Transcripts For CNBC Squawk On The Street 20130822

Frz germany and the euro szone i at a fresh year twoyear. Hp ceo, shares of the dow component under pressure after last nights earnings. What could turn hp around in just a few minutes. Retailer abercrombie and fitch getting hammered in the premarket. Ceo says young consumers are not recovering. Sears is coming in weak. K mart down more than 2 . And one point for marissa mayer. Yahoo beating google in u. S. Web rankings. Weve got the details coming up. But well start with hp. Stock down in the premarket as the tech giant reports 8 drop in revenue in Third Quarter thanks to problems in pcs. Servers and other businesses. Company also announcing some changes to the top management. Replacing the executive who had been in charge of its struggling Enterprise Group. So many questions, jim, for meg. Where are you going to begin . Im going start with have we regressed . We had a fiveyear turn around plan. Shes doing very, very well. Remember, the stock was right about here when we came in. Stock came up. Up 78 for the year. Have we got it so the fact that even though cash is still building, the turn around is off track or is it just delayed because ive got the tell you, carl, there were a lot of questions to be asked about what happened since may when she said revenues will be up. Yeah. Having to back off of that promise of Revenue Growth in 2014 does sort of add to the feeling that theyre in retreat somehow. And even if it werent about execution, the weak macro is just not helping. Yeah. I mean, look, i think execution meg wittman does not want to tolerate a down 9 on Enterprise Services when the emc vm, tearing the cover off the ball. Huge computer company. Personal systems just gigantic. Printing very big. Personal computers now 22 . The inside of the pc has not come down in cost. Drivers are more expensive. Flashes are expensive for the smaller pcs. They dont have social. They dont have mobile. Theyre trying to be in cloud. Have they missed the snark k. They catch up . I dont know. Its going to be a critical interview from that standpoint. You mentioned pc sales down 11 . Opper net down. Printers are good. Which she likes to use a a macro metric like in europe. Stock, 20 in three months. It says if people forgot they were in the same business as some of their challenged rivals like dell. Im glad you mentioned dell because dell has been cutting price furiously. Maybe its because they want to show a different level of earnings power and once they become private, the possibility that maybe dell will relent on incredible price decline for pcs. This is a company that is i dont want to portray it as where should it be. Its going to be able to earn 350 to 380 next year. Its no a disaster on earnings. Paying down debt. They had nice operating cash flow. But growth is the magic elixir of what we want. When ibm didnt have growth we decided to send it down. Microsoft didnt show growth, we sent that down. They need growth. She has to do it by acquisition. She cant cut her way into growth. Again, that interview in a few moments after the break. In the meantime, retail decli r decliners. Sears, wider than expected loss as sales at k mart and other stores do weaken. Area control by missing Second Quarter estimates. Weakness in girls clothing. Abercrombie giving a forecast below expectations. They did not warn ahead of time, like aeropostale did. Im searching for a period when apparel was this bad in this country. When i go over the quarters, what sticks out at you, whether it be saks, nordstrom, macys, target, something happened. Its almost as if they all decided to go to the thrift shop. Either that or were buying everything on amazon. Yeah. Apparel has stopped in this country. Ive never seen this. People are always willing to spend on nice clothes. They stopped. Now, you could say thats because theyre now remod dling their bathrooms, fixing their kitch kitchens. That would be the call on home depot and lowes. William sonoma was higher today. But clothes . Wow, i mean, just no sells. Unbelievable. The stock on abercrombie down 18 this morning. Shocking. Ninemonth low. On the call this morning Mike Jeffries almost doesnt seem to know whats happening. He says were not clear why the weakness is the way it is. You would think some of the income metrics in this country doesnt affect teens as much as other people. No. I think his execution is horrible in a world where it wouldnt matter you executed well. They are saying this has become a very, very difficult market. When i saw nordstroms didnt deliver the number, that was the wakeup call, wow, this is a quarter where no ones buying dresses. Well, maybe no ones buying anything chic, either. Amf is a disaster. Samestore sales down ten. Margins were up 1. 6 points. Kind of gets lost in the shuffle, though, doesnt it . I feel like when you look at what jcpenney was able to accomplish this quarter. My hats off to jeff. He didnt destroy the franchise. Im very concerned about whats happening in this country. Jeffries in the call says were in the business that has ups and downsnd were clearly in a down. No way around it. You cant wear a sink and you cant wear a toilet. Not sharkespeare. When we come back, meg wittman will join us live in her first and only interview following the Quarterly Results last night. Take one more look at futures trying to look at the bright side after some pretty good pmis. Weve got a long way to go today. A lot more squawk on the street live from post nine when we come back. Make it happen with the allnew fidelity active trader pro. Its one more innovative reason serious investors are choosing fidelity. Get 200 free trades when you start using active trader pro today. Hewlettpackard shares are under pressure. Meg whitman says hewlettpackard does not expect to see growth during the next year. Meg, good morning. Thank you for coming on. Good morning. Thank you for having me. Okay. Lets get right to it. Where are we now after this reset button in the fiveyear term that you projected when you came in two years ago . Well, i think were right on track. Two years into a fiveyear turn around. As you might expect, there are businesses that are doing quite well. Theres a couple of businesses that havent quite turned the corner yet. Over all, i would say were on track. Weve got a lot of heavy lifting ahead but feel good about where we are. Meg, what happened since last may when you guided the revenues would be up . Whats changed . What i said in may is i still thought Revenue Growth was possible in 2014. But really a couple of things have changed. First of all, our Enterprise Group performance in q3 was not up to our expectations. We said it was a disappointing quarter for the Enterprise Group. Industry standards servers are under tremendous pricing pressure in the marketmarketpla. We had execution problems. And pc market has not really stabilized. This pc business is still headed down. And the market is still contracting. Even idc, you know, lowered their estimates last week or the week before. And then this is a little counter intuitive. Our Enterprise Services business is doing better than we thought this year, which makes growth a bit harder next year. Its good that you had in printers. The new units were up. One of the things that concerned me when we spoke last night we talked about the great turn arounds. Talked about how Howard Schultz came back in and was able to turn starbucks around but they had the wind at their back. When he came in ibm in 1993 the company was hurting. Both cash and product. He managed to turn around it around by introducing a whole new company. What can you do that is analogous to what he did to turn around hewlettpackard for the long term . Well, i take a lot of inspiration from that ibm turn around. But the situation is quite different. You recall ibm was months from running out of cash and not being able to make payroll. We generated a tremendous amount of cash in q3 alone. We thought this year we might generate 5 billion in cash for the whole year. Already weve generated about 7. 2 billion. So and we are a profitable, healthy financial company. Were now down to a zero and almost a zero net debt position on the operating company. But weve got a set of businesses, some are declining due to industry shifts. Some are flat and some are growing and what we have to do is align all of our resources, rnd, sales, against those growth areas so we can migrate away from those declining businesses to the growing businesses so we can capitalize on this new style of i. T. Whether thats cloud or big data or security or our moon shot product which i think has the opportunity to revolutionize servers or three par which is a whole new much more cost effective, simplified architecture for storage. Weve got a lot of great things in the portfolio and we have to accelerate the growth of those great products. Meg, its carl. Youve said this is going to be a long turn around from the getgo and clearly people understand that. But when you talk about the things that have changed, when you tell jim about execution in enterprise, dont you feel like youre going to have to extend the window of this turn around and will you be around for all of it . I dont think we have to extend the window. I mean, the reason i said five years is thats what i thought. I didnt say five because i thought it was three. When you do turn arounds there are bumps in the road. There are ups. There are downs. These things are not usually linear. Particularly at a company of hps scale and breadth. But we are really making some fundamental changes here that are going to position us better for the long term. I didnt come for this year or this year. I came for the long haul to reposition hp in the industry as an icon anything company that it deserves to be. Weve made a lot of progress. You can see it in our people. You can see it in our customers feel much more optimistic about hp. A lot of good sign posts along the way, for sure. You mentioned, meg, that you see it in your people and yet you did make some personnel changes. What are some of your executives doing wrong to make it so that other Companies Like emc, seem to be making inroads in your business or lenovo who passed you as a pc maker . My job as a ceo is to make the right people in the right job at the right time. You know, situational leadership is so important because some sometimes businesses require a different set of leadership skills this year than even last year. And so what im focused on with our two infrastructure businesses is we need a cost position competitive with other manufacturers, with companies. We have to have best in class go to market and r d pipeline thats going to churn products like our Net Generation of Data Center Networking and software define networking. Thats what were working on. I think bill who we just asked to run the Enterprise Group is going to fix some of our execution issues and hes a Proven Technology executive that knows a lot about software. And one of the big changes in infrastructure is the Software Layer can be the differentiator for hardware. I think his skill set plus a couple of other people i brought in to assist him, i think you will see this thing turn pretty fast. Meantime, analysts are trying to get their heads around this, meg, ahead of the analyst day in october. Isi is out with a note saying in their view the only catalyst for the company at this stanlth is a breakup and in their words, even the great carl icahn would have trouble creating value here. Are you willing to reconsider, even though youve already reconsidered your strategy, regarding divestitures . I believe that hp has a set of assets that are unique. Were the only company who can go from devices to infrastructure to services and software. And this is a huge point of difference as we can bring a series of assets to bear on some of the big shifts in the market. We have a unique and differentiated Cloud Strategy because we have this breadth of assets at hp. And scale, when you can make it work for you, is a huge advantage. No one has greater reach and scale than hp does. No one has the ability to bring products to market as fast as we do when we work really well together. So theres a lot to be said for hp as it is today. And we aim to prove that out. Obviously in five years if we havent proved that out, maybe there will be a different answer. I feel really strongly this is Better Together and youre going of see us get stronger with cross bu offerings that i think will be differentiated in the marketpla marketplace. Meg, lets look at that because when i look at your product portfolio. I went to the moon shot, terrific video. I dont see anything that is a needle mover right now. At the same time, i look at commercial revenues for personal Systems Holding up. But consumer revenue is down 22 . How do you balance the idea that you dont have that growth. New products could move the needle. But the need to do an acquisition and do an acquisition now. Because our net debt position is approaching zero, we have now the ability to think rethink our Capital Allocation strategy. As you know for most of the two years, the past two years, this was about dividends and increasing them slightly, buying back shares to offset dilution, and then paying down the debt. So now i think acquisitions will become a part of our future to further some of our Strategic Initiatives and shore up some of the product holes in some of our businesses. But really be careful about this because we understand that we have a legacy of some acquisitions that didnt work out very well. So we will be very judicious, very deliberate, make sure they are very strategic and we dont pay too much for these acquisitions. They will become part of our future. Every Big Tech Company has to be able to making a questiing a qu situations. Rest assured we will be very thoughtful about this. Security. I think you ought to beef that up. The ft. Nick kind of thing. Some of the Software Companies that i think do that same kind of mapping and search that autonomy does to augument that. Can you do a 5 billion acquisition with cash now or do you have to wait another 18 months until youre satisfied its low enough that then you can go to the market . Yeah. I think it depends on what the asset is, jim. You know, my view is actually we dont need a five or a 6 billion acquisition. I think there are acquisitions in the 100, 300 million range, 1. 