to analysts about its share price. First time ever a company has spoken. And the pipeline. But before doing that. J j speaks to squawk first. An exclusive interview with alex gorsky straight ahead. And saying goodbye to a latenight legend. Look at David Lettermans impact on the television industry. Please say hello to the lovely becky quick. Becky come on out. The final hour of squawk box begins right now. Live from the most powerful city in the world, new york. This is squawk box. Welcome back to squawk box here on cnbc first in Business Worldwide. Im joe kernen along with becky quick and andrew ross soerkrkin. The s p is a little red, up 12 on the dow, up a little over a point on the nasdaq. Checking out markets in europe at this hour down in german and dax, fractionally up on the ftse and greece all the way back to almost 850. Lets take a look at shares of target this morning. The retailer just out with earnings. It looks like the numbers are better than expected across the board. They came in with earnings of 1. 10 a share, that was 7 cents better than the street had been expecting. Also revenue better than expected. In terms of the guidance they are raising the bracket of their guidance to what they had issued earlier. Theyre now saying they expect to earn 4. 50 to 4. 65 a share for the full year. Earlier they had told the street 4. 44 to 4. 65. The street is already at 4. 56 but the numbers across the board look like theyre better than expected. Samestore sales came in up 2. 3 . That was in terms of transactions and in terms of basket size. Compare that to what we heard from walmart yesterday. The retailer did show a little pitt of a turnaround with the u. S. Stores yesterday with walmarts numbers, but their samestore sales were up 0. 2 . It is a Much Bigger Company but take a look at whats happening with those shares. Target shares are up by 1. 4 . Also a programming note for you, make sure you watch the fast money Halftime Report at 12 15 eastern time for an exclusive interview with targets cfo, john mulligan. Weve got some other stories, Home Improvement retailer lowes posted a weaker than expected report. The stock falling on that news. Heres ou jpmorgan analyst Chris Horvers views the report. They waited around for the macro for about five years while home depot focused on execution. Lowes started to turn the ship back in 2012. There is momentum. They are closing the gap versus home depot. Comps trail by 180 points. That was 200 to 300 basis points but it takes time. Clearly the execution is still not up to par. And the other big story, the Justice Department expected to announce settlements with some of the worlds biggest banks accused of rigging the currency market. Total fines are seen topping 5 billion. Loretta lynch will hold a News Conference all about it at 10 00 a. M. Eastern time. Take a look at shares of yahoo . Theyre not bouncing back right now after getting slammed late yesterday. At issue, concerns in a possible u. S. Changed tax regulation will affect its spinoff in ali baba. Victor anthony joined us this morning and knocked down those fears. I think the irs officials statement was somewhat ambiguous. It wasnt clear whether or not it applied to spinoff submissions as of yesterday or any future submissions that they received. Essentially basically said they were going to suspend any evaluation of any spinoffs pending any rule changes. I happen to think this doesnt apply to yahoo at all. And in a statement yahoo says its working toward the planned spinoff in the Fourth Quarter and adds it understood the irs statement was not specific to the company. I think that part is right. The question is whether theres a broader change afoot and what that means. Johnson johnson, weve been talking about this interview, holding a pharmaceutical Analyst Meeting today. Meg terrell is there and is joining us with a very special guest. Meg. Joe, thank you so much. Joining us now is ceo alex gorsky. Thank you for joining us. Great to have you here in New Brunswick. As you know, this is the home of Johnson Johnson. Who would have thought 125 years plus ago when the johnson brothers started j j that wed be talking about the kind of invags that well be reviewing today with the analysts and with you. And youre planning on filing for approval of ten new drugs in the next four years, each with the potential to bring in more than a billion dollars. Does that assume basically everything in your latestage pipeline is a success . Look were really excited about the innovation that well talk today. As you said if you go back since 2009 weve launched 14 compounds. Now if we look forward between now and 2019 yes, we expect to have about ten compounds. Of course youre going to have some wins, youre going to have some that dont turn out quite the way you expect but overall were very confident in the ability, particularly based on what weve been able to do over the past several years, on our ability to really impact patients and drive this kind of innovation going forward. Some of the other