Transcripts For CNBC Squawk Box 20170808

With new trade data, exports rose in july and imports up 11 . The nikkei was down by 0. 3 but you did see gains in the hang seng and shanghai composite. In europe, early trading, youre going to see right now, things are pretty flat. Harder to think of things being flatter than this. The dax, cac, and the ftse, slightly gaining crude oil prices down by 19 cents. This morning, rebounding, wti up by 50 centers. Developing overnight, mr. Wonderful called it early yesterday, google firing the engineer yesterday the engineers tenpage manifesto has asserted that women have biological differences that prevent them from being as successful as women in tech. Google did not confirm the firing Software Engineer james demore said he had been dismissed for, quote, perpetuating gender stereotypes. And yesterday, the google kraef su Ceo Sundar Pichai said that the tech crossed and uber telling the employees that Travis Kalanick is not returning theyre intending on hiring a world class leader to lead the Ride Sharing Company the idea that travis is not involved in the future is not the case but i also think that a lot of us may have been scaring off ceos because you dont know if youre in competition with the shares in the company for the job. I think he has to speak on it he has to come out and say, look, i dont want this job anymore and theres a reason he does want the job. He wants to see the job come back its not the time he became famous for busting through walls but today, you want to prepare for an ipo at the end of the day, this is the deal thats going to test the value market maybe it comes in the next 12 months you have to have in place, a rock solid id love to see a woman take this role, ive got to tell you, it would be a great segment with that controversy today i was going to say lets go back to google lets go back to the whacking at google. Theres no chance but to do that i can see the internet blowing up saying, wait a second, its okay to say women are better than men but you cant do the opposite because its sexist in the care and feeding of engineers, this is an engineer, many of them dont come from the planet earth theyre very Difficult People to manage and they dont have social skills dmskil s necessarily. Ive dealt with of them. This is probably a brilliant person right now, getting a good engineer is hard in the valley if this person goes in the Witness Protection Program can come out with a great job but right now this person is radioactive. This person is described as the digital version of larry summers. What do you do usa today came out with something, said congratulation, google, you just found the worst way to build diversity because not allowing people to talk about issues and tamp things down. Im actually surprised that they acted so quickly the reason i thought for sure hed be fired. You have to send a signal right through the organization and saying we dont tolerate this because its wrong you can have a debate as to whether its right or wrong but you have to send a signal. You cant be wishy washy 50 of the people in the workforce are outraged theyre saying wait a second, this is not where i work this is not what the essence of google is. This isnt our culture and it isnt, because this person is toast. Again, though, can you not have these conversations granted these guy stepped in it in a big way can you not have the conversation where you disagree with somebody on an issue like this and not in todays world. It wouldnt be tolerated in any large company. Thats where were at. Might as well call it what it is lets go back to this usa today oped that dom was talking about. David mastio writing someone it violates the working rules of working at google. This is a problem of far wider significance than Silicon Valley were losing our ability to talk about sex, nationality nationwide maybe the benefit is exactly what you said, it brings forth a dialogue maybe thats a healthy thing but is google going to tolerate somebody who writes the same letter the answer is no just one more thing and we have other news to bring you but on this particular issue, not to make it political, but i think there are big parts in this country in terms of this last election that actually feel like they cant have this conversation thats what the usa today writer going 0 t ing on to say,f reason we have donald trump as president is so many people with the wrong ideas have been told to be quiet for so long. I understand that but if this person were working for me, i would have fired that person as soon as i saw that article, gone. I want every woman in my organization to understand theyre equal in every way would you fire somebody who said women are better than men absolutely. What is this why do we do this anyway, its a strange individual which gets me back to planet zetron this guy, pershings squares bill ackman the nominees will be introduced at adp revealed an 8 beneficial stake. Yesterdays on cnbc Halftime Report leon cooperman, ceo and former board member criticizing ackman for pushing Management Changes. I have respect for bill ackman so its difficult for me. Notwithstanding his behavior to be in this instance being between foolish and irresponsible. I think its my responsibility to speak out i dont think he appreciates the fact that the Business Model say hightech, highservice model which costs money. I dont know where hes coming from pershing is going to be holding a webcast with investors later this month to outline research on adp. So mr. Wonderful will get to hear the ideas do you believe the former government or mr. Ackman i was sitting beside leon when that was going on i didnt agree with him at all i dont see why the new kid in town cant bring forth new ideas. To me, whats happening here is, i want to understand how he can increase margins 50 heres my speculation. Hes going to come out and say were going to automate adp. Were going to take these tech support people sitting on the other ends of phones when you call up with payroll questions were going to automate it and fire thousand of people. You know what, im okay with that American Express did it, they took heat for it and now the system gets better i own that stock, ive owned it for six years, start whacking, im okay with that i want to hear the ideas i dont think leon should be squashing it by the way, he didnt disagree he threw him under a bus yesterday. Over and over again. I thought it was abusive so, youre still waiting to hear ackmans plan still waiting look, im not supporting him as an activist. Im supporting him as an idea that owns derivatives and stock in the company let the merits of the idea be judged by the market let us, the shareholder, vote you in or out. Its that simple and to tell you about what to expect on todays wall street agenda, were getting jolts. And for the earning this week, michael kors and disney and ralph lauren and disneys ceo bob iger will be on closing bell in a first on cnbc interview coming up at 4 00 p. M. Eastern time in political news, President Trump taking a working vacation in bedminster, new jersey, kala touch chicago is there reporter the president ewing hours tweeting against a democratic senator critical of him in the morning perhaps, hell do more of that today with only one Public Meeting on his schedule so far that happens at 3 00 a. M. , with tom price, secretary of health and Human Services its billed as a discussion or briefing on the opioid crisis. Although Health Care Reform is going to be looming large in that meeting with a key obamacare deadline prechi iappr very quickly by next week, 2018 participation on the Affordable Care act exchanges. The white house hasnt decided whether its going to be making imbursements to those companies that help lower out of pocket costs to lowerincome participants in the exchanges. Those payments are expected to total up to 10 billion next year and thats led to a lot of uncertainty, as a lot of these Insurance Companies and commissioners and states figure out how to proceed to that end, the head of the National Insurance association, or the National Association of insurance commissioners, julie mix telling them i am very fearful that well have insurers make a decision to leave and behinds them but may not bind the federal government. Well see if any decision results with todays meeting with secretary price meanwhile, beyond bedminster, cabinet members are keel ping busy secretary of state rex tillerson. And mike pence with marco rubio, and the bipartisan part of the House Foreign Affairs committee, unclear what that lunch is going to discuss but well see if we have more details on that later today. Kala, in the background, whats happening with Tax Reform Tax reform, even though theyre working on this through washington, all through all of this august month, we may not expect to see it quickly in september. Because congress has to get through a budget resolution and lifting the debt ceiling, too. You Notice Administration officials when they set expectations for tax reform, the discussion is broadly about the fall its not september, its not october. Theyre very careful not to pin a date on that so, theyre talking about the fall they want to get it in committee by then. And the expectation from senior gop agents that the president will hit the road to talk up the reform but of course, you need tenants of the plan to make that sale effectively. Well check in with you later today. Shes been following all of these issues in fact, were talking more with the centene ceo. The largest obamacare insurer. And joining us now, ahead of the Investment Group bank. And the Portfolio Manager for fed ra federa federated. What do you think about whats going on here well, weve probably been bullish, we remain bullish but we see pullbacks late summer, early fall earnings season which has been such a catalyst is going to start to wind down weve just finished the best six months of earnings since 2011. So that wont be there as a support. Youve got this pivot to tax reform which is going to be messier. Jackson hold is probably the start of that. And were coming offer the great jobs report, usually that job reports that comes out in september is there youre bearish on the pullback yes, choose what you like, we like cyclical rallies and financials does that mean youre sitting there waiting for the moment or still buying . Were long. 8 equities. What do you make of this . Yeah, we actually are having similar constructive use to what steve is espousing generally, were constructive on risk equities through the assets through year end but we do believe theres a chance of consolidation and even a pullback the reasons for that first if you look at valuation, equities are priced to perfection so there really is very little room for error. While earnings have been very good well need to dont see the Economic Data supported as well as the earnings coming through in addition if you look at technical signals theyre pretty john overall but just in the last week or so, weve seen signs of weakening, generally, were got our eyes on the ball the next few weeks. Lisa, the allocation of equities, domestic versus europe at the end of the day, the price ratios are lower why am i taking equities down in the u. S. When i can buy the same sectors, same market cash, same cash flow 20 cheaper . Whats wrong with putting it there instead of here . Yeah, thats a great point. We actually are positive both on u. S. Equities and nonu. S. Equities advocate with our clients that you should actually look at relative overweight positions on both clear as you say, theyve got pretty nice evaluations and theyve got a very nice economic backdrop and monetary backdrop as well. The reason why were still positive on u. S. Equities is that if you look at corporate earning that continue to come through very well. Weve got generally a fed with its eyes on the ball and while theyre moving towards normalization, again they are data and market sensitive. All of the market indicators continue to come through very positive we track global about 180 proprietary and board looking indicators and were we weigh those against different grids of positive and negative momentum, general thrly twothirds are st positives. You said theres a pullback where does the s p end the year . Interim target between 2500 and 3000 by year end you must think the fed is raising at the end of the december for sure . We do weve got one more hike in december the economic guy says 35 chance max thats based on the market. Yes, we see where the market comes but we think that hike comes we think youve got enough Earnings Growth in the u. S we think yellen gets in one more do you think perceptions, too . Modestly. Steve, say hello to mr. Orlando for us li lisa, great to see you dow component disney is set to report at the end of the day. Well tell you what to expect from the lineup, the theme parks and cabling businee businesses,y espn squawk box will be right back. The governor has declared a Winter Weather emergency. Extreme risk of burst pipes and water damage. Soon, Insurance Companies wont pay for damages. That is, not if they can help prevent damages from happening in the first place. At cognizant, were turning the industry known for processing claims into one focused on prevention with predictive analytics, helping them proactively protect the things that matter most. Get ready, because were helping leading companies see it and see it throughwith digital. Yogigspeed internet. Me . You know whats not awesome . When only certain people can get it. Lets fix that. Lets give this guy gig really . And these kids. And these guys. Him. Ah. Oh hello that lady. These houses yes, yes and yes. And dont forget about them. Uh huh. Sure. Still yes you can get it too. Welcome to the party. Introducing gigspeed internet from xfinity. Finally, gig for your neighborhood too. Welcome back, everybody. Disney is reporting quartering results today after the bell joining us right now on what more to expect from the enter daytime giant, executive research thank you tour beinfor being hee were looking for 1. 