5 billion that we might be interested in. I want to make sure. Listen, there is so much leverage left in optimizing the assets that hp has. I want to be very selective here. N. Terms of making sure what we buy will actually accelerate hp. I dont want to do it just to buy growth. I want to do it to further the strategic position in the marketplace for hp. So i think it should be a part of our future but we cannot take our eye off the ball of optimizing the incredible assets that this company has. And youre right about security. Arc site, tipping point, some elements of autonomy, these security business grew double din digits this year. We have a lot of growth engines here. We just have to get everyone dancing in formation and make sure we execute with excellence across the board. Meg, one thing weve been watching for the past few months is dell and to the degree in which they are cutting prices in a share grab. How much of a factor was that in the quarter . It was certainly a factor. There were very aggressive in the marketplace in pricing. And you could see that in your share results and you could also see it in the Earnings Results down over 50 . So theyre very aggressive in the marketplace. And we have to respond to that. We have to cope with that. You know, this is a very competitive market. If its not dell its probably going to be someone else. But well see after they go private. They have traded the Public Market master can which can be challenging from time to time to a private market debt master. And when you have that kind of debt on the company and youve got to meet those capital calls and youve got to the whole game. How fast you can play down that debt, well see what happens. But we are prepared to compete against any comer because our objective is to be the lowest cost, most nimble provider of the valueadded hardware and infrastructure products. In order to do that, meg, youre going up against a company like lenovo which has very low costs. I imagine there has to be another round of targeted layoffs in order to be able to get your headcount down, your labor cost down, switch more to manufacturing that is done obviously by machines because i think your table of employment is too high if youre going to take on a lenovo. Heres whats interesting. Were twothirds of the way through our restructuring which we talked about over a year ago. So there is more labor that will leave hewlettpackard. In the end, actually sourcing and supply chain, you have to look end to end, not only the bill of material cost, what the quality is, what your warranty cost is, your freight, logistics, just in time inventory. One of the things you saw this quarter is how strong our cash flow was. We are doing a much better job of managing inventory which is a real cost when youre in a business like the pc business or the printing business or, frankly, even the lowend server market. So my view is weve got a lot more work to do on supply chain, on logistics, on our Enterprise Group side and then, frankly, we have to make sure that we have the right product for the right market segment, not over designed, not over featured. But the features that are right for that market segment. And those are the two areas that i think weve got a lot of work to do, in addition to our go to market, how we price, how we bundle, our coverage models. Theres a lot of work there that i think will lead to improvement. The good news thats the kind of improvement you can make on a relatively short time frame. One last question, meg. Youve been in politics before. You follow all events. Do you think this whole discussion of tapering is insane given the fact that you go through your whole call and talk about the world slowing, u. S. Slowing. Does it seem nuts to be able to stop easing . Well, listen, you know, the world markets,sh gosh, europe is very challenging for us and its very volatile. There are some months that it seems just fine and other months that it falls off. Its a bit challenging to know what to do from a World Economy point of view. What i would say is that the u. S. Economy can get stronger through the right policies, whether they be monetary or fiscal, thats going to help the world because we are still the engine of growth across the world. And if we could get our own economy really steaming ahead, listen, i think this would be a help to all of us around the globe and that would be, you know, that would change the dynamics, i think, dramatically. Meg whitman, ceo of hewlettpackard, thanks so much for coming on cnbc. Thank you. 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From td ameritrade. Youre watching cnbc squawk on the street live from the Financial Capital of the world. A dark and stormy morning as someone just said on twitter, jim. Rain rolling through times square. It looks like its nighttime outside. It doesnt look good as the one i had the other day. Futures are not dark and stormy. Looking at relatively good action on the pm, is. Giving hope to indices in europe. Tenyear yield is around 2. 94. Earlier this morning people are waiting to see if we do get to three. You were saying that needs to back off. Watch the tlt, people at home. That goes down, the stock market goes down. I wish there was more to it than that. Theres the opening bell on a thursday morning. Look at the s p at the top of your screen. Down here at the big board. The womens tennis association. There you go. Celebrating the 40th anniversary. Over at the nasdaq, the Kings County Tennis League celebrating the fourth year of bringing tennis to children in brooklyn. What a great cause. Absolutely. Its going to be right after this, im going to be over there. We just had meg whitman on our air, of course. People on twitter giving us a hard time for either being too hard or too soft. I like that when that happens. When i was a homicide reporter i would do what these people say. Listen, when did you stop beating your wife. People would look at me, cramer, he really knows how to hit him. I got nothing out of it. No one wanted me again. You just do your darn best. Regardless of what you think of the story, it is going to take some points off of the dow. Yes. Look, theres secular winds against her. Theres cyclical problems. There were execution problems. They still made money. Three months ago people were saying shes the greatest. Life doesnt change that quickly. Shes doing her best. You dont want the layoffs. Theyre not innovating the way you would like it. Moon shot is incremental. This is not ipod then ipad. This is not iphone. This is not steve jobs, okay . You want steve jobs . Im sorry. They dont have him. Yeah. It is the biggest loser on the s p that the point. Down more than 9 . Second biggest loser, sears holdings. 147, x items is a miss. Samestore sales down 1. 5. Which is, given their history, jim, not that terrible. No, remember on the lowes call yesterday. Appliances blowing out the door. Youre in home depot call, blake is saying i cant believe how strong appliances are. Sears didnt do well in appliances. Thats what they thats what you used to go to sears for. Emphasis on used to go. Apparel comps were up for the eighth quarter, apparently. K marat down two. U. S. Sears down. Online up 20. The stock ran up. I was telling someone this morning, it was not as bad as it could have been. Thats kind of like the way it is with jcpenney. It is kind of amazing that apparel is good for them because apparel is bad for everybody. We can step back and say what is there to buy in this sector . I dont have a lot. Tough. Target getting a couple of down grades today. William blair cuts to underperform. Isi goes strong buy to buy a day after their results, too. Remember target is a very good company. So when they miss like this, it isnt just target. Its not this is one, by the way, where Julius Caesar is wrong. It was not within himself. It is in the stars. This is not one of those cases where its just the company itself. The stars are looking real bad. Quick, couple more retail names. Ltd, l brand, beats by a penny. Someone knows what to do. Its not getting the tjx reaction. Tjx is very unsung because the ceo doesnt sing. And then finally jcp, poison pill. Poison pill. Some are joking saying, please no, autograph. Please take my picture. Jcpenney is a poison pill. It doesnt need a poison pill. You can add that to a hemlock cocktail. No, you dont need to. Its poison. Now we have to have a double poison because the first poison doesnt work well enough. Its a fail safe mechanism. Thats another one. Microsoft, were going to talk to him in the 10 00 a. M. Hour. Recommend it. Knew he would come back to the fold. They do have a big analyst meeting. A lot of people feel, including rick, the activist, something that david faber talks about a lot. Is playing a role. In the end, this is a hewlettpackard problem. Gaming will help. You saw game stock stop with an unbelievable number today. Gaming and bathroom and kitchen are doing well, and i struggle to find maybe Lawn Equipment doing well in the country right now. Gardening. Yeah. Good weather for it this year. Weather. Remember, the holiday selling season for all that is is the spring. I struggle over the idea of what to buy in retail. China, better pmi. Europe is turning now. Pmi service doing well. Go back to the industrials. And then one of the great companies, we do have them on tonight. People are short and shorting over and over again is hanes. I think that this wind at your back is in organic and healthy eating. Look at this stock. The shorts are scrambling. And you know what, if its good for them, then dont stay short whole foods. Interesting. What a story hanes has been. Beats by three cents. Youve got them on mad tonight. Theres a lot of sites you can go and write negative articles on. Theyve been bashing him and always taken with a plumb. Like meg whitman comes on tv. Simon is a delivery person. Meg did not have the growth that irwin had. Yahoo is in the green beating google. You might have read already. In u. S. Traffic for the First Time Since 2011. Unique visitors. Does not include mobile but that is thats a nice feather in marissas cap today. The turn continues. Marissa mayer is doing a fabulous job. Thats a difficult thing. First time in a couple of years. But i like the momentum at yahoo . I also like the internet. There isnt anyone yet who is saying the internet doesnt continue to grow. That moon shot product that whitman alluded to is a way to be able to capture all the 40 million tweets that, what, every second. Its a way to be able to capture that traffic. There is still great capture growth in tech but its all internet, social, cloud, mobile. All right. With all that, well keep an you on the dow which, by the way, six days down. Weve had a few of these streaks over the past few years. Jim, on day seven, it tends to be up more times than not. Could you see a week where you get these numbers. We had sentiment numbers today that shows the bearishness is incredible. It is difficult to try to fight the ten year. I do like the fact remember we used to wake up and europe was falling off the cliff . We would wake up and china is bad. Pmi last night was a shocker. Surprised china wasnt up. Thank heavens the Banking Group is up because i think the attorney general there was no prosecutor who held a prons press conference this morning that said he was going to put people in jail. Its still early. Youre right. Youre right. Oh, geez, it could be any minute now. Lets get to bob pisani. Good morning, bob. The interest in europe moved up today. Manufacturing pmi numbers came out. Better than expected overall. There is expansion in europe. Its over 50. China is down but china had their flash manufacturing numbers also coming at 50. 1. Thats expansion. A little bit of a surprise there. A little bit of good news on the global front. Lets talk about the retail. Abercrombie just opened, down 20 . The ceo seemed confused on the conference call. Heres what he sad to say. The reason for weakness, abercrombie ceo, is not entirely clear. Youth spending has diverted to other categories. Interesting comment. Lost in all this is abercrombie is not really aspirational anymore, like the core customer appears to have moved on. They moved on to michael kors which is going great. Urban outfitters is doing better. Kate spade maybe they moved on to. A fossil, for example, which is not doing bad. Abercrombie had 50 off sales on and off for years. I dont know if its aspirational. 25 jeans at hollister on sale. I dont know if thats aspirational. Their customer has moved on. For the rest of the world its not aspirational. I know its popular to say its a joke down here. Buying two things. Footwear and smartphones. Thats the only thing. Thats not true, either. Did you see game stop buying video games. Game stop has just crushed it today. Used games, new games, consoles. Theyre doing great. Sony and microsoft has a new generation of consoles. Apparently the preorders have been strong or that. We have a bunch of new games coming out. Grand theft auto has a new game coming out. The used game business is doing really well. So they are spending out there. Theyre just not spending on certain brands that they dont particularly care about anymore. And by the way, there were a few pieces of good news today in retail. Childrens place, for example, all right, its not a huge player in the game but a different space. Theyed a a very decent quarter. Teen apparel, the buckle, they did a little bit t better than expected. Other than that, all right, i admit, tjx, thats it. The other one that had a great quarter. There is places where the consumer, teen consumer, is spending money. Jim, this lost in the earnings report. Sears is mostly a Membership Organization now. They have this program, our shop, your way, Membership Program that is 65 of the revenues of the whole company in the Membership Program. For k mrt as well as for sears. Points based on how much you spend and then you can redeem those points for merchandise at the stores. 65 of their revenue comes from the membership now. Its worked for of these including a firm you did a great special on, costco. I still think sears should have done better. Should have. Lets shift to the bonds and the dollar. Thanks, jim. Wow, the yield curve doing some wiggling today. Now, even twoyear, even a twoyear note, at 37 1 2 basis points, is it the highest yield on a closing basis since the 5th of july. You notice how that date keeps coming up . Some significant technicals that day. But nothing more significant than the 161 fiveyear yield that we blew through like a hot knife through butter yesterday. Lets look at some intradays. 5s, 10s, 30s. Youre going to see the curve animate right in front of your eyes. The fiveyear at 165 is still one basis point higher on the day. The further you go down the curve the further down the rates go. We are seeing some curve flattening, which is exactly the point why we wanted to pay so much attention to that fiveyear breakout. The long end will probably get its act together. We want to continue to watch the momentum. If you look a little bit beyond and going to foreign exchange, you know, a twoday chart of the dollar index says a lot. Boy, it looks like a stairway to heaven. When Interest Rates are hot and proactive, it seems to be logical, should help the dollar index. If you look at the next chart, its helped it a bit. Still in a zone to pay close attention to how we want to act and get close to 82 1 2 to this 83 area. Carl, back to you. Thanks so much, rick. Were going to keep watching where you are today. Meantime, kelly evans here at post nine watching other stuff, too. Thats right. A lot of people after the fed minutes were surprised to see the market react the way it did because whether it was h hilsenrath or not. You saw the markets starting to price in, for example, lifting the funds rate in december. Now, just to give broader context about this key rate from the fed, heres interesting couple of points from barclays that reflects the discussion in the market more generally. Its going to be a point of discussion in jackson hole this week as well. Theyre aing, look, the fed funds rate may not mean what it used to. They used to rely heavily on the rate, used to rely on this of for overnight borrowing. Now theyve got a lot of bank reserves, a lot of cash. And thanks to regulation thats going to make them hold morley quiddity in the years to come theyre going to keep more holding more cash and to v. To rely less on the fed. H is the big question. This is trillion dollar question, if you will. How much will it take for the fed to drain the Balance Sheet if it wants to have the same kind of impact with lifting or moving the fed funds rate around. What is the push and pull in the market . What is the transmission mechanism for fed policy . May not have to worry about this one for years depending on how the economy does. This is the important and relevance in the tool to the way the banks interact with the broader economy. The fact that youre