news you put out on your multiple mieloma drug, youre going to file for approval on midstage data. So what does that say about how good those data look in just a couple of weeks . Im so proud of our oncology team. The compounds that weve been able to launch now the phase two data im sure that you probably know people who have been affected by multiple myeloma. I have had friends and colleagues that have been affected and died from it. To think we could have this kind of data and this kind of results, even in patients that have tried previous therapies, its really promising. Its just one indication of the payoff the patients are getting, that were getting from the investments that we made in the oncology area and other innovations over the past several years. A lot of growth coming youre laying out today. What analysts are focused on is a potential competitor to remikasde. What were talking about here today is all the innovation coming forward. We do understand biosimilars are part of the marketplace in which we compete. First of all its really important that we focus on the patients and we launched the first one more than ten years ago. When you look at biosimilars or generics keeping the Patient First and consider indications, safety efficacy is the number one priority. Second of course well protect our intellectual property rights. Thats so important to our industry. Thats what makes us gives us the ability frankly to invest in the innovation for the future. But we do feel theres a place for generics and biosimilars. Third, if you look at our immunology portfolio, things like stellara that are already doing very well youll hear about others aisle 6, aisle 23 new approaches we think weve got a comprehensive approach to the way well go about defending our franchise and frankly helping even more patients in immunology. Joe, do you want to ask a question . Hi, alex. I know this is mostly about your pharmaceutical division today, but i look back on the last five ten years at j j and it seemed like bill welldon spent a lot of his time putting out fires, quality issues that prevented him from maybe making more transformative moves. I wonder if youre considering, since this is the fastestgrowing part does this Consumer Products division and medical devices, does it still make sense to keep all those under one umbrella . Do Investment Bankers come to you and say you could do this if you did this or if you focus on this, you could get, you know shareholder value would go up . Are there any things like that that you think about from time to time . Well thanks a lot for the question, joe. Hey, maybe next time you can be out here to join us for this meeting as well. But whether it was bill welldon or ralph larson i think if you go back in the history of johnsonjohn zun Johnson Johnson, one thing weve been committed to is managing our business as a diversified portfolio. Frankly that gave us the ability several years ago to reinvest in our pharmaceutical pipeline when we experienced about an 8. 5 billion generic launch and patent expirery. But we have a strong medical device business a strong consumer business and weve seen the benefit of that in our pharmaceutical pipeline over the past five years with all the launches and all the great innovations that well talk about today. So we think financially it gives us incredible flexibility and capability capability. The other exciting thing is about the scientific opportunities. As we think about areas going forward, whether its oncology whether its things in the back of the eye, being able to combine devices and pharmaceutical products and even consumer approaches and perhaps Wellness Programs in new and innovative ways we think is particularly exciting. And finally its really important for our colleagues here, giving them different career paths, different opportunities to develop their talent has also been a real benefit of having this diverse portfolio. While of course from time to time people are going to challenge you, saying you should be a pure play here or there, we think this approach in the long term is in the best interests of patients and frankly all of our stakeholders. Just real quickly, one other thing that i think about a lot, i know ian reed and i know the man and i understood his rationale with pfizer. He made it clear that he could invest a billion dollars more with a lower tax rate into r d if the tax rate in the United States was more competitive with the rest of the world. So it was simple for him to try to change where pfizer would be domiciled. At this point in terms of the tax rate do you see other companies able to outbid you on attractive acquisitions other foreign companies, because of the inequitable tax structure globally . Is that something that bothers you or youd push to have changed . Weve been working with the government and of course would like to see a more comprehensive tax reform package done in the United States. We think that would be good for all companies to help us be even more competitive. We also