Transcripts For CNBC Squawk On The Street 20140708

Likely to deliver worst results in two years due to cheaper phones. Shares of one of samsungs rivals, apple, levels not seen since 2012 as tim cook considers broadening the board of director p. Ad view, and the labor recovery is not translating into more customer spending. Hell join us live a little bit later on. First up, though, samsung warns Second Quarter earnings worst in two years, down 24 . The smart phone maker is cautiously expecting improvement in the Third Quarter. Analysts say the high end phones are not selling as well because of an abundance of cheaper alternatives and the company may have no alternative but to cut prices. Samsung, and interesting case study hit from the high end on apple and a lot of players at the low end, but they are citing competition in china, europe, tablets smaller tablet cannibalized by phones and people not upgrading as quickly. Thats the key, lack of upgrade perhaps because while theres a new it ration, its not an advancement. People hold on to devices longer, particularly at the higher price points we talk about. We mentioned it yesterday, these are expensive devices, subsid e subsidized by the carrier, but its a significant up front cost for many people as well, and if its a year or two years in, why not keep it . The competition with apple, suffering at the hands of samsung in the past, but now, in a way, in the stock market rewarded for its consistency. Striking to see the two charts in different directions. Samsung coming off the first annual decline, down 9 prepondera. 9 , and apple shares on fire. You are forgetting the most important factor, though, the south korean juan, cuts into profit the, no question. Samsung had a lengthny statement trying to explain their forecast, which does not always happen. We should point out 7 billion for the quarter in private is still a very large number, but its not growing as quickly or, in this case, shrinking year over year. This has been a name that a number of Hedge Fund Guys i speak to creep into as of late because its cheap, cash flow basis, cash basis, its not been the right decision at this appointment. Hope they return some of the cash to shareholders . They have not in a long time. They have a cash pile. A very large pile, and, yes, there was a thought, perhaps, there was ability to return capital. You are talking about a company thats still family controlled in a way. Obviously, one of the Biggest Companies in the world, but a fifth of koreangdp, a fifth. Crazy stat. Imagine if we had a 5 trillion company in this country. Yeah. It is large. It is crazy. Shares ended higher today in south korea because the outlook for the Third Quarter was better, as you mentioned. Speaking of that space, shares of apple rose to levels not seen since 2014 and tim cook actively seeking new directors to the companys eightperson board, known for loyalty to steve jobs. Two of the directors have been on the board since the 1990s, former intuit, bill campbell, and theres a big piece talking about cook as a postwar or peacetime ceo looking to make the company collaborative, which, as we know, was not jobs mo. Go through the new since tim cook has taken over. The big ones, hundred billion dollars return to cash to google. Jobs had the arch rival, google, and, of course, the beats deal, the 300 billion buyout. The wartime and peacetime ceo. Theres a lot of talk about the product. Bigger screen iphone 6 in the fall and, of course, the iwatch. Of course, the iwatch. Yes. I have no expectation. You dont . Nobodys going to buy this. The swift watch . Brought in that vp yesterday. Not really. Interesting to note the composition of the board. Many say this is jobs old board, if you will, cook running the company now for a number of years. Will be interesting to see if they, in fact, make moves. Some of the directors have been on the board a very long time. They can claim a great deal of success, though, during the time they have been sitting. Yeah, transition that was questioned for a while, but, certainly, this year, apple a twoyear high as we pointed out, the stock. Up 20 this year. I didnt realize that. Yeah, but i mean, carl, is that a function people wonder whether believe theres Significant Growth ahead or just a function of them performing well and it being a relatively check stock as we pointed out so many times. Yes. And the return of capital. I was going to say Balance Sheet moves. Look back at the chart and say thats where it began to turn at least, right . The new cfo. Mr. Icahn, dont forget him. Can only imagine what steve jobs would have done with icahn. I dont think he would have spoke with him. If he had no dinner . A different dinner. Different mood. Yeah. Apple moves the nasdaq more than any other company. Today is the Year Anniversary of the nasdaqs 52week low. A year ago today for nasdaq and the russell. Since that time, nasdaq up 28 and russell up almost 18 . Everyones watching the russell this days, talk k with art cashin yesterday, the worst drop since prim, focus on that whether thats a leader or says something about the strength of the recovery to see small caps sell off like this. A painful day yesterday than seen in the broader averages for hedge fund and event names. The period we had earlier this year, major averages knocked down, the Hedge Fund Guys got hit dramatically as people start to take risk off. I hate to use that term, but it is the term in favor. Well, could it be profit taking or the sign of a new trend . We are seeing futures lower this morning as wall street bases for the beginning of earnings season. Alcoa preparing to post results after the bell. Jim paulson, chief investment strategist with Wells Capital management. Jim, not to make too big a deal of yesterdays retreat, but the dow only had four twoday losing streaks since may. It would be an anomaly to see stocks go down. Yeah, certainly would. I think were building a sense of a goldie locks economy, not too hot, not too cold, and people get a sense this is a oneway train. I still think well have more tu turbulence in the second half. I really do. Reflecting back to the jobs report last thursday, reflect back on the central theme of the bull market in the last five years is a constant puzzle for consensus why the stock market goes up when main street was so bad, and now it wouldnt be unrealistic, i dont think, to isnt that now that main street is looking better, finally, maybe theres turbulence to figure out whether the inflation threat is real and have to concern themselves with what the fed may or may not do about that. I kind of think thats where were headed in the second half is a better main street, but maybe more turbulence on wall street. Jim, cover of the New York Times today, a piece about called the everything bubble. That was clever. Everything from art to stocks to emerging markets to real estate is expensive versus historical standards and fundamentals. What would you say is the best bargain out there . Russ of black rock says, i couldnt really tell you what it is. Haha, yeah everythings gone up. I think thats kind of what happens in a recovery, though, eventually, everything recovers from the depths of the session. I dont buy the idea that we have, you know, massive bubbles laying around that are going to erupt at any moment. Certainly, we have markets, i think, that are maybe ahead of themselves on a short term basis, carl. I dont see anything close to the type of bubble that would cause, like, a 2008 event again any time soon. I still think right now i want to stay in the stock market because i think that the recovery is more likely than not going to last several more years, and i think we could have a correction this year in stocks, but no one cares if theres a 10 correction in 2014 going to 1800 or 2800 in a few years, so i would stay with the stock market. I think bonds hit harder than stocks, cash selling at 400 times earnings giving you nothing, and the times article pointed out, am terntive as sets up as well. Ride through it, diversify bets, approach the stock market with cyclical exposure and add defensive sectors like the staples and utilities to the mix. Diversify away from the United States market. I like the International Markets better right now. They dont have the same cycle that we have here, and i also like the emerging world, which i cothink is turning a corner, and its been out performing now since the enof february. Although, jim, you know, those emerging markets got hit the hardest when we talked about ratings moving up, may june of 2013, they got slapped. You know, one wonders in a rising rate environment, which we may find ourselves in, whether that would be a good allocation . Yeah. I think it would be, dave, i hear what youre saying, but whats interesting to me, if i look at the eem. The eem is almost a market performer to the spy right now over the last 12 months which encompasses the rate hike from 1. 