Transcripts For CNBC Squawk On The Street 20161012

Business. We hear what the ceo has to say about the future of the company. And amazon getting into the streaming music game with a new lower cost option. What that means for the industry and all the competition like spotify and apple. First up though the watch is onto see if the dow and s p can rebound from worst oneday performance in a month. Tuesday was even worse for the nasdaq down more than 1. 5 with microsoft among the biggest tech losers. Mike, were back to essentially the 100day semis didnt perform well, honeywell, dover, alcoa, what does this mean . Definitely a nasty oneday shake out. Brought you down to the bottom range weve been in really in months and to that average. Seems like there was all this disorder on the borders of the equity markets going on for awhile on the currency fronts, in Government Bond yields, theyve been moving much more dramatically than stocks recently. A lot of that finally spilled into the stock market yesterday. I feel like october came ten days late. But i think for now its still just kind of volatile in a range and not so much like a change in the story. Mention industrial earnings, i think thats a big deal. When the markets trying to get used to the idea that the feds likely to go in a few months, they want to see Everything Else lined up nicely and thats not really playing to script yet. See 179, 179 almost 1. 8 now. Not good in the face of results that appear to be getting weaker. I feel its one of those things where everyone sa its okay here. Were fine if its 1. 78 going quickly to 1. 95 or 2, we dont know whats going to get knocked loose in that process. We are in such an interesting time to be talking about yields spiking to 1. 79. Its hardly historically a high level, but yet the steepening yield curve is helping the financials. The best performing sector albeit still down yesterday and that comes ahead of earnings this week. But 27 days to go before the election. Theres still so much conversation about what wall street regulation looks like. What happens to Health Care Companies . Mike, im wonder if you think investors at home should stay away from health care for the next month . I dont know about staying away from it, but i dont know exactly what the kind of oneline bull thesis on for lets say the Health Care Sector etf, right . It seems to me everyones got a very shallow conviction when it comes to health care. Either safety in big high yielding pharma, potentially Risk Appetite growth for biotech or its kind of, well, obamacares here to stay and its the hmos and hospitals so all those things can be kind of shaken up based on whats going on in the markets. I do think yesterday you had this idea of a democratic sweep filtering into peoples consciousness, whether it happens when its likely or not the house tips i think thats what you saw yesterday. Showed you people saying maybe we cant be so sure were going to have split government. Lets dcuss more on the markets and bring in aaron gibbs, chief equity nstment officer at capital iq. Erin, there are so many sources of anxiety in the market whether its earnings, the election or stronger dollar. Where are you seeing it this week . For us this week id say its particularly going in the election. And then just those obviously disappointing results we start for the very beginning of our earnings season. So were expecting some volatility over the next couple weeks. Also, historically october just tends to be a poor month for the market. So if we do have some shakeouts during october, were still looking for a solid and strong end to the year for the u. S. Stock market. The earnings season always takes on a cyclical nature where you start with some of these industrial names and then you get into financials and later on its tech and retail. But im wondering if you think we will see different waves of strength and weakness and how the market will begin to interpret that. So certainly alcoa was a big surprise. Look, when youre talking about only 7 of the company is reporting out of the s p 500, its just too early to call certainly financials have that big wave that has an impact on that industry. And obviously at the tail end of Consumer Discretionary we get a better picture of what the u. S. Consumer is doing which also will give us a good idea of what were heading into for Fourth Quarter for the retail area. But overall, look, right now were expecting a 1 contraction for Earnings Growth for q3. Its always at the very beginning of the Earnings Seasons that the expectations are the worst. And typically we see anywhere from 2 to 5 higher by the time we finish earnings season when everybody finishes reporting. So were still looking at low single digit growth for q3, not great but not contracting and starting to rebound. Erin, you know, it seems like were entering earnings season at an interesting time sector wise. Youve obviously had a lot of the defensive plays, dividend yield sectors selloff a bit, people got comfortable with the idea of owning more cyclical stocks heading into it and yet its those cyclicals at least very early edge of reporting industrials that have caused a little bit of anxiety. Do you think were going to see just a lot of internal rotation continuing during this earnings season . Yeah, like i said, i think were going to see a lot more volatility over the next three weeks because we also have the election coming up as well. So that just adds a little more volatility to october. Industrials is one of them. I think were going to see less of the volatility in the Consumer Discretionary and some of your consumer staples. But certainly a lot of those high yielding stocks theyve already been pulling back and been some of the worst performers even in q3 just on a return basis. So i think were going to see this transfer of leadership into the more cyclical stocks. Its just that we may see some of this more churn over the next two to three weeks. Well, its been a good refuge, erin, for places where organic growth has been lacking for investors to find stocks that have buybacks, find stocks that have dividends that have been growing. But i wonder if you think Dividend Growth is about to be under pressure because weve been hearing that from the likes of david costin from goldman and others this week its a little bit of a contrarian tale. So when you really look at it quarter by quarter, the first two