bringing it up is interesting. Its not something that fisher would likely address today but it will be a question that you will ask. Washington post story that got some pickup yesterday on what incomes have done in four years. This is not Government Data but its done by some guys who have worked on that kind of stuff. This goes back to the debate now about the effectiveness of quantitative easing and Monetary Policy of what the feds doing, et cetera. People are going to look at this and say, wait a minute, four years out from the end of the recession, not the beginning of it. Incomes are still falling for the typical American Family. This isnt just a debate about what happened during the financial crisis and response afterwards because while incomes are down 4 from 2009 levels, for the typical American Family theyre down 7 from 2,000 levels. This is an extremely long term trend trim that people arent finding a heck of a lot of ways to explain. People are like american industries. The revenues keep going down so they keep kiting and cutting and cutting. Saw some refinanced fingers last night. That is going away. All the companies refinanced. We need Revenue Growth for individuals and we need them for companies. Right. There could be a point at which those two Work Together, right . Where you start to generate the longterm productivity that lifts Household Income and people are buying more and its good for the top line everywhere. We just seem to be not quite getting there. In the stock markets are reflect that we were about to get there. Right. Right. Speaking of which, i love just your postmortem on the discussion yesterday when the minutes came out and steve thought they were not as hawkish as some thought and we went up and went down. What was that all about . Program selling that went in. Thats what steve wasnt saying where at the end of the day. Listen, there are these program bursts. I wbt overall the newspaper columns for july 30th, july 31st, and august because thats when it was that was contemporaneous. Nothing in the statements that were released then and the reporting was different from yesterday but the ten year is taking on a life of its own. Thats why it goes back to the discussion we were having a couple days ago. If the tenyear is taking on a life of its own, is it a good increase in Interest Rates or a bad increase in Interest Rates . Yeah. But if you own the youll tellities, no such thing as a good increase. Thats the problem with the bond market equivalence. That was squirrely. I just hate the idea. Look, im against the machines. But its man against machines, the machines win. This is clearly terminator 2. Not the most hopeful sign after going through the busted trades in the options yesterday. Managed to reset some. We see these things. This is the same i remember i was out on the set when the flash crash occurred. 52, 38. Listen, dont worry about it. The people at home are saying, you know what, cds look mighty attractive. Not a lot to love about all those stories. Thanks. See you in a few minutes. When we come back, billionaire brainiac, ceo of tesla elon musk speaking out with our phil lebeau. The pihyper loop. And retailers feeling some angst this week. Another troubled teen will be able to bounce back from declines. Look at early movers. Dow for the first time in six days is up some 35 points. Right now, 7 years of music is being streamed. A quarter million tweeters are tweeting. And 900 Million Dollars are changing hands online. Thats why hp built a new kind of server. One thats 80 smaller. Uses 89 less energy. And costs 77 less. Its called hp moonshot. And its giving the internet the room it needs to grow. This is gonna be big. Hp moonshot. Its time to build a better enterprise. Together. Welcome back to squawk on the street. Im Sharon Epperson at the nymex looking at some of the big movers today in the commodity sector. Start off with copper off of the highs today. Copper continues to gain ground here after that pause of data we got out of manufacturing out of china. The flash hsbc was better than expected. A lot of new orders. A lot of activity in terms of building power lines across china. Of course, used in those power lines is copper. Copper is responsible for about 40 of the demand for refined copper around the world. So that is one of the big gainers. Another gainer is natural gas ahead of the inventory report thats due out at 10 30 a. M. Were expecting to see an injection into storage of about 67 to 71 billion cubic feet. If its smaller than that amount look for further upside in natural gas. Keep your eye on the forecasts which are getting hotter for many parts of the country. Back to you guys. Thanks, sharon especialppers. Were watching the tesla complex today, jim. Phil lebeau will be on talking with elon musk about how hes tired but excited about the prospects for the company. Doesnt stop steve from coming out and saying theyre going to sfas some threats soon. Phil lebeau is the best because of what we saw earlier today was an fascinating interview. Everyone has to stick around for it. I like the fact that tesla used a situation basically saying its a cult so we dont get in front of cult stocks. If it werent a cult it would be hard to find a reason to buy. I find a reason to buy. Its selling at 75 times their number earnings. It has earnings. Most of the cult stocks i follow dont have earnings or are considered to be on the calm in 2 017. This company is doing well. Phil lebeau will tell you why. The fact that there is a crash test premium. There is a Consumer Reports premium. People want these cars. Interesting. Its not the first sell side thats come out with some relatively harsh words for the company. I wonder if you think overall the sentiment is beginning to crack a little. I think that i hate to keep folding to the ten year but we know when rates go up, cult stocks 10 te s tend to dissipa. These are great productions. Well hear more of what musk and phil have to say in the next hour. Heres what else is coming up on squawk on the street. Coming up, this market will keep you moving if you can learn the tricks that wont keep you going in circles. Cramer will give you some tips with six stocks in 60 seconds when squawk on the street returns. [ male announcer ] this store knows how to handle a saturday crowd. [ male announcer ] the parking lot helps by letting us know whos coming. The carts keep everyone on the right track. The power tools introduce themselves. All the bits and bulbs keep themselves stocked. And the doors even handle the checkout so we can work on that thing thats stuck in the thing. [ female announcer ] today, cisco is connecting the internet of everything. So everyone goes home happy. A lot to cover with jim in six in 60. Six stocks in 60 seconds. Radeon. The fha is pulling back. Theyre going to own the market. Ntg has this one. Crest. I think its taking on a losing share to these guys. We havent mentioned dollar tree earnings. A shame we havent because talk about a cohort that does well. This is not a big guide that people gave you. The country is hurting. Wells on pcp. Secular trend that they can get in on. Continue to send you to aerospace. This is a cheap company that makes the body. Yes. Of the plane. Cmm. People want momentum. Wells and steeples say they do well. This has weld up remarkably. This is the Fastest Growing innocent independent country now. I mean no offense to eog which is the other one that has it. This company is going to be taking over. Youve got a big show tonight with healthy food and food thats not so healthy. Popeyes which i think is delicious and cheryl is just a fantastic ceo. And then irwritten simon, so you want to have the tera chips, the earths best. Ill give you a variety. You will gain weight here and take it off here. By the way, you will gain points here and gain points there. Interesting. Overall, jim, we mentioned six days down. Typically the seventh day tends to be a little bit better. Over sold here or not . Carl, if the ten year were to go to 2. 78 we would go up 500 points in probably two sessions. Oversold wont matter if we dont get a bond bauns because people just have to take numbers down for so many Different Companies that you could hit. You have a little rally. Tomorrow people come in and cut numbers. I hate to be buy their but tlt down, market down. Thats the market were in. See you tonight, 6 00 and 11 00. When we come back, moving the market. 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If you have any sudden decrease or loss in hearing or vision, or if you have any allergic reactions such as rash, hives, swelling of the lips, tongue or throat, or difficulty breathing or swallowing, stop taking cialis and get medical help right away. Ask your doctor about cialis for daily use and a 30tablet free trial. Welcome back to squawk on the street. Indicator is up 0. 6 . About as expected. Arguably a smidge better. You know, if we look at the home index that was out a little earlier it was up 0. 7. Quarter over quarter. Up 2. 1. So so far today, like some of the european and chinese data, things are looking better. If you look at Interest Rates, one would either assume things are bet eting better or if you long Interest Rates, youre sweating a bit. In either case, a market you want to pay a lot of attention to. Carl, back to you. Rick, talk to you soon. Big news this morning. Hp shares falling this a. M. After reporting a fall in revenue in the Third Quarter thanks to problems in pcs, servers and other businesses. Ceo meg whitman joined us exclusively earlier on the program smep says the company is not considering divesting any businesses right now. That she does see some acquisitions on the or ror rye i think acquisitions will become part of the future for initiatives and shore up the product holds in some of our businesses. But really be very careful about this because we understand that we have a legacy of some acquisitions that didnt work out very well so we will be very judicious, very deliberate, make sure they are very strategic and we dont pay too much for these acquisitions. I think every Big Tech Company has to be able to making a question situations and we have our eye on a number of areas. But rest assured we will be very thoughtful about this. There is no such leverage left at optimizing assets that hp has i want to be select i in terms of making sure what we buy actually accelerate hp. I dont want to do it just to buy growth, i want to do it to further the strategic position in the marketplace for hp. So i think it should be a part of our future but we cannot take our eye off the ball of optimizing the incredible assets that this company has. So what should shareholders in hp do and what do the results say act the tech sector as well . Dan morgan joins us, Senior Vice President and portfolio manager. Welcome to the program. Good morning. Thanks. Thank you, simon. Hewlettpackard now on permanent unstoppable decline or is meg whitman live up to a share price that struggled . I dont know if one can say permanent decline but it does look like a structural decline. Every one of their businesses is eroding and the erosion isnt really slowing down. I think one of the problems hp faces is that by and large its a Company Built on massive scale and so as it shrinks, it actually gets, you know, tough to cut costs fast enough to keep up with the declining revenue. Dan, you hold stock in hp. Do you not . Yes. Okay. Thats correct, yes. So meg whitman laid out the vision. The vision is a big tech vision to the point that rob is making that you have the reach, you have the scale, you have the breadth, you span devices in infrastructure and so on and so forth. But the world has changed, has it not, into one in which people are accessing the internet on their mobile devices and companies are increasingly renting space in the cloud and storing their data in the cloud. How the you square that side of it with what the vision is from meg whitman . I would agree with that, simon. We know as you know in terms of their Business Segments in the last quarter pretty much all of them were down. They continue to show negative growth and we know about the issues with their pc units, so forth. I think the way we have to frame up hp, though, is more of a conservative income stock. Thats usually what we buy it for. Were not looking at an amazon or google in terms of a big growth name. Its got 6 billion in cash. It pays out about a billion dollars in dividends. Its a Pretty Healthy coverage ratio. We dont look at it as a powerful Growth Technology company like the other ones i mentioned. We look at it more of a stable incomeproducing stock. Its more of a turn around situation. But i would agree with your other guest. I mean, theyre continuing to deteriorate on all of Business Segments in terms of year over year growth. All are negative except for software on the most recent. Dan, even if youre trying to get the more conservative investor on board, a 12 move in a day . I mean, that doesnt seem like the kind of smooth sailing that people are looking for typically in that space. Yeah, i would agree. When we kind of carve the tech sector up we look at what we call more mature cyclical growth which is what hp is and call more aggressive growth. We want to have some participation in the more conservative accounts in those type of stocks. The ibms, hps, so forth which are more dividend plays, intel, microsoft. You have the big growth plays on the amazon, google, and those kind of plays. Two different types of technology companies. I agree theres a lot of volatility in the shares. Were looking more at the coverage ratios in terms of stability to generate den dividend. I think your price target is 20 at the moment, isnt it . Yes. Okay. Which is most important . From which can we take the best positive view . The fact that meg whitman is now replacing the head of the enterprise unit and obviously did the same for the pc business and execution could be better in this bitter t battle you have with dell and cisco and lenovo or the prospect of acquisitions that she might spend 300 million, 1. 5 billion on a Strategic Acquisition that would lend feedback into the acquisition that they have. Which of the most two are the most advantageous for shareholders . Im not sure if either is necessarily a big positive in itself. I think shuffling management maybe matters but so far i dont think this has necessarily been an execution issue alone. I think a lot of this is secular. In terms of acquisitions i do think hp will want to get back to being at least a little more quis tive. Basically brought nothing recently because their Balance Sheet has gotten weak. They have done a good job of shoring it up. Its not like they are flush with cash. Hp is not in a position to go buy much. I think theyre likely to see them bye, you know, kind of small companies. I dont think m and a is going to be the fix for hp any time soon. Guys, well leave it. Down beat sort of interviews there. Leave it there. Thank you. Coming up next, elon musk himself will topple the ivory tower perception and try to emulate henry ford on the factory floor. And later, why shareholders could be a good thing for microsoft. Squawk on the street will be back in two. The most Free Research reports, customizable charts, powerful screening tools, and guaranteed 1second trades. And at the center of it all is a surprisingly low price just 7. 