5 to 3 in the tenyear. If we get higher rates, and i think its coming, it will be in part because of the u. S. Is growing north of three and the emerging world is growing again or reaccelerating, and i think theyll be able to the stocks will be able to handle the rate rise happening in the country, and in part because they are so cheap from where they were a couple years ago, even a year ago. Under performed, and you can buy a part of the world thats still going to grow faster than the developed world over the next simple years even if the premium is less, and you can now buy them at discount evaluations. I think its a good entry appointment. Jim, notable coming from you to get defensive, one of the biggest bulls on the target out there. Thank you for joining us this morning. Thank you. When we come back, food prices rise and battle for the breakfast dollars intensifying, whats General Mills game for growth . We have a live interview with ken powell on post nine. Later at 11 00 a. M. , a live interview with bill simon, what he has to say about the economy, the consumer, and retailers future. Digging out of a mild hole here, futures in the red. More squawk on the street on post nine from the nyse when we return. Zplnchts walmart in the spotlight this morning. The wall street journal reports its a priority for walmart to take back market share from amazon and dollar store chains. Bill simon, ceo of the u. S. Division, says despite the recovering job market, Consumer Confidence has not increased enough to convince shoppers to ramp up their spending. More on simons view on the economy and impact on walmart live at 11 45 a. M. Eastern time today. Interesting comments. Yeah, i think the main one being what you said in terms of their sense of the consumer, and while samsung may be as much as a fifth of the south krooen market overall, walmart is our retail as well, 20 of all publicly traded retailers. Interesting story in the journal today referencing the fact they recommended a book i know well having completed a documentary on amazon, the everybody store by brad stone, as they try to think about how to do things differently, focusing on small opposed to large, which got us into the whole conversation about consolidation with the Dollar Stores and whether walmart would participate in that, but trying to do things somewhat differently and may be encouraging to shareholders to hear he has a longer term view, only 47 years old, mcmill lan, and i met him, hes a lifer. Back then, it was the International Markets he was running for the company, not performing as well as the company hoped. A few stumbles in a number of markets throughout the years there as well. The strategy from supercenter to Market Stores on full display several weeks ago. The company is dreeli indealinge straight quarters of loss, and its notable at their Customer Base, the low end. You see a recovery with the consumer, but they try to get in touch with the consumer and changes whether its emphasizing ecommerce or these togo stores, more like Convenience Stores. Its a huge change for walmart when you think about the supercenters, i dont know how many square feetd th, but its different model. Ambitious plan. When you turn a ship around this big with this many sales, the journal had a layout how many sales the company has relative to other giants like apple, its a tough task. Law of large numbers, applies to walmart forever, but 470 billion in sales, takes a lot to move in the right direction, even 1 . A sharper growth rate in commerce more than amazon, noting they grow 30 online. Neil ash running the ecommerce business, a superstar under mig mill lan. If you are going to change, you cant change for change sake, the core business, and try to grow that way, a tough call you got, that big and successful. One of the Great Success was was under sam walton in the 80s and 1990s under glass as well. Technology, they embrace technology more than their early competitors and succeeded at it, and yet, amazon, all the innovations made, that does happen as well. And they might do liquor stores. See that in florida . They are getting into groceries, Free Standing liquor stores. Huge wine distributor. When we come back, art cashin on what to watch marketwise as we count down to the opening bell, and later on, a low cost carrier with stock thats been flying high. Look at that chart spirit making more news to miranda warning, talking about it with ben later on in the program. Heres a final look at the premarket on this tuesday. More squawk on the street in a minute. Turbocharged rewarda 1,000 card with a new volkswagen turbo. So why are we so obsessed with turbo . Because theres nothing more exhilarating than a powerful ride. And you can get that in places you might not expect. Like the passat. 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Vo are you asking enough questions about the way your wealth is managed . Wealth management at charles schwab. Just seven and a half minutes before the opening bell, art cashin, director of floor operations with ubs joining us this morning on post nine. Art, good morning to you. Morning. Yesterday, you said theres a rethink on the jobs number, and sure enough, the tenyear yield crept in, utilities recapture the number one position for the year. Is that the case again today . Oh, i think it may well be. Were seeing that the tenyear continues to creep back down, below 2. 60, and below 2. 55, that could be, i think, an area that we will pick up on in the market. So, for now, this idea that prosperity might be breaking out is erased, people are not as concerned about it, and its interesting to watch the rethink, and look at whats going on in europe, theres a beginning of what looks to be like a real correction going on. They had weak Economic Data. U. K. Manufacturing slumped to the lowest in 18 months, german exports contracted, losing that momentum we were seeing. Yeah, they are very concerned at least germany and elsewhere, concerned about the state of the euroand the fact they cant seem to get it to weaken with really on the verge of a currency war around the globe. The trouble is at zero rates, its not easy to move the value of the currency. Nfib, yellen watches it, slips a bit, employment number goes up, and weak sales started at the number one problem, lowest its been since 2007 or so. Good news. It is encouraging, sounding like the consumer is out there, the base consumer or interimmediate companies learning from each other, so thats a little hopeful. She also looks at jolts. Well look at that too. Gave you credit for telling us to watch the russell, which was there was a sharp move at nearly 2 . Is that a leader . Whats it signal in the market . Watch for the divergences, and the fact that the small caps and cyclicals went down adds to the thesis that people are not really worried not worried is not the right word people are not looking at prosperity breaking out, beginning to think maybe we are really as stagnant an economy as we thought before. Keep watching the russell. Remember a month and a half ago, there was a divergence there. Thats something to be careful of, and it could lead to further weakness. What do we make of low volume, though, and does that overlay in terms of whether we should make as many of the moves as we seem to be . Well, as weve discussed before, david, the there are some things going on, some is structural etfs, and it is summer, after all. No, a quiet time of year, and moves are volatile, perhaps, as a result of that, i guess. Doesnt take that much to move some of the stocks. Thats absolutely true, but theres an old mixed metaphor on wall street that a ship can sink in a quiet sea. You dont need a storm to get things going. Even with the light volume, you watch it. Buying is important if its a oneday reversal thing. If you begin to get a couple days, then its a minor trend. Too quiet, we got the construction going on in the hallway. Come out and listen to the jackhammers. Art, thank you. My pleasure. Opening bell just a few minutes away. At every ford dealership, youll find the works its a complete checkup of the services your vehicle needs. So prepare your car for any road trip by taking it to an expert ford technician. Because no matter your destination good maintenance helps you save at the pump. Get our multipoint inspection with a Synthetic Blend Oil change, tire rotation, Brake Inspection and more for 29. 95 or less. Get a complete vehicle checkup only at your ford dealer. In india we have 400 Million People who dont have electricity and i just figured that its time i do something about it. 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Youre watching squawk on the street live from the Financial Capital of the world, the opening bell just over a minute on this tuesday, earning season kicks off tonight, of course, with alcoa, after the bell, doesnt really kick into second gear until next week, but you know how that goes, watching the nifb closely, Economic Data today, jolts in a half hour, and then the mna picture continues to evolve, david, as abbvie is trying again. Enormous deal, abbvie is a market cap company, another socalled inversion were they to succeed. Shire, u. K. Company, operating under right now. They increase their offer yet again. Well give you details on the other side to see how the two stocks perform. David has more on that in a moment. Lets get to the opening bell here and look at the s p. At the top of your screen, the cnbc realtime exchange, down here, the big board, General Mills ceo, ken powell, here for the Food Companies investor day, and well talk in a few moments. We know how challenged the breakfast business has been, cereal volumes and so forth. The nasdaq, news corp. Celebrating the wall street journals 125th anniversary, and a lot of us alums so proud to have worked there, the paper looks great today with the vintage original page one. And theres opeds in there, taylor swift in the Music Industry. A lot of things to say about the economics of music right now. Surprising everyone, i think, although, quick to point out she got the supply and demand picture completely wrong. Anyway, a look at movers here. Pe petsmart in the news for a number of reasons, now an equal weight, title of the report is Value Creation potential, but the outcomes are not of. Of course, we know about janas stake, and fundamentals take a backseat for a while . Would appear to be the case. There was a large short position in the stock and quite a few people believe that the thesis called for continued declines overall in the stock reflecting financial performance. For a while, shorted the stock, a seller, came in and bought it on a big selloff and built that 9. 