believe that tax is only one component of your overall m a strategy. Making sure you understand the science, making sure we understand the overall marketplace, putting all those things in the balance, we think thats what helps us remain very competitive. We think weve had actually a very good balance. If you look over the last 20 years, for example, with Johnson Johnson, weve invested over 200 billion, about half of that in internal r d half of that in m a, so we think having a balanced approach is really what enables us to have longterm success. I want to ask you about your m a strategy because yesterday you announced a deal with achileon so where are you looking at m a . Would you do a bigger deal . Look we think its very important to ultimately go after the best science. Were really agnostic about whether its internal or external. But if we get the best science, we ultimately know well help more patients and create the best business opportunities. Were always on the hunt for new scientific platforms. So whether its in areas such as oncology whether its in viralology whether its in newer neuroscience, making sure were always on the hunt sometimes its complementary technology. So if you think about what we Just Announced this morning, we already were able to introduce alesia last year. We went out and did an acquisition. But when we do those acquisition, the other thing that we acquire beyond molecules are great scientists. People like larry blatt who will be working taking perhaps taking what we have and combine it with other things to come up with a great approach in hepatitis c thats going to be great for patients and great for our business. So many more questions but unfortunately we have to loef it there. Thank you for joining us. Meg, thank you so much. Becky, back over to you guys. Meg, thank you. And mr. Gorsky thanks to him too. When we come back this morning, our stock pickers have nearly doubled the returns of the s p 500 so far. Well check in with susan burn and hear from abbott labs is one of her new picks. Squawk box will be right back. Ideas come into this world ugly and messy. They are the natural born enemy of the way things are. Yes, ideas are scary and messy and fragile. But under the proper care, they become something beautiful. E financial noise financial noise financial noise financial noise my name is julia grinberg. I work in Energy Efficiency for pg e here in San Francisco. My job is to help my customers save money, save energy and save the environment. When it comes to renewable energy, pg e is absolutely committed to creating a clean energy future. One out of every four solar rooftops in america is in our service area. Its wonderful to work in the city where i live and help my neighbors and i feel like the work that i do reflects that every single day. Together, were building a better california. Developing story this morning. A cruise ship running aground on a bermuda reef. The norwegian dawn was bound for boston when a steering malfunction caused it to veer off course into the reef yesterday. More than 2700 people were on board. The cruise line says there were no injuries. Also environmental cleanup crews are responding to an oil spill just off Santa Barbara california shoreline. Officials say a leaking pipe caused the spill, which is about a half mile long and 300 feet wide. The pipeline was shut down and crews are arriving to contain that mess. Lets talk about the platinum portfolio because it is currently beating the s p 500. The groups picks are up nearly 6 while the s p is up just over 3 . Joining us now with a couple of stock swaps, susan burn founder and chairman of westwood holdings. Good morning to you, susan. Youve got a couple of swaps you want to tell us about. Not swaps not a stock swap but yes. Yes. Well i am going to add abbott and retire franklin resources. And in addition to which im going to add ebay to the portfolio and retire qualcomm. So the abbott the first abbott story, our style is certainly to really like to find companies that can grow their dividend well in excess of growth of gdp or even the market. And abbott due to some restructuring is in a very very good position to do that. The ebay story is a little bit different. Sometime in the Third Quarter theyre going to basically split up the company. It will become paypal and ebay. And very wellknown businesses. They dont pay a dividend now, but the paypal is likely to be the i guess thats the faster bunny. Probably wont pay a dividend but much faster growth whereas the ebay business which is asset light and cash genorative is likely to start adividend at the end of the year. Looking 12 months or 24 months out, you look at abbott and you think it will be where . You look at ebay and think it will be where . Or the split of both companies will bow wheree where . Okay. Ebay i think the overall entity which is like 57 right now, i think all combined over a threeyear basis, the parts are worth about 100. Wow. The two separate parts. Theyll be very different kinds of businesses. And