95. In fact, fidelity gives you lower trade commissions than schwab, td ameritrade, and etrade. Im monica santiago of fidelity investments, and low fees and commissions are another reason serious investors are choosing fidelity. Now get 200 free trades when you open an account. Welcome back to squawk on the street. The largest retailer of accessories is having a great morning. Ga gamestop is the best in the s p 500 so far, sales topped analyst estimates. Sales were down from the same time last year but game stop is seeing growth in digital and mobile game sales. Digital and mobile is where the action is at. Wourks certainly are. Thanks very much. The tesla model s is one of the most popular car tons road and now one of the safest, according to officials. How does the man behind tesla elon musk feel about all of this himself . Phil lebeau is sitting down with him right now joining us this morning with more. Over to you, phil. Kelly, were here at the end of the model s Assembly Line here at the tesla plant in fremont. 500 model ss roll off this line every day. Yesterday we had a chance to spend an hour with elon musk Walking Around the factory, talking with him about the challenges hes facing as he raises production of the model s and he says they can do it as long as they make sure the supply chain stays intact. A big issue is raising production. So i dont want to be complacent about demand but our issue is not demand as much as increasing pace of production. For next year we feel pretty confident we can raise production by a factor of two so that by the end of next year were producing somewhere around 40,000 cars a year on an annualized basis. Whats the wait time if i go into your gallery, lets say in the chicago area, and i place an order for a model s, whats my wait time right now . I think four to six weeks is probably the right amount of wait time, thats where were able to run the factory efficiently. How often do you get a chance to come out here on the line . My desk is out here. Where is it at . We can walk to my desk. Okay. I think challenge is ramping up production and so being in the factory and understanding where the issues are and so i want t went the very opposite of being up in an ivory tower. I want to be in the middle of the battle. And so that means putting my desk in the middle of the factory. So its thats where it is. And then people can come talk to me and i can easily talk r walk around and see how things are going at the factory. Its not the most comfortable place to be but a lot of Big Companies ceos like this ivory tower, like the top floor of some luxurious building. Far away from where the things are being built. So this is your desk right here . Yeah. The one with the motor trend car of the year . Yeah. This is my desk right here. Its a noticeably clean desk with the exception of the aid ward. This desk is the finest that money can buy at ikea. So didnt spare an expense there. And there you have it. Ikea desk is what elon musk uses when hes here on the factory floor working with the Team Building the model s. Look at shares of tesla over the last two years. Its really been in the last year where the astounding growth has been for shareholders, up almost 400 . Guy, one of the things we talked about with elon musk is his commitment to making sure the safety for not only the model s but future models is as high as possible. They just got the fivestar crash safety rating. Were going to talk next hour about why elon musk believes this is crucial as tesla positions this vehicle and future vehicles for the Broader Market in terms of winning over customers. Phil, speaking of those future vehicles ive heard a lot of interest from people anecdotally about the model x. Did you get any hints about when that one might be coming down the line . End of next year, kelly, is when we see the model x go into production. Starts deliveries late next year. More likely in the beginning of 2015. Remember, thats an suv. The doors get a lot of attention because theyre almost goldwyn and they lift straight up. As a result, people will be able to have easier access to the vehicle. Go out three or four years when the Third Generation lower priced electric vehicle will be coming down for tesla. Thats really the one that i think a lot of people on wall street are looking at and saying, okay, you clearly have shown you can make a mass market vehicle popular with the model s. Well watch for the model x but its the Third Generation a lot of people, especially investors, are looking for. Setting the bar high there, phil, with the model s. Well have to see if the rest can live up to it. Phil lebeau this morning. Thanks, phil. Absolutely. We want to got more on electric vehicles and clean energy. Former epa administrator, clean energy administration. Governor, welcome. Good to be here. We talked about musk. You havent met him. I havent met him. How do you view him and the move to get this all to some sort of critical mass. Its exciting. Its going to take somebody like this who is willing to make the investment to get it to that critical mass. What has to happen is you have to have the infrastructure, too. Its fine to produce the car but if people dont have the confidence to drive across the country and have a place to plug in. The other side of it, while i welcome it, it will have a good impact on clean air, which i care about deeply, its only going to be as clean as the emergency used to produce the power to charge it. Thats where you get back to the energy that you need for trying to ensure that gryou have a mixf all of the above. If you had to pick either electric vehicles become kind of the next big thing on a coal fired grid or natural gas vehicles to roll out national gas f150. Which do you think is better . From an environmental point of view it would have to be the natural gas. But best of all would be nuclear because you still get emissions from natural gas. And thats something about which i think we need to be concerned on climate change, its real, its happening. And to the extent that we can slow it down. Its in our best interest. We have to deal with the conversations fences. Conversations fences of what we see is happening. Musk is one of those stories that he has to pay back the loans and subsidies that the government gave to him. Other companies have not been so fortunate. Where is the appetite in the white house and on capitol hill to continue to help some of these manufacturers out. One is all of the above strategy as far as energy goes so theyre putting a lot of money in r d for energy and that is going to bleed off into these kinds of innovations because they have a real impact on our energy infrastructure. The real thing is we have to get congress to act. I read the oped that you had in the New York Times at the ingoing beginning of august with great interest. The world would look at this and say that america is tinkering at the edges of the problem. I think that you probably believe that as well reading between the lines. Do you think the baby boomers are failing this country because of not a carbon tax . I think the carbon tax is the cleanest way to go. I dont see the appetite in Congress Forget that done at this point. If you want to Say Something that is actually the best. You can make it revenue neutral in the sense that cow dont impose. You can cut other taxes for the individual and what youre doing is its the producer of the things you want to reduce who has to pay the fine which is the incentive. Why is it politically impossible to get that through congress . What do you have to do to change . Demagoguery . Do you believe the Scientific Evidence is induce putable but others do in the. Actually most people do believe that something is happening. No voices in this country. No. The problem is youve got a congress now that is so focus and politics rather than policy that they look at everything as whats going to give me another vote in my caucus, another vote on my reelect, now how do we solve this problem. They have made the issue of climate one of these third, quote, unquote, third rail issues where youre either with them or against them on the premise that you cant have both a clean and green environment and a healthy thriving economy. Thats just a wrong dichotomy. Do you think ultimately if the weather continues to deteriorate and the hurricanes continue to hit places like new york and new jersey as they have done but eventually the view will change . I think people already are getting it. No credible scientist will say the super storm sandy was due to climate change. What they will say is this is what you can expect from the changing climate. Evermore frequent storm, droughts, floods, cant tell you where it went but this is what happens. People look out the window and they see it. It just seems to be washington thats in a bubble. Maybe theyre under the dome and dont get it. I dont know. Luckily youre out of that game. Yes. Thanks for coming in. My pleasure. Up next, why Shareholder Activism prompted one analyst to up his view on microsoft in the last 24 hours. Rick sherman will join us live. Teen retailers struggling to stay relevant. What do the likes of American Eagle and abercrombie and fitch do now to keep the fickle shoppers interested . Right now, 7 years of music is being streamed. A quarter million tweeters are tweeting. And 900 Million Dollars are changing hands online. Thats why hp built a new kind of server. One thats 80 smaller. Uses 89 less energy. And costs 77 less. Its called hp moonshot. And its giving the internet the room it needs to grow. This is gonna be big. Hp moonshot. Its time to build a better enterprise. Together. We start with a surprising call on microsoft, upgrading the stock from neutral. Shares of the company up about 20 . Joining us now on the news line is the man making this call, rick sherlund. Good morning. Good morning. At a time when Shareholder Activism is getting negative attention, why do you think this is a good thing here for microsoft . I think theres a lot to be done at microsoft but i think you start with an agenda that would include borrowing against the 70 billion the company has locked up offshore. And if you could borrow against that you could buy back up to 25 of the company stock. And if you just provide tax Going Forward against that income and give it to shareholders you could double the dividend from 3 to 6 . I think theres a couple of easy things that activism would advocate, whether you would actually get those or not. You know, its not clear. But, you know, then youve got all kinds of arguments against management. And my feeling is that these guys that have act under 1 stock but they have tle tre mind douse support from other shareholders. I think they would leverage that and potentially convince the independent directors that maybe the company should be going at in a different direction. Sure. Two things to unpack. A form of Financial Engineering which were seeing a lot of companies do right now and the second is a management question. On the first, which i wonder, rick, are there not shades of what carl icahn is talking to apple about here, using that huge offshore cash file pooil, borrowing against it in order to buy back shares, boost the share price. Is that what youre talking about . Yeah. I think independent of fundamentals which are kind of on the slippery slope here of encroachment from tablets and smartphones into the core business, you do have a lot of Enterprise Business which is pretty stable. And the cash flow stream at microsoft is considerable and stable. I think you could leverage that in a way that is very enhancing to the value of the stock. So thats the easy thing to do. The harder thing would be, well, what do you do about tablets and smartphones . Im not sure theres a quick fix for that. But i think that i think thats a question you address down the road which is how do you better structure the company. But that comes later. I think the initial stock action could be very positive. It becomes clear to people that this is their real agenda. Its not about fundamentals. Its about driving more value. You dont see theres no contradiction for you in that, i rick, at all, that you have this very bitter battle between big tech. You say you dont know how theyre going to sort out tablets or pcs. You say, as you just said, the fundamentals are on a slippery slope. Still you buy the stock because you think that theyre going to buy back shares possibly if the activist shareholders win through . Simon, i would clarify that to say that we think the downside is a lot more limited, that about seven times Free Cash Flow on next years Free Cash Flow. So the business is where you worry most about tablets and smartphones. And, you know, 3 4 of the business is enterprise and thats a lot more stable. So i think you can look at what could go right in the business by delivering office for the tablet market and moving to subscription business. There are a lot of good things that can happen fundamentally as well. So i think we can isolate what the Downside Risk is either poor cash flows are stable. Rick, weve been down this road a couple of different times with big cap tech. Apple comes to mind. Where people got in because a could be catalyst like the kind youre suggesting. It was either too long of a wait or it didnt happen at all. Whats the risk that they dont move no matter how activist value act is. It would have to notify microsoft by august 30th if they intend to pursue a proxy battle. So thats coming up here pretty quickly. I think the board at microsoft is just going to nominate them for a board seat to keep them out of the press. You dont want these guys out dragging microsoft through the mud. Its better that you give them a board seat because theyre probably going to get one anyway. And then tell them, look, lets do all this behind closed doors. Well talk about your agenda. Well Work Together to deliver on some of that. So its possibleout dont see it until the actual results are starting to come through from board action trying to lobby independent directors. So theres one scenario which is they have to fight for it, and i think you get the stock up pretty well right away because youre going see what the agenda is. Alternatively youre not going to know they have a board seat possibly until the proxy comes out in the middle of october. Then you may have to wait to see evidence. You still end up in the same place. In the first sean nir ycenario t right away, in the second, you will see it in october. Rick sherlund joining us with a look at how the companies will use offshore cash to improve share prices. Thanks so much. Thank you. Stock getting a bump on that news on that call. When we come back, why one Market Strategist thinks all of these tapering concerns are over does done. Barry knapp with barclays will join us after the break. [ male announcer ] the parking lot helps by letting us know whos coming. The carts keep everyone on the right track. The power tools introduce themselves. All the bits and bulbs keep themselves stocked. And the doors even handle the checkout so we can work on that thing thats stuck in the thing. [ female announcer ] today, cisco is connecting the internet of everything. So everyone goes home happy. Im Sharon Epperson. Natural gas inventory rose by 50 billion cubic feet. That was smaller injection to storage than what analysts participated. As a result were seeing higher Natural Gas Prices. Natural gas at the highest level in a month. 3. 54 right now. And we are looking at an injection that is greater than last year and the fiveyear average. But less than what analysts had anticipated. Add to that were expecting to see much warmer temperatures across the central part of the country next week. That is another factor that has driven Natural Gas Prices higher. High of the session around 3. 