9 position, and theres another activist adding to the voice to the chorus here saying capital return, capital return, and or sale, and jpmorgan playing catchup here. They came out, didnt say too much, just evaluating various scenarios. Cramer would want to talk about guess, the piper ups it to an overweight, target 32. Citing signs of european stabilization, improvements in the wholesale order flows for spring of 2015. Stocks going to move, thats one of the big gainers this morning, up 4 on a day where the tape is not doing a lot dramatic, but interesting to see retailers upgraded and downgraded, and yesterday, had calls for williamssonoma. People dont realize how big a theme that is going into earnings season, which, of course, kicks off, and expectations high overall for earnings, 5 to 6 Earnings Growth, saw 2 last quarter. The international theme, as i mentioned, is definitely a big one. Guess and its great ads benefits more than most when you see signs of stabilization, a big tail wind for a lot of American Companies in earnings. Yeah. Interesting the losers today, two worst s p names, Delta Airlines and southwest airlines. We know what a terror the airlines have been on, especially delta, one of the best s p gainers of the year, and delta cuts flights to venezuela because of disputes there, United Exports jobs, and you talk about risk off, david, thats an area you look to first. And, apparently, they are despite what has been moderating oil prices at least, theres some expectation, i think, you might see a rebound, of course, stocks got hit when we saw oil crank up on the unrest in iraq, for example. That has not happened. Your points are good ones, carl. Very strong performers, of course, overtime, generates free cash flows, return on invested capital, likes of which we rarely expected to see in the airline industry. Last week, delta came out, updated Financial Results and investors in june and over capacity that could put pressure on prices, especially internationally. That could be one of the reasons we see airlines. Theres more fees this summer. A lot of talk about that. Tsa fees, increasing the overall price, but the airlines cant do anything about that. Youll talk to ben of spirit in the next hour. The company on a tear. Unbelievable, that model of charge for everything, even a bottle of water. Investors love it. I know. I wish united, continental did not charge for watching television, but they do. They do. Spirit charges up to a hundred dollars for a carryon bag if you bring your carryon bag in the airport. Youre kidding . Isnt that crazy . Adds up. Charge you for fuel also. For fuel . Yeah, if you buy a ticket on spirit, they give you the price of your ticket, and then theyll say extra for fuel, and heres what the government is asking for, and heres your total. Right. Wings sold separately, right . Unbelievable. Yeah. Bathrooms are next. Bring your own seat. Hydraulics sold separately. Get to the latest bid from abbvie for shire. This has been going on, as carl said, for some time, and comes after pfizers failed attempt, and its decision not to proceed with the law firm, and coloring the deal a bit, but the execution here has been fairly good from the abbvie point of view. They come yet again with a higher bid, increased cash now by 9. 8 , stock component up 7 , and increase in abbvie stock bringing the value up 11 . They are at 22. 44, thats pounds, cash. The stock portion is brought up to 8. 65, ordinary shares of abbvie. Abbvie, as i said, more than a 90 billion company. Who knew, eclipse 11 billion in sales conceivably this year, 2013, another inversion, of course, in which they would, of cours course, take the tax rate of the domicile in the u. K. Its not what they pay in taxes in the u. S. Remember, its what you earn in the u. S. Thats taxed regardless of where you are in the territorial system. Its about earnings overseas and being able to repatriate them to the u. S. Or particularly in the u. S. And not have to pay those u. S. Taxes. As for whats going on in the deal itself, well see. They did not use any of the language such as best and final, which got pfizer in a lot of trowel. Theres a question, july 18th is the deadline for shire to come to the table or the guys have to decide whether they want to go hostile. We dont know at this point what the decision will be on the part of abbvie, but they are keeping it very calm, cool, rational with each of the increases, and i would note they seem to be somewhat steeped, at least, whats going on in the u. K. , and used the word whilst in their report. You dont usually see that. I think that shows they are, perhaps, better steeped of whats going on in the u. K. Than pfizer was initially or at all. They have not closed doors here. There is a decent spread in the deal, by the way, at this point. Well see where it goes. The key is what shire says and what it says from the shareholders, whether its enough to bring it to the negotiating table. A good one to watch, thank you, david. Dows down 82, back below 17,000, and bob is on the floor. Good morning, bob. Good morning. Utilities the only sector in the s p 500 thats up, and oil and gold on the upside. Start earnings today unfinish y unofficially, and the numbers are impressive on the earnings side, not so much the revenue side. This is the 6. 6 increase in earnings, very surprised that number has not come down much because, remember, normally well beat by two or three Percentage Points from the final from the number at the start of the quarter. 6. 6 , in the past, beat by two or three points, and numbers could be north of 8 when its said and down in the Second Quarter. That would be a very, very strong quarter. The numbers come down, and, again, its the point that were here going into earnings season at 6. 6 , a good number. Problem with revenues are they ared moest. Theres not a lot of expectations of Strong Revenue growth, basically capital iq is 4 right across the board for the s p 500 revenues. Put that up, last three quarters are stagnant there. Thats an issue there, relying on cost cutting there. Moving on, samsung, you mentioned it, hard to describe ho how big they are, a great conglomerate of the world, north of 200 billion in revenue. When they Start Talking about a third consecutive quarter of earnings a bit below expectations, particularly with over supply of smart phones, thats a big thing. Smart phones are important part of the business, put up the revenue parts, and everyone thinks of samsung as a Consumer Electronics company so your printers, cable television, air conditioners and refrigerators, Consumer Electronics, its less than a quarter of the business. The real business is in technology and mobile communications. Thats smart phones, computers, digital cameras, but mostly smart phones and semiconductors is really a small part of the business as well, only 10 . The point is smart phones 1 a huge part of their overall business, and, in fact, its the main part of the business. It has an impact. Samsungs weak for the last month on these kinds of concerns. Moving on to mention european banks and today. Look at Commerce Banks, down 5 , unicredit, all weak again, Nothing Specific here. I know there are concerns out there, for example, Commerce Bank may potentially face sanctions from the u. S. Government for similar things of a few weeks ago. No definite on that, but weakness in europe. Dow down 88 points, only sector to the upside is utilities. Back to you. Thank you for running us through that, and rick san tell santelli, we have lower again. Boom, are you afraid . Did i scare you . The market is booing for a long time. People sell for most of the year of the as a matter of fact, the last several, and, no, yields have not gone up. Its not for lack of conventional wisdom, and that should tell us a lot as the market rethinks how jobs and policy and everything fits together in the economy. A twoday chart shows everything you need to know. Deterioration. It failed february 1st. Exactly. Precisely on the tick. Technicians nervous about intraday, below 267. Never closed above 266 on a closing basis, and here we are again, 257, february 3rd significant technical level we keep revisiting. Open the chart up on spreads. Well, the five versus tens is now the flattest at 86 or 87 basis points since august of 20 what 10 . Its four years. Look at boon yields, down a handful of points today just like we are. A couple things should jump at you, pattern, rates are not going up on this one, and in the nittygritty, the lowest yields closed from 2013, may, were close. Look at three currency charts. Look from john 1 june 1st. This is a narrow range, they want it weaker. Export economy, look at the dollar yen. The dollar is getting weaker, but in slow motion. The last chart year to date, dollar index, all currencies in a little pool bought at walmart and they bump their head. Everyonements currency weaker. Whats happening is the relative value trades get compressed. Carl, back to you. All right, rick, thank you so much, rick santelli. A major player in the food world overall, General Mills ceo, ken powell here next, and state of the consumer and live interview with walmarts u. S. Chief, bill simon p at 11 00 a. M. Eastern time. Dows down 78. Back in a minute. [ girl ] my mom, she makes underwater fans that are powered by the moon. She can print amazing things, right from her computer. [ whirring ] [ train whistle blows ] she makes trains that are friends with trees. My mom works at ge. From cereal and yogurt to sweet treats, General Mills is a leading Food Companies. Todays company is here visiting the New York Stock Exchange for investor day as it announces a brand new product lineup focused on proteinpacked product and gluten free products. Fresh off the opening bell is ken powell, chairman and ceo of General Mills. Thank you for being here. Good to be here. I grew up on cereal, carl feeds his kids yogurt. What changed . America . Cereal is still by far the product people eat for breakfast and General Mills has a strong share, and we are seeing changes in cereal people want to eat. Theres interest in proteins, we have cheerios protein cereal. Some products Consumers Want to avoid. Its still dominant, sorry to stop you, but cop consumption is decli declining. A little bit. Its been a problem for you. You know, consumers are eating a little more yogurt at breakfast so protein, more hot breakfast, maybe eggs, so thats protein. There is a trend in the direction of protein, and were launching cereals that capitalize on that, that have protein added. We think that cheerios is successful for us, launching Nature Valley protein granola last year, more successful than we thought it would be, and thats an important trend and things like consumers are interested in fiber. They would like some would like to