then for abbott i think its a real steady eddie grower. I think youll get a dividend appreciation of somewhere between 10 and 12 a year of your dividend and that stock, which is around 49 i think could be looking at the 75 area in three years. And to the extent that there are people out there that have been Holding Franklin resources, for example, or qualcomm are you just lightening the load or getting rid of them completely . Do you put a sell on them . No i would not. Theyre in our portfolio and we will continue to maintain them. Its just that these two the stories of these two stocks i think over the next lets say six to nine months could be a little bit more compelling. But they would still be in our portfolio. And honeywell, which is in the portfolio also as our third stock, were not changing anything there. They had an excellent report for the quarter and we are just letting that run, so to speak. Okay. We appreciate your perspective this morning. I know a lot of people will be pick piggybacking on those trades. You can go on cnbc pro online. You can read their exclusive analysis right there. When we come back the nations second largest city raising the minimum wage. And then what does spotify have up its sleeve . A big event in new york this morning. Weve got a preview ahead. And then is cisco looking to do a deal in the Storage Space . Well ask ciscos ceo about the companys Growth Prospects and changes at the helm. Squawk returns in just a moment. So open an account with schwab. And when a market move affects, say a Cloud Computing stock youre holding, we can help you decide what to do. With tools that help you see how market activity is affecting your positions. So when the time comes to decide whether to scale in or scale out. You can make your move wherever you are. And start working on your next big idea. Verizon say neversettle. Tmobile agrees. Never settle for verizons overpriced gimmicks. Try the uncarrier riskfree for 14 days youll love it, or well pay for you to go back. Los angeles lawmakers voting in favor of boosting the minimum wage to 15 an hour by the year 2020. The action will gradually increase the guaranteed hourly wage of 9. The first increase to 10. 50 in july of next year and annual steps until july of 2020. For nonprofit organizations with 25 or fewer employees, the scheduled raises wont begin until 2017. When we come back this morning, the cfo of cisco will join us in her first interview since taking the job. Kelly kramer is with us on set, right after this. Right now as we head to a break, take a look at the u. S. Equity futures. It looks likes across the board futures are higher but s p futures up by just a fraction of a point. Dow futures up 26 1 2 and the nasdaq up close to 4 points. Stick around squawk box will bow right back. The design evolves the engineering advances. But the passion to drive a mercedesbenz is something that is common. To every generation of enthusiast. The 2015 dream machines, from mercedesbenz. Todays icons. Tomorrows legends. Visit the dream machine event today for up to 3,500 towards purchase. Welcome back to squawk box. Here is whats in our headlines. A key event for the markets this afternoon. The Federal Reserve will release the minutes of its most recent policy meeting. That comes at 2 00 p. M. Eastern time. Any investors looking for clues on the timing of the Interest Rate hikes will be paying close attention. Also attorney general Loretta Lynch will hold a News Conference at 10 00 eastern time to announce settlements reached in connection with a longrunning probe of currency market manipulation. Lots of big banks are involved so stay tuned for that. Also egg prices now at 58 higher than they were just a month ago. Thats when bird flu was first detected at iowa chicken farms. Well continue to monitor that. Stay with this food stuff. Check this out. Starting today dominos says that twitter is a permanent option for ordering pizza. Its even easier for the chains regulars. Those pie lovers will only need to tweet the pizza emoji to place an order. They can set up a profile in the companys Online Delivery Service and save an easy order. The company is trying to attract busy younger consumers. At this point 50 of dominos sales take place digitally. All you have to do is tweet the pizza emoji . Do you know how many times ive actually sent a bunch of emojis . I get a pizza when you end up butt dialing. Lets talk about spotify. Spotify holding an event with the tag line weve got some news later on this new york. A lot of rumors swirling as competition in the music space grows. John ford joins us with more on what potentially this is all about. John. Hey, andrew yeah. Could you be any more vague than weve got some news . But the rumors suggest theres some video involved here some new social features as well. And playlist features. And this comes as theres increasing competition in the streaming music space. You think about it titans and artists both weighing in. On the one hand youve got apple with its beats purchase