57. This is going to be a cleanup corner they talked about programming costs, the first year, its going to weigh on the network segment. And the theme park divisions theyve got a bunch of new attractions that just launched, avatar, guardians of the galaxy, expansion in hong kong, disneyland all of this is going to weigh on the results about to be. Because of what theyre spending . Exactly but i think investors can look forward to the next fiscal year which expects disney to continue the extraordinary run which theyve had with the theme parks, the film studio, consumer product. Theres really no sign ever any potential slowdown i think the main question is valuation. Stop trading at where it is at the current time we think as soon as investors can get over concerns with espn, were going to see the shares potentially break out for another level. That could be a bigger hangover than you may be letting on at this point espn is going to have issues and sports programming is going to get more expensive. There was a burn story over the past weekend about how the new entrance into that, looking at an amazon, twitter or google, companies with very deep pockets are going to be bidding for some of those sports rights what do you think about that thats right. I think if you list ton bob iger, hes got a very disciplined record in terms of bidding for sports rights. I dont expect them to overpay if you look at espn, theres underlying momentum. Affiliate group, just coming up on another cycle of affiliate renewals i think the brand is better on espn in terms of monetizing the rights across the various platforms. All of the skinny bundles are launching now, vitually all of them have espn on their packages and appreciating enough the engagement that espn is getting on the global platforms. Whats lacking is the catch upof the Digital Division disney is clearly one of the greatest companies in the history of america but the question i have is whether you think ultimately they can go direct to consumer which is something they wanted to do. This is true of espn and so much of their programming can they actually make that leap i think they are poised to make that leap this year when you talk about potentially launching that by the end of this year. What does that look like . You know, i think every Media Company is really grappling with that question. Theres no doubt a direct consumer is a key threat right now. I dont know if they know exactly what that packet is going to look like at this point. Its going to be espn centric. Its not going to be a full espn service. Theyre not ready to take the full espn service directly to consumer its going to be more or less a customized offering. And if you look at the over the top pack amounts that have launched, you get a espn is part of a core part of that do you care that nobody is going to the movies this summer, by the way thats a good point, andrew but i dont think the reports of the death of the traditional movie watching is exaggerated. These are well positioned because as you know, the films are eventtype films that lend themselves to watching in theaters so were not overly concerned. Im a shareholder of this, a big one. Huge, heres my question for you, with regard to the consumer theres two scenarios, disney buys netflix which is a nightmare from hell for me and iger wont do it the deal that we shareholders talk about a dream and salivate about, apple and disney together what are the chance of that happening, particularly in succession for iger, right right i think i would just say it would be out of character for bob iger to make such a deal i mean for a variety of reasons. You look at the track record of oppositions made thats not an acquisition, thats a merger of greats. Thats the greatest American Company with content delivered all around the world apple buying call it more of a i would argue, in a deal like that, as much as it looks attractive on paper is going to be, you know, a very hard sale you just broke my heart who would you see running that, tim cook i think iger is a 36month guy. Hes said that the way we look at it. A deal like this would be a fantastic transition theres no heir apparent at disney apple merging with disney would have a vehicle of delivery that would be global in every single way. You get the whole concern that i have as an apple owner and the phone and all. I like it. The rumor is out and was out in the spring. In the last week or two, i heard a lot of people talking about the google camp thing. They were its all over. Its a good way to test it with disney, its all about content. Any acquisition outside of that content realm is going to be for shareholders content getting to fairly high the highest in media space with discovery and scripps. And thats the next wave of consolidation. As opposed to the type of matter that would take two years to close. That would be very complicated thats why its Perfect Timing for iger. Tuna, thank you very much disneys chairman and ceo bob iger will join julia borgia during the closing bell. Alan greenspan joining us friday and sounding the alarm. But mark gntra said greenspan has it all wrong hell be here to explain in just a moment welcome back, youre watching squawk box. Live in the Nasdaq Market site in times square. Good morning, welcome back to squawk box. Take a quick look at u. S. Equity futures at this hour on this tuesday morning. Dow jones opens up 5. 5 points higher s p up 2 points, nasdaq up by 1. 5 points shares of twilio up big. Reporting revenue of 95. 9 million. Thats up 45 over the year. The revenue beat comes despite twilio losing business from one of its biggest clients uber this year twilio offset that loss with a growing number of other users. Last week, former fed chair Alan Greenspan warned about the risk of a longterm bubble longterm Interest Rates, Government Bond Interest Rates have never been as low as they are today. And Interest Rates have no longterm trend. Now, we look back to ancient times and when we could get Interest Rates that looks very much like what we have today so the current level of Interest Rates is abnormally low. And theres only one direction in which they can go and when they start. It will be rather rapid. Mark grant is the chief strategist at hilltop securi securities hes having none of this he thinks greenspan has is all wrong. Good morning, becky, how are you . Im great how are you . Im great, always fun to be with you i saw your response to chairman greenspans response to this, you think rates can go lower, how do you see this well, i think mr. Greenspan is wrong and i think a lot of the people that are projecting all year that were going to have 3 on the tenyear has been wrong. And the reason is, in my opinion, that the Central Bank According to the World Economic forum has created about 15 trillion in excess liquidity in the system basically, the Central Banks have created an economy thats 85 of the economy of the United States or of china. And consequently, well have this giant amount of liquidity of money in the system that has been bullying equity and its been keeping Interest Rates low. And its the First Time Ever in history that the Central Banks have been this involved in the markets. And i think mr. Greenspan has not considered that. And thats why hes wrong. Mark, i think were now getting to the point where the u. S. Central bank is expected to start reining in its Balance Sheet ever so slightly in the next few months, maybe but your point has been, it doesnt matter what the u. S. Central bank does at this point. All of these other banks are going to keep injecting liquidity. So its going to be a long time before we see this big monster pot of money beginning ing tni diminish the fed has talked about like 300 million and its compared to 15 trillion, and remember the banks are making money on money. So the money keeps on growing, growing. The swiss are, in the japanese in, buying equities, etfs. The Central Banks are monetizing the assets of the world. And thats whats happening. And no one really seems to understand it, thats my opinion about why things are the way they are right now kevin what do you think mark, i have a question given your opinion regarding ratings youre basically making a very bearish call on the Financial Service Industries Regional banks, Money Service banks, wirehouses, jpmorgan, you name it. The essentials here, rates are going up you say no, that should be shorting Financial Services do you agree with me . No, i dont agree with you. I think the argument and ive seen it in a number of places that people should buy the financials because of higher Interest Rates and theyll make better margins i think the margins and the financials are fine now. I think a lot of the tax changes are going to be of good benefit to them. No i dont think you should be shorting banks at all. So, basically, youre telling me to go long because you believe were going to get a trumpdriven tax reform package, where. Youre the only guy i know that hes going to deliver that the world is not working on the assumption that hes going to get anything done. Thats a huge bonus. But thats what youre planning on making it work, is that it . No, i think the financials are working because theyre much stronger, especially the United States and in europe where i think i wouldnt buy europe bank bonds for all the tea in china, after what they did with this missile notion for the local investors. I think theyve totally rewritten the venture. I think the Banking Sector is fine exactly the way it is standing on its feet i agree with you and your statement that if trump gets anything done its going to take a lot longer than anyone ever thought of i say that in my comment tear. I think everything is going to take longer. I think whats bullying the markets is this giant amount of liquidity that just gets pumped into daily the buying of equities so that makes equities look more attractive because of the low rate and search for yield all over the place whats your call equity markets i guess for the rest of the year and whats your call for where you think the tenyear is going to be yielding at the end of the year thats fair enough, becky the equity markets are going to waffle around normal but i think theyre going to be generally, agencys i said, stabd by this great amount of liquidity. Equity and bond is the same. 2. 32 on the tenyear went through it once, priced a guess a little bit i mean, the amount of buying thats coming in and the compression that youre seeing in corporates or mortgages or all other asset classes, the treasury, just indicate that money keeps pouring into these markets. So im not looking for any big backup in yield. And im not looking for any major correction in equity you might see some smaller ones but im not looking for major ones do you make the call on the tenyear by december 31st, where do you think well be . 2. 25, about where we are now. So basically let it ride . Just let it ride. All right hey, mark, good to see you, we appreciate your time you too, becky. Kevin, everybody, thank you. Good okay. When we come back, one of Kevin Olearys shark tank investments looking to hall maush mark and then jamie dimen is going to tell us where hes putting nearly 17 billion to work stay tuned hey. Pass please. Im here to fix the elevator. Nothings wrong with the elevator. Right. But you want to fix it. Right. So who sent you . New guy. What new guy . Watson. My analysis of sensor and Maintenance Data indicates elevator 3 will malfunction in 2 days. There you go. You still need a pass. Bostonbased lovepop is taking on jiengiants like hallmk to disrupt the greeting card market joining us now is the ceo. I invested in this company on shank tank its one of the most interesting stories weve ever seen. And the story behind it is remarkable youre basically a military architect of naval design, correct. You made warships along with your partner isnt that some of your back story . Yeah, john and i who started the Company Three years ago are both originally ship designers name of architects and marine engineers we designed everything from sports fishers, to sailboats to containers and military ships as well and then cards. Greeting cards did your mother say to you, when you said that, what did i do wrong . Yeah, it was really just fortuitous im originally also an artist. Growing up i always would make gifts for everyone in my family. So, on a school trip to vietnam, we actually discovered this style of art which is just incredibly intricate and fun taking our shipdesigning experience, we know what that we could create anything with our style. And realized its a 7 billion market that is completely broken it doesnt give you that experience anymore its turned from something that was really special into more of a chore and obligation, we saw an opportunity i love this one by the way, how much do these cost, its a beautiful piece of art . Theyre all between 10 and 13. All hand assembled hand assembled and laser laser cut laser cut how long does it take for an individual to put this together . It really depends on the complexity of the card this one is one of the more complex cards, 10 to 20 minutes to assemble, but two months to design the plan to go to market to expand the greeting card market is ancient. Youre trying to disrupt it. Tell us what youre doing there. Everything that we do is completely different from how the industry operates. The industry takes 18 months to get a design to market they cant restock in season ke do it in eight days the way we do that is through a fully integrated supply chain and a lot of talent. Two things dont marry to price, when youre getting married and when you die i thought of this, hows it going tour making Wedding Cards now . This, for example, is one of our new wetting invi iwedding i. What weve done is created this modular Design Library where all of our assets are able to be composed in 3d and then rendered one of the thinks we did on shark tank, you actually suggested, hey, have you thought about the wedding industry we put out a submission form we got so many requests and we decided to start this. Did you turn this into a fund yeah, the companies have acquisition costs when sarah gets something that wants to get married, she wants to pass that on to wambi so he can sell the cards. I think the next business for them is weve got to get into divorce business you can sell two cards its only one card when you get married, two cards when you get divorced wait a second, what art would you put inside a divorce card . I dont know, weve got to take that back to the team are you competing against hallmark or papyrus i spent eight bucks on that and this is nicer. This is about what you say to someone, i care about you, whether a card, bottle of wine, small gift, flowers. Were competing with that entire where do i buy your cards . Mostly online, lovepop. Com. We have five locations in boston five in new york do you plan to roll out more in the sort of traditional retail space or is your best bet going directly to consumer most of what we do is direct to consumer, including retail, yeah i mean, where do you think the bulk of your business will be coming in ten years is it still going to be online or more retail opportunities . Well always be more key channel but the bulk will always be online. Thank you very much the birthday card is pretty awesome. Did you see the one with the cake theyre really collectible pieces of art. Thats the way i look at it. Every one i got i still have people come into the office saying who did that. Thats a remarkable company. The back story is so crazy, you couldnt even make it up. What was your investment ive been in twice. Thanks for coming appreciate it. When we come back, Health Care Reform has stalled in congress but insurers are waiting to see if theyre getting subsidies from lowincome companies the o ceof centene is joining us when this bell rings. It starts a chain reaction. Thats heard throughout the connected business world. At t Network Security helps protect business, from the largest Financial Markets to the smallest transactions, by sensing cyberattacks in near real time and automatically deploying countermeasures. Keeping the world of business connected and protected. Thats the power of and. You