avoid gluten so theres glutenfree products, some of the changes in that breakfast category. Is there ten years from now, is there lucky charms . Is that whole tide really turning to that degree . So one of the things thats not changing is consumers love cereals that taste good. Lucky charms is the Fastest Growing cereals. Still . We are advertising many of the consumers of that product are adults, and we advertise you know who you are, and i bet youre eating it. Dont give me that look. I know. Weve been advertising the product to adults, Fastest Growing product, lucky charms, cinnamon toast crunch, a great taste profile, consumers enjoy them. The category down a bit, General Mills grows 20 over seven years, growing share in six of the last seven years, grew the business a little last year. Were doing that, bringing that kind of innovation and community kags that we know works. But the top line growth disappointed last quarter. Analysts downgraded the stock, and youre in cost cutting mode. To carls point, do you look at the portfolio and get rid of the underperforming brands that we are seeing at other big Food Companies . Were reviewing the supply chain structure in north amer a america. Well add capacity in certain areas, take it away in other areas, an ongoing thing you do from time to time. Weve had the last ten years really, as weve had really global inflation, quite up like we saw in the 1980s and 1990s, eliminating waste, high productivity, doing everything we can to offset our input inflation 4 or 5 so we dont have to pass inflationary increases to the consumers to keep it stable. A high focus on lean productivity is an ongoing focus for General Mills. Is that the main theme to meet with the invester base . Outlining concerns they have, what are the themes you stress to get them to believe there is growth ahead . Primary theme is growth. As we see developed markets like the u. S. And western europe slowly recover, we see the opportunity to accelerate growth some in developed markets so well be focused on that, on cereal, growth in the yogurt business this year, snack business is growing rapidly. Well invest in the businesses and accelerate growth in developed markets, particularly the u. S. High growth opportunity, of course, is emerging markets in the world, growing rapidly in china and brazil. Well sustain that. That whole sort of context of growth, where we get it around the world is top of mind. What about acquisitions . Growth group for potential acquisitions, smaller, natural, ogranic companies . Were looking. Interested in adding scale to the Core Platforms so over the last several years, acquired the International Yogurt business, yoplait brand around the world, important acquisition for us, and we made an acquisition in brazil, a major player, strong presence in distribution, strengthening the business in latin america. Acquisitions continue to be a part of the play, interested in snacking. We are interested in adding to the scale in emerging markets, and so mna will be very much part of the story. Back to 2013, the stock took off in part of the return and the yield. I assume thats saying were Getting Better . Very resilient, stable performer, returned 2. 7 billion dollars to the shareholderst last year, 17 increase in dividends so General Mills paid a def dend without interruption the last 117 years, we are a low beta stock returning cash to shareholders. Final question, ken. Inflation, is that a sustaining head wind for you as you run models in terms of what you are able to do in. Its a fact of life. In the 1990s, low inflation throughout the world. With the developing economies, millions of consumers coming into the first thing they want to do is eat better. Theres tremendous demand for food commodities globally, triggering, i think, really sustained inflation, and were really planning for it, and thats why we have this very high focus on productivity. We didnt get to the nongmo cheerios. Thanks for coming. Appreciate it. The ceo and chairman of General Mills. Thanks to developers, College Dormitories are deluxe, including one with a virtual driving range. Details on that when squawk on the street comes right back. Er, we believe outshining the competition tomorrow requires challenging your Business Inside and out today. At cognizant, we help forwardlooking Companies Run better and run different to give your customers every reason to keep looking for you. So if youre ready to see opportunities and see them through, we say lets get to work. Because the future belongs to those who challenge the present. Im spending too much time hiring and not enough time in my kitchen. [ female announcer ] need to hire fast . Go to ziprecruiter. 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Built for business. As private Real Estate Developers move on college campuses, they build ever fancier properties. They are not your fathers dormitories, but versions of ritzcarltons. We have more on that. Hi, diana. Reporter carl, thats right. The Department Sector is hot, we knew that, heres derivative play, Student Housing. Here at the university of maryland, they have 37,000 students, but the university owns less than 10,000 beds, so there is your opportunity. Were not talking about the cinder block dorms we knew and loved, but high end private Developers Moving in right on to campus. This is an industry thats ripe with opportunity. If you look at Student Housing sector, it was ignored by the mainstream realize industry for more than 40 years and the modernization is just now taking place. Reporter modernization to put it mildly. American campus communities, largest players in this Student Housing reit space is moving in with swanky dorms like this in downtown phillie. A dorm or day spa . Suites, private bedrooms, bath, kitchen, fullsize fitness center, virtual golf driving ranges, a multiseat movie theater, business center, and all for a comparable price for the dorms for the boomers in the 19 60s. Universities want to focus funds on academics and thats why they bring in the private guys to build housing. They really know how to do this kind of housing right. They have a really good grip on the market on what students want on what millennials want. Reporter american campus stock up 20 year to date. Other players in the space include campus craft and Education Realty trust. Now, the demand for Student Housing is being driven a lot by International Students coming on to american campuses. Also, interestingly, baby boomers retiring to College Towns like this one, and they are eating up all that off Campus Apartment space so now the students cant get it. Driving in here, two brand new student buildings, another one going upright across the street. More online, of course, realty clerk. Thank you. Washington has numerous Marijuana Stores gearing up for business today. Talk with some of the players in the middle of it all. Ahead, the sbeer view with spirits ceo. Keep it right here. [ female announcer ] hands were made for playing. Legs, for crossing. Feet. Splashing. Better things than the joint pain and swelling of moderate to severe rheumatoid arthritis. If youre trying to manage your ra, now may be the time to ask about xeljanz. Xeljanz tofacitinib is a small pill, not an injection or infusion, for adults with moderate to severe ra for whom methotrexate did not work well. Xeljanz can lower your ability to fight infections, including tuberculosis. Serious, sometimes fatal infections and cancers have happened in patients taking xeljanz. Dont start xeljanz if you have any infection, unless ok with your doctor. Tears in the stomach or intestines, low blood cell counts and higher liver tests and cholesterol levels have happened. 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Hurry in and you can get a 1,000 turbocharged reward card when you lease a new 2014 passat s for 219 a month. Welcome back to squawk on the street, road map begins with walmart today, looking to take back share from amazon as one executive says, the labor recovery not translating into customer spending. Washington state getting ready for the first legal sales of marijuana, but shortages and high prices could damper the day. Spirit airlines reward customers for bad experiences while flying, and the ceo joins us live for an exclusive interview. The markets not shaping up to be hot on a tuesday. Dow down 85 points, and this is the worst twoday drop for the nasdaq since may 6 and 7, and for the dow and s p, biggest twoday slide since june 11 and 12th. Go back a month in the case of the dow to find days as bad as this. Leaving the records behind from last week. As we look towards earnings season starting unofficially today with alcoa. Washington this morning, a live shot at capitol hill, Senate Banking committee with a meeting on High Frequency trading. Theres the ceo of i. C. E. And ceo of bats. Well monitor the hearing and bring you headlines as they cross. Interesting one people say we are seeing low volume because they have come out. Interesting. Bill simon saying the ongoing recovery in the labor market enough enough to spur surmts to increase spending. Walmarts ceo is making it priority to take market share back from amazon. Lets bring in patrick, managing direct and senior managing director. The sluggish walmarts are feeling, bill simon is talking about it, is it because of the low middle income consumer or something you leave to walmart . Theres certainly some of that on the lower income consumer. Walmart has a lot of exposure there. They capture close to 20 of food stamp spending and food stamp assistance was cut at the beginning of november last year, so that impacted their business, no doubt, and they also have, you know, there was also theres cuts in extended Unemployment Benefits at the end of the year, and walmart has exposure there as well. Theres broader issues i think. Theres certainly, you know, some spending migrating online. Weve seen that. Even walmarts Online Business is growing 30 . You know, thats an issue, i think theres probably too many stores out there, and consumers are spending on things like Cell Phone Service and video on demand and technology in