quarters were the great places for those high dividend yielding stocks, but as of basically midjuly we really havent seen that leadership in those high dividend yielding stocks at all. And youve seen those pullbacks, youve seen the valuations get really pricey well over the benchmark. And you dont necessarily see the growth coming with it. So i think like i said, we are going to see a change in leadership particularly as we move further into q4. Were expecting more some leadership go into Consumer Discretionary, potentially Even Health Care because right now valuations are looking great, especially once the elections over. And as we get closer to that expectation of a fed rate hike, particularly in december, i think thats also where we may see those stocks really fall back and we see a new leadership in more of the cyclicals. Finally, erin, we just talked about the impact of politics on the market. This narratives been written, a, that the market would be nervous with a white house, senate and house all dem. The other side of that is that a clinton victory would create a wider path for the fed to hike rates perhaps even faster. Do you buy both of those . So we actually did a couple studies on how the option markets work around an election. And certainly going into the election youll see more volatility. And you can depending on peoples opinion youll see stocks maybe you can take advantage maybe 5 . But ten days after the election when the november options expire, all of those plays are gone. So this is a very short term i think its really all about the uncertainty and once people see whos in the house, you really go back to more of the fundamentals, finishing the end of the year with the santa claus rally, those type of things. So all of these i really feel are very short term. Take advantage while you can. This is why i like some of the Health Care Stocks right now because theyre beaten up and its really just headline news. Although uncertainty is a word weve been hearing a lot. Erin, appreciate your time. Erin gibbs from s p capital iq. Yum brands ceo greg creed making the case for spinning off the companys China Business earlier this morning on squawk, he said the split isnt because the food safety scare china was too difficult to handle. We thought we could create these two powerful independent focus growth companies. And we thought we have an equity play, which is high growth but with some more higher risk. We also thought we could have higher growth but lower risk business if we obviously separated the China Business out. So that was really the strategic reason for doing it. Interesting interview. Talked on all the fires they sort of have to put out. Joe asked about returning relevance to pizza hut and some other things like that. In fact i see some pizza hut going with the wacky pizza chain ads during post baseball right now. Theyre trying to stay in that game. To me i think the rationale for splitting this company is almost like spinoffs 101, right . You have one very large piece of the company that often was kind of coloring the rest of it which is the China Business. People want a very pure play on the kind of domestic Consumer Spending story in china. So you can kind of maybe fix or revive the growth levels in the u. S. Business while you have investors, you know, getting their hands on a separate china play. The question to me is whether the stock already kind of builds in some of the good news because people love spinoffs and maybe its already priced in. But he wasnt necessarily bullish about the u. S. Consumer at this point in time. He said theyre wait and see until the election. When he talked about comps, he talked about comps on average over the last two years. Clearly theyre trying to smooth out a very choppy statistic, but i loved when he talked about taco bell and the fact that the average customer comes in once every 11 days, half the American Population goes to a taco bell every month. Make a run for the border. They talk about the power of users, right . Thats right. Twice a day. That old twoyear stack. I love that too. When we come back this morning, amazon upping the ante by offering some new Music Services. How worried should the ion be . Also ahead, top apple analyst tony sacconaghi. More squawk on the stre from post nine in a minute. Hey gary, what are you doing . Oh hey john, im connecting our brains so we can share our amazing tradinknowledge. Ats great idea, t why dont you just go to thinkorswims chat rooms where you cashare strategies, ideas,ven tual trades with market professionals and thousands of other traders . I know. Your brain told my brain before you told my face. Mmm, blueberry . Tap into the knowledge of other traders on thinkorswim. Only at ameritrade. Amazon is launching its paid Music Service today, called music unlimited for 8 a month or 80 a year for prime members. Nonprime members will pay 120 a year. But owners of amazons echo device will pay just 4 a month for a version that only works on that device. Amazon already has prime music, but it only has about 2 million songs. This new service has tens of millions of tunes. Mike, theyre all about the companys all about giving preferential pricing to customers of prime or customers of its hardware. But theyre having quite a few tears here. Its getting a little bit tough to track. It totally is. They obviously want to bundle in various different ways. I wonder if youre also in a music streaming business at another company say, well, at least they didnt wrap it into a prime subscription. Theyre asking you to pay more on top, they probably have to to make economics work at all. So maybe that makes it slightly less of a threat, but i think its scary like Big Companies like apple and amazon, if youre pandora, spotify, that can kind of use these services as kind of just an addon or rounding error to your core business. Do you think it signals that prime is bursting at the seams . I wonder about that. I wonder if theyve already packed it so full of products its about to break . Either they feel like its got enough in there that its such a great deal for the core subscription they dont actually have to give you anything more inside it, or, yeah, its getting complicated and you dont even know what the usage is. Maybe its a hardware play, sell the echo. A lot of discussion about what was a barrier at 10 for Music Services. Now if you get the echo, 4. I mean, id love to