are loved welcome back to squawk box this morning congress is on recess and Health Care Reform remains in limbo one of the biggest concerns for insurers, though, whether or not companies will continue to receive subsidies from the government for low income customers. President trump has threatened to cut those payments off. Joining us right now is the ceo of the largest obamacare insurer. What do you think trumps going to do . And what are you going to do about it im not sure what hes going to do. But were prepared for either contingent you have to be. Thats right. And he wont realize it but there are two subsidies. You have the csrs. Right but you also have premium reductions so premiums are going up, and when they go up, the premium reduction subsidies go up. Those are from the legislation but you have to, i assume, when your board meets, somebody in the board room looks at you and says what do you think is going to happen . And even though were going to be prepared for both we have to have a little bit of a view, dont we we do but what i learned a long time ago, andrew, is we make decisions based on the facts as we see them today. Right now we have csrs we are pricing accordingly sure, i know what happens. Were reducing premiums in arizona. By 9 of the csrs that are in place. If we dont have csrs the premiums are going up 2 how will you know this . Isnt this a decision that has to be made in the next month will you necessarily have all the facts . Well, i believe well have the facts by the time we have to make the decision. And if you dont, what do you do cut it down the middle you go up 3 . We as shareholders want to protect them right if you dont know youre going to have to assume that they wont be there but as premiums go up, so do these premium subsidies. The csrs hurt the people below Poverty Level. Were continuing to take on new states, new service areas. Were doing very well with the premium reduction. And why are all the other exchanges collapsing why dont they accrue the same benefits you have on these premium enhancements i think because this is our business we specialize in 400 of the federal Poverty Level and lower across all our profits and theyre structured accordingly. The members are satisfied with it so we had 80 of the people that we ensure d. But every day we hear a new head line about another big insurer that is running for the hills. Thats right. So why dont you step in and solve everybodys problem and do it in every state . Were moving through very quickly. We have three, four, five new states we just went statewide in missouri in ohio we added i shouldnt be worried about obamacare . Everythings just going great . If we leave it asis, well continue to grow and do well now theres some changes that i could recommend in congress. And those changes are very simple if you want to do a new piece of legislation, reduce medicaid, you go to 100 of the Poverty Level. States dont want to allow more subsidies for insurance. Above 100 , to 300 of the federal, 350 of the federal Poverty Level. But in the exchange, subsidize that that costs you 20 billion a year thats the problem. The president s not ready to subsidize it hes not ready to go youre talking about taking 3, 4, 5 Million People who need it off the rolls 20 billion your story still requires a subsidy thats going to be granted by a unified position in government, which we dont have. People are not happy theyre not happy with whats happening. Theyre not happy with where we are i believe that this president is more moderate. You have extremes on both sides. The majority is moderate when you see people like mark, what do you tell him i ask him how he is and we dont talk a whole lot about exchanges. Weve got to run. Were really doing well hes doing very well, too just not in the exchange right last question for you mark cuban was on twitter last week i dont know if you saw this i didnt. Saying that the Insurance Companies are the problem. If we could just get rid of the Insurance Companies, wed fix the whole thing. You buy that i dont buy that. I think theyre nothing. Our premiums for medicaid average 1 and higher out comes michael, thank you. Good to see you when we come back, an exclusive interview with blackrocks mark wiseman he is the driving force behind the shift from active managers to Technology Driven trading and later, Capital Management founder jamie dinen will tell us where hes putting nearly 17 billion to wk. Icarnd squawk box will be right back. Whoooo. Youre searching for something. Like the perfect deal. On the perfect hotel. So wouldnt it be perfect if. There was a single site. Where you could find the. Right hotel for you at the best price . There is. Because tripadvisor now compares. Prices from over 200 booking. Sites. To save you up to 30 . On the hotel you want. Trust this birds words. Tripadvisor. The latest reviews. The lowest prices. The summer rally the dow notches its ninth Straight Record close and the s p closes at an alltime high were going to take a look at the drivers straight ahead rise of the machine. Blackrocks global head of active equities joins us to talk about the firms move to robots to try and improve stock picking. Plus an exclusive interview with the new head of the nations top derivative regulator. Christopher giancarlo will join us in his first interview since taking that position the second hour of squawk box begins right now live from the beating heart of business, new york city, this is squawk box. Welcome back to squawk box this morning were right here live at the Nasdaq Marketsite in times square, im Andrew Ross Sorkin along with becky quick and mr. Wonderful, kevin owe lylea here cnbc contributor, and we love having him here. Already hanging out and looking at these talking about how to improve the love it doesnt need improvement but this lovepot business weve got an idea for them i dont even know i have a ceo if i can just have you tell them what to do every day. And its a free service the futures, at this hour, take a quick look, see whats going on dow looks like it would open up marginally higher about 2 1 2 points nasdaq well call it half a point. And the s p 500, off by 1. 5 points headlines at this hour, Small Business optimism was on the rise last month. The monthly index from the National Federation of independent business rose 1. 6 points to 1 05. 2 in july led by an increase in hiring 60 of Small Business owners either hired new workers orattempted to do so although many said they were having a tough time finding qualified workers. The conversation weve had at this table many a time well also get some perspective on the label market at 10 00 eastern time thats when weve got Labor Department going to release the socalled schultz report for june the monthly measure of job opportunities, labor turnover. Economists expect the report to show were about 5. 7 million job openings as of the end of june and mcdonalds has announced plans to almost double the number of stores in Mainland China by 2022. Thats a somewhat faster pace than originally planned. Earlier this year mcdonalds brought on two new partners for its china operations those partners owned the bulk of the china operations stocks on the move this morning, as well Pershing Square announcing it has nominated its founder bill ackman and two others to the board of adp those nominees will be formally introduced at adps upcoming Shareholder Meeting. Adp revealed on friday that the hedge fund had taken an 8 stake in the company yesterday on cnbcs Halftime Report leon cooperman, omega adviser ceo and a former board member of adp criticized ackman for pushing Management Changes i know and respect bill ackman so its difficult for me. But notwithstanding, i consider his behavior to be, in this instance, somewhere between foolish, inappropriate, irresponsible. And i feel its my job to speak out i dont think hed appreciate the fact that their Business Model is a high touch, high Customer Service which costs money. The last five years theyve outperformed their leading competitor paychex so i dont know where hes coming from. Pershing is going to be holding a web cast with investors later this month to outline its research on adp. Also, cbs reporting better than expected Second Quarter earnings and revenue. Ad revenue rose by more than 4 . They were helped by the ncaas mens final four in april. On the earnings call, Ceo Les Moonves says that cbs plans to launch a Live Streaming sports channel later this year. Another stock on our radar is allergan. Jim cramer sat down with botox maker ceo last night Frank Saunders telling jim two new types of customers are promising for the future we see two new groups that are starting to emerge millennials. Which only account for maybe 10 , 15 of the 3. And males which also account for 10 , 15 both relatively new to the 3 million group. But growing quickly. And so, yes, maybe the selfie generation has a lot to do with it shares of allergan are up around 15 yeartodate. A developing story overnight. Google has fired that employee who wrote a controversial internal memo about women in technology the engineers tenpage manifesto asserted that women have biological differences that prevent them from being as successful as men are when it comes to technology and engineering. Google did in the confirm the firing but in an email to multiple news outlets Software Engineer james demore says that he had been dismissed for what he called quote perpetuating gender stereotypes he says hes exploring all possible legal remedies. Kevin oleary. Blackrock announced earl whier this year that its consolidated its activity managed funds with those that rely on data driven algorithms its a bold bet by the Worlds Largest money manager and its spearheaded by our next guest. Mark wiseman is blackrocks global head of active equitieeqs hes the guy that brought in the machines, or at least thats what they call pit mark, thats not really true, is it its not a machine its an actively managed index people would understand it through an etf structure you were a big advocate for this you took a lot of headlines for it kevin, thanks for having me theres a lot of things that were doing. We are not replacing people with machines in fact, were not changing our head count at all. We will have the same number of people at the end of this year that we had at the beginning of this year, working on fundamental active ek times. But what were doing is bringing more data, more analytics, and more use of machine learning, and portfolio optimization, to our fundamental Portfolio Managers its not replacing man with machine. It is taking the best of both man and machine, and applying it to the way we manage augmenting man with Artificial Intelligence . Is that a better analogy thats actually a much better analogy. In some areas where markets are highly efficient, for example, large cap u. S. Equities, we are moving more of those portfolios to be driven algorithmically so youre not changing the head count but you could be changing how some money is being managed, just to were changing the way all money is being managed but what were doing, in todays age, what you have to understand, if you dont believe that technology is impacting the investment industry, then youre sadly mistaken technology is impacting every single industry. Is it that trades are getting done faster . Is it that you have to be ahead of the algorithms . Its primarily that today, information has become democratized my 12yearold is able to access the same type of information on the internet today that used to be proprietary very hard to get you had to do massive amounts of research and now, thats available for free you know, thats really interesting. And i hadnt thought about it before do you think that is part of the reason we are seeing markets that are so less volatile than they used to be . We have a million explanations for why theres not much volatility but i hadnt thought about that playing into it before i think markets are becoming increasingly efficient i think thats part of it. Theres probably 9,999 other reasons. Certainly markets i believe are much more highly efficient especially in equities and especially in developed markets. Mark, lets talk about blackrock as an investment because, in the last quarter, you had tremendous metrics in asset undermanagement, aum so your aum is growing, thats very good. But the mix of the cap that you brought in is changing a lot of it is coming into these indices into Exchange Traded funds where your margins are much less than your actively managed business lets say i was making 125 basis points 1. 25 on a highly actively managed asset class. Then you bring in billions last quarter in etfs where im making 38 basis points. You kind of missed your number as a result of that. Look, kevin, the answer is that for blackrock, we believe in all forms of investment and everything in my view is an active investment. So lets think about an index investment, for example. Thats not a passive investment. The decision to go into an index or an etf is an active decision. Which index you choose is an active decision. The decision to put your money under your mattress is an active decision the reality is, that for the prudent investor today, you have to think about diversifying across Investment Strategies from index, to quantitative strategy, faster based strategies, fundamental active strategies all the way up to private and alternatives and the reality is is that any prudent investor has to think about diversifying across all those building blocks, whether theyre doing that in their 401 k , or in a multihundred billion dollar pension plan. And blackrock strategy is very simple we want to provide our clients with high quality, high value, products, in every single one of those Investment Strategies. But to kevins point, if the margins a little thinner, what do you do as somebody running a company . Does it matter are you bringing in additional money . Well, we are highly committed to those active strategies, as well as we are to our index strategies to win longterm, kevin, we have to be able to develop youre the biggest of the big. And if the margins are going down dramatically, because 1. 5 , 1. 