general, and thats taking some dollars away from what could have been percespent at the sto level. We are getting tangible plans from doug mcmillian, spoke at the meeting, a whole different walmart, different vibe, younger than most ceos with different plans, smaller stores, grocery stores, Convenience Stores, growth in ecommerce, enough to make you optimistic in the stock . I like what they are doing there. I like what they are doing, pushing aggressively with ecommerce, adding many more small stores. They will take the small store numbers, neighborhood markets, had more than 350 at the end of last year, take that up north of probably 650 this year. They are experimenting with the walmart togo store, a Convenience Store gas station, but its not enough to move the needle. They still have the core business that is the Walmart Supercenter business where the problem has been. Traffic has been negative now for about five quarters in a row. Yeah, i was looking up the square footage, 200,000 square foot is the superstore, looking at new places 10,000 to 40,000 square feet. How long does it take to make that transition . Well, even at this ramped up growth rate, as i mentioned, they will close to double the number of small stores that they have this year. It would take several many years, you know, five, sevenplus years before theres an impact on the pnl because the business is so dominant. They have walmart international, a lot of stores, you know, a hundred billion dollar business, so itll take, you know, some time unless they were to do an acquisition in the dollar store space. I dont think thats likely, but theres speculation out there they could. If they stick to ogranic growth with the small format store, it will take a while. How much can they get back, patrick . They are not losing that much share. They are adding sales, certainly, billions of dollars of sales. Not growing samestore sales, thats negative. Running about flat Second Quarter to date, so its not like you know, they lost share at the margin to the Dollar Stores. Its not been huge, but its the difference between positive comps and negative comps so thats the dynamic there. I dont see them as a huge share loser. They are holding their own is more the way i look at it. Retail, overall, tough lately, you know, toughest ive seen frankly in the 15 years ive covered the space, even though we got this improving jobs picture. Its a real disconnect. So are we looking for negative comps again . At what point are they easier in the back half of the year . Yeah, exactly, they are easier in the back half of the year, and looking for flat in the Second Quarter, slightly positive in the back half of the year, but, you know, the outlook is not great, and as you look to other names like target. We know targets had a tough few quarter, and the outlook there is not great either. For the big mass merchants, and within my space, we see growth at the dollar store level, but even there, its slowed from around mid Single Digits same store growth a year ago, two years ago, into the low Single Digits, so, you know, again, its a pretty tough retail picture overall despite the improving jobs picture. Patrick, thank you very much on walmart this morning. On a note that bill simon, ceo of walmart u. S. Is live here on squawk alley a little bit later. Speaking of jobs, new data on the labor market moments ago, dow down 150 points. Rick santelli is in chicago, rick . Because it comes out late, five after the top of the hour, weve seen decrease in the equity markets and slippage in Interest Rates already at much lower levels than we have in the last several days. Why . Because the may job openings and labor turnover, first of all, increased 171,000 job openings to a grand total of 4. 36 5 million. Wow, lets do forensics. Thats the High Water Mark now. Todays number usurps march of 2007. It is the High Water Mark on job openings and labor turnovers. Intrinsics are bullish. First time since 2007 you had four numbers in a row over 4 million. No matter how you slice it, this number slows some horsepower to it, so we need to find out whats so discriminating these days about the fixed income markets thats globing on to the notion that Interest Rates cant go higher, and thats what we talk about for the rest of the day. Back to you. All right, rick, thank you so much, rick santelli. In a year when luxury auto sales are up 4 , theres only one brand seeing sales slip, and thats cadillac. Phil lebeau has more. Good morning, phil. Take a look at the numbers. This is what they are doing this year, and cadillac is the only mass market luxury auto brand down this year. In an upyear by a wide margin for audi and mercedes, cadillac struggles all yearlong, mainly for a number of reasons, but this, perhaps, capitalizes the moment the best. This is a commercial from this year for the cadillac elr. You work hard. You create your own luck. You got to believe anything is possible. Well, anything may be possible except for if you try to sell a cadillac and youre a dealer, selling just 390. At 75,000, nobody wants to vehicle or very few, we should say. Overall, sales are hurting also because the ats, the entry level small car for cadillac, thats down 21 year to date, more competition from the audi a 3, and put those together, rivals take business from cadillac. They do well with the suvs. Thats the saving grace for cadillac, but overall, they are stuck in reverse while the rest of the market zooms ahead. General motors briefly above 38 a share a week ago, guys, but now back down in the 37. 25 range. A tough year for cadillac. You have to wonder if we see changes when it comes to the brand leadership and the brand positioning over the next couple months. They have to do something to get the brand on track. Back to you. Thank you, a good story, our phil lebeau. We have a market flash with ddo dom chu. Shares off again, tesla facing a infringement lawsuit in chi china. There was a settlement between the company and chinese businessman back in jan, but hes taking tesla to court again demanding they stop all sales and Marketing Activities in the country. The stock is down in the trade today, and, again, its already been in the courts before, its just on appeal right now. I guess, thats the best way to put it, carl, back to you. Thank you so much. Washington preparing to open its first retail Marijuana Stores. Thats Washington State. Shortages and high prices will likely come along with the excitement. Thousands of applications submitted, only 25 stores got licenses for today. Were going to talk live with the deputy manager of the liquor control board there who issued those when squawk on the street comes back. Dows down 106. So now weve turned her toffee into a business. My goal was to take an idea and make it happen. Im janet long and i formed my Toffee Company through legalzoom. I never really thought i would make money doing what i love. We created legalzoom to help people start their business and launch their dreams. Go to legalzoom. Com today and make your business dream a reality. At legalzoom. Com we put the law on your side. And our luggage was immediately. Taken to. Stolen from. Our room. The Hotel Manager was clearly behind it. He was such a. Kind man. Con man. My husband wanted to. Hug him. Strangle him. And to this day were still in contact with. The manager. The police. I wish we could do that vacation all over again. Dont just visit paris. Visit tripadvisor paris. [ male announcer ] with millions of reviews, a visit to tripadvisor makes any destination better. Washington state joining colorado as legal rekragsal marijuana goes on sale today. Well talk with one of the farm es in a bit, but, first, is the state ready to happenndle this industry . The deputy direct of the Washington State liquor control board, randy simmons, thank you for joining us. Caller good morning, my pleasure. Looking at the number of licenses given out against the number of applicants. Obviously, a small number to start. Why so stingy on that . Caller its a timing issue. We have a very controlled process were going through to make sure we have the right people that are licensed and it just takes time. How would you say the model is different from what colorado did . What lessons did you learn from their jumping into the pool and what things will you try to copy . Well, the difference is that colorado had a licensed control medical marijuana market place up and going. The medical marketplace in washington they are not licensed businesses or regulated by state agency. Colorado provide perms to people with medicinal markets up and running, but we had to create an entirely new marketplace. How many i heard figures the one store in seattle, for instance, looking for 10,000 people in line this morning when they opened in 45 minutes, does that seem reasonable to you . I think thats probably right. You know, its a new thing, and its a new event in seattle, a lot of people there, a lot of media, and as stated, hell be out of product today. What about nonresidents . Limits on whether you carry the state line whether you come in to buy . No restriction for people out of state. Were different than colorado is in that regard, though. You know, were not sitting in the middle of other states that do not have any marijuana marketplace at all. You know, oregon has medical marijuana marketplace in, you know, nobodys going to come down from British Columbia to take anything back across the border. Were different than colorado in that way. I understand another difference is youre not selling edibles there. Any consideration of this . They proved extremely popular in colorado. Yeah, we will sell edibles. We dont have it ready at this point in time. We are going through our kitchens being inspected and approved by the department of agriculture. Once that happens, then those producers can start making their edibles and thatll hit the stores, and im assuming, you know, within the next two and a half, three month rs youll see edibles show up. Got it. Youre requiring quality testing for all products, including edibles, something colorado did not do, but they did eventually make testing