hear the discussions that went on between amazon and the labels as to what amazons going to subsidize and what labels are willing to put up with. Exactly. You cant think thats the actual cost of the content. But, you know, youre never going to get those numbers of course. They wont tell you how many prime members they have. I tweeted this morning the number of fronts amazons taken on, cloud which we already know, netflix and streaming. And now grocers, store in the journal about how kroger and walmart are going to try to fight these tiny brick and mortar amazon shops if in fact it gets that far. Its like the oneword short thesis is basically amazon could do this. For any sector, any vertical that you can find. Whether its true or not, i mean, i do think thats the perception. You dont think that the previous attempt to do lockers within preexisting Retail Stores is sort of cautionary here . You would think it would be. Nobody in the real world is fighting to get into the Corner Convenience store business, right . Its kind of a subsistence level thing unless youre, you know, cvs and adding basically a deli into it. I think its a threat on that front. But i think there would be a lot of caution. Now we have canner coming out with a 1,000 target. Their argument is ecommerce is reaching a Tipping Point this holiday season. I think ever core is higher, suddenly the quadruple digit target doesnt really phase people. I think because its just a 20 gain from here so its really kind of not that newsy if you have a bullish analyst with a price target of 20 or above, but i think with the exact very simple argument amazon getting more of its share of a very fast growing market in ecommerce. Thats kind of all you need to know, at least from the bulls point of view. I keep reminding people for as wonder a 20year run, a 19year run as amazons had, many, many 20 setbacks. It was down more than 30 in the First Quarter of this year. It has bumps on the way even when itsoi the right thing. This is also a safe time of year to invest in amazon. It always runs up to the holidays, and when it announces earnings at the beginning of the following year and people actually see what its margins look like for all the packages it had to deliver and all the deals it gave people on price, then they start to dislike it a little bit and gives up a little bit of its gains. Speaking of apple, samsung cutting their operating net forecast, they look for about a third reduction as a result of all the troubles involving the galaxy note 7. Its costing the chairman quite a bit of money in terms of his own personal stake. Theyre shipping these explosionproof boxes so they can be safely transported back to the company in a recall. Journal this morning makes the point its obviously one reason apples had one of the strongest rallies its had in a few months. But opens a lane for google pixel. And would you rather be lucky or smart . I think google would take it. Obviously theyre going to take it. Samsung being forced to sit out. I think the question i have is absent a new Samsung Phone and the carriers kind of putting that in front of people and pushing it, is it a one for one, are people going to buy x number of these new Samsung Phones and therefore theyre going to buy a phone and everyone gets the benefit of that, google, apple, somebody else. I dont know. But clearly a net positive for everybody else. Are shippers, transport companies that are sending these fireresistant or heat resis tant boxes back, do they have a trepidation about carrying these . Youd have to imagine youd want to model in some potential liability if something goes wrong. Cramer sat here yesterday tr traveling on a passenger jet is scary. See something Say Something as cramer said yesterday. A lot to watch. Samsung warning a third of its profit could be at risk because of this. The Company Actually warning on this device specifically. So well see whether this is a conservative estimate or whether this is just the company trying to put a fine point on it. And well talk to tony sac sacconaghi. Well take another look at the narrow range in the premarket with fed minutes on the way this afternoon. Dont go away. Just about seven minutes to the opening bell. Lets bring in art cashin director of floor operations with ubs. Good morning to you. Good morning. You said yesterday midday watch 2140, ive seen people break in slight support, is that the way you think of snit. It was within an hour you were below 2130. If we get weakness again, you want to be very careful of the area around 2118 to 2121. You break that then we could get more serious problems. For now weve rallied back to just under the 100day moving average which is around 2138, 2139 in that area. The big event of the day actually is the stabilization of the british pound. And that came about because Prime Minister may somewhat reluctantly agreed to let the Parliament Debate the brexit. Theres not going to be an official vote. Theyre going to debate it. But they are a lot more dovish, if you would, than she is. And there may be a Court Challenge maybe as early as today or later in the week as to whether she needs parliaments permission, an actual vote to begin the brexit process. So thats calmed markets in europe pretty readily because they think now weve got some remainers working on the case. Do you think that takes pressure off a dollar that has been strengthening and giving pause to some investors . It eases it somewhat. They will clearly link with the pound. There were points at which the pound and the s p seemed to have a correlation, like weve only seen with the s p and oil. So you were picking up there. I think thats pretty clear. And then of course we dont know whats going to come out of the jack in the box political events that we have here. Unshackled, once donald trump said, finally im unshackled, you could hear people saying, what, he was shackled already . So this could get very interesting. There are people saying that he still has an outside possibility of closing the gap greatly. They point to the year 2000, al gore had a pretty good lead over george bush at the very beginning of october. So well see how that comes out. All right. We got fed minutes this afternoon, this morning you had dudley of the new york fed saying the fed could be gentle in the pace of raising rates. The market is trying to warm to the idea that in december somethings going to happen. Do