25 of 38 basis points is two different things, does it mean for the industry that were going to see a larger compression and ultimately consolidation . Those are the only two things that resolve each other. Look the reality is, costs are coming down for the end client thats a good thing at the end of the day part of that is being driven by Technology Part of that is being driven by more efficient distribution. And a lot of that is being driven by competition. Thats something that i know you in particular like so, will you continue to see ccompression . Yes. Will that result in consolidation . Yes. Because scale and scope are going to matter more and more in this world than they have before and thats why i think blackrock wins let me ask you a question about the indexing of the market these days and whether you believe it is perverted investing. This is seth carmen in his letter earlier this year, oracle of boston they call him, todays high multiple companies are likely to also be tomorrows regardless of merit, with less capital in the hands of active managers to potentially correct any mispricing do you believe thats accurate i dont i think, first of all, theres a lot of room to go before indexing kind of takes over the market and i think thats unlikely to happen the reason that its unlikely to happen is at the end of the day, the more and more thats indexed, the more opportunity there will be for active managers to outperform and so, the current environment is in very, very hard for active management, because markets have been driven primarily by policy decisions. By Monetary Policy so everybodys watching the fed. And the doj, and the ecb more than theyre looking at individual but ive heard Value Investors say, look, to make a Value Investment work, if you will, you need to find a stock thats not in an index, and hope to god that its good enough to get in the index, because thats whats going to get it to the next place well i think part of it, thats been the strategy for a long time. I mean weve been doing that for decades. Try and find the next stock. You dont think its that much harder than it used to be i think its harder for the reason i mentioned before which is the democratization of information. But if you can create an advantage, that advantage is still there. Mark, lets talk about the actual job of an active manager. Im in the etf industry. I work with indexes. I can take a brilliant manager, someone i pay 2 million a year, and lets take the case of a real woman i do that with, and shes great with Balance Sheets. She doesnt like sales accrual, she doesnt like debt. She likes high return on assets. I can crystallize her strategy by simply going to ftse russell and say build me an index that copies her and after theyve done it, i launch an etf that basically crystallizes her strategy with no style in perpetuity and i fire her because i dont need her anymore. Isnt that happening all over the street now well, its exactly what were doing with the changes that we announced at the end of march. Is that we are taking those traditional fundamental Asset Management ways of doing business and were augmenting it were augmenting it with better intelligence, with better information, with big data, with portfolio optimization the place that its hardest to do, youre right,in large cap developed Market Equities where markets are highly efficient so you do have to go a little bit further afield and you have to dig deeper where you will win is on more High Conviction portfolios on portfolios that are outcome driven, for example. Where the universe of stocks are narrower and youre going much, much deeper. If you look at what were doing in our health care portfolios, there youre choosing 30 stocks out of maybe 250, instead of trying to choose 100 out of 500. And there youre going to be more successful, because youre going deeper look, in todays world of stock picking you have to do one of two things. You either have to be very broad, which we do algorithmically. Or you have to be very loose and thats what were doing with our fundamental portfolios thanks for your time today. Thats very interesting stuff. Good to see you thanks very much. Appreciate it coming up when we return, drawing the line on who is considered rich. President obama said it was married couples earning 250,000 a year but right now the top two tax brackets start at 416,000 its an issue the Trump Administration hasnt talked about so far so we did some digging weve got a report about all of that after the break and then, were going to talk markets ahead of some key earnings reports Economic Data due out today, as well. Dow looks like it will open off about 7. 5 points were back in just a moment. Your brain is an amazing thing. But as you get older, it naturally begins to change, causing a lack of sharpness, or even trouble with recall. Thankfully, the breakthrough in prevagen helps your brain and actually improves memory. The secret is an ingredient originally discovered. In jellyfish. In clinical trials, prevagen has been shown to improve shortterm memory. Prevagen. The name to remember. So it only made sense to create a network that keeps up. Introducing xfinity mobile. It combines americas largest, most reliable 4g lte with the most wifi hotspots nationwide. Saving you money wherever you check your phone. Yeah, even there. See how much you can save when you choose by the gig or unlimited. Call, or go to xfinitymobile. Com. Xfinity mobile. Its a new kind of network designed to save you money. Welcome back to squawk box this morning one of the deepest fault lines in the debate over tax reform is whether to raise rates for the rich but who exactly qualifies as the wealthy . Ylan mui found the answer is entirely political thats right, andrew. The definition of rich in the tax code depends a lot on who exactly is in power. Now, under the current system, if youre a married couple making more than about 416,000 a year, congratulations, uncle sam says youre rich and that means you pay one of the highest tax rates of 35 now, President Trump wants to change all those definitions, though on the campaign trail he proposed a top tax bracket of just 255,000 for a married couple so basically, he lowered the bar for what the government considers to be rich, though we should also point out that his plan also lowers how much they would pay in taxes now that number is actually not that far from President Trumps definition of the wealthy. He drew that line at 250k for married households, and thats why the obamacare taxes kick in at, you guessed it, 250,000 now, of course, the tax code does not factor in the cost of living so whats happening in california, versus new york, well show you just how arbitrary some of these numbers can be in palo alto theyve actually studied whether families making a quarter of a Million Dollars a year should qualify for housing subsidies, because real estate prices out there are so crazy. But meanwhile in new york, your mayor is talking about a new tax on millionaires to help pay for subway repairs, so andrew, expect this to be one of the big philosophical divides, once we get deep into the tax fight this fall i mean, these are really big questions, and cost of living in new york and california, versus lets say indiana and the mid of the country, ylan, when you start lowering it youre talking about impacting people as you mentioned who might be qualifying for housing subsidies in some parts of the country yeah, thats right. I mean i think that no one debates whether or not a jeff bezos or bill gates is rich. Obviously they make a lot of money. The question is really when do you start being rich and so where do you draw that line for who should pay the most in taxes and because its a federal income tax rate, it doesnt take into account, you know, what youre paying for housing, what youre paying for schooling, what youre paying for food and for entertainment all across the country. Because its one level for the entire nation. All right thank you very much, we appreciate it. In other political news this morning, President Trump just tweeting, after many years of failure, countries are coming together to finally address the dangers posed by north korea we must be tough and decisive. Just continuing those conversations after the u. N. Security Council Voted over the weekend unanimously to increase the economic sanctions being placed against that country. Okay. Coming up, will Travis Kalanick return to uber the Board Chairman says no weve got details on that straight head. Plus a conversation on it. And later, an exclusive interview with the cftc chairman coming in to the critic of the administrations approach to esenoba. Sis rules under pridt am were going to hear how hes looking to make the regulator more industry friendly squawk returns in just a moment at cognizant, were helping todays leading Media Companies create more immersive ways to experience entertainment with new Digital Systems and technologies. Get ready, because were helping leading companies see it and see it throughwith digital. We asked people to just go about their day to try a new feature from match. So sara, what did you do today . I grabbed a coffee. Yes, you have to do that. And then i checked out a new art exhibit. So now, you have the match app up open up the missed connections tab for me. Okay. It shows you people youve crossed paths with in real life. Oo, i crossed paths with josh near pine street. Maybe he was at the gallery . Maybe he loves art . Imagine what else you have in common. Hes cute. Id like to find out im on the edge of my seat. Match. Better ways to make a real connection. Start for free today. Welcome back, everybody. Rumors that former uber ceo Travis Kalanick will make a comeback at the company has been squashed the tech firms chair telling employees the cofounder is not returning as chief executive camp reportedly told employees that uber is committed to hiring a new worldclass ceo to try and lead the ride sharing app. Separately, bench mark capital claimed yesterday in a tweet that ubers value could rise to over 100 billion. Benchmark was one of the companys First Investors so obviously it would behoove them if it did go to those levels kevin, what do you think this is a company weve talked about 70 billion. But for anybody whos brought in at this, that valuation is probably going to be lower for at least the foreseeable future. It makes sense that somebody came in the first round would talk 100 billion. Right the issue for this ipo, it is the unicorn of all unicorns. And i think were all waiting to see what happens because there have been so many private rounds put in with things like ratchets and special prep shares and unique attributes that were put through Money Center Banks like goldman. I looked at three of those deals and said to myself, how do i know that im even going to get my capital back . This is back when it was a 50 billion and 60 billion. Now the last one supposedly at 78 billion. I think lets get it over with and take it public i think the key is to find a good ceo, man or woman, that the street respects. Do the road show let it trade but i think theres two issues with uber which is depending on where you got in, you have different expectations if youre a benchmark you got in at next to nothing you would be very happy to get out today. For those who got in at 50 billion thinking this is going to be worth 150 billion, or 200 billion, you may say thats youre looking at me like thats absurd im just suggesting there are these sort of even larger aspirations for what uber could be i mean, we still talk about it as a limo taxi company but, you remember even a couple years ago people talked about it as a last Mile Delivery service. I like all of that. All of these other things is that story drifted . Are we not does it surprise you . If softbank would say im going to put money to work in this sector, maybe it will be lyft, maybe it wont be uber woi have thought theres only one destinatiodestination, the the entire industry would have been uber. No, its not surprised you can set up in any country. You can gain market share. So at some point youre going to have the yin and yank of that discussion how unique is this business and what multiples should it have . I think to get over all this now, particularly on your point on different rounds, you have to read the inventure agreement of every single deal to figure it out. Is this a winner takes allo an at t verizon situation . At t verizon plus another plus another . Sure. Maybe you want just to have electric cars. Because youre concerned about, you know, the environment. And you want to support that you dont care if theres a driver or not. Theres going to be all kinds of different segments i may not get in a car that doesnt have a driver. I wont get in a plane that doesnt have a pilot that will be another discussion. Id be very curious if you think they should be investing in Autonomous Technology themselves or whether they should let others do it yes, they should. 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Switch and you could save 782 on home and auto insurance. Call for a free quote today. Liberty stands with you™. Liberty mutual insurance. Good morning, everybody. Welcome back to squawk box here on cnbc we are live from the Nasdaq Marketsite in times square among the stories that are front and center on this tuesday morning, plenty of corporate earnings crossing the tape today. That includes cvs health which Beat Estimates by two cents. It came in with quarterly profit of 1. 33 a share the results were helped by more volume in its pharmacy benefits mackment business as well as higher specialty pharmaceutical revenue. Also magazine publisher time inc. Beating by two cents. 13 cents a share for the latest quarter although its revenue was short of forecast as ad sales slipped. The Company Announcing a new cost cutting initiative. And Norwegian Cruise Line beating forecasts. It earned 1. 02 for the Second Quarter that compared to estimates of 97 cents. Norwegian says that the current booking environment is among the strongest theyve seen in recent history. And the latest optimism survey from the National Federation of independent business is out. Steve liesman joins us with the details. Good morning this is an interesting report, andrew Small Business optimism in july rising for the first time in six months jumping 1. 6 points to 105. 2. It went up to 105. 2 from 103. 6 it peaked in january at 105. 