mandatory. Did they learn a harsh lesson that way . Caller i think they did. What they did as far as testing the product is work with the association out of california to establish a monograph, a consistent Testing Program for the product. Thats not been done anywhere in the United States before, and so, you know, that was the initial step, and the other thing we did different from colorado was put serving size limits on edibles so if i child inadvertently get hands on something, its not a large dosage that they are getting. Thats been a kwoefrt. The milliondollar question, randy, is projected revenue, hard to model this because we dont have a lot of history to go on, but in general, whats the line of expected revenue for the state this year . Caller well, i have no idea for this year. What the legislature did not do is did not book revenue this year, which is at our request. We want to see what the market place is going to do. If we look down the road in, you know, two to three years, youre probably looking at 400 million a year of income for the state. Wow. Thatll pay for a highway or two. Caller it will. Were going to be watching the open this morning, randy. Thank you for coming to the phone. Caller my pleasure. Randy simmons of the Washington Liquor control board as marijuana goes for sale starting there today. Markets here, we are seeing a triple digit decline on the dow, down 108. It was worse moments ago, but, still, the sell off is picking up steam in the session, down half a percent, and nasdaq bearing the brunt of the selling, down now over 1 . This is on top of yesterdays retreat. Stocks waived record highs out the window. When you see whats working, sectors higher in the s p 500, consumer staples, a defensive move, and utilities, and jim paulson time to get defensive for a turbulent second half. Up next, Spirit Airlines, check out the chart. Does this low cost heavy fee airline hold the secret to success and profitability . Why they reward travelers for terrible flying experiences. The ceo joins us live for an exclusive interview right after the break. In a world thats changing faster than ever, we believe outshining the competition tomorrow requires challenging your Business Inside and out today. At cognizant, we help forwardlooking Companies Run better and run different to give your customers every reason to keep looking for you. So if youre ready to see opportunities and see them through, we say lets get to work. Because the future belongs to those who challenge the present. Can i get my actual Credit Report. Like, the one the bank sees . [ male voice ] sheesh, i feel like im being interrogated over here. [ male voice ] shes onto us. Dump her. [ pay phone rings ] hello . Oh, man. That never gets old. No, it does not. [ female announcer ] not all Credit Report sites are equal. Experian. Com members get personalized help and a real Credit Report. Join now at experian. Com with enrollment in experian credit tracker. Join now at experian. Com veggies youre cool. Reworking the menu. Mayo, corn dogs. You are so out of here ahh. The complete balanced nutrition of great tasting ensure. 24 vitamins and minerals. 9 grams of protein. With 30 less sugars than before. Ensure, your 1 dr. Recommended brand now introduces ensure active. Muscle health. Clear protein drink and high protein. Targeted nutrition to feed your active life. Ensure. Take life in. Long delays, extra fees, weve had a share of headaches when it comes to air travel, but starting today, Spirit Airlines is giving away 1 billion free miles to travelers who had bad experiences flying spirit or other airlines. Here to explain about the state of travel is ben baldanza, good to see you, again, ben. Good to see you, how are you doing to do . Im curious why you are doing this . Are the complaints growing so well about the fees on Spirit Airlines . Well, thats not really the case. The case is that, you know, we know customers are, you know, can get frustrated are airlines in general, late flights, delays, things like that, and in spirit, we have a different Business Model than the rest of the industry which is lower prices for people, which they love, but we want people to understand what it takes to get low prices better. This is a tongueincheek way to describe our Business Model and why it saves money. Investors like it, the fee model, and the consumers dont. You have the perception, i think, ben, you are nickel and diming them. A hundred dollars for a carryon at the airport. Again, hundred dollars is a fee we never, ever want to charge. Thats only if you bring your bag to the gate because that delays the flight. Take care it online or the ticket counter. You dont want people to speed so theres tickets. The thing is the total price customers pay on spirit is less than other airlines, and so we want people to understand how we make that happen, so we put more seats on the airplanes, and we dont have wifi on the airplanes, but you get a lower price, and for a lot of customers, thats a real positive tradeoff. On that lower price, are you experience competition from the bigger guys, deltas of the world, leaner, meaner, and more depth when it comes to managing their businesses . Well, not really. The bigger airline serves a different clientele than we do. Think about nordstroms as a retailer and mall mart. Its not the same Customer Base they attract, and same for us with american, delta, or united. They go after corporate business travelers who have a schedule sensitivity than a price sensitivity. We go off customers who pay for tickets themselves and really want to save money on the air travel because they want to stay in a nicer hotel when they get to their vacation. We dont really see that kind of competition. Our competition is more with other discretionary spends so we compete with best buy or amazon. Com than we do with american, united, or southwest. Thats interesting. You know, ben, delta and southwest big losers today, klm, air france warning in the past day or two over the long haul load factors. Are you immune to all of that . Were not saying were immune to that, but different than that. We are serving we cater after a discretionary traveler clientele, not what most airlines try to attract. We found a way to make money on that type of traffic by having really low costs, and we translate back to the customers low fares. Charging separately for things like bags and seat assignments helps us offer a lower fare, too, and put Pricing Power in the consumerss hands so its not that were immune to the trends, but what happens is in any economic environment, theres some percentage of the population looking for the value play, and thats what we are. Just as a mcdonalds or walmarts do better in weak economic times, same with us. Airlines are experiencing higher fuel costs, tsa fee, and other government fees. Is that going to cut into your business and profitability . Well, it will end up raising prices for consumers, which cuts back on consumer demand. Tsa fees are going up. The total tax burden, if you include government fees on our tickets is over 20 generally. When you buy a ticket on spirit. Com, we show you your tax burden on the flight so you see how much you pay in taxes. We have an advantage against competitors in fuel prices is we have a very young fuel efficient airplanes. Were an efficient user of fuel. We dont like higher fuel prices, but we dont do that as poorly as some others, and we dont react economics dont react as negatively to them as other airlines might. Ben, thank you for joining us, ben baldanza, spirit ceo. Shark tank looking for made in usa products to be sold in stores. Well go live to that event, and ceo of walmart joining squawk alley live and what he thinks of the economy and whether its leading to increased consumer spending. Well be right back. During the cadillac summers best event, lease this all new 2014 cts for around 459 a month or purchase with 0 apr and make this the summer of style. But what if you could see more of what you wanted to know . With fidelitys new active trader pro investing platform, the information thats important to you is all in one place, so finding more insight is easier. Its your idea powered by active trader pro. Another way fidelity gives you a more powerful investing experience. Call our specialists today to get up and running. [ girl ] my mom, she makes underwater fans that are powered by the moon. She can print amazing things, right from her computer. [ whirring ] [ train whistle blows ] she makes trains that are friends with trees. My mom works at ge. Could help your business didavoid hours of delaynd test my mom works at ge. Caused by slow internet from the phone company . Thats enough time to record a memo. Idea for sales giveaway. Return a call. Sign a contract. Pick a tie. Take a break with mr. Duck. Practice up for the business trip. Fly to florida. Win an award. Close a deal. Hire an intern. And still have time to spare. Check your speed. See how fast your internet can be. Switch now and add voice and tv for 34. 90. Comcast business. Built for business. Seeing red in the markets this morning, dows down 113. Worst couple days here since the beginning of june. Up official start to earnings season, of course, alcoa reports after the bell tonight. Will earnings season help or hurt the market . Lets bring in khristine shore who joins us at post nine. Glad to have you back. Thank you for having me. Preannouncements relatively okay, right . Analysts increase estimates rather than cutting them, are we coming in too hot . Estimates cut since the beginning of the calendar in april, down 2 , and current s p capital iq looks for growth estimate of 6. 5 , and its one of the highest preseason estimates seen since the Fourth Quarter of 2011. We are higher than we typically expect, and as you know, the preseason estimate is conservative. We expect do see this rise to 9 by the time the season is done. Not sure well hit double digits, but typically, analysts are off 3. 