55. Back to you. Sharon, thank you so much. Look at shares of hp. The biggest loser on the dow after last nights earnings report. Ceo meg whitman telling us she believes the turn around strategy is right on track. Were going to talk to carly fiorina. Still the best hperforming this year. Pretty wide margin, boeing is up only 40 in second place. She did the 12month chart is better because it doubled from the november low and you come down today. Just 11 bucks in november. Hard to believe. Contrast that with ibm. Incredible story. Absolutely. Meantime, an hour into trading. The stories were talking about. According to a new report the average American Household is earning less than now four years ago. At that time, it was down 4. 4 to a little over 52 ground a home. Milestone for yahoo . The company is getting more unique visitors last month than any other company inguding google. Its the first time yahoo has beaten google in web traffic since 08 and its impressive consideringia hess results did not include tumblr. Zimmer is back at the warehouse. Trying to make an offer to buy the company. The bid by zimmer would have to be hostile. The annual jackson hole symposium starts today and its a big one for the future of economic policy. Tapering and next fed chair are front and center for the top economic minds in the world. Amongst them, Steve Liesman who joins us now live from jackson hole. Steve, given that janet yellen is only going to host a panel is it fair to say that most of the news is going to come if it comes from the japanese and the imf if. Well, if the official session, sure, simon. That would be true. I would point out that we would have well have three fed president s on tomorrow morning. So some of the news will come from there. Well get a chance to talk to them and there will be chatter in the hallways that should find its way into the reporting out there. I would say though, simon, the absence of fed chairman ben bernanke looms as large as those mountains. Its the First Time Since 1988 that the fed chairman has not addressed this enclave here and it is over who is going to replace the fed chairman. Let me talk about the minutes yesterday. Theres a lot of disagreement over what they said. Heres my take on it, which is it shows the Committee Split over the timing of tapering. I think that they want to do it. They may want to do it this year. Whether or not its an early thing. Some members said they should stick to the plan announced at the june meeting and said it might be time. A few members said the fed should be patient. And weve heard that in statements made recently. Finally, a number of participants are less confident in the Economic Growth. There also was concern about inflation. Whether or not its normal for us to meet here one certainty over the fed chairman succession, i did put together a chart here that looks at when president s chose a successor. Kind of all over the place. June, october, august. Although from the last two you can see there its not unprecedented to meet with uncertainty over who the fed chairman will be. Its back in 2009. The last go around here. Bernanke was nominated by obama just a couple days after the jackson hole meeting here. But there is uncertainty over fed policy. Theres a certainty over leadership and Economic Growth. All those things loom large here. And will be spending the next couple of days trying to figure out if we can get some guidance over where the fed is going here. The absence of a definitive statement by the fed chairman will have to mean another time to happen, simon. This is of their own making. The problem with nailing your colors to the mass with Forward Guidance is it doesnt work if you dont know where youre going to guide people to. If youre split or indecisive. That surely, steve, is what is happening here. They raise the question of tapering. You get the Interest Rates rising. You feel the pain around the world. But when you actually get to tapering youre not sure if the growth is going to be Strong Enough because youre not really sure if the fed has the courage of conviction at all. The market will find it very difficult to rally on it. You know, i like that analysis, simon, because youre right. You hitch your ride to the Economic Data and the data comes out kind of jisquirrely, mirky. You dont know where to go with policy. The thing in the minutes yesterday were the chief areas of concern for the fed were higher Interest Rates and mortgage rates. It was noted that housing seems to be doing well despite the mortgage higher rates. The looming debt ceiling debate here and the effect of fiscal restraint on the Economic Growth along with Global Economic weakness. So four reasons for concern, four reasons for uncertainty, and that uncertainty translates directly to uncertainty over fed policy. Steve, thank you very much. Interesting couple of days. And who have you got on tomorrow . Whaell have john williams, James Bullard and i hope im having a rick perry moment here, we will have dennis lockhart, the atlanta fed president. Im sure you will be fishing by sunday. Steve, thank you. Got that right. Now, our next guest, lets continue the fed discussion here. He says the fed tapering concerns are over done and if it does taper it wont cause a major market disruption. Good morning. Good morning. Youve heard that back and forth a little bit with steve. Concerns i guess in the market over the last 24 hours about the fed minutes bag as clear as mud. Whats your base case now for what the fed does here . Do you think that as we sort of suggested, in your intro, theres not a whole lot the marks should be worried about . No, i would say i would probably take issue with both of those characterizations. One is, i dont think that they were the minutes were unclear at all. I think they were very clear that they are committed to the timeline laid out by the chairman. That likely means september. They dismiss the idea of lowering the Interest Rate threshold for unemployment from 6 1 2 down to 6. So minutes were hawkish and were definitely on track for september tapering. As far as things being over done, you have to be a little careful on how we claharacteriz this. You go back through history to all the post world war ii recessions. You hit a point where the fed started normalizing policy because the labor data buzz Getting Better because the economy was reaching the self sustaining stage. Thats where we think we are. And that invariably causes an equity Market Correction of 8 to 9 . We think were in the mid st of that. And then you will have a period of consolidation afterwards. We are going to have a correction. Its not over. Were in the second leg of it. The first leg being the Interest Rate sensitives. Second leg being this generalized near tive that the fed is taking away the punch bowl too soon. Small caps, consumer discretionary, financials will go down. Ludicrous to think the fed takes away the punch bowl too soon. Thats not their history, either. What were trying to say is that asset purchases were not nearly as effective in terms of working the way they were supposed to work. Right . The general theory is they push assets out the risk continue you and that in turn boosts confidence and consumer spending. Our argument is that the risk of cyclical stocks, those leveraged to growth, actually went up as measured by the earnings yield less the treasury yield during the asset purchase program. The stocks that drove the valuation of the market higher and generally took the stock market higher are those that look most like bonds. So the fed was very successful in making the bond market expensive, distorting prices just like they did in the late 40s or 50s or late 70s, early 80s but they didnt do much for growth. For that reason alone, you should probably stop with the asset purchases because of the whole topic of jackson hole is going to be the Global Implications of unconventional policy. Its pretty clear when you look at places like india and indonesia and brazil that those policies were pretty disruptive. So you think that the risks of moving too late are, what, are greater than moving too early because some people argue the exact opposite. I do. If you think about the last two recessions we had in this country, they were both had asset bubbles right at the midst of them. When people talk about inflation and say, inflation has been than the last few years, thats true. But we havent created real Price Inflation in the last few decades. Weve created asset inflation. And thats another outlet for two easy monetary policies. So i just would argue that not that they should be hiking rates tomorrow. Asset purchases really didnt work the way they were supposed to work and that its time to end those purchases. And the general narrative that the economy is Getting Better, im not sure where they comes from really. Jobless claims are at a postcrisis low. Theyre below where they were in 94 and 04 when they normalized policy. Labor data has been improving. This investment has been improving. I really dont get the economys squishy argument. To me it looks better. Especially given we had a massive tax hike. Household income is still lower than it was in 2000. You know. I know. I am just throwing it out there. Thank you for your insight. Very important week for fed policy. You got that right. When we come back, what a brutal day for teen retail. Teenagers can be tough for parents to deal with. Teen retail tough on investors. Shares of abercrombie getting hit after that big miss in the Second Quarter. Where do you put your money in the space . This man is about to be the millionth customer. Would you mind if i go ahead of you . Instead we had someone go ahead of him and win fifty thousand dollars. Congratulations you are our one millionth customer. Nobody likes to miss out. Thats why ally treats all their customers the same. Whether youre the first or the millionth. If your bank doesnt think youre special anymore, you need an ally. Ally bank. Your money needs an ally. announcer at scottrade, our cexactly how they want. T with scottrades online banking, i get one view of my bank and brokerage accounts with one login. To easily move my money when i need to. Plus, when i call my local scottrade office, i can talk to someone who knows how i trade. Because i dont trade like everybody. I trade like me. Im with scottrade. announcer scottrade. Awarded fivestars from smartmoney magazine. And this is my home team. This is my large lecture hall. This is my professor. And also my coach. This is my booster club. This is the guy whos graduating ready for a great career in technology. [ male announcer ] in 2012, 90 of Devry University grads actively seeking employment had careers in their field in 6 months. Join the 90 . Learn how at devry. Edu. Dow adding to the t gains this morning. Up 61. Lets get to Rick Santelli at the cme. Rick . Hi, carl. I tell you what, after going through the minutes yesterday and reading all the papers written about it, listening to all the discussions, talking a it, listening to the postmortem today discussing it, truly, its gobblity goop. It really is gobblity goop. I listen to people that a handful of years ago used to bring out the rulers, the measures sticks, yard sticks and talk in a quantitative fashion about the markets, the economy, durable goods, retail sales, all the things that are important. Now, we go into these indepth down the rabbit hole discussions about these subjective qualitative issues, honestly, i cant keep up with it. Its worse than the emperor has no clothes. I think its that the emperor is invisible and he has no clothes. But lets look at it the old style and lets not forget something big. Something big is, what, 3. 6 trillion Balance Sheet, Disruptive Forces of managing Interest Rates, and lets really gets back to quantitative. Okay . Whether it was july of 2012 when we were trading about, what, 138 yield . Or more recently we were down in may, right before may, 160 yield. An now i see us at a 287, 288 yield. Very close, closing in yesterday. Points in intraday to a 3 yield. So lets ask the question that really needs to be asked. Do we have the type of economy that can be sustained with a 3 yield . Most people say yes. But that isnt the issue. Was it as weak as it should have been at 138 . Was it as weak as it should have been at 162 . See, the point is, when we discuss this, unlike many times in stocks we tend to forget that there was a huge amount of management compression here on rates. So to dismiss all that and look at 289 or 3 or 3. 25 and try to handicap if its realistic, maybe its going to be as ill logical on the unintended consequences as the forces that drove it down to the illogical points. Maybe it will go to 4 because its giving a reaction theikcti response. Theres been articling written, do we need a fed . No. We have a lot of algo traders. I have a mission if you. You wonder what it is . Think about it. Carl, back to you. Rick, thank you so much. Rick santelli. A milestone this week for teses the la called tesla called the safest car on the road. Well get elon musks reaction in few minutes. Make it happen with the allnew fidelity active trader pro. Its one more innovative reason serious investors are choosing fidelity. Get 200 free trades when you start using active trader pro today. Right now, 7 years of music is being streamed. A quarter million tweeters are tweeting. And 900 Million Dollars are changing hands online. Thats why hp built a new kind of server. One thats 80 smaller. Uses 89 less energy. And costs 77 less. Its called hp moonshot. And its giving the internet the room it needs to grow. This is gonna be big. Hp moonshot. Its time to build a better enterprise. Together. Welcome back to squawk on the street. Shares of l brands are among the worst performers after the Company Behind Victoria Secret and bath and body works sales reported earnings that narrowly beat analysts estimates but offered a forecast for the Current Quarter profit that is fell short of expectations. So those l brand shares down in an otherwise up market, carl. Back over to you. Thanks so much. As you know, abercrombie shares getting hammered after a weak earnings report. It is the latest in a string of disappointing numbers for the retail space. James fallon is an editor and james is a current professor at columbia business school. Good morning, carl. James, on abercrombie, weaver been hearing a lot of macro explanations for whats going on with the consumer. On the other hand, Mike Jeffreys is getting personally excoriated by some investors for weak execution. Which is it . I think its a combination of both. Abercrombie has been hit and miss for a while and teens tastes have been changing and abercrombie hasnt really adapted quickly enough to the changing tastes, but there are Macro Economic factors as we have seen in the Retail Sector since the ilers started reporting last week. They opted not to warn. Mark, should they have given investors some at least a heads up on how the quarter was going to come, earnings half of what was expected . Well, look, hope springs eternal in the world of retail. I think they probably expected back to school to kick in in the last 10 or 15 days of the quarter, and obviously it didnt happen. Mark, why do you think that is . So one of the main debates going on right now is, is this a question of shifting taste in teen fashion . Is this a question of just buying power being down across the board . Or is yeah, is the teen sort of spending the income or just looking elsewhere whether its at digital devices, whether theyre shopping at forever 21s and perhaps the fashion chains that are more sophisticated on that front . Well, look, theres a couple of things going on here. First of all, im sorry to burst some folks bubble, but back to school as a discrete selling season really doesnt exist anymore. Thats first and foremost. But the backdrop, of course, is that the economy is more flat than up, and theres