9. This is good news because it came after the failure of health care repeal, and then the growing concern that the tax reform agenda could be stalled and what you see is that it popped up after the election until anticipation of this the nfib chief Economist Says overall whats happening on main street must be good enough to support owner optimism, because whats happening in washington surely is not. The details show that expectations for sales rose. Expectations for Business Conditions rose. Job creation we reported on that last week. Capex ticked down a bit and credit expectations also ticked down a bit all these are sort of at high levels so not too concerned about those declines down there. One other thing worth noting the percent of Small Business raising prices did tick up and this can be a sign of inflation in the economy what you see is it follows the cpi fairly well. Sometimes they break apart about a 70 correlation. And it did tick up this month. Well see on friday if we get that this raises the question, guys, about how you handicap whats going to happen in september from an investment point of view, and from a business point of view. And id like to ask mr. Wonderful to weigh in on washington is this something that factors in one theory ive heard is that you know what . I got good earnings. I got good sales good profits if i get tax reform, thats gravy on top of my initial investment because im not betting on it, but if i get it, it gives me a decent floor or confidence in my valuations right now. How do you take it go back to this year when the optimism around reform on regulation and tax reform were the highest. And the idea that a republicanled majority everywhere could drive this process. Then you saw that roll over into two, and now were at a place, and when i talk to investors i get the same, you know, concerns but also the same opinion were not going to get anything out of trump. The market is not putting any value on the rhetoric. No value . Zero. So heres whats interesting will you get, if he can drive anything, lets just take Corporate Tax, forget about personal tax, forget about health care. Forget about Everything Else, if we could actually get a bipartisan move, and he could actually deliver on Corporate Tax, whats the upside to our domestic markets on that because the multiple were applying to is assuming no change to Corporate Taxes. And my bet is, because im an optimism, and i believe that at some point theyll deliver something, and its going to be tax, i think what youll see is a massive change in the p e of the russell 2,000. Domestically exactly and so the bet is an allocation now, im using the index ftse russell to do it because im buying the ones of the 2000 stocks the ones that are going to be the most impacted by tax reform ousm, because i helped design it but i did it just for that if trump could win that actual battle, you have a massive the history of this is like a bugs bunny cartoon where hes walking along a rafter about to come off the end, and another rafter comes along to grab him and let me explain that. You just explained it in the sense that you had this rise of optimism in the First Quarter based on the agenda. That optimism fell, along came strong earnings, and stronger foreign growth yes if those things hadnt happened and the weak dollar and the weak dollar excellent point. That comes along and that buoys, by the way, the s p and the s p foreign earnings, and now, what youre saying is kind of a new idea which is refocused back on the russell 2000, and the domestic side because what . There is can you put a number on it . You can whats the number lets say my best guess is were not going to get 15 Corporate Tax were going to get to 20. Okay i think thats overly optimistic i do, too you want to give me 22 . 22, 23. I think 25 is the number that youre going to get. Because theres no 25. I will give you a 15 expansion to the russell 2000 p e if you get 25 ill give you 20 if you get me to 20 wow yes guys, lets bring another voice into this. And thats free thats a free option. Which is why ive allocated 20 of my Domestic Holdings to stocks within the russell 2000 mike ryan is the chief investment strategist at ubs mike, what do you think of that . Tell us were right i tend to agree i wouldnt even just focus necessarily on multiple expansion. I think theres an earnings opportunity here, too, as well we have virtually nothing thats against earnings for this year and very little for next year so if we want to see some sort of fundamental tax reform tha makes it better operating environment for u. S. Based corporations you could see some upside to earnings as well its not just about multiples. People have been talking around the idea the last few days that hey, why do we keep citing earnings as a reason for going up you can look at earnings over the last two quarters have been up double din its. Thats the first time thats happened in about six or seven years. They point to whats happening or whats expected to happen in the second half. Thats what i guess you came into youre not convinced that the earnings gains will be that low. Look, were expecting earnings gains to be sustained into the second half of this year into next year, as well what were finally seek is its not just about bottom line anymore. Its about top line as well. Were coming up these will be the two best quarters of backtoback revenue weve seen in quite some time were double digit for this year about 9 for next year in terms of earnings gains. And the important thing is i think the balance is pretty sustainable. By the way, if we were to see some of the incremental reform measures you talked about in terms of taxes i think that could boost it up higher as well could i factor in a sort of president ial temperament issue that worries me . I think the president can get 25 however, he has proposed 15. And i just am concerned that he will not take that deal hell see it either as embarrassing or a defeat for him to not take what is available to him through the political process. He wouldnt take any deal, call it victory and sail into the sunset you would think i just worry about the idea that hell say i asked for 15, i want 15, as unrealistic as everybody in washington i talk to says, 15 actually is. I mean, even 20 is unrealistic i tend to think hell take it because i think they need a win on the board at this point look, theyve just seen the aca has not worked out the way theyve thought. Theyve expended a lot of Political Capital and dont have much to show for it. So i think theyre going to focus on tax reform. Theyve got to get something through. Mike, i read something earlier this morning about how this is the most boring market weve seen in decades. Because the s p 500 is only at a pullback of 1 or greater twice this year. You know that old axiom, dont short a dull market. What would you do with this . Or also, be concerned about a dull market, because wait for the next leg up or down. Be careful what you wish for in terms of excitement look i think theres a couple of things coming up in the autumn that are going to be chancey here we know the fed is going to likely in september announce their intentions about how theyre going to begin tracking the Balance Sheet and its likely to happen sometime in the Fourth Quarter you also have the ecb thats going to give some signaling now around tapering. Lets not forget theres another dynamic in washington around the debt ceiling in the past thats been a point of volatility. These are the known things these are things were aware of. We also have the ongoing dynamic with north korea theres lots of things that could cause shortterm volatility the president tweeting about that this morning. But that is an up and down game all the way around to be clear on q1 street comes back to work september 15th starts q12018, are you in a place where you think well stay at 6 sales growth and 11 Earnings Growth into 18 or are you going to slow down somewhere . I think youre going to get Revenue Growth is going to moderate a bit lets say were talking about Revenue Growth in the 3 to 6 range. We still think that can support Earnings Growth about 9 for 2018 kevin i want to understand your allocation. Do you shift at all . You had a big play in europe and are you shifting back to the russ twol,000 . Or is that part of the i had 50 in large cap s p. And then i looked at this tax opportunity, and took 20 of it back, and threw it into an index inside the russell 2000. Ive never owned so many small and midcap stocks before in my life and im betting that the president is going to get something done and im going to get a 15 to 20 arent people worried about valuations with the russell 2000 and how theyve been performing . Yeah, look, theres certainly been a strong period of performance here especially when you see ongoing concerns about currency. But i would say, look, if we do get, you know, a benefit from tax reform, first of all it will benefit corporations that have a high leverage factor thats where the benefits going to accrue. And thats where the gains will be if i might, diversity according to the economics profession is the only free lunch. Then you should own some i do. Im just saying no matter how big or small your portfolio, diversity provides a free lunch according to the economics professors its the only one out there. A free lunch . Or constantly watered down gains . Depending on how you look at it. Oh. No over time mike help me out on this, it is seen as a free lunch. Over time i would say its a prudent balance. Lets face it, any time weve seen people take big vests one way or the other in the market, theyve usually suffered because of it. I think having a balanced portfolio is still the best way that investors position portfolios mike, thanks for coming in today. Always great to see you. The only way you really make money is a big investment like look at mr. Wonderful. He has concentrated bets when youre young and youre willing to take risk that is not true. You diversify its a free lunch you do regular investments. Yes you dont play the markets. Im not 100 because i have nothing in the bond market coming up the newly confirmed chairman of the Commodities Futures Trading Commission is going to join us right after the break. And we have a big interview coming up today on cnbc as well. Owlfred frost is sitting dn with jamie dimon that interview at 11 30 eastern time welcome back to squawk box. The Commodities Futures Trading Commission has a newly confirmed chairman joining us is cftc chris giancarlo. He was unanimously confirmed by the senate he has been working as acting chairman since january congratulations. Thank you very much welcome aboard. Pleasure. What are you going to do . I know youve been acting. But now that you have the title. It was an honor to be confirmed by the senate unanimously. And in fact, its my second time i was first nominated by president obama, unanimously confirmed by a Democrat Senate three years ago and now appointed by President Trump to serve as fulltime chairman, and unanimously confirmed by a Republican Controlled Senate its great to have a bipartisan support for an agenda thats both committed to completing the reforms that were set out for the global swaps market in 2009. But also moving forward and looking at some of the new challenges to our markets that were never addressed in doddfrank whats your First Priority . Whats the thing youre trying to get done right now . What were trying to do right now is focus on the Market Intelligence our markets are changing dramatically these are not our fathers Commodity Markets anymore. The famous market that you saw in the movie trading places with hooting and hollering, shouting, those markets are now closed our markets are trading algorithmically, theyre traded virtually. Weve got to become a 21st century regulator for the new 21st Century Digital markets is it tougher or easier to corner a market in these days . You think back to trading places right . Yeah. I think it is its just techniques have changed. The technologies have changed. The same game of cops and robbers exist in markets today that existed back then but the Technology Utilized is getting more and more sophisticated. And therefore as a regulator we have to keep pace with that technological transformation you supported doddfrank to a large degree but there are pieces of it youd want to roll back. Well, ive actually kept my comments on doddfrank to one title. Which is title 7 which are the swaps reform provisions i think congress got those provisions right i think some of the implementation by the cftc got those provisions wrong and so its getting the implementation of those reforms right that im committed to doing. I want to ask you a question thats got to be a challenge for you. Back in 07, 08, 09 i began to realize that advisers, institutional managers, actually dont understand the Derivatives Market and i dont think they understand it. They didnt understand it then and they dont understand it today. Your job, perhaps, should be educational. Because when i talk to people managing billions of dollars about swaps, they have no idea that theyre actually risking their portfolios in ways they didnt understand then, they dont understand now i dont think the Systemic Risk has changed. What are you going to do about that let me actually for a moment for your viewers explain what derivatives are. Americans when they go to the supermarket, they never pause in the sliding door and say, wow, before i go in, i wonder if there will be enough fresh vegetables on the shelf today. We never ask that question because we expect fresh food and vegetables on our shelves year in, year out and the reason for that is because American Farmers can use derivatives. The reason why our standard Home Ownership acquisition tool is a 30year fixed Rate Mortgage is because of Interest Rate swaps market the reason the stability exists in our western way of life is because of functioning derivative markets and the reason we know this is because if youve ever visited the developing world, if theres a good harvest theres plenty of food on the shelf. But if theres a bad harvest, theres no food on the shelf, and there will be no food on the shelves next year, because the farmers will have gone bankrupt, and wont be able to put seed in the ground derivatives underpins all the stability and yet buffett has called derivatives weapons of mass destruction. How do you determine between good derivatives and bad derivatives . The ones we need versus the ones that get us in big trouble derivatives have implicit in them a degree of leverage. Leverage is always difficult and always dangerous in the wrong hands, misunderstood, misapplied misunderstanding, misapplication of derivative is are there applications you want to outlaw and make sure it doesnt happen it makes sense when youre talking about trying to stock the shelves. That i think we all understand gets more complicated when there are Financial Instruments being developed effectively to create derivative on other Financial Instruments. That are so hard to und wind that even the experts in this field cant figure it out. Theres a famous line in the movie, is it safe . Remember that one . My question now is, i understand the farmer that uses derivative. They dont produce any carrots still has the cash to do it again next year. But who has the other side of that risk . What i learned is the taxpayer in 07, 08, 09, was i had the risk i had it me and i paid for it. Now, i ask you, is it safe so, so derivatives often are confused with other types of instruments, syndicated loans and mortgages. And it was the collateralized debt obligations that were at the core those are not derivatives. It was the derivatives that linked Financial Institution to Financial Institution that it was the fear of the failure of one Financial Institution causing the domino effect of failing institutions that was the cause of the problem which is why an earlier guest talked about, and we talked about this during the break, the importance of transparency in the counterparty credit exposure using derivatives of one Financial Institution to another. At the heart of the financial crisis, was a lack of clarity into how Financial Institutionsing were is it fixed and here we are nine years later, ten years later by some accounts and we still havent fixed it which is why one of the very first things ive done as acting chairman is to set forth a road map to how we get to that transparency that is included in the doddfrank act, and unfortunately was not completed by the Prior Administration. Its one that were going to get done mr. Chairman, there was a story in the wall street journal that said enforcement under the First Six Months of the Trump Administration has been down significantly. They tie this to the administrations thoughts on business the cftc spokesperson