5 . To the downside . Right. They are too conservative, so if you tack on 3 to 4 to the current estimate, that puts you at 9. A robust earnings season for the quarter . I think so. I dont think analysts are coming in too hot at this point. In fact, lowered the bar slightly as they typically do. Now that we dont have a harsh Winter Weather impact, thats the test. That was the excuse all First Quarter, came in at 3. 4 growth, and we see why it was not just the weather, but the big banks reported lower than expected actuals, and so coming into this season, you really dont have an excuse anymore, seeing strength through the sectors. I was going to ask if your outlook included financials, wells fargo at the end of the week, jpmorgan, not a lot of optimism this. No. They are the biggest laggard, only ones expected to be negative, down 1. 4 . Thats the big banks, jpmorgan, bank of america, expecting double digit declines this season, and mortgage originations play a part in that as well as bank of america mentioning they expect to see the litigation fees drag from the First Quarter into the Second Quarter. We are pricing in the, you know, negative results from the banks already. Epf is one thing, what about Revenue Growth . See those numbers climb . Thats the true test. Everyone says, of course, record earnings per share, record Earnings Growth over several quarter quarters accounting manipulation, and you cant change sales, that is the top line number, and right now, looking for 4 growth in revenues. It does not sound great, but over the recent quarters, we are in the low single digit revenue of 1 to 2 . 4 looks better, lower than way we see of 6 , but theres a Strong Revenue number for this quarter and for the balance of the year. Everybody wants to say that theres no way margins can expa expand. Is that the consensus view . Looking for alltime highs as far as margins go which is concerning because how much does that play into the overall growth . Especially with inflation ahead of that. Absolutely. A peak in the Second Quarter, record numbers over the last several quarters and thats another metric we watch this season. Have you guys gone back in past quarters and looked at which i dont know, is there a poster Child Company that reports early that does consistently set a tone for the season overall . I mean, i think everyone looks at alcoa, the unofficial, but in the material sector is not always representative. Last quarter, materials were g negative, and this quarter, expected to be a leader at 11 . You cant say theres one company within a sector because every sector acts differently in the earnings season, but materials and alcoa will set the pace for materials as they go through. Will they continue to be a leader . I think energy will do well. The second leader, expected to be up 11 also. Not a great quarter last season, but improving refining margins and year over year increase in natural gas and crude oil, so that expected to boost the energy sector. See what happens tonight. Thanks for coming in. Thank you very much. Walmart hosting hundreds of entrepreneurs seeking to snag a deal with the retailer to put products on walmart shelves nation well. We are live in bentonville, arkansas with more on that. Reporter good morning to you. 500 companies here at the headquarters stepping into the retailerss version shark tank pitching made in america products hoping to be a part of the pledge to spend more than 250 billion by the year 2024 on products that support u. S. Manufacturing and jobs. Vendors whose products who are 90 made in the usa made the cut. The Vice President of sales at garbage bag manufacturer is one of them saying the Distribution Deal with walmart adds at least 30 jobs to his payroll. With that comes additional equipment, additional machinery and packaging. All the suppliers will have benefits from that and additional people down the pipeline. A nice impact within the local economy. Reporter though the real question is whether aloof remain profitab profitable . The key competitive advantage of pricing goods lower than anyone else makes maintaining margins nearly impossible. They have figured out to go green, and the company recycles 350 Million Pounds of plaque ticks a year and invests in technology to increase efficiency. Boston Consulting Group says that the plastics may be part of a wave of new American Companies able to begin to bring their manufacturing costs more in line with Companies Like china as chi chinas energy costs and wages begin to increase and americas costs begin to fall because of the boom in u. S. Shale manufacturing. Well catch up with mr. Rosenburg and how it works here at walmart, and coming up in squawk alley, speaking with the u. S. Ceo, bill simon, a lot of questions to ask him, certainly about the made in the usa open call and his view on the economy and if jobs are really helping to contribute to sales. Back to you. Yep, making waves with those comments, looking forward to the interview m thank you very much. Coming up, the next Great American restaurant, chief operator and cohost of the new show restaurant stat up will be here to talk about whats coming up on his show after the break. If you have moderate to severe rheumatoid arthritis, like me, and youre talking to your rheumatologist about a biologic. This is humira. This is humira helping to relieve my pain. This is humira helping me lay the groundwork. This is humira helping to protect my joints from further damage. Doctors have been prescribing humira for ten years. Humira works by targeting and helping to block a specific source of inflammation that contributes to ra symptoms. Humira is proven to help relieve pain and stop further joint damage in many adults. Humira can lower your ability to fight infections, including tuberculosis. Serious, sometimes fatal events, such as infections, lymphoma, or other types of cancer, have happened. Blood, liver and nervous system problems, serious allergic reactions, and new or worsening Heart Failure have occurred. Before starting humira, your doctor should test you for tb. Ask your doctor if you live in or have been to a region where certain fungal infections are common. Tell your doctor if you have had tb, hepatitis b, are prone to infections, or have symptoms such as fever, fatigue, cough, or sores. You should not start humira if you have any kind of infection. Take the next step. Talk to your doctor. This is humira at work. Welcome back to squawk on the street, watching financials, specifically goldman sachs, moving lower after slashed the Second Quarter 2014 and full year earnings outlooks citing lower mna revenues and brokerage related expenses. The stock down 1. 5 , and trimmed estimates for Morgan Stanley by a penny as well, down there almost 2 in the trade, so two very Large Financial Companies making some big waves in todays market. Back over to you. Gearing up for the earnings. Thanks, dom. Cnbcs newest edition restaurant startup airs tonight at 10 00 p. M. Eastern time. Heres a sneak peek. I think you did a good job on that, the dish is really tasty. I like it, fabulous. The customers loved the food for the most part m i think you have a way with food thats convincing, and i think that you guys have an incredible affinity with each other. The fact is you have no discipline amongst yourselves with the roles. You melt eed under the pressure today. Food is the most important thing, and i think the pressure got to us a little bit. Took longer to get out, but we wanted it to be right, and i hope you saw that was the most important goal. As partners, you have to be able to advocate leadership to the of leader, especially if im going to put my money into it. Its funny you said that. We had a conversation about this last night. You didnt put it into action today. Walk out of here, go, we jacked it up in the kitchen, but if you give me the money, this is how it goes down with some confidence. Understand that as much as i want to help you on a personal level, i dont want to make an investment in three individuals who respond to my demands and protect my investment, make it grow, and give me a return. Thats all i care about. Hes tough. Restaurant owner and investor start up, tim love joining us now. You are bad cops on that show. Oh, come on now. Putting your money on the line here. Tells about the show. Yeah, you know, the show is a great business look at the Restaurant Industry. So many food shows out there cooking competitions, lots of drama, and but this show is about investments. At the enof the dd of the day, finding people to invest in, and we put them through tests, like test driving the car. Same thing. In the end, does that come down to menu, a concept, real estate, location, what . All of that. Whats the magic key . Key to a great restaurant i say this 40 you can control, you can control the menu. You can control the atmosphere. You can control the people. You can control all that stuff. You have a 60 of it just does the restaurant have it . You know, thats the part you cant predict, and so the food in other words . Yeah, the food we can always too, right, but the this show really lets people understand by looking under the show to see what it takes to build a restaurant, how much it costs, what the variable costs are of restaurants. Buy a steak for 40 bucks, oh, my, 40 bucks, but the steak cost 22 bucks. We talk about that on the show. Crumbs, once you have a concept working, how much is too fast in terms of growth . Yeah, you know, you know, crumbs was well capitalized too, and what happened their growth was too quick and grew on a trend and trends in food move quickly, and so to invest in a solely cup cake concept, which was hot when it started, clearly it was, oh, lets go everywhere, and its going to crumble faster than it went up. Dont invest in a trend in food, but long Term Investments so thats why really good italian restaurants are around because people like italian food. Dont you need to be trendy in your restaurants . We think of manhattan, and once youve got t lines out the door. The line is out the door, but only for the first month. You know . Thats the fickle 500 in the restaurant business. A new restaurant opens in a city like new york, dallas, or l. A. , and 500 people are always there. You know, for the first 30 days, cool, hot, hip. I dont concern myself