minutes mean anything . The minutes mean a good deal. The markets already set themselves up. They have a 70 likelihood of a rate hike in december. Thats the threshold the fed normally uses. They have almost never raised rates unless the markets have agreed to a 70 likelihood. So for now the market has put the tray in their lap and said its all yours. Before we go, you said no hike this year. If they hike in december, do you still kind of claim victory . Well, it is the 12th month of the year, but now it looks like we have a new tradition, an annual december hike. Yes. We had one last year and we probably will have one this year. But we do have a lot of stuff that could come up beforehand. Well see how the data goes. The data has been weaker than the fed was looking for. Earnings, again, does not look like a promising season. So things could get a little rough. Well cross or fingers. Art cashin, thanks, art. Well get the opening bell after a break. This woman owns this house, with new cabinets from this shop, with handles designed here, made here, shipped from here, on th plane flowby this pilot, who owns stock in thisompany, that builds big things and provides benefits to this woman, with new cabinets. They all have insurance crafted personally for them. Not just coverage, craftsmanship. Not just insured. Chubb insured. Sprint . Im hearing good things about the network. All the networks are great now. Were talking within a 1 difference in reliability of each other. And, sprint saves you 50 on most current tional carrier rates. Save money on your phone bill, invest it in your Small Business. Wouldnt you love more customers . I would definitely love some new customers. Sprint will help you add customers and cut your costs. Switch your buness to sprint and save 50 on most current verizon, at t and tmobile rates. Dont let a 1 Difference Co you twice as much. Whoooo for people with hearing loss, visit sprintrelay. Com. Youre watching cnbcs squawk on the street live from the Financial Capital of the world. The opening bell in just about 30 seconds on a busy wednesday, jewish holiday. Fomc minutes this afternoon. Weve got dudley on the tape, george in just about ten minutes, jolt at 10 00 and then Oil Inventories tonight after the bell. Well see what that brings us with inventories again tomorrow. Attention remains on any kind of clue to earnings season, preannouncements after honeywell and alcoa yesterday. Theres the opening bell and the s p at the bottom of your screen. At the big board azure power unlimited, indian Solar Company celebrating its ipo, at the nasdaq celebrating its ipo, Extraction Oil and gas. Isnt that interesting if the window opens to some of those old names . It is interesting. Ones raised a lot of capital, they hit the markets as soon as oil came back. Its amazing were still talking about another very big quarterly decline in energy earnings. And its basically we havent yet anniversaried the big crash but the oil sector in terms of stocks and high yield markets have been kind of celebrating. Although energy companyings reporting earnings, earnings are supposed to fall by k caveat th 68 . So interesting certainly to see that ipo. Worth noting, mike, the breadth yesterday 20to1 with the downside, so even seeing some stability in todays open is a relief for some investors. You mentioned raising money, not the only sector thats raising a little money. At least in the dead markets. Deutsche 1. 5 billion at junk having done three i think on friday. So this is an addon to the previous private bond placement that they did last week, and the company would like this to signal that there is demand for debt for the company, but at the same time it has the highest borrowing costs of any of the major european lenders. So it is able to raise money, but it is doing so at a cost. Does that let some steam out of the kettle or not . A little bit. Its not a tremendous number. 1. 5 billion. Although its interesting, kayla, they came with reverse inquiry, right . Most people who bought the initial chunk of bonds went back to Deutsche Bank and said well take more. Its interesting Deutsche Bank on one level is a victim of negative rates and ultralow yields in europe, but the fact they have to pay a premium over ultralow rates and still have manageable debt expense is pretty good. Worth noting the coupon is just about 4 on those bonds spread of about 2 and change percent, so in a world like that if you can get a piece of paper with a yield of 4 , youre probably going to want to get it. It works with both sides because Deutsche Bank says in the grand scheme 4 is affordable. Stanley black decker leading gainer on the s p, acquiring the tools business from newell brands, brings new meaning to the phrase bolton acquisition. Sorry i said that. But interesting in the light of sears and craftsman, a lot going on in that space. Yeah, interesting. I was going to see about sears, its up a little at the open. I wonder if people said, well, maybe this is going to reduce the appetite for buying craftsman. Seemingly the market is not saying it is on sears front, but definitely an area that i do think is ripe for this kind of rollup. Take a look at shares of ftnt, of course telecom and tech have been weaker throughout the week. This stock was done about 15 overnight. And lets take a look at where it opened today because the company did cut its guidance, or its preliminary Third Quarter results for its earnings. And you can see its down about 14 . It said adjusted quarterly profits will be between 15 and 16 cents, that was before a consensus of 18 cents per share, mike. So its a difficult operating environment. This is a company that obviously focuses more on the cyber sector, and despite all of the focus on Cyber Security, if you dont have demand in a given quarter, its not going to help you. Its not. I mean, this group has been very tough. Obviously it was very hot. People thought etfs created just for Cyber Security stocks and it seems to me its definitely a flawed analogy, but remind me of biotech specialty drugs, well, they have the fix for some kind of problem in Cyber Security that we want this quarter, this year, and then it kind of surfs around to the next provider of the Specialized Software services. They talk about lengthening order cycles. Never good when youre talking subscription software. And cuda having a good morning as well on a good quarter, piper takes