certainly a tremendous amount of Discretionary Income on the part of young people going into the digital devices rather than jeans and tshirts. James, obviously American Eagle, aeropostale have their problems, macys and walmart though perhaps not directly in your sphere of writing. What are you bringing to the table on this . What is winning now . I mean, basically the one that seems to be bucking the trend at the moment is Urban Outfitters in that you have the mix of fashion and denim. I mean, those denimbased chains are the ones that seem to be hurting the most, and there are the changes in fashion going to the forever 21s, the h ms, more online, but as was stated earlier, back to school just doesnt exist. I mean, teens have been delaying their backtoschool purchases well into october for the last several years now. And theyll continue to do it and also the parents, who are the ones buying the clothes, are really going to start waiting for the promotions where they can go and get three pairs of jeans for the price of one or whatever. And thats going to kick in because all these retailers are missing their forecasts and are now left with large inventory hangovers that they have to clear going into the third and fourth quarters. You know, james, these stocks are really beginning to trend in retail. They have huge moves. We saw it on the upside with the gap over the past year. Now on the downside with some of these. Is it possible to actually give up your fulltime job, go and move into the country, and trade these stocks on the basis of reading womens wear daily and whats in fashion and whats not . Well, wed like to think so, but, i mean, i think you have to look at the overall macroeconomic trends as well as the fashion trends, and sometimes they collide and sometimes they dont. I mean, as i said, urban is getting it right. Forever 21, well see what their results are. Zahra and the h ms of the world well see. The 16yearolds want to dress like an 18 or 20yearold and the 15yearold wants to dress like an 18yearold. Again, those chains that are marketing to, quote, teens are the one that is are going to miss out. Thats a great point. James, mark, thank you both this morning. Wakeup call for all of white house thought there was still a back to school season. Thank you. Cbs agreeing to renew its Distribution Deal with verizon today and thats a big deal in the continuing battle between cbs and time warner. Well explain why when we come back. [ cows moo ] [ sizzling ] more rain. [ thunder rumbles ] [ male announcer ] when the world moves. Futures move first. Learn futures from experienced pros with dedicated chats and daily live webinars. And trade with papermoney to testdrive the market. All on thinkorswim. From td ameritrade. I hav e low testosterone. There, i said it. See, i knew testosterone could affect sex drive, but not energy or even my mood. Thats when i talked with my doctor. He gave me some blood tests. Showed it was low t. Thats it. It was a number. [ male announcer ] today, men with low t have androgel 1. 62 testosterone gel. The 1 prescribed topical testosterone replacement therapy increases testosterone when used daily. Women and children should avoid contact with application sites. 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Cbs agreeing to renew its Distribution Deal with verizon this morning months before it was set to expire. Normally a deal like this would not be that important, but its impact on cbs standoff with time warner makes it worth watching. Julia boorstin is here to explain. Cbs contract with verizon is a bigger deal than the deal its battling over with Time Warner Cable which has caused a nearly threeweek blackout of cbs stations. Now, todays agreement with verizon covers distribution of cbs to 3. 5 million subscribers. Thats 300,000 more subscribers than cbs and Time Warner Cable are batting over. And verizons biggest markets are new york, los angeles, and dallas. Exactly the same cities where Time Warner Cable has blocked out cbs as the two Companies Fight over how much the cable giant should pay the broadcaster for content. Todays news could make fios look more appealing. Even more important, verizons approach to Digital Rights. Les moonves writing, quote, this deal achieved fair value for our over the air rights while preserving our streaming rights as well. Meaning Digital Rights are not included in this deal, and certainly not thrown in for free. Now, this is crucial because Digital Rights are the biggest Sticking Point in Time Warner Cable and cbs negotiations. Sources telling me Time Warner Cable wants free access to stream everything that cbs sells digitally. Verizons deal established precedent that cbs can sell Digital Rights separately for additional cash. Moonves rights, quote, Time Warner Cable is demanding different terms than any other company in the business. Im, frankly, mystified by what appears to be a lack of urgency to resolve this matter. Moonves is clearly looking to pressure Time Warner Cable to compromise. Time warner cable tells us no comment. Back over to you. Julia, thank you so much for that. Man, the machinations continue between that deal, and moonves, even he says its hard to believe its come this far. And with the tennis coming hu up. If youre just joining us, here is what you missed earlier on. Welcome to squawk on the street. Here is whats happened so far. We at the federal level need to invest to make Higher Education more affordable. The best investment we can make, but to be very clear, we cannot do it by ourselves. When you start to see Interest Rates rise, people are going to want to jump. All those people that have been sitting on the fence come back into the market. But thats a good thing. Something happened. Its almost as if they all decided to go to the thrift shop. Either that or were buying everything at amazon because apparel has stopped in this country. When you do turnashrounds, there are bumps in the road, there are ups, there are donees. These things are not usually linear, particularly at a company of hps scale and breadth but were making fundamental changings that will position us better for the long term. Theres the opening bell. For next year we feel pretty confident that we can raise production by a factor of two so that by the end of next year were producing somewhere around 40,000 cars a year on an annualized basis. Climate change, its real, its happening, and to the extent that we can slow it down, its in our best interests because we have to deal with the consequences both the fiscal and the physical. I dont think that the minutes were unclear at all. I think they were very clear that they are committed to the time line laid out by the chairman, that likely means september. Good morning. E were live at post 9 at the New York Stock Exchange. The dow is up 55 points. The s p and nasdaq posting small gains as well. Shares of game stop rallying this morning after the video game retailers Second Quarter earnings beat analysts expectations. The Company Raised its full year outlook due to strong preorder of new video game consoles. Shares of sears are slipping. They reported a Second Quarter loss. The decline in revenue is mainly due to having fewer kmart and sears fullline stores in operation. Hewlettpackard dragging on the dow. A big miss in Second Quarter earnings admitting a very disappointing perform frens the business unit. We have some insight you need to hear from the former ceo and current Ceo Meg Whitman. Teen retail, its not cool anymore. Shares of abercrombie falling after a major miss on earnings. Well take a closer look to find some bright spots if there are any. Plus, if wauyou want to be safe, just drive a tesla. Well hear elon musks first reaction to that report. And here we go again, a top aide to eric cantor says republicans are considering using the debt limb as leverage to fight the implementation of obama care. Well tell you whether you should take that threat seriously. We spoke to hp Ceo Meg Whitman earlier today and asked her how price cuts over at dell were impacting business at hp. Take a listen. They were very aggressive in the marketplace in pricing and you could see that in their share results and also in their Earnings Results which i think were down over 50 . So theyre very aggressive in the marketplace, and we have to respond to that. We have to cope with that. You know, this is a very competitive market. If its not dell, its probably going to be someone else. But well see after they go private. They have traded the Public Market master, which can be challengi challenging from time to time to a private market debt master, and when you have that kind of debt on the company and youve got to meet those capital calls and youve got to the whole game is how fast you can play down that debt. Well see what happens. But we are prepared to compete against any comer because our objective is to be the lowest cost, most nimble provider of these valueadded hardware and infrastructure products. That was our interview with meg whitman earlier this morning. More analysis on their numbers from carly fiorina, the former ceo and chairman of that company. Great to be with you, carl. Early read from some skeptics at least is that they are in retreat, that the turnaround plan promised some Revenue Growth next year. Obviously meg says thats not going to happen now. Do you think so . Well, first, i think we have to step back and understand the context that the company is operating in. So a whole lot of Technology Players have said recently that the economies around the world are not growing the way they anticipated. So you have Slower Growth in china. You have europe kind of bumping along. You have challenges here in the u. S. Economy for sure. Then you layer on top of that, as meg said, an intensely competitive environment. Dells strategy to trade profit for market share is not a new strategy on dells part. They have played this game over and over throughout the years. And i think michael dell is assuming that he will be able to do more of that when hes private. I think well see. Its also the case that all of hps businesses now are shrinking, not growing, and thats obviously a problem. And the only way to get out of that problem is with Innovative Products that customers are willing to pay more for. And so i think as meg and her team have done a really terrific job cutting costs and managing cash right. Now the future is really about Margin Expansion because youre seeing margins compressed in every line of business and Revenue Growth. And thats going to require not cost cutting but innovation, and i think the team know that is. A lot of people argue there are a couple ways. You can innovate or you can chop off the limb that is dragging the rest of the body down. We tried to get her to elaborate on her view of devestiture. Should they split . Some analysts think thats the only catalyst from here on out. Would what be wrong with getting rid of thep c division at this stage . Arguably nothing. Its worth analyzing, but as ive said on your program around this subject, first, one of hps great benefits is its supply chain and distribution channels. And those depend on volume and pc provides a lot of that volume. If you want to compete in an intense environment, you need the best cost structure around, and that is driven in large measure by volume. Secondly, as i mentioned on cnbc a couple months ago when the story about dell going private first came out, one option if dell goes private is a consolidation of the american pc industry. I dont know if thats going to happen. But you could see at some point down the road a dell and an hp pc business coming together in some way to compete against lenovo. Thats an interesting option to me. Yeah. But one thing thats very important in a pc business and a printer business, you need the volume. You need distribution channels. You need supply chains. Thats what gives you a lean cost structure. So you cant just spin it out for the sake of jettisoning deadwood. The other thing i would just mention is, honestly, the margins in the Services Business are about where the margins in the pc business are right now. And thats why i think Margin Expansion is very, very critical. Carly, just curious because this is a problem a lot of industries are grappling with, whether its pcs or even the teen retailers, what do you do . Is there a problem or an opportunity or something that can be done to get someone to form, for example, a holding company, buy up all these little pieces that arent doing well, and then figure out a well to consolidate for the greater good or health of the industry . Does that just not make sense . Is there just no one that can execute that kind of thing . First of all, i would just say, i think there are a lot of moves that are sometimes made in the marketplace for financial reasons, but they dont make sense operationally. So my test is always, does something make sense operationally . And to make sense operationally, it has to do two things. It has to give you a better cost structure and a better Competitive Position. So are there opportunities to drive a better cost structure with consolidation . Sometimes, absolutely. Are there opportunities to derive a better Competitive Position with consolidation . Absolutely. Its why we bought compact for example. But sometimes for financial reasons, a bunch of things are thrown together and there is no operational payoff. And that just creates customer confusion and ultimately customer loss. So it is a negative cycle that youre entering, not a positive one. It may give the stock a pop in the short term which may make a couple shareholders happy, but it doesnt actually change the cost structure and the Competitive Position in a positive way. Really briefly here, carly, i dont want to have you on and do buy, sell, or hold, but you cant ignore what the shares have done since november when they were 11. Has that appreciation been unwarranted . Look, time will tell. Im not a stock picker, as i have told you many, many times. Im simply not. I think that people have to make a judgment about the time frames in terms of hp. Meg rightly is saying that the turnaround takes time. I think people have to make a judgment about how much time is too much time, and thats an individual judgment call. But this is a tough industry now across the board in a relatively difficult economic climate with intense competition, and lets face it. These companies that are engaged in the hardware, the plumbing of the internet, those are not highly profitable businesses anymore. Theyre intensely competitive, which is why i come back to, you know, cost structure and Competitive Position matter greatly. Carly, thank you so much. Carly fiorina from washington talking hp, and, kelly, it is having its worst day now in two years. Wow. Down 13 . Last time it was down more than that, august of 2011. Whats amazing is that its still, as you pointed out earlier, the dows best performing stock this year. By a wide margin. Ja lets get back to the markets that are trading higher after a sixday losing streak and bring in jim, ceo of principal global investors. Were eager for your view on whats going on here. So weve got stocks losing ground at the same time people are talking about what the fed is potentially going to do next month. Is that the main catalyst for the recent selloff here . Yes, i think it is. There are many Investment Managers who are kind of in denial about the likely fed action. I actually think the fed has been pretty clear throughout that when unemployment gets down to 6. 