expected to role out a new streaming service possibly this summer. Also google has both google play and youtube that it uses for streaming music and then youve got jay zs Title Service with the 10 and 20 tiers. Hes trying to change the way the music business works in the streaming era. And taylor swift, the biggest star of the moment saying spotify is giving away too much for free. Now all of this is happening as spotify has amassed more than 60 million users overall. The vast majority of those free. But 15 million users are actually paying at one of the two paid tiers. Well have to see what more they have to offer that could entice people to pay to move up from the free version where you can play different playlists. You cant download the music to your device but that is clearly in spotifys interest as various sectors within the Music Industry are pushing back against their model, guys. Hey john weve heard a lot from jay z in recent weeks about all of this. Hes obvious lowly pushing his service. Are we seeing a beginning of a fracturing of what ever control spotify had over this slice of the world . I think thats fair to say. Apple has been moving and trying to offer exclusives to various artists, payments up front to bring the music to the beat service and to Apple Service first. Then youve got jay z trying to bring Live Music Events to spice up that service. Jay z just did an event in new york a few days ago that was on tidal so everybody is trying to figure out the angle to get people to pay more for music. But behind the scenes how much are the record labels passing along to artists in the streaming deal. The verge just had an exclusive hours ago where they showed the deal between sony and tidal where it looks like theres a lot of money going from between sony and spotify. A lot of money going from spotify to sony maybe not as much going from sony back out to the artists. John, real quick, though do we know if subscribers are following . Are they subscribing to all these new services and are people leaving places like spotify . Thats not clear. Spotify is likely to give some new numbers at an event like this. We might hear a revision to that 60 million number to that 15 million paid number especially and the 2 billion that they say that they passed along to artists. Theres got to be some defection given the fact that apple and google are so big, but its not clear how much. Okay, john thank you. Look forward to finding out what it really is all about. Cisco, cisco with a c is celebrating its 25th anniversary as a publicly traded company. To commemorate the occasion our next guest will be ringing the closing bell at the nasdaq later today. I think you press a button kelly. Thats what i hear. Did you practice at all . Not yet, thats later. A lot of pressure. Oh, man. Plus youve got to hit it right at the right time and theres an extra second coming. I dont know whether you know that. So dont get nervous. Here now with us on set is kelly kramer, cfo of cisco and a member of the global cfo council. The tech landscape is fascinating to us. Not all of us are equal in our understanding of everything but one thing we do know is how quickly things move. For me the landscape is littered with Great Companies that had a great business but it moved so fast that someone else comes in. And i think about what was what cisco was facing a couple of years ago. Basically you were a Hardware Company that built out the internet. Yep. Now you have to be a company that works with mobile devices and software and the cloud and security. I dont even see what the old cisco has to do with this new business and i dont know why it should be cisco that still succeeds. It seems very daunting to me. Well i think whats good about cisco is yes, we started building out the internet but if you look at new areas like security or software, you know we have all the assets that plays across all of it. So security as an example, its the number one concern of all ceos and companies, and its not just security of its whether youre breaking in the network, so we have security across it as well as standalone products and threat protection. So what weve been able to do is broaden our portfolio to play not only in the networking space but as we go to mobile and wireless and security. Revenues have continued to go up. Absolutely. And i saw something. Youve got to speak to me like im a child. We used to sell boxes and now we sell outcomes. Yes. I can sort of understand that. But i mean i still dont see how you can guarantee success for a company that was so good at doing something so totally different. I think when we talk about selling outcomes what that is is instead of only selling it to the cio of an enterprise much more were selling to the ceo and cfo where theyre trying to optimize their cost structure, how they manage their networks. So we can go in with our consulting arm or our salespeople and help figure out what theyre trying to fix, right . So whether its a redoing of their network for more efficiencies or building