has pushed back pretty strongly against this what are your thoughts on that okay, actually flawed logic in examination of how enforcement works would understand that in our markets, very complicated markets, Enforcement Actions take years in development the actions that weve announced in the first sixmonths of my work at the cftc are actions that were started under the Prior Administration to compare the First Six Months of this administration its a dollar amount of Enforcement Actions is a commentary on the Prior Administration and their priorities that were put into the works during the final years of the obama administration. If one wants to look at the priorities of me under cftc under my leadership one will need to look a year from now takes two actions to bring an action and collect on it no. But it will take at least a year to formulate a case and reach a point where theres actually a court decision, or there may be a settlement certainly not within six months. The analysis of the wall street journal did of the First Six Months really reflected cases that were begun during the Prior Administration mr. Chairman, do you believe that you personally and perhaps the administration, in terms of disposition, towards the industry, will ultimately be more friendly . Agree that banks will have to hold less in reserves for legal cases, and things like that . So i really actually push back against the notion of industry friendly. My focus is not to be a friend to any industry. My job as a regulator is to be market intelligent if i have a bias its towards markets. If i have a focus its making sure that our regulation is as intelligent as well formulated for the markets that we oversee, and yet as we talked about whether its farmers, ranchers, oil producers, homeowners are critically important to the American Economy there chairman, thank you for coming in. Been a pleasure come on back. I look forward. Thank you when we come back, some stocks to watch this morning, then at the top of the hour, york Capital Managements founder and ceo jamie dinan will be joining us. Futures this hour, things are a little bit weaker. Dow futures down by 26 points. S p futures off close to 4 squawk box will be right back. Some stocks to watch this morning. Check out shares of drug developer fibrogen an experimental treatment prompted several wall street firms to significantly raise their price targets on the stock. Which is up 57 . Not often you see a move like that online Home Furnishing seller wayfair lost 26 cents a share, which was smaller than the loss analysts were expecting. That stock is up by 4. 5 also luxury goods seller michael kors earning 80 cents a share for the fiscal Third Quarter 18 cents above estimates samestore sales did fall 5. 9 , but smaller than the 9 drop analysts were expecting. Michael kors also raising its full year forecast and that stock is up by over 12 . Okay coming up, putting your money to work now. Your Capital Management founder usd ceo jamie dinan joins dont confuse him with jamie dimon, coming up later on cnbc i think that shes a very nice girl. You never got the brakes looked at . Oh yeah. No. At cognizant, were helping todays leading manufacturers make things that think and do automatically. Imagine that, a world of new Digital Products and services all working together for you. Can i borrow the car when its back . Get ready, because were helping leading companies see it and see it throughwith digital. Good morning squawk box newsmaker an exclusive interview with your capital jamie dinan. Hedge Fund Managers take on the markets, the rally, the trump agenda and robo advising and google hits back the engineer at the center of the controversial antidiversity memo fired from the tech company. Were going to talk about it plus calling all game of thrones fans there are more leaks. Hbo hacker releasing a second round of the networks stolen files. Well talk about it tuesday, august 8th, 2017 the final hour of squawk box begins right now live from the most powerful city in the world, new york, this is squawk box. Good morning again, everybody. Welcome back to squawk box here on cnbc we are live from the Nasdaq Marketsite in times square im becky quick along with Andrew Ross Sorkin, joe is out today. But were joined by kevin oleary. Hes been hanging out on the set with us this morning, asking great questions, bringing really interesting guests its wonderful. Its great to have you here were going to talk more with kevin in just a moment in the meantime, futures this morning, after ten Straight Days in a row of gains for the dow, were going to see this morning theres a little bit of a pullback when we just checked a moment ago dow futures down by 22 points s p closed at another record high yesterday this morning its indicated down by almost 4 points and the futures dawn by just over 4. 5 points. Get you caught up on some of the big stories. Pershing square has nominated its founder bill ackman and two others to the board of adp the nominees will be formally introduced at adps upcoming Shareholder Meeting. Adp revealed on friday that the hedge fund had taken an 8 stake in the company well call it a beneficial stake, because theres derivatives vfld in that also google fired the employee who wrote a controversial internal memo about women in tech the engineers ten page manifesto asserted women have biological differences that prevent them from being as successful as men in tech. Causing quite a stir and a big debate on this set earlier this morning. And then some new numbers out measuring snapchats original programming. And its big news because the app show called good luck america averaged more than 5 Million Viewers per episode on the discover platform. Thats according to some data thats been obtained by axios. The Second Season of the political show totalled 29 million total unique viewers thats 45 more than the first season snapchat measures the view as a video being open so we dont know exactly how long people watched. Also a couple of stocks to watch right now. Want to start with valeant following q2 results, revenue in line with estimates and the fullyear guidance valeant says it expects to pay down 5 billion in debt and improve cash flow before next february cvs beating on the top and bottom line. Strong performance in specialty pharma and Investment Management Hedge Fund Research says that july was the strongest month for Hedge Fund Industries since january. That on top of an increase in fund assets to 3. 1 trillion dollars for the industry in the first half of the year, joining us right now to talk about that and much more is jamie dinan the founder and chairman of york Capital Management thanks so much for being here today. Great to be back. Lets talk about the Hedge Fund Industry at large before we dig into york capital. It has been a rough several years for the Hedge Fund Industry, as indexes have done really, really well. Theres been more and more people talking about putting more money to work in index funds instead of in hedge funds. Where would you say the state of the industry is right now . Well its interesting hedge funds certainly equity type regg funds as well as credit hedge funds tend to be active managers. In fact the debate is not just hedge funds, its actually also in active management sure. Who have, for lack of a better term, lag indices and lack passive stuff when you look back over the last almost back to 2009 when you saw the quantitative easing in this country, people said a couple years later, its basically all the risks that people would normally saw the reaction to ended up being much ado about nothing. But, those who just bought, held, put their head in the sand, whatever, overreact, ended up doing quite well. And i think you know, you look at the past, you have to recognize thats the past. Whats the future . And to me the future always goes back to more of a longterm. Sometimes bad things do happen sometimes bad news leads take 2007 where i think the 10th anniversa anniversary, and the announcement they were no longer going to refund anybodys money for the selffund mortgage products it took a year for that to lead to the Global Financial crisis but we all saw what happened then it hasnt had at the end of the day a Global Financial crisis. Weve had nervousness and so forth. I think hedge funds in many ways probably tended to overreact we all are victims of ghosts of yesterday. We didnt react in 07 we really degraded in 08, 09, passive investors dont react. 08 and 09, they obviously go back since then, im still a believer in having control over destiny and so forth i think this year for example youre seeing a lot of really good managers, really, really strong in our first half of the year, first seven months, a story in bloomberg just the other day highlighting a number of the well known hedge funds having really strong periods or selfincluded, you know, in that i also think there was a period where we raised a lot of money as a industry, which particularly came to a head in 2015, where we just ended up creating almost our own kind of volatility, our own kind of index, where trade got overcrowded. Because there was too much money in hedge funds too much money. Kind of piling on the same stuff. And i think weve all learned from that. I know we at york since 2015, weve really focused now from a risk perspective of limiting how big of exposure we have in names that are crowded by hedge funds. Lets talk about that with york specifically. That article you pointed out the other day about the Strong Performance of other hedge funds including york suggested that the multistrategy Flagship Fund for you is up by 18 this year, versus 10 for the s p index however, if you look back at what happened in 2015, you went from 23 billion in asset undermanagement to 17 billion just north of that is that the right size at this point . Its definitely, right now, definitely easier to manage smaller amounts of money than larger amounts of money. Is 17 billion small enough . Are we do diversify so we have 4 billion multistrategy, 4 billion in credit, 4 billion in europe. So it is a little bit more diversified, and you know, as opposed to having a 17 billion can i ask you about your fees i mean, as a industry, lets just go there. Im an investor. I could choose any asset class to invest in and whats happened in your space, and not to call the king has no clothes out here, but 07, 08, 09, a lot of hedge Fund Managers, i still own them, in only one reason im gated i cant get out. So im not happy but im asking myself why do i want to pay 2 and 20, after 7 hurdle, which im going to guess pretty close to your fee whats your argument for why you can sustain those kinds of fees when we just had Mark Wiseman Blackrock on here and theyre the biggest money manager in the world essentially, and their fees are getting depressed why is your industry going to keep able to take 2 and 20 from me in etfs, into the grid im just talking alternatives i can go anywhere. I can invest in anything why do i want to pay you 2 and 20 i think first of all the industry as a whole is probably really backed off a lot over i would call the old 2 and 20 model. Okay so fees are lower generally speaking, particularly for large Institutional Investors. What are they but theres still insensitive fee and Management Fee and why would you pay that well going back to what becky said earlier, very good first half, and she compares it to the s p which is up by maybe 10 but were running, you know, not a data one product were average a day of 0. 3 product. In theory just passive data 0. 3 we should be up 3 this year what does that mean in other words, we do lots of hedging, which basically industries could take our gross long down to a net long. So that means lets say the market was down 1 today doesnt go down that often these days going down 1 or went up 1 . If you had no alpha generated in it, you should lose or make roughly 30 basis points. That day if you just had passive product. Think of it as like a long short type product so somewhere in there is live Value Creation thats taking place to be able to actually add what we call incremental alpha. Just to clarify are you answering his question by saying that you are paying that people are paying that for the days when the market is not so predictable . Weve seen no volatility in the market surprisingly we do quite well on particularly the last two years, year and a half, on what we call lack of down capture in other words we dont want to lose that much money and the markets are down you essentially are arguing i should pay because im buying insurance. The pushback is though, and lets see in general positioning here, the Institutional Investor today looked at 07, 08, 09, thinking they were hedged. But all they really were was really levered the industry did itself a huge disservice they didnt really hedge anything they just added 20, 30, 40 turns on a long position and blew up down 38 we dont do that. I got it. Were still leveraged and we speak for your industry youve got to defend your guy. Well thats why in some cases, you know, some of these guys are gone. Some of these guys are obviously a lot smaller. And a lot of the industry has actually evolved from, you know, big leverage users, or, you know, called stock pickers or bond pickers into more quantitative strategies. I think you used a lot of leverage . No, no. We use virtually no leverage can i ask you on fees real quick . Yeah. If he decided he was going to market his fund as the walmart as sort of the low margin walmart of hedge funds, im not sure that that is an attractive sales proposition. Totally agree to investors who essentially want the ralph lauren of i dont care about and theyre willing to pay the fee for it i care about performance. You can charge me whatever you want, as long as you can beat what i can do for practically nothing today, in an etf so kevin, so i mean i cant really talk about numbers, because ive got lawyers and all that stuff but, if you look at all of our funds, all of our performances, you know, since inception or any kind of longer record, five years plus, what youre going to find is all the fees our performance, youre taking home is basically higher than any indices, and less volatility and do i have thats what people pay for. Do i have its called alpha do i have as an Institutional Investor Something Else i covet . Liquidity. If i call you up and want my 40 million back, can i give it . Ive given everybody their money back even at the end of 08, i had 5 billion, everybody got their cash at the end of january and i think its probably that youve had some bad experiences. I have. And other Institutional Investors have, too, and its made me think twice about how much i covet liquidity, too. Not just performance right if i want to reallocate, i want to know i can do that when im gated i cant do that no you cant. And a number of people did that. Because they had to. Some of them, theres always bad actors, and it did hurt the industry definitely hurt the industry you saw about a year and a half geg calpers decided they were getting out of the hedge fund and we marvelled at this and wondered whether this was actually the beginning