its rating up and stifel. Well get more headles from dom chu. Good morning, carl. We have a statement from Elliott Management, hedge fund, in this case blake capital and potter capital, they are larger shareholders in samsung. With regard to the recent issues that they have this particular group of funds, eliliott potter say the recent issues surrounding the galaxy note 7 while unfortunate do not diminish our view that Samsung Electronics is a leading company with world class brand, we believe the company in forthcoming new leadership can build on the companys initial response to the situation by adopting best in class operations and Corporate Governance improvements. All this in the context that Elliott Management pushing for improving operational and structural changes included but not limiting to splitting the company up. But, carl, an interesting statement coming from a couple Large Hedge Fund holders within that samsung holder group, guys, back over to you. We did wonder, thanks, dom. We wondered earlier in the week what elliott would say about that. Citi has a note out this morning and they actually used the word hiccup in terms of describing the galaxys problems. Its a ginormous company. Its a fifth of korean gdp. So its not like this is existential by any stretch. No, its interesting because you could play it both ways if youre elliott and say this is why you have to restructure this company, maybe split it up from samsungs point of view well we can absorb this kind of thing because were an enormous semiconductor maker, were in the appliance business everywhere else, all kinds of electronics everywhere so therefore better equipped to deal with it. Elliott wants to simplify the Holding Company structure, but youre right, mike, if you have electronics as a stand alone and Something Like this were to happen, you dont have much absorption there. Not at all. The stock really is up a lot, i think largely because people love global semis and the korean market. Right. The semi story is interesting, right . Its largely an inventory story at which sort of broke down a little bit yesterday when you looked at say intel. Which i think preannounced pretty good revenue for the quarter. Well see how all of that comes in, but taking stock of those preannouncements along with the likes of honey well is going to be difficult this time. Well, with semis special just where the stocks have gotten to at this point. Its been such a huge consensus trade and really kind of a meltup in that area. Semis have rallied. At what point do you say this is a normal course pullback versus a change in sentiment . I think its the former, at least until proven otherwise. I mean, you do have these huge streaks in that sector and i think youre on one. You have some room to pull back on a normal basis. One last thing, alaska air, one of the biggest gainers, journal has a piece about Smaller Airlines taking market share on transatlantic routes, obviously a huge margin center. Wonder what you think of airlines done in the face of rising crude. When you think of transatlantic travel, you always think of alaska air, right . If youre going to russia. No, its just been so interesting how airlines have traded with regard to crude oil and people think higher fuel prices mean less price wars. So therefore you want to buy the airlines. But they did also get pretty depressed and all the transports have been on a little bit of a rebound. Jetblue traffic this morning as well. With all that dows down about 27. Lets get to bob pisani this morning. Hey, bob. And sort of whats bothering the markets yesterday still bothering them a little bit. Remember we had the stronger dollar, higher rates, lower oil and we had some election jitters overall. So lets take a look at what the markets doing here. Remember what the market leaders have been, energy, tech and banks. Lagging today, energy, techs and banks. Thats interesting. The market laggards have been utilities and telecom, leaders today utilities and telecom. Sort of reversing it. You can see what the market is worried about just on the front page of new york times, republican discourt leaves house and senate in question. I think that was a legitimate issue for the markets yesterday and areas that might face stronger regulation under a clinton regime, pharmaceutical stocks, banks, to lesser extent energy, see some of the pharma names, johnson johnson, merck, pfizer all under some pressure overall and i think the election is a legitimate issue and certainly on the front page of the times as well as right in front of the traders here. Remember the s p 500 is down 1. 5 this month. We have very clear market leaders. The reasons weve had it is because better prospects for earnings in the Fourth Quarter for banks, for energy and for technology. Weve been talking at nauseam. Little more worrisome is whats going on in industrials and materials. We talked a lot about honeywell and a lot about alcoa lowering their guidance. And i think thats impacting them. But its not spreading to other sectors so far. And of course utilities other than whats happening today telecom, Real Estate Investment trusts and other Interest Rate sensitive groups overall remain under pressure. We had a very interesting ipo that happened over on the nasdaq, Extraction Oil gas you mentioned earlier, 3. 3 million, 19, wait the price talk was 15 to 18. This is the first exploration and Production Company in two years pricing above the range on a day when oil was down, on a day that was difficult for the markets. So with both of those things working against it, they still managed to price above the range. That is a significant victory for an oil and Gas Exploration company and significant victory for the ipo market which as you know generally has been performing better than expected recently. Well see how that opens, it will be about 10 30 to 10 45 on the nasdaq well get you those first trades. Meantime take a look at earnings estimates. You were talking about this earlier. Down by 68 for q3, oil did not bottom until end of january beginning of february, beginning forth quarter camps become much easier so energy will theoretically be contributing positively to Fourth Quarter earnings in the s p 500. Thats one reason the Fourth Quarter earnings picture is notably better than even the Third Quarter, which is slightly better than what was going on in the second quarter. Meantime, we do have a