out their wifi or adding in or managing their networks, we can help them figure out how to optimize their own costs. And then theres something im just going to get even deeper into my total ignorance here but is there a way to work with face box where you create some type of white label networking . I dont know what that is but it builds a whole new type of business for cisco to play in to key off what facebook does . Yeah, i think the big i dont know what face box is i think he meant facebook. I think so too. I was talking about the box, yeah, squawk box, but you know what im saying. Yes, the Big Companies like facebook or amazon or linkedin i think, you know we work very close low with them. Weve talked about nine out of ten of them are customers of ours already. Its a different when they scale so big, its a different kind of outcome theyre looking for, so we spend a lot of time with them understanding what they need from open network and how we can help with our products. So id say its a huge space for us a very important customers for us but its just a different signed of solution. I asked you to use scaleability in a sentence. Now youve got granularity. I want to ask about m a. Do you have to own one of these security firms or do you just have to partner with them . So id say for security so cisco yoefroverall, weve broadened much more past switching and routing. Security is one of the big areas that i think well continue to be. Whats good about it its very fragmented. We actually from a revenue share perspective are the largest one but its an 8 share, so for us its good because we can build out. Do you need a big player . People have talked about fire eye, for example. Yes, i heard that. What do you know . What can you tell us . I think we obviously dont comment on acquisitions and i think john referenced it in our call that perhaps that rumor wasnt true. But again, i will say were going to be very very both inorganically and organically in security building. I think thats critical for us. Kelly, it was just a few weeks ago that weeding the news John Chambers is coming down. I dont remember cisco preJohn Chambers. It took all of us a little time to get our heads around that. What can you tell us about Chuck Robbins and what that transition is going to be like . Im very excited for chuck to take over. Again, were all john will still be around in the executive chairman role but chuck has been at cisco for 17 years. He most recently led our entire Field Operations and sales, so he grew up in the sales channel, he knows all our customers internally people are excited for what he brings and were getting him in front of investors and our customers know him very well. So i think chuck is a natural choice. You know weve been going the board went through a 16month process to pick chuck and it was unanimous across the board. I think hes going to bring just pragmatism and driving continue to drive our agenda and strategy along the lines of where weve been with acquisitions as well which is organic growth. Do you anticipate any changes in strategy or is this kind of staying the course by picking someone who has been there so closely. I think our strategy is working if youve look at the results that we have. We do continue to grow and drive profits as well as top line. I think it is continue the strategy. I think well continue to look for other areas that can accelerate the top line growth and profitable growth but i think chuck is in the process of evaluating his first 90 days his Leadership Team and where hes going to go. Will i mean youre international. How much is abroad . About 50 . Chambers said were building stuff over there. Well build factories over there if we dont change the tax law. Yes. Is chuck will he follow along the same lines would you say . I think cisco we are definitely very committed and spending a lot of time in washington to try to get tax reform so we can, you know bring some of that cash back. Were working very closely with both sides of the aisle. Is europe back . Is qe working . Can you just comment on any other parts of the world . Yeah for us europe turned around for us i think earlier than a lot of other enterprises saw. For us its been growing for the last five quarters in the midsingle digits and even in a difficult environment of currency right now its performing well. What hasnt turned . You know were still where we have challenge is still in china and russia some of the big emerging markets. They have been challenging for a while for us. Is the Edward Snowden fallout over in terms of sales internationally . There was a big issue. That is a big issue, why e. They had to go to every government that didnt want to buy their stuff and convince them to buy their stuff. Hes a hero. I would say there certainly has been some geopolitical kind of blowback. I thought chambers said it was not material to sales . Well i would say i think its been very material i wouldnt say its snowden specifically. I would say china with u. S. Companies has been has had an