of a trend or they were all going to look back and it was actually going to be the reverse. They were getting out of the exact wrong time when you look at it, what kind of if were having this conversation five years from now what do you think theyre going to be doing . Okay, so, i have im obviously biased in my profession and my industry i actually think people are going to look back and realize they caught a phenomena where passive, led to no Risk Management positive is no Risk Management and they reaped the benefits of it thats not where history tells us is going to be in the future. Were going to look back and see the good managers are going to who are the good managers . The ones who run their businesses ethically in terms of putting their investors first. Manage the risks right talk about the leverage risks and so forth and you know, i want to say, i dont want to speak ill of dearly departed friends, but, i always, you leave at the wrong time, okay, youre basically looking through the rear view mirror not looking through the windshield and i have to tell you one of the reasons i think weve done quite well, you talked about this year, its less crowded right now. And the money has left the strategies that we do. And so, what happened is, we did the supply demand imbalance is actually much more in favor of finding alpha and where are you finding alpha right now . All over the world. To be honest with you. So lets just take some of the good, people dont know about or think about japan. Were very active in asia. We have a state office in hong kong whats happening in japan is the government pension fund, okay, is basically been investing now in all the big conglomerates and they actually have a score card for Good Behavior and whats happening is all of these companies have massive number of subsidiaries, some public, some private, some majority owned, some minority owned and theyre rationalizing their business mix and the government Pension Plans actually rates these companies now. So what weve been doing in japan is playing this whole restructuring really of the japanese conglomerate and trying to figure out what is going to sell, publicly traded, nissan sold its parts business to kkr, huge Company Called calsonics. In april we had two big deals, panasonic brought back their subsidiary hitachi sold its business to kkr in april were having a big people up so were looking at like toshiba, and Big Companies, whos next because being forced by the government, okay, japan, japan inc. , you know, basically do what thei ivactivists, almost t junk bond rate of the 80s and nineties, big u. S. Companies do rationalize and run firktly. Youre buying the credit or the equity equities in japan europe the same thing happening right now. Youre starting to see in europiveism for example. These Big Companies like nestle, under pressure hostile bid, and then you know elliott basically served Shareholder Meeting where we partner to call that Shareholder Meeting. So these companies there are realizings the old ways are over and they need to basically get their stock prices up so they dont become why is that happening in europe and japan at this point why now . I think a lot of it was because their cultures and systems are much more closed and old school, old voice. And today its the worlds becoming increasingly global in terms of the Capital Markets and investors all over the world are now starting to look at what can happen i think in japan, its also being driven that as the japanese have made this decision to invest in their own equities, and basically Pension Plans, its now the peoples money. And so what theyre saying is, this is our money, not your money. You have to actually put shareholders somewhere thats a big break in the culture there. Huge break. And theres going to be huge opportunities in that. Just like there were huge opportunities in the u. S. In the 80s and 90s in this whole restructuring of what we call Corporate America. Today we run unbelievably mean and efficient as a result. It still lags. Valuations are lower theres lots of companies that can be broken up, you know, rationalized you know, more focused on what theyre doing. Can i ask you about a domestic situation you just reported earnings its a very controversial stock. I dont consider it any more an equity i consider it a bet on its debt. Now, that is a credit. Do you look at Something Like that do you own any valeant is that a company you looked at . We do and have. Luckily we kind of miss the, i would call the implosion of valeant. And its would you ever buy the equity given the situation its in . Or you just play it from the debt side . And ill ask the same question to the Energy Sector theres billions of dollars of bonds if i was to plead valeant right now what about energy, are you looking at i dont have position either way right now. What about energy do you take any positions on the mid cap shale guys a lot of money in energy recently on the debt side . Mostly bonds. On the e p side, we were fortunate that we kind of missed the debacle of 2015, early 2016. So we went in to names like sampson energy and lynn energy im looking at 18 on one of your funds, and credits, thats pretty damn good thats very good. But you got to keep in mind, when youre wondering how you did it. You could have entered into lynn energy you say you didnt use leverage to get there. No, but i cant really talk about prices, but lynn energy we started buying the unsecured debt 15 months ago 17 months now now. Look, think of february of 2016, so where we started buying into bonds, to where they now trade is equity has gone up 4x okay and so those kinds of opportunities are there. You know, its funny so maybe youre worth the 2 and 20 this year you know, when i was a kid, i was really young i worked at the old dlj and i worked when t. Boone pickens would talk gulf oil and i remember Boone Pickens saying, and he said this publicly, the cheapest place to find oil is on the floor of the New York Stock Exchange and i was saying a year ago the cheapest place to find oil is on the high yield or junk bond trading desks of wall street you could basically buy into these companies, no one wanted to own them. Everyone was dumping them. And there was a handful of intrepid souls buying itself up. You were buying assets that were frankly 50 cents on the dollar some cases even less so where are you looking at energy plays these days in terms of where the credit has come, in terms of what you see the future of oil prices . You guys put a lot of this into this and i know restructure, theyve been bade out with 50 oil. Theyve been able to do Massive Equity offerings so theres not a lot right now of really distressed, i would say e p debt out there the two big names that we ended up taking big name came out, one was sampson energy, the other is lynn energy, this is in the Public Domain we own over 45 of sampson at york. We have double digit interest in lynn on the board of both companies and weve publicly said were looking to do everything we can to maximize our tesla what . Tesla, 1. 5 billion credit issue. You looked at that i did but i probably wasnt looking to buy it okay is that a call on the company or just the credit itself youre not happy with the deal its good to have mark as a participant. Or is this a retail product i never met elon musk i really dont want to speak, you know, in any way of his knowledge. Obviously hes a great visionary. I think hes the best thats a nice way of saying youre not going to buy the debt, right . Oh, no. I would argue that, you know, i dont know what the coupons going to be. But unless you gain equity returns on that debt which i doubt you want a double digit yield . Can i just ask one finer point on that if you were looking at it not necessarily to buy it, youre looking at it to short it i might buy it, okay. But i think realistically, one of the tricks of investing is why do i say all that stuff . Most of the time, the investments do nothing many people dont realize sometimes the best investment is in your hand my own view is Something Like a tesla debt right now, its way too early. A lot of liquidity got a lot of products, but competition is definitely coming, okay in my opinion. So you watch it, do the work, and you wait and there may be a time where the bond actually get really whacked and go down. So invest in energy. Energy bonds were a pause twelve months before they went to krte cents on the dollar, okay so you see a lean energy tesla you want to wait. You want to wait for the right opportunity to come in how many in tesla yet how many issues are you and your Team Monitoring versus how many positions you actually take if its all about waiting . Incredibly probably monitor at any given time north of 50 positions. In terms of ones that were actively amonging, about half that okay. Other places that you see opportunities today if a lot of the e p has passed up. In the u. S. Market things have been so incredibly such incredible low volatility. That makes it a lot harder for you i think in the u. S. I think the most interesting stuff in the credit space has really been the e p area most credit is pretty richly priced okay, theres no great bargains out there. I think you might have seen a comment just the other day, its time to start leaving the party. Overall i agree with that but its important to know just because markets, equity with debt may be fully priced to overpriced doesnt mean you cant find mispriced opportunities within those asset classes. Going jumping over the Atlantic Ocean back to europe, i mentioned you know, european equities being really interesting. They really are, a lot of money now flowing in to europe, european credit is actually really interesting its all coming out of the european banks particularly the southern peripheral banks, italy, where theyre selling the nonperforming loans or the real estate owned and weve actually created vehicles so you dont get stuck with not getting your money out. So, what weve done is we actually have drawon p e type structure vehicles to buy this assets from the bank and they take on a p e type what you call an economic fee structure. Return, get your money when everythings realized and so forth. But you can buy assets, real estate assets from the european banks, i think, speaking of generic terms, you know, 25 plus discount. Clean assets how much are you calculating what you think the fed is or isnt going to do the rest of this year . Does that weigh on your thinking im not thinking too much about the fed right now. First of all i think its a very responsible fed. I think the feds goal is to try to normalize Interest Rates, is actually healthy i think if they normalize it, its fact dependent and i actually think the market has reacted fairly well to it. Theyre not going to try to shut down the recovery in any way, shape or form. And i think theyre really torn. On some level you look at some statistics, you know, they should be raising like crazy other statistics inflation is a big one. Scratching their head. Maybe were not as long as we are one of the most popular vehicles of Retail Investors buy credit in is j and k probably the most popular of its kind bottom 18 are c credits, singlec to me thats toxic waste it hasnt blown up yet a lot of it is in energy how much risk is in that index do you trust the singlec credit or would you be worried about it if and when the fed ever raises rates . We do a lot of what i would call high yield debt, thats of a dedicated fund and the alpha, the, the, the, the hidden value tends to be in the triplec category. But this is singlec. But im talking triplec. We spend a lot of time trying to find triplec rated credits that are singled type credits. Singlec is how you put it, youre moving down the food chain. How do you put it i you know i personally i call it radioactive waste do you have a better name high yield market but theres a real mismatch in these products, because most of these things have daily liquidity and im telling you when the you know what hits the fan theres not going to be any liquidity on the other side. And its a real, real so theres the risk, lack of liquidity to bottom right it goes back to i was talking in the beginning, 10year anniversary when basically, you know, you couldnt get out of your subprime mortgage product it does happen and right now youre even really lucky. Going back to a passive investment, the economy has worked not too hot. Not too cold so many credits. Perception of energy really has got caught in that massive lack of a better term you know drawdown in pricing brought on by the saudis trying to drive the shale guys out of business which didnt work very well. Jamie, i want to thank you so much for your time its always a pleasure seeing you. Spectacular conversation. Thank you. By the way, he mentioned Jeff Gundlach said he agrees with him in some of these areas cin going to be on at noon. Omg up, well talk about the tech trouble in just a moment you are loved when youre clocking out. Sensing your every move and automatically adjusting to help you stay effortlessly comfortable. There. I can also help with this. Does your bed do that . Oh. I dont actually talk. Though im smart enough to. Im the new sleep number 360 smart bed. Lets meet at a sleep number store. I miss that song a lot actually welcome back to squawk box right here on cnbc were live at the Nasdaq Marketsite in times square among the stories front and center among the earnings reports out this morning heres whats going on ralph lauren im wearing the suit right now reported quarterly profit of 1. 11 per share. That was well above the 94 cent consensus estimate revenue beat forecasts even with a 7 drop in samestore sales. The luxury goods seller says it is still in the process of addressing challenges in the business and of course retail has been hit so, so very hard. Also, Small Business optimism was on the rise last month the monthly index from the National Federation of independent business rose 1. 6 points in july to 105. 2. Led by strength in Small Business hiring. And were just getting word that intels acquisition of mobilei has officially closed. Intel announced it was buying the provider of Autonomous Technology for more than 15 billion. Squawk on the street will be talking about that with intels ceo. Crzanich. I always mispronounce his name 9 30 eastern time you do not want to miss it. Jpmorgan announcing today that its investing 500,000 in chicago. The goal is to help prepare residents on the citys south side for high demanding careers. A paid apprentice ship program will focus on advanced manufacturing fields and jamie dimon is going to be sitting down with wilfred frost at 1 1 30 eastern time this morning for a cnbc exclusive interview on squawk alley. And im going to be hanging out with the squawk alley gang are you really . Ill beage haing with that crowd. All right in the meantime President Trump officially six months into his presidency Brian Sullivan is on the ground at a wisconsin town that helped trumps victory in that state. Brian, good morning. What can you tell us today well, good morning, everybody. You could argue theres a couple of states that flipped the election wisconsin is among them. If you go into it you could say theres a couple of counties that really mattered to flip the state and flip the election. Overall in wisconsin, 22 counties went from blue to red to get donald j. Trump elected president. Most of those are smaller counties not Kenosha County and neighb neighboring racine counties. They flipped what they thought was manufacturing and jobs and made in america were huge topics all across the board during the campaign wisconsin flipped so what better way to sort of celebrate the 200 day than by coming to a manufacturer, making products in america, in the county in the state that helped become or helped donald j. Trump become president. All day here on cnbc were going to be speaking with manufacturing ceos and Governor Scott walker is going to join us later on today well talk about some of the policies, guys that helped wisconsin go from a 9. 