very all ipo thats going on right here right around the corner here. Thats azure power global. Price talk was 21 to 23, 18, so priced below the range here, i see 17 to 18 as indication right now for that stock. By the way made a lot of recent tech ipos and theyve had a rough week overall. Twilio down 18 , this is for the month im talking about. Nutanix, i want to point out all still trading above their initial price, just recently come under pressure as the markets have had a rough time of it in the last couple days. So right now the dow down 45, ill check on azure right now 16 to 17 is the price indications for that. Guys, back to you. We will watch for the open of those two stocks, bob. Thank you. Meanwhile, lets head to the bond pits and Rick Santelli with a few auctions on tap later today, rick. Absolutely. And the auctions are going to be more important than normal today. The threeyear auction 11 30 eastern will give us an insight into whether the market and its rise in rates is pushing the fed based on how much dealers are aggressive in their bids on the threeyear. The long end, thats definitely going to be a vote as to whether the long end is now a Better Bargain if youre looking for the higher rates youll get by participating or whether the move will continue in investors mind. Give us a look on the short and long end of the curve. Look at a twoday of tens, only up a couple basis points from 176 to 178. We did of course touch 1. 80. But these are important. If we go back in the chart, heres why. If you look at brexit data, high yield there on the close was 1. 74 on september 19th it was 1. 73. Weve cleared the zone, especially at 1. 73 yield was after historic low yield that makes it that much more important. Lets look at yeartodate of gilts. They blew through 90 basis points. Theyre charging higher, especially today with a bit of a reversal potentially in the pound. If you look at bund yields, look at their two dates, on the 13th high yield 07, brexit day it was 0. 09. And of course the pound versus dollar, yesterday we made another pass at a low going back into the mid 80s. Today it reversed a bit. Will it last . I dont know, but it defbtly gave the gilts more power in their response. And last, the dollar index. Open the chart up to the beginning of the year were hovering at levels we havent seen on a closing basis since the first few days in march. And of course it will continue to dominate traders minds certainly looks like a clear map that the markets are having a bit of a fit and the central bankers are definitely going to notice. Back to you, carl. Thanks a lot, rick, see you in a bit. Rick santelli watching energy as well ahead of inventories tonight, Jackie Deangelis at the nymex. Good morning to you, carl. Crude prices are under pressure this morning dipping under that critical mark of 50 a barrel. Really not surprising here because weve got a situation where the market is optimistic about this opec deal coming together with nonopec players as well. But its rightfully skeptical, too. Now, the dollar index that Rick Santelli just mentioned, thats certainly a big piece of the commodity picture as well approaching 98 here, really spiking. That is going to put pressure on crude and also the rest of the energy and metals complex. Now, u. S. Crude inventories as you mentioned api will be out this afternoon, weve got the department of energy tomorrow, what i want you to watch tomorrow is that the eias changing how it reports that inventory total. Theyre removing leased stocks, so out of the total will slash about 30 million barrels. The market knows about this, but analysts are saying theyre not necessarily sure how it will react. Carl, back to you. Jackie, thank you very much. When we come back, top apple analyst Toni Sacconaghi on samsungs problems, apples rally and a lot more. Dow down about 40 points. Back in a moment. If youre on medare, remember, the open Enrollment Period is here. Begins october 15th and ends medicdecember 7th. So call unitedhealthcare to enll. In a pn that could give you the benefits andtability so cyoure looking for,e to enll. An ap medicarecomplete plan at makes it comple . Unhealthcare. It c combine medicare parts and b, which is your hospital and doctor coverage with part d Prescription Drug coverage, and more, all in one simple plan for a low monthly premium or in some areas, no plan premium at all. An aarp medicarecolete plan fers youenits like an annual physical, preventive screenings and most immunizations all for a 0 copay. Youll also ve access to a cal network ofoctors and muc. You can get routine vion and hearing coverage, a fitness mbership to helpou stay active, and worldwide emergency care. For prescriptions, ull pay the plans lowest price, whether its your copay or the pharma price. Or pay zero dollars for a 90day supply of your tier 1 and tie2 drugs, delivered right to your door. In ft, our Medicare Advantage plan members saved an average of over 4,500 last year. Now is the time to look at yo. Start getting the nets oan aarp medicarecomplete plan insured rough unitedhealthcare. Unitedhealthcare has been helping medicare beficiaries for over 30 years. Well connect you with the right people, he schedulyour appointments, and with renew by unitedhealthcare, you n arn about Healthy Living and earn rewards, too. Rember, medicare open enrollment ends december 7th call unitedhealthcartoday about an aarp medicarecomplete plan. You can en enroll right over the phone. Dont wait ca unitedhealthcare or go. We continue to follow the Samsung Galaxy note 7 fallout. Analysts say the recall could cost the company billions, as high as 17 billion in some cases. Lets bring in bernstein Senior Technology analyst Toni Sacconaghi to see what this means for google and apple. Good morning, carl. How do you begin to assign any value to apple from samsungs troubles . Sure. I mean, i think the way to think about it is that samsung expected to sell about 25 million notes this year, so effectively those are up for grabs. And historically our survey work has suggested that consumers are pretty loyal to their operating system ecosystem. So theyre loyal to android. So perhaps in apples case, you know, maybe 20 of these users as a wild guesstimate might defect to ape. And that would be an incremental 5 million units. And then the broader question is, is there broader Samsung Brand damage, and samsung sells another 50 million or 60 