5 , they wont be in the asset purchase business, and theyll taper it until then. And i think most likely the tapering starts in september. If not, it could be october or november. Im not sure in economic terms it really matters, but i do think the economy is in better shape than most people think, and thats why i think this setback over the last few days is a buying opportunity. Let me just read you a couple of stats here. Ive been going back and forth with some people in the market about the weakness in consumer names. They say we have 75 of the country lying paycheck to paycheck. Half the people with less than 800 in savings. More than a third of 18 to 31yearolds are living at home with their parents and thats a 40year high. How strong is the economy really . Obviously you can pick out very negative and very depressed pieces of the economy. The growth has been only on the order of 2 this year. But its fairly soundly based is really my contention. Its based on relatively cheap energy. Its based on pretty good productivity and its based on a recovering housing market. While you can make those negative cases about the economy, it is actually, i think, tangibly improving. And thats really the main underpinning for equities, which are not highly valued but continue to have positive profits momentum. So, jim, im guessing that you believe the committee believes the economy with the ten year at 3 is okay. That they can coexist. I think thats a really interesting question, carl. I do believe that the economy is most likely okay with the tenyear at 3 . What about 3. 5 . Maybe. What about 4 . I think 4 would be enough to put the brakes on the housing market, and that would actually bring the next recession a lot closer. Because it would remove one of the three big positives that i see affecting the market. So what do i take away from that . I take away from that that the main fear for the market is capitulation by some of these overextended bond managers. I have been, frankly, surprised at how fast the tenyear yield has risen. If it carries on rising very rapidly, that just means that the bond market is adjusting to its previous overvaluation quickly, but it also, because of the transmission mechanism through the mortgage market, could slow the housing market. And thats going to be an important area to watch. Jim, got to leave it there. Thank you so much. We have to get to Rick Santelli now with some breaking news. Rick . Hold your hearts here, okay . Normally when you have two fives and sevens like were going to get next week, its 99 billion. But since the deficit is dropping and twoyear yields are up to the highest levels since july 5th, theyre lopping 1 billion off only 34 billion instead of 99 billion, 98 billion. Now, i know this is a big deal. Lots of headlines, but i dont know. I know we spend a billion here and a billion there and it adds up, but it doesnt seem like a huge drop, but its a drop nonetheless. Back to you. Thanks for bringing us that news so quickly, rick. Rick santelli with that breaking news about the fixed income market in chicago. Meantime, the president set to speak on the economy this morning. Were following it all. Plus the tesla model s is the safest car on the road. 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The president is on this summer long tour to try to stress his vision of a middle class out economy, and a core part of that is trying to deal with the core inflation of college costs. So many students burdened by debt, and the president is trying to figure out not just ways to give them more aid, but to get colleges to lower the costs. Hes in buffalo because they have been a leader in the pay for performance steps the president wants to highlight. The plan hes outlining essentially has three parts. One is that the federal government would create a new Rating System for colleges to show how much they cost, make it more transparent, and also show their performance in terms of graduation rates, the kinds of jobs they place students in. Secondly, and this would require congressional action, would be tying federal student aid, about 150 billion every year, to the performance of those colleges. Students could still pick whatever college they want, but there would be more aid for people who go to higher performing institutions. And, finally, the president , and this would also take congressional action, wants congress to expand the pay as you earn program that hes implemented on a small scale that would tie repayment of student loans, which is an increasing burden, to 10 of the graduates income, and the president says that by doing that you would give more kids a chance at Getting Started in life and moving up the ladder. Carl . John, how much of this tour is really about college and how much is it about getting in front of congress, back in just 2 1 2 weeks. Were just 5 1 2 weeks ahead of the end of the year. Those arent likely to be front burner issues in congress. He is trying to soften the ground for the fiscal fights hes going to have this fall over government spending, over the sequester, and over raising the debt limit, all of which he wants congress to do and republicans are resisting him on various fronts. All right, john harwood with the latest. John, thanks very much. Like drivers licenses and myspace, teens are so over some retailers. Weve been talking about this one. A huge story this morning. Shares of Abercrombie Fitch dropping almost 20 at the lows of the session after a major miss on Second Quarter results. So what can they do to win back fickle teens . Anything at this point . Well find out when we come back. Announcer where can an investor be a name and not a number . Scottrade. Ron im never alone with scottrade. I can always call or stop by my local office. Theyre nearby and ready to help. So when i have questions, i can talk to someone who knows exactly how i trade. Because i dont trade like everybody. I trade like me. 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Its time. Shares ofAbercrombie Fitch down sharply today. They cited weaker store traffic and lack of interest in womens apparel. Dana tulsi and Courtney Reagan join us this morning. Good morning to both of you. Good morning. Dana, its been said when the retailer who has shirtless models has trouble bringing in young women, theres a problem. What is going on . I think its a broader problem than just abercrombie. The teen environment this year for back to school cant comp the color denim of last year and doesnt have enough newness in the tops business to drive traffic. While traffic is weak, the month of july was also very sluggish, too. Were going to need the rest of august and september in order to sell through these products. But products are a challenge and traffic is a challenge. Court, some are arguing they just stuck with their old look for too long and that look is not as relevant as it used to be. And a lot of consumer surveys of these teen panels both out of Piper Jaffrays and jeffreys had a lot of teens saying abercrombie just isnt cool anymore. Whats my little sister wears, im over it. They like names like Urban Outfitters, perhaps a company that many wouldnt consider a teen retailer, michael kors, nike, lululemon. That seems to be where theyre interested in spending their money. Im not entirely surprised about this big dropoff. Abercrombie also had some inventory issues last quarter. They said theyre going to be conservative Going Forward with inventory because of the uncertainty. I think they need to be careful not to be too conservative there as well. Dana, if we were to say that while the teen retailers figure out how to get the fashion right, part of the problem is there are simply too many of them and too many other places teens shop. What its almost a game theory problem. Who is going to come and sort of get all these guys on the same page to say we need to close capacity by 20 , 25 . I mean, is that not the fundamental problem here, its simply not in their interest to shrink . I think overall we have been seeing some of them shrink. Abercrombie is closing 40 to 50 stores. You are having aeropostale closing some stores. Theres more choice today whether its forever 21, whether its joe fresh. Youre saying if abercrombie manages to get it right with fashion next season, theyll be okay, and if the teen retailers the only problem for them is fashion . Its more fashion than anything else. Its the weakness in traffic. I think and whats different today that ben a few years ago, theres more choice to get that fashion today than what you had in the past. What are they going to do . Whether its adding accessories, whether its adding something with online. What other choices are they going to give the consumer to give them a reason to buy there. You know, court, we just had a discussion about whatever happened to the backtoschool season. James from womens wear arguings itargues its basically gone. Families wait until School Starts and they take advantage of the late discounts. Will the same dynamic happen with holiday . I think retailers would be so terrified. They wait to sort of buy everything that they need or want right at the very end, but i suppose its certainly possible. Like dana said, theres so much more choice. You could really browse ahead of time online and then because of that stores may not actually see the foot traffic and you may not get those sales. Consumers have gotten a lot smarter and they know if they wait, theyll probably get bigger sales towards the end of the season when the retailers get a little desperate. Dana, just in a word, do you see the risk there for holiday . It is a risk for holiday right now. Typically back to school always a little bit of a precursor and holiday this year, its shorter. Its 26 days versus 32 days. So it definitely puts up the cautious flag for holiday 2013. All right. Dana and courtney, thanks very much for some more perspective. Speaking of retail tune into the closing bell tomorrow for an exclusive interview is walmart ceo mike duke. It all starts at 3 00 p. M. Eastern. U. P. S. Says it will cut insurance for 15,000 spouses because of the president s new Health Care Law. Are other Companies Likely to follow suit . Well talk about this. Plus, the bell is about to sound across europe. Were back in just 2 30. Make it happen with the allnew fidelity active trader pro. Its one more innovative reason serious investors are choosing fidelity. Get 200 free trades when you start using active trader pro today. At a dry cleaner, we replaced people with a machine. What . Customers didnt like it. So why do banks do it . Hello . Hello . if your bank doesnt let you talk to a real person 24 7, you need an ally. Hello . Ally bank. Your money needs an ally. The european markets are closing now. Lets bring in simon hobbs to get details on the close. Thats a lot of green, simon. Actually, check out the detail and see the strength of the rally on some of those peripheral markets in europe. Look at that. Up over 2 in spain and in italy. Growth in the periphery of the eurozone is firing up from the beach. Jpmorgan. Weve had some survey data out which i will show new a moment, but this is a very, very good day for europe. Its a broadbased rally, but certainly the banks you can see, the peripheral banks around europe, are doing well. Portugal, ireland, spain, as you can see. Last month the pmis, the survey data of manufacturing and services popped above 50. So it indicated an expansion for the eurozone, but it was basically driven by germany and france. Today the data has come through for july, and its a further expansion. So remember above 50 is an expansion. 51. 7 for the eurozone. Germany rocketing. France actually declining but its had a very good four months, up seven basis points. So putting it all together, in order to get the jump that you have on the eurozone overall, jpmorgan is calculating, and its difficult because we dont have complete data, that in italy, spain, and ireland, the pmis are probably at 52. 5, almost expanding as rapidly as germany. Italy, spain, and ireland back in the game. Boy, that is good if youre investing anywhere around the world because it just takes the chance of Systemic Risk off the table. A long way to go, guys, but this is a good day. All right. Thank you very much, simon. Pretty interesting numbers, especially in germany. You have to watch that one. Lets get a check on energy and commodities. Sharon epperson is at the nymex. Were looki Natural Gas Prices up more than 2. 5 . That happened after we got the data about storage levels for the past week. They were lower than anticipated and some traders are saying that may be due weve seen a lot of coal to gas switching. Well see now with the price rise whether that continues. The other factor that has helped natural gas get to the highest level weve seen in nearly a months time is the warmer forecast that are opened mostly for the middle part of the country that are coming up next week, and those revised forecasts also had led to higher prices for natural gas. Elsewhere in energy, we are looking at oil prices that are relatively mixed. We got positive data out of europe as well as china in terms of manufacturing data. But the fact is many traders are now looking at that spread between the u. S. Oil price and brent crude and that spread that had blown out has come in a bit. We are continuing to watch that trade as well. Back to you. All right, sharon. Thanks very much for that. Now lets bring in bob pisani with a look at whats happening at the big board in the retail space but also outside of it. The important thing is those china pm i numbers, the european pmi numbers helped europe. China was kind of flat to slightly down but here are Commodity Markets on the up side. Its been an ugly market for a long time. Want to put up some of the Commodity Exchange traded funds. Copper names are moving to the upside. Most of the Metal Companies are moving up. Again, you can own these coal stocks. These are metal stocks. Specific Copper Mining stocks. Copx is fairly Exchange Traded fund. I hoped you were talking about Courtney Reagan talking about the retail. If you notice all the big retail thames that reported are all down. Not just abercrombie which is the disit isaraster du jour. The important thing is, and i have been emphasizing this all morning, its not that everybody is not spending any money at all. Its just theyre moving the money around. Accessories are really hot. Michael kors is having a great year. People are spending a lot of money on kors. People are into eye wear, doing very well. Movado is doing the same thing. Kate spade has been doing very well. Upscale apparel, theyre in other places. Ralph lauren is having a decent year overall. Put up rl, and that stock is holding up not so bad given the weak retail environment. Urban outfitters has an upscale division, anthropologie. Sideways for a while but given what some of the retailers are doing, thats a pretty respectable performance. Theres a lot of talk the young adults are doing nothing on but spending money on smartphones, but game stop is sitting near a multiyear high. Put up the full screen. Sony, microsoft is coming out with new consoles. Theyve got a tremendous amount of preorders for that. There are new games coming out including grand theft auto, tremendous amount of preorders for that, and used game sales have been strong. Want to note, the New York Stock Exchange is telling us an issue revolving around their electronic trading system has been resolved. Theres been a few problems trading there today in the last half hour. Im being told those issues have now been resolved. Guys, back to you. All right. By the way, the game stop ceo going to be joining us on squawk on the street tomorrow. Great. And he has a lot to talk about. Teens, theyre out there spending on other kinds of things besides apparel right now. See you soon, bob. Lets get to Rick Santelli