2 Unemployment Rate in 2010 to a 3. 1 Unemployment Rate now. Wisconsin, and u. S. Manufacturing experiencing a bit of resurgence. So well find out if they are still pleased with the outcome because some of the polls, as you guys know, suggest maybe theres a little dissatisfaction growing in our president , even among this base. All right what do you think about what people are saying just in terms of how things have shifted okay. The polls say, becky, that he has a 41 approval rating. That is the latest poll, the same as it was before. Some people question polls im not going to question the polls. Its not my job. However having spending a lot of time personally in wisconsin for work and for fun, i will say this, i think just, again, anecdotally on the people that i speak with, people i spoke with last night, last week, whatever, the feeling tends to be this, they dont theyre happy with whats going on. Because manufacturing has come back theres new warehouses, and manufacturing facilities, all around you theres a 4,000 personal done facility just down the road. Huge Company Called uline were going to meet some of the manufacturing ceos later today i would summarize it as this and i dont want to speak for the entire state, its not my job. I would say, they dont like the tweeting they dont like the tweeting they still support him they still support him they want to make sure stuff gets done. Were six months in or whatever it is. Theyre not agitated but its kind of like, okay, give him still a little more time the media is a little tough on him. But we want results. Brian very quickly the front page of the wall street journal today talks about how the dollar index is still down 7 for the year. That helps with manufacturing, correct . How much do you think that plays into some of this, too it does, it does. And in fact, where we are right now, becky, so were in a place that makes industrial lighting so for example, hospitals, the brooklyn battery tunnel uses the company. And they ship this stuff all over the world so if youre making products here and youre selling it to new york, thats one thing but to your point, if you want to sell it to a huge new industrial product or giant hospital in france, or japan, or wherever it is, the weaker dollar does help so weve got like i said, all day were going to be talking about trump, wisconsin, manufacturing, made in america the one thing i really want to see on power lunch, im not trying to overpromote the show but we came here yesterday, sat down with a bunch of 19, 20, 21yearold kids that are finishing up trade school. So they are entering the manufacturing workforce. We always hear theres no skilled workers. Well these men and women that we spoke with, theyre not kids men and women that we spoke with yesterday, they are really proud to be doing what theyre doing they are basically going to blow your mind as to what manufacturing means. I have to say, guys, i was stuck in the 70s. When i walked into this i thought it was going to be like people with sparks flying and hot oil dripping on me no, no its computers its clean its air conditioned theyre going to make 100 grand a year by the age 25, a lot of these guys yeah. So check this story out this is the future of america. And theyre optimistic by the way. Not everything is terrible brian, thank you. So you dont have to do it, make sure you watch brian throughout the day but especially on power lunch. Thank you, becky. When we come back, a tech bubble warning this time from Morgan Stanley rusher sharma who will join us next to explain. Pital. There goes the airfair. I dont think Health Insurance will cover all. Of that. Buth my fathe without that cash from aflac we might have to choose between hawaii or your face. Hawaii what . Haha. Hawaii you might have less coverage than you think. Visit aflac. Com and keep your lifestyle healthy. Aflac welcome back to squawk box. Fake a look at some big pharmaceutical movers this morning. Each has a market cap of at least 1 billion fibrogen and esperion what is wrong with me this morning theyre both up. Positive drug trials endo, and ligand are higher. The tech sector we want to talk about this, surging more than 20 this year fuelling fears that the market is starting to feel, well, maybe like 1999. Joining us right now, Ruchir Sharma the chief global strategist at Morgan Stanley investment manager also the author of the rise and fall of nations forces of change in the post crisis world. Hes out with a new oped in the New York Times when will the tech bubble burst . And hes in one of my favorite cities good morning, ruchir and we have a delay, as well good to be here, andrew from lovely cape town one of the greatest cities in the world. But, help us understand your thesis you think that we are in a bubble of course the big question, if we are in a double, is when is it going to pop, and whats going to pop it . Yeah i think its only natural that as a bull market goes deep into it, this is the second longest bull market in u. S. History that some valuations excesses are going to build. And i think that the way this is happening once again is in the tech sector. Its very hard to know where we are exactly in the bubble, but, its only natural that some values and excesses will build and i think that as part of the tech sector is concerned, thats strategic. But the big business this time with the late 1990s is that a lot of this is happening on the private side its on the private equities side the Venture Capital side and thats manifesting itself in the unicorns this is not just a u. S. Phenomenon, this is a global phenomenon similar stories are playing out from everywhere from china to brazil that the tech sector is dominating as if its the only party in town. That may very well be true. But if you think about it, a private companys very hard for the market to bust that way. I mean a lot of these companies have a lot of cash they can live on as zombies for a very long time if thats the case yes thats absolutely true. But i think that we have to be able to look out as to what can really sort of end this bull market given how extended we are. So therefore even in the oped i try and outline what are the factors we should look out for at a time when theres a lot of complacency out there. The complacency could be measured in all sorts of metrics, as you well know. And i think that given the fact that the fed is beginning to sort of normalizeInterest Rates, has shown its happening very slowly. Given the fact that there is a bit of regulatory crackdowns, and some concerns about the some of these companies i think if we look at those factors as to what can possibly end this great party once again because not all parties last forever as we know. Let me ask you a final question, you can make the argument about the tech companies. You look at some of the multiples on the public f. A. N. G. S, youre in the 20s you look at some Companies Like p g and clorox, theyre in the 20s. Could you make the argument that if theres a bubble its not in the tech stocks, its in some of these more traditional names that for some reason are being given tech like multiples . I think its a very valid point that you make. That is my bigger picture, the u. S. Stock market in particular is expensive overall the europe stock market is the most expensive that it has been in its history apart from the late 1990s so yes were dealing with an overall stock market thats quite expensive. But with the tech sector it depends how you count. If you look at the internet the valuations are a lot higher yes because of some companies such as apple and microsoft the valuations dont expect to be that high ive seen the phenomenon that its not just about valuations being high based on traditional pricetoearnings, but also, how high are earnings, and can these Companies Continue to grow at the earnings that they have been growing at in the recent years also, before the commodity boom last decade the value never really got that expensive, but the earnings, because of the underlying prices got very expensive. And thats something i see in some of the companies in asia, like a lot of the profits coming from cyclical elements such as the semiconductor cycle. I think we have to account for the fact that earnings, too, look very good when were at late stages of a bull market okay, ruchir, we want to thank you. If you havent read it already go out and read it its a fascinating oped. We appreciate your time. Have fun down there in south africa okay, folks. One of the biggest emerging markets in the pot business is edibles. And these arent your parents pot brownies from cookies to soda, edibles and concentrates make up the nations appetite for weed in a new cnbc documentary, we go inside one of californias largest pot edibles makers hes willy wonka for weed. How long have you been in business since 2010. Christine runs this edibles empire thats our tangerine dark chocolate bar. Currently we offer a product to about 960 dispensaries throughout the state 85 employees crank out over 1,000 pounds of pot infused chocolate a day. All of that makes a ton of this. I want to be like santa claus. Yeah, these are about 40 pounds wow the profit marijuana millions premieres tonight at 10 00 p. M. Eastern time right here on cnbc. Up next, a Staffing Firm taking work hard, play hard, to the next level no long Online Training videos that are boring. This company has helped the likes of the Golden State Warriors and employers at Rutgers University train with games. Helping us, too. Weve been playing these games were going to talk to the ceo welcome back to squawk box this morning Corporate America constantly gearing up or coming off of its latest round of employee seminars and web based learning videos but our next guest helped stem in with some hr innovation. Joining us is the founder and ceo of staff Training Firm one huddle ive been playing it during the commercial break right here on the app. And i think i i played it this morning. I have to say, i thought it was really going to suck, but it didnt it was really engaging training that shouldnt suck. I think that should be your logo ill take a royalty on that, by the way. I must say, it got engrossed in it, so it must have some merits. Maybe you can tell us how your selling this model. Corporate training today is broken from our point of view. 86 of what you learn in a live training or seminar were going to forget within 30 days and i hate it through the entire process im doing it in protest. And most people watching are on the way to work are probably at sometime this week or this month going to be forced to do some type of online module through their company. 91 of training is done this way. Only 1 is done on mobile and we have a whole workforce on mobile that are experts on playing games. So our perspective was lets take everything you need to do, do your job, convert it into quick burst texting platforms disguised in a game. Were doing that for young people and so this you had us test our knowledge of each other. Yep is that how most and of squawk box. And becky, by the way, was the winner i hope i came in second i hate to say it no. You came in third. I got 5600 and you got 5400. It isnt fair because yeah, im the new kid in town well grade on a curve. I hate losing these games its so bad for my brand we have to stop doing this and thats the competitive nair of the platform, right . Young people and veterans in the workforce r like we have threeminute windows throughout our day. We have these micromoments that we can get training in and leaderboards, we can create a world where employees compete against each other on Something Like training, thats kind of crazy. So if im watching right now, i run an hr department, how much do you want to charge me a 10,000 up front license fee depending on how much of the training were going to build out for you. So all this stuff here can be customized by someone at one huddle oh, not at cnbc or at cnbc. Well do some of the front end game design for you if you like. But we have Companies Like espn and audible is it 10 grand plus plus for each person using it theres a flat subscription fee depending on how big your workforce is if youre espn with 11,000 workers or youre modson square garden with 50 mr. Wonderful, e aryou buying this for all your employees . For Financial Services, you should do it on this platform. Over 200,000 new jobs were created in july. A month later, the Top Performing sector etfs welcome back, everybody. Jim cramer joins us now. Lets start with jamie dimon i dont know if you saw his interview or some some of the things he was talking about in the Hedge Fund Industry, some of the opportunities hes seen here in the United States or if you have any thoughts on that. I think 2 and 20 is under a lot of threat. I think what they give you was well described in that last buffett letter it kind of was a tree falling in the woods, yet to me, it should have been the ground swell right there. Often knows more than anybody. So i like what he said i also like what mr. Wonderful said about why not picking the best part of the index why do we have to have the bad parts . That makes so much sense to me lets talk about google very quickly. I dont know what you think about the guy who wrote this manifesto now being fired and complaining about it saying hes going to see what legal rights he has at this point well, i have two daughters and wherever he goes, i want to hound him. If he really feels that way, there are places to go i dont know i mean, like absent art ka they are very code short antarctica is great. Maybe mars has something honest to god, arent we past that how am i going to talk about that tougher to talk about gaim of thrones with game of thrones with my daughter thank you so much thank you, everybody squawk on the street begins in just a moment. Most etfs only track a benchmark. Flexshares etfs are built around the Way Investors think. 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Lets give you a look at futures as we are a half hour from the beginning of trading european markets, im told a mixed bag. I know it will no, i was wrong. Spain is up, Everything Else down the tenyear note yield, do you want to take a guess i bet you know, right . 2. 23 . Yeah. 2. 26 thats noteworthy mor