million phones a year at 500 in the price range of the iphone. You could then say, well, look, if there was some defection among that group those could be incremental perspective buyers for apple iphones. Toni, is there any evidence in your channel checks that people are slowing their purchases of other samsung tablets or other because of the association with this even though its a previous tier of product . I think its too early to tell. I mean, certainly there are a number of people whove had to turn in their phones and are in the process of turning in those phones. And i suspect that many of them will move away from the Samsung Brand. Now, obviously they could move to other android devices. Google has a new offering out that may prove to be attractive for some of them. And we believe apple will get some. But quite frankly its too early to tell. Toni, you mentioned that samsung expected to sell about 25 million of these phones. Is that 25 million new phones that the world must buy . Or was that going to be based on some of the promotions, watt carriers were going to feature . Maybe we dont exactly have that full number in play. I think thats true. Invariably some of those people are going to be upgrading. And people who have older devices may choose to hold them on for longer. So one could argue that full 25 million may not be in play. But i think similarly, you know, one could also say just the broader Samsung Brand and note was a much smaller portion relative to the galaxy s series. Could also be vulnerable to shifting to other consumers. So when the journal comes out, toni, like they do this morning and say it means good things for the pixels debut, is that an easier call because you can ostensibly stay within an Android System . Yeah, again, our surveys in the past have indicated that theres 80s to 90 ecosystem loyalty. So when we ask consumers how likely are you to buy another android phone, typically wed have respondents 85 or higher respond that the likelihood was very high that they would stay on android. Similarly when we asked apple users the percentage loyalty or intended loyalty was even higher. So, yes, statistically folks dont like to change ecosystems. Theyve installed applications. Theyve gotten used to the software itself. And so the most logical migration if theyre going to leave the Samsung Brand would be to go to another android device. And so that certainly could benefit google and other android players. Were going to see how sticky ecosystems are, thats for sure. Toni, thank you so much. Good to see you. My pleasure, carl. Toni sacconaghi. Up next, Vladimir Putin discuss the u. S. Elections. Details when we return. I we worked with pg eof to save energy because wenie. Wanted to help the school. They would put these signs on the door to let the teacher know you didnt cut off the light. The teachers, they would call us the energy patrol. So they would be like, here they come, turn off your lights those three young ladies were teaching the whole school about energy efficiency. We actually saved 50,000. And thats just one school, two semesters, three girls. Together, were building a better california. Did you know your business doesnt have to suffer from slow internet . Comcast business now offers blazing fast internet speeds up to 250 mbps. Over 6 times faster than dsl. Get internet for as low as 59. 95 a month. Call today. Comcast business. Built for business. Did you know sharing wifi with your customers could leave your business exposed . Only comcast business offers wifi pro. Two separate networks one thats private for you, and one thats public for your customers. Upgrade to wifi pro for only 19. 95 a month. Call today. Comcast business. Built for business. Russian president Vladimir Putin addressing a Major Investment Forum in moscow amid escalating tensions between his country and the west. Geoff cutmore is in moscow with more. Geoff. Yeah, i had the opportunity at this Financial Forum to put a question to president putin. And clearly there are increasing tensions around the election and around claims that emails have been hacked by statebacked entities here in russia. So i asked mr. Putin that question. It was a round of denials. Lets hear what he had to say. Translator what we are observing certain hackers have released certain information about how unseemingly mrs. Clintons headquarters have been behaving during the election campaign. They have been supporting one Party Candidate at the expense of another. And then this series started that the interest was done from russia. Russia has no interests. While the claim was russia had no interests, also in the same answer he said surely its not so important who did the hacking but ultimately what was revealed as a result of that hacking. So a somewhat measured denial, you might say, in the same answer he also talked about his relationship with the current administration. And quite frankly said very difficult now to have any dialogue at all with the current resident of the white house. Carl, back to you. Geoff, thank you very much for that. Geoff cutmore. When we come back, more fallout on the galaxy note 7 recall, dow down 3 points. Dont go away. Good wednesday morning. Welcome back sto squawk on the street. Im Carl Quintanilla with Kayla Tausche, mike santoli at the New York Stock Exchange. David faber and sarah eisen off today. S p just slightly positive watching oil down 1 . Fed minutes coming up at 2 00. Our road map this morning starts with markets trading slightly lower. The day after the dow closed down 200 points. Whats fueling all the uncertainty . Samsung says its Current Quarter profits could plunge by a third after discontinuing that galaxy note 7, its chairman losing over 1 billion in just two days. And amazons latest push to take over every aspect of our daily lives, but this time its entering a really crowded space. Well speak with analyst who is say amazon could be going to 1,000. Stocks are moving slightly lower amid Third Quarter earnings concerns as investors remain cautious ahead of minutes this afternoon. New york fed president bill dudley commenting on easing Monetary Policy a few moments ago. Take a listen. The United States Inflation Expectations still seem to be well anchored, maybe inflation is a little bit below our target, but we dont have the same problem that you see in europe and japan. Joining us at post nine this morning, managing director