impact certainly on our results in china. Anyway kelly, thank you. And dont be a stranger. All right. Thanks for having me. Nice to see you. Youve got the apple watch on. Do you like it . I love my apple watch, yeah. Its great. So say hi to the clouds on your flight back. I will. Wave to the clouds. Those arent clouds i know that. Okay, thank you. When we come back this morning, deflategate doubling sales of tom brady merchandise. We will speak to the ceo of fanatics fanatics, one of the nations Largest Online sellers of sports merchandise. Hell tell us how merchandise impacts sales. Squawk box will be right back. Seven out of ten Power Outages in the us are caused by weather. But utilities can now predict where the power will go out, within a few city blocks. Working with ibm theyre combining micro weather forecasts with detailed data from local sensors. To predict where outages are likely to occur. And send crews exactly where theyre needed, when theyre needed. Ibm analytics from the internet of things is making energy smarter every day. Nfl owners have approved a new rule that will make it a little more difficult to get those extra points after touchdowns. The rules committee has decided to move the ball back to the 15 yard line on extra point attempts. The rule also says that the ball is still alive if its blocked, meaning the defensive team can potentially return it for two points, two points not six. The reason for the change to add more excitement to the game and make play more challenging, since 99 of extra points were successful. The twopoint conversion will stay at the 2 yard line. This rule is only is one year only meaning that theyll reevaluate it at the end of the season. Oh look who it is. Thats tom brady. Anyway, theyll reevaluate it to make sure that the intended things happened and it makes it a little bit better. It is kind of you know you dont even watch the extra point most of the time. I do. Although when they get blocked or when you dont make them. It can change the game. You dont watch the kick . The extra point . Yeah if it matters. If it matters you do. It sort of is taken for see, 99 thats what i just said, 99 go. So youre watching for one out of 100. Thats like watching nascar. No anyway speaking of tom brady, since the release of the wells report indicated the likelihood that the patriots quarterback, brady was aware of intentionally deflated footballs, licensed merchandise with bradys name believe it or not, the name and number are best sellers. Doug mack is the ceo of Online Sports merchandise al retailer fanatics. Doug, thank you for being here today. Thank you. That kind of defies conventional wisdom. What are these supporters of his coming out to show their support. It was very interesting to see on our end. Because the patriots won the super bowl, brady was the sixth bestselling jersey. Right after the wells report he jumped up to number three, right behind the two first round draft picks, winston and mariota, the quarterbacks. Weve been watching this trend over the course of the last week and hes now jumped to the number one bestselling jersey in the nfl right now, up about 250 year over year. Wow. Whats interesting about it is not just new england supporting brady. Weve sold them across 46 states. So its National Support for his jersey right now. Pretty amazing. It is. And its weird, because immediately you read if he had deflated the balls in an elevator, he would have only gotten two games. I mean people a twogame suspension. People immediately sort of even patriot haters its weird, that it sort of somehow the nfl just cant do anything right. They finally come down hard and sort of the pr move to the team that was doing the deflating, right . They have won this argument almost, havent they . Except for the true except for jets fans. You know all i can speak to is the merchandise sales. You never know how fans are going to react. Sometimes when a player has a suspension or whatnot, sales will go down. In this case the brady jersey sales went up. There was a situation a year ago in the nba where Donald Sterling got himself in hot water. Adam silver the commissioner came out, was very harsh in terms of a suspension. L. A. Clipper jersey sales and Product Sales went through the roof. So you never know how fans will react. They often vote with their wallets. In the case of brady, theyre very much behind him. 457. Super bowl champs too. In the game in question 457. I sort of think indianapolis sort of set him up didnt they for that . I dont know. Did clippers jerseys go up in sales after they knew he was selling that he was going to be forced to sell . Correct. After he was banned from the league. Because nobody wanted to give things went very well after that. It wasnt just jerseys, it was all clippers merchandise. What i think we saw was a ground swell of fan support behind the clippers, the players, the coach where everybody thought the commissioner did the right thing and the team got a lot of support out of it. What happened when lebron james left