with the first 30 days of business, but the next 30 months of business. Thats reality what we try to teach the guys as we bring them up, mentor them, its our money in the deal. I dont want to lose. We find talented people and people with longTerm Investments. Its a cash business. Yes. I mean, how much of a deterrent is that to investors who are interested, but i dont know about the controls in the country are loose. Face it, the Restaurant Industry is the sexiest investment to and worst one to make. The only time youre a hero is when its good, no one talks about the bad, just always seems great. People think investing in a restaurant you drink champaigne, friends show up. Thats not the case. Investment in a restaurant is a super risky deal. I mean, its riskier than playing roulette. They say 90 failure rate. That still the case . Big failure rate, and its that way because people dont understand the time value it takes to put into a restaurant. Its an all day affair. You cant go you dont clock in eight to five and come home. Its 14hour days, literally, so it takes a special kind of person to want to do that. Anyone on the show make you texas food like you are used to if. No. The show was fun. The first episode, these guys do congi, super delicious, and they made it well. The waffle a different kind different kind of bean dip and chickpeas. Interesting combo of concepts, especially for the first episode. Must have been fun. We should have been on taste for tasters. Should have been, yeah. Tim, looking forward to the show, tune in. Check it out. Tonight, the big premier, 10 00 p. M. Eastern time, restaurant startup. Still ahead on squawk on the street ceo of walmart u. S. , bill simon, live. You dont want to miss that interview. Well be right back. Hi, i just signed up for your Credit Report site and i have a problem. I need to speak with your fraud resolution department. Ugh, we dont have that. What should i tell him . Just make that super annoying modem noise. shuuuuuuuh. Zzzzzzzz. De ee. Dong. Shuuuhh. hello . Not all Credit Report sites are equal. Classic. Experian. Com members get personalized help plus fraud resolution support. Join now at experian. Com. With enrollment in experian credit tracker. Thats why i always choose the fastest intern. R slow. The fastest printer. The fastest lunch. Turkey club. The fastest pencil sharpener. The fastest elevator. The fastest speed dial. The Fastest Office plant. So why wouldnt i choose the fastest wifi . I would. Switch to comcast Business Internet and get the fastest wifi included. Comcast business. Built for business. Markets deep in the re, dow down almost triple digits. Lets get the santelli exchange. Hi, carl, welcoming my special guest, hes always his thumbs always on the pulse of what we are supposed to be paying attention too. Good morning, and thank you. Hi, rick. Spoeupposed to Pay Attention to. Hi. Sow summarize, the labor turnover, do year over year to may, up 19 on job openings. Up 15 on quits, and the not seasonally adjusted data did not look nearly as good as the seasonally adjusted data. Now, taking all of that, my question to you is twofold. What did you think of jolts and quits picking up considered a good thing. More to the point, where i asked my source as data and they come back with not seasonally adjusted, it means theyre really scrutinizing and see structural issues seasonal adjustments might be masking over. Comment . Well, the seasonal adjustment issue i think is, is difficult to separate from the nonseasonal. I understand that everyones going to look at the nonseasonal and give a problem wib the seasonal. I take it for what its worth. Demand nor labor is increasing. Problem, supply is increasing at a slower rate. The labor market is tightening. At the same time, gdp growth cant generate escape velocity creating ka none drum a ka numb sounds like a shortage of Skilled Labor to match the right person to the right job. Thats structural. Switch gears. Productivity. The averageality of productivity over the last several years is subpar. Youve written about this. How can we change that and is that what the credit markets seem to pay most attention to . I think what the credit markets, release, the yield curve, sniffing out the labor market is tightening, inflation markets building, bringing forth the time frame the fed will have to raise Interest Rates. At the same time knowing that the economy is not accelerating to a pace making a lot of the bulls happy, and fear the rise in shortterm Interest Rates at the same time the fed is ending qe will have a dampening effect on growth, impacting the longer end of the curve. Hence the flattening were now seeing. With respect to productivity, if it doesnt start accelerating with the increase in labor costing now were seeing through the rise in employment, then Profit Margins will start jetting squeezed and theyre at a record high. A major risk for the earnings story over the next six to 12 months. Profit margins, corporate profits, all overlaid with feds Balance Sheet, enlightening. Final ten seconds, peter what i learned from japans loss two decades, loss of productivity is cumulative and hard to get back. Agree or disagree and what does that mean for the u. S. . Absolutely. In college i learned savings equals investment. A Federal Reserve discouraging savings, encouraging borrowing, so we cant borrow anymore, and that it doesnt lead to escape velocity. Savings does. They need to encourage that normalizing Interest Rates. No truer words were ever spoken. When increases in debt by the consumer is viewed as income and houses poor cash machines, outcomes always the same. Peter, youre the man. Thanks for taking the time. Carl and the squawk on the street game, back to you. Rick, thank you. When we come back, more on the market selloff this morning. Look at the nasdaq. A 1. 3 drop. Worst day for the nasdaq since april 25th as well as apple, samsung. Surprising out bet on the Music Industry from no other than taylor swift. Well talk about that. Look at this video. The grand opening at Universal Studios in orlando, florida. Part of our parent company, obviously, nbc universal. Harry potter fans lined up at 5 00 a. M. For a taste of butter beer and harry potter and a roller coaster, amazing. A firebreathing dragon when you walk in. Be right back. So now weve turned her toffee into a business. My goal was to take an idea and make it happen. Im janet long and i formed my Toffee Company through legalzoom. I never really thought i would make money doing what i love. We created legalzoom to help people start their business and launch their dreams. Go to legalzoom. Com today and make your business dream a reality. At legalzoom. Com we put the law on your side. E financial noise financial noise financial noise financial noise i research. I dig. And dig some trader more. Search. Because, for me, the challenge of the search. Is almost as exciting as the thrill of the find. announcer at scottrade, we share your passion for trading. Thats why we rebuilt scottrade elite from the ground up including a proprietary momentum indicator that makes researching sectors and Industries Even easier. Because at scottrade, our passion is to power yours. Welcome back to squawk on the street. Social media stocks are getting really, really hit hard in the overall tech selloff. Look at shares, theyre all down between 3 and possibly 7 to 8 . Social media stock, higher mown meant um names leading wassy to the down side. When squawk alley comes up, seema mody at the nasdaq more on the big tech names especially in social media. Back to you guys. All right. Ill pick it up. Dom chu, thanks. The dow is declooirning. 98 points. Down more than triple digits earlier. Still retreating on top of yesterdays drop, coming off of those record highs from last week. The nasdaq is down 1. 3 right now. Whats not working in the russell 2000, bio tech shares, carl, under big pressure, and in the s p airlines continuing to get hit. One of the themes weve been talking about. Airlines got hit obviously, klm, luft tunhansalufthansa, lo flights. Spirit, basically a different kind of business, but not helping the Airline Sector overall. What a winner theyve been. Youve been watching the vix. Up 9. 8 . You go back a ways to see the vix right this quickly, this fast . Volatility, last two days up 20 . Havent seen that kind of jump in two months. Trader are talking about it. Lower yields. Here we are, fifth straight month of 200,000plus jobs. Everyone thought finally higher yields, finally a stronger dollar, better economy. Its going in the opposite direction. Everyones watching that tenyear yield, lower again. Utilities, once again, best performing sector of the year, as people are looking for exactly that. Sara, see you tomorrow. Thanks. Sara eisen. Good morning, almost 8 00 a. M. In Washington State where Legal Marijuana is about to go on sale. 11 00 a. M. Here on wall street. Squawk alley is live. And welcome to squawk alley for a rough tuesday. The dows down 100 points. Beginning with the markets. Nasdaq is the one having the real pain today. Worst day for the nasdaq since the early part of april. Thats both on a one and a twoday losing base. Leading the way to the down side. Seema mody at the nasdaq with more. Good morning. Right. The selloff at the nasdaq, broad based. Social media, biotech, large cap tech moving to the down side in general. Investors questioning how much farther this market can run. Especially after what has been a stellar run for the nasdaq. Remember, investors did not sell in may and go away. In fact, since early may, the nasdaq up about 8 . Outperforming the s p 500 and the dow. And when it comes to tech, analysts will look for signs of an improvement in i. T. Spending, but with the fed, so much in focus, its important to remember historically speaking data shows that technology on average outperforms in a rising rate environment. Earnings, of course, will be a focus for tech investors over the next few weeks and experts say it could confirm markets move to the upside or derail the rally. Expecting a 12. 4 jump in earnings on average. Highest out of any sector. The bar set high