in chicago with some insight on those minutes from the fed yesterday, rick. Yeah. Get away, get away, i dont want to talk to jim yet. I want you to look at charts. Those are the auctions tuesday, wednesday, thursday and next week. You heard me about ten minutes ago. Taking away 1 billion on the twoyear note yield. I want you to see the response. Higher yields in twos, higher yields in fives, and in sevens. If were going to be bragging about all the deficits going down, we need to shave off more than a billion. Come back in here. Lets talk about the fed and the fomc meetings and lets no, no, im sorry, jim. I am sick of talking about the minutes. Unless you talk about the minutes from a numbers standpoint and a strategy standpoint, i dont want gobbledygook. Why do you think they dont want to taper . They dont know what to do. They know that the policies are dis why dont they want to taper . The policies are distorting the markets. Its not helping the economy. They want out. They want out without hurting the markets but they cant figure out how to do it. See, we can talk about this. So youre telling me deep in the back of their heads, unintended consequences outweigh what the San Francisco dean when they have tried to evaluate these programs up to qe2, that theres only moderate influence, so you think that the Disruptive Forces are really the reason. Read the minutes and in the discussion of policy all they talk about are the potentials for unintended consequences. Maybe this is happening, maybe that is happening. Theyre afraid theyve messed up the markets. They want out, but they dont know how to get out without messing up the markets further. Thats why were all confused. Doesnt sound like youre confused. Sounds like people that try to explain what the gobbledygook is, theyre the ones trying to make order out of chaos. The fed says they want to be Forward Guidance and transparent. That only poshtiworks if you ha plan. When you have 19 people with 27 different opinions and you will get four more people in the next year, you cant have Forward Guidance. Its a mess. After this entire ordeal, thousands and thousands and thousands of brain hours talking about this, chasing their tails like a cocker spaniel, in the end, we dont even know if theyre going to cut back on the purchase of mortgages or treasuries. We dont know what theyre going to cut back, we dont know when theyre going to cut back. I would argue the worst Case Scenario is pull back a little bit, the economy gets worse, the stock market gets worse, apologize, goes go back to 85 billion. Then you have variable qe. Where did you get your undergrad degree . Marquette university. Where did you get your advanced degree . Fordham. You heard what i was talking about with supply. Be honest. Youre accredited. Am i off base here dismissing this 1 billion dropoff on twoyear notes as a big deal . I dismiss 5 or 10 off as not a big deal. Its just the noise that we have in the marketplace. Do you think that the fact that we are close to a 40 basis point have anything to do with it . Might have something to do with it. I like this guy, economist or not. Back to you. Well see new a little bit. U. P. S. Is saying it will drop 15,000 spouses from its insurance plans, and they are citing the new Health Care Law. 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Were joined for some more perspective on this by bob. Thanks for having me. A little bit of context on the u. Pmp. S. Move. How far is it a response to the existence of obama care and the exchanges that will be up and running in six weeks . In the companys memo they cite the Affordable Care act. This could be a start of a trend, if thats the case, this is a major problem for the white house. Remember, president obama said that youd be able to keep your doctor, keep your plan. And this is a huge company. U. P. S. Is 400,000 employees. So this is a problem for the president. Although they had to anticipate that if they make Health Care Plans available elsewhere, that a lot of employers would say then why shouldnt we just have our employees go get coverage there . Thats right. In the Health Care Law there are employer subsidies, but companies are going to make the decision, are those good enough . Lets face it, employers are looking to shed health care costs. Theyre rising. They have been rising for decades. Thats why the white house tried to and successfully passed health care reform. Theres a dilemma here for the white house because for a couple years they just did employer waivers when there were problems. Now the law is coming. Republicans want to stop it, but theyre unlikely to, and the exchanges start october 1. Thats whats so interesting though because as much as this could be trouble for the white house, as you suggest, theres a part of it which plays to their favor, right . Because if employers are not providing coverage, then theres going to be employees which say, well, i better go sign up and ultimately the success of obama care depends on people signing up. Yeah, thats right. And employees may they may find a better deal under the exchanges and their employer. So because premiums have been raising and thats the big question. But theres no doubt about it, there is fear about this law out there, and democrats accuse republicans of spreading it. But there are reasons. Theyve had implementation problems. So this is crunch time for the Obama Administration and implementation because this is going to be a huge issue in the 2014 election. Can you explain, bob, the influence of the nfl and the nba . Are we going to be hearing a lot more about that in the next few months . I think so. The Obama Administration has to make obama care cool because they have to get the young people, specifically young men in their late 20s, to sign up. They need to get the Healthy People into the socalled risk pool. If they dont, well, then the premiums are definitely going to go up because you have mostly sick people in these exchanges. They have to convince that population, that is, i think, the biggest struggle for them. If theyre successful, this law is going to be probably successful. So theyre going to try to entice those young people in, but, remember, the mandate penalty in the first year is less than 100. Right. Thats not much of a pemtyna to pay. Here is what a lot of people need to know on wall street as well. Its to what extent is the gop going to use either the debt ceiling or the continuing res to try and stop obama care to tie t try to defund it or keep the program from moving forward . Do people have to really take into account that this might happen or is this just rhetoric from the ted cruzs and some of the other gop officials out there . This is a problem for the republicans because theyre divided on this. And obama care united them for years, but on this issue they are divided. I think theyre going to use more of the debt limit than the possible of a government shutdown. Republican leaders do not want a government shutdown. And they dont want to default on the debt, but they have made it clear theyre not just going to raise the debt in a clean vote that president obama wants. And we saw that in 2011. So thats the rub, and i think though more were looking at the debt limit being more of the leverage than the appropriations and end of the fiscal year comes september 30th. One to watch once congress reconvenes. Bob cusack, managing editor over at the hill. Kind of strange when you think of the Credit Rating agencies have been talking about the prospect of more compromise, not less. Moodys. S p just the other day i think raising it from negative outlook to stable. We could be doing this all over again. Meantime, elon musk himself tells us about one of his Top Priorities for tesla, plus his reaction to blowing the doors off of those government crash tests. Phil lebeau has him after the break. You will be safe in a tesla. The u. S. Government calling the tesla model s the safest car on the road. Our own phil lebeau has the first reaction on that from elon musk. Hes live in fremont, california. Great stuff today, phil. Its been interesting over the last couple days spending time with the tesla team and in particular with elon musk, the cofounder of tesla and now the ceo of this company. Were on the model s end of the line. This is where they roll off the Assembly Line before they do pri final preps. For elon musk, an important part of building this company and building this car has not just been the fact that its electric or that it is a luxury vehicle. Its the fact that it has one of the highest safety ratings you can find. Our primary goal, our primary goal was safety. A lot of people know of the model s as a High Performance car. You know, theres the aesthetics of the car, the electronics, and the fact obviously its an electric car, but i think very few people are aware that our primary goal in creating the car was to create the safest possible car. The front is really the key, isnt it . You dont have the engine the large block engine which changes the dynamics in a frontal crash. Thats right, yeah. So, i mean, its really pretty easy to understand. Its just really common sense that the greater the distance youve got to slow down the occupants, because you can imagine if youre in a crash and youre in the front seat there traveling at 60 miles an hour, its just as though you fell into like a pool of water at 60 miles an hour. How deep do you want the pool of water to be . We spent a fair bit of time on pedestrian impact as well. So it wasnt just from an occupant safety standpoint. To the best of my knowledge theres not even been a pedestrian death for a model s, at least none thats been reported to us. So a key to that is having a hood structure thats kind of about you can sort of see an egg crate pattern in the hood structure. So well put the roof down the hood. You can imagine if you accidentally hit a pedestrian, you want that impact to be sort of like having a trampoline effect. The idea being if the body comes up here and lands on the hood, its a trampoline effect as opposed to that harder concrete feel. Exactly. And the efforts youre putting into safety, does that translate into two things, one, helping with sales, and helping with the image of tesla has not just being a cool electric car with great luxury features yeah. But at the end of the day somebody saying i have confidence in this vehicle. Absolutely. It matters in all those respects. If people feel that the car is safe, particularly if they feel its the safest car in the world, thats an additional reason to buy. How much is safety worth . If youre in the car, your family is in the car, your friends are in the car, obviously thats worth a lot to people. You know, whats more important than keeping people safe . Do you look at that area, not that other automakers are not being safe, but do you look at that area and do you say, theres an opportunity here similar to when we were growing up people looked at volvo and they said volvos have a safe reputation. Do you look at the Auto Industry and say, theres an opportunity here if you can carve out for being among the safest oo esst automobiles out there . I think theres a great opportunity. I think safety is extremely important, and it matters whether youre the safest car on the road because like i said, our car today obviously our car is expensive. We want to come out with future models that are more affordable, but given that our car is on the expensive side, we have to give people reasons to buy it. And as you take a look at shares of tesla over the last year and the fact that its gone up nearly 400 , well, elon musk is focusing on building the reputation as having a safe automobile. Investors are looking at this company and saying to themselves, do i value it as an auto company or do i value this as a tech company . Thats one of the debates going on on wall street. Guys, you want to hear what elon musk has to say when we put that question to him. Is this to be valued as an auto company or as a tech company . Were going to be talking about that in just a little bit. You want to hear what he has to say. Thats coming up on the Halftime Report in 25 minutes. Thats so great. Just watching you walk the floor with him. And i love that ikea desk he has on the factory floor. Keeping it simple. I think he said it was the best des that ikea money could buy. Breakfast cereal just isnt cool anymore. Cereal is still the top choice at the breakfast table but sales are getting soggy and fast. Guess who has more on that . Yes, jane wells. Your local eataholieataholic. Its the most important meal of the day and its a fast growing category. 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Suddenly, faraway places dont seem so. Far away. Stop eating. Take deep breaths. Avoid bad weather. [ whispers ] get eight hours. [ shouts over music ] turn it down and, of course, talk to farmers. Hi. Hi. We are farmers bum pa dum, bum bum bum bum just by talking to a helmet. It grabbed the patients record before we even picked him up. It found out the doctor we needed was at st. Annes. Wiggle your toes. [ driver ] and it got his okay on treatment from miles away. It even pulled strings with the stoplights. My ambulance talks with smoke alarms and pilots and stadiums. But, of course, its a good listener too. [ female announcer ] today cisco is connecting the internet of everything. So everything works like never before. Breakfast eaters arent so cuckoo for cocoa puffs anymore. How are Cereal Companies handli handling a decline . The good news, fewer people are skipping breakfast. The bad news, more of skipping cereal. Where is mikey when you need it. He will try it. He eats everything. He likes it sm. In the game of life cereal, tastes change. Consumers are swimming to yogurt or foods you can eat on the go. Socalled cold cereal unit sales have cold 10 in the last three years. Theyre innovatininnovating, co with protein shakes, breakfast bars, however cereal remains the number one choice for breakfast in america. But not all consumer choose a bowl of cereal and milk. Its also impacting milk sales. Also declining as people switch to other beverages. Dean food says its going to be a tough quarter. Theres another problem translating this overseas. Cold cereal is really only popular in the u. S. , and so theyve adjusted their cereal offerings internationally to appeal to that consumer that maybe wants to dunk a cereal bar in coffee or in yogurt. But look at the stocks. Not that soggy until this summer. General mills and post have been outperforming the s p and Credit Suisse says valuations in the sector getting a little high. Also then to solve what may be a serial cereal problem, markets are targeting adults, not kids. Gluten free chex. More adults eating lucky charms. At strike force hit says he has his thcher cheerios with soy mi because im that age. A box of cereal can cost 7 in some markets. Its ridiculous. I know we have to leave it there. And theres less in here. Exactly. I studied this market very closely. Jane will eat all of that before her next appearance. Trust me. Ill still take honey nut che cheerios. Tonight dont miss an exclusive interview with paum raines. Lets goat to Brian Sullivan and the halftime. And welcome to the Halftime Report. Im brian in for scott. Happy thursday, everybody. About four hours to go until the close and here is where we stand. Were in the green. The s p and nasdaq are also up. And like the trend has been, technology has been your friend. The nasdaq up higher than everybody else, 0. 8 . Microsoft leading. It got an upgrade. Hp though big story today, big loser today. Down over 13 . Now down 16 just this month. And thats what we are following today on halftime. Turnaround troubles