miami and went back to cleveland. Both to the cavs sales and miami sales. Its just incredible to watch. Lebron is the number two selling jersey in the nba. Cavs are up dramatically year over year. Theyre the number two selling team in the nba right now. The team im from, the San Francisco bay area is the number one selling team. The Golden State Warriors is the best team. Steph curry is a sensation. Hes the number one selling jersey in 42 out of 50 states right now. So even states that have teams curry is still outselling that teams most popular player. So nba, definitely lebron is popular just behind the Golden State Warriors. The other two playoff teams, Houston Rockets and Atlanta Hawks are doing well as well. How about the matchup between what fans are fanatics about when it comes to football when it comes to baseball when it comes to basketball when it comes to hockey. I know how i would stack them up based on the ratings. Do you see the same thing in terms of sales . We do. You look right now, hockey is in its final four. The new york rangers here are doing extremely well. They actually made it to the stanley cup last year. Theyre up significantly year over year so you can see the fan base and nhl supporting the rangers. Chicago blockackhawks are slightly ahead right now. So one interesting thing now. Lumquist is doing well. One thing emerging you can have rangers, black hawks, warriors cavs and also the top selling players. The rangers got, somethings got to change on the last game. Its huge. What was it, a lock out or something . I dont know if they had a change. Now all the sudden. Hockey trends are famous. The interesting thing, were not in the playoffs for the mlb but weve been watching baseball closely. Last year it was jeter. He was retiring and we didnt know what was happening this year. It ends up Major League Sales are up. Theyre doing well. Anyone buying an arod jersey . Hes in the mix. The mets are up. Its not even close to Lance Armstrong or ava. I think where youre going is big market teams. Yankees. Cubs begin since their last run as well. Chris brian is a rookie as well. We return in a moment. Financial noise financial noise lets get down to the New York Stock Exchange where jim cramer joins us now. Whats in Corporate News today . No results really came out did they . I did like the target result. I think fashion is back there. People worry about apparel. They deliver on apparel. I like the dot com initiative. I love the kelly cramer interview. She has great presence. I think thats the strongest story out in tech right now. You can see why. Robin is going to do a great job. The transition scene was optimistic. Thats a great place to be now. And then lowes. I didnt like their tool numbers. I wonder if it isnt lows not doing as well in the professional end. The home depot quarter was amazing. I think it might be an opportunity. I wouldnt write off lows so quickly. Many are, i think thats a big mistake. The stocks have done better than home depot. Im not sweating that one at all. I think housing is strong. That number yesterday was good. A great april. Home depot and lowes had a great april. See you in a couple of minutes. Late night legend calls it quits after 33 years. The man who brought up the top 10 list had really great moments. Never could use the data. Well bring you a favorite highlight after the break and hear from the future this hour. Futures are higher. Well be right back. Ndwriting, a widescreen multimedia center, and a headup display for enhanced driver focus. All inside a redesigned cabin of unrivaled style and comfort. The 2015 cclass. At the very touchpoint of performance and innovation. [ male announcer ] your love for trading never stops. So if you get a trade idea about, say organic food stocks schwab can help. With a trading specialist just a tap away. Whats on your mind lisa . Id like to talk about a trade idea. Lets hear it. [ male announcer ] see how schwab can help light a way forward. So you can make your move wherever you are. And start working on your next big idea. Tonight David Letterman signs off the late show after a run of 33 years. Hes had more than 6,000 shows. Last night, bill murray who was his first guest joined dave once again as part of a send off. Want to remember how long this has been . What else was happening in 1982 when he first hit the air . It was the band hitting the top of the charts. The average home price was over 100,000. Just stay up. I feel like i would stay up to watch letterman. I was in school and didnt want my parents to know. Tomorrow long time executive producer rob joins us in studio. Maybe hell be up all night. Make sure you join us tomorrow. Right now thats it for squawk on the street. Good morning. Welcome to squawk on the street. Im carl with jim and david. New york stock exchange. A lot boiling today as the retail earnings come in heavy. Meantime japan and gdp highest of the year. Crude oil is up despite a dollar today and well get inventory 7 30 eastern looking for a draw. Right around 224