Technical Research advisors and phil campareli, good morning to you both. Good morning. Any damage done yesterday, louise, in the medium term . Came close. It came close. I mean, this month we went out saying dilemma and doubts because we didnt see the followthrough on the breakout. And i think if you break 1800 or 2100 18,000 or 2,100, then we go lower. So the cushion is there but getting a little thinner. Support levels, yeah. And the negative divergences have been in place since some of the indicators for three to six months, and thats a little bit iffy. Phil, you expecting any surprise in the minutes this afternoon . Markets currently pricing in 63 chance for december. We did have a lot of dissent though. Yeah, it was a good thing. So from big picture perspective, if you look at the post brexit low which was june 27th through labor day, the s p was up 10 . So since then weve given 2 back because some was for the right reasons, the rally, which was brexit fallout not really what people thought, fed being pushed out to nevernever land, never see them again. What we see now is a fed back in play as you mentioned over 50 priced in for december, but the most important thing they did in the last statement was take five tightening now accumulatively out of the rate hike cycle. That keeps financial conditions very contained. Most notably credit spreads, vix, dollar and Global Equity prices which leads us to the u. S. Ey market emerging market in high yield. Did they take december off the table . Art cashin pointed ot the fed has never hiked unless the chance has been 70 or higher. I think they want 50 . 50 for them gives them the transparency they want. September is above, this is the playbook from last year. Last year we got above 50 price for december, they went and it was a really priced into the market and theres too much cash on the side right now. The pain trade for us is higher equity market. Louise, seems like you think there could be pain to the downside potentially if some things dont work out right. You mentioned divergences, maybe the character of the market hasnt really been up to snuff, what specifically . Because a lot of people are taking heart in the fact that some of the more cyclical industrial groups, semiconductors, other Leadership Groups have been strong. What concerns you . Well, the new highs versus new lows has been declining for several months. And our volume momentum, which is the uptodown volume, has been declining. And may be on the verge of going negative, which would not be good. If we have a down day today, i suspect that would happen. But from a relative strength perspecti perspective, actually technologys been the only one on a longer term basis that has been outperforming. And you cant keep moving higher with such thin leadership. Yes, a few industrials look good, but you cant get the relative to turn up, energy you got a little pop because we did see the neckline starting to breakout, so we said a touch of energy. But i think that the relatives arent coming through. And even if the market goes down, technology is still the only one with a rising relative. And you know what that means, going dow less. Youoned menti the vix. Yes. Were at 16. When do bells start going off for you then . More towards the february type highs. Were nowhere near that just yet. In february, yeah, the probabilities of recession were rising, of course those four things i mentioned credit spreads were wider, gold equity prices lower, vix elevated, the dollar was weaker but for the wrong reasons. The fed again was being pushed out. So not quite yet. We are approaching an election, right . We are approaching a couple of fomc meetings, the minutes today. That stuff should take the vix off of the summer lows. Take a great way to move exposure to move to calls, volatility was so low we own the upside and limit our downside in the portfolios with the calls. Louise, the pound saw at least a oneday reprieve with the Uk Parliament now debating what a brexit actually looks like. But how much technical damage will continue to be done in currencies . Well, in the pound you broke 1. 30 and went to 1. 14 intraday, but even if it stabilizes around 1. 20, we havent been at these levels since 1985. So the breakdown under 1. 30 did a lot of damage. Phil, you mentioned that its last years playbook. Are the markets set up to react the way they did after the december hike last year . Which was not exactly a calm one. Yeah. We get that question a lot. The biggest difference between last year and this year is the pace that the fed says theyre going to be at. The fed is going to say in december most likely that theyre going to move and one or two next year. Last year they said they were going to move in four in 2016. The other big difference is energy prices. Energy prices trending closer to 50 is an up. Credit spreads tighter is a different backdrop than last year. What sort of wrenches the election throw into it . Keeping a close eye on the house. The base case is the house is a big hill to climb for the democrats. They need 32 seats, thats a big number, right . We hear a little chatter about that yesterday, but the probability still remain that even if the senate goes democrat, the house will stay republican, gridlock is good for markets. Thats the base case right now, but were watching closely. Louise, phil, thank you very much. Thank you. Speaking of the house, some say yesterdays selloff was in part fueled by a fear of a democratic sweep of both the white house and both chambers of commerce. Our own eamon javers has more on what it would take for the dems to win the house. Eamon. Hi, kayla, you heard the base case from your wall street analyst. And boy those wall street guys sometimes know what theyre talking about. Theres this open warfare right now between paul ryan and donald trump at the top of the National Ticket on the republican side. But does that mean the house of representatives is in play . Remember, the democrats would need 30 seats to take over to win the house of representatives. Lets break it down. This is the cook political reports analysis of the situation in the house. Paul ryan says hes going to spend his time defending the republican majority. Republican, 435 seats in the house of representatives, you need 218 for a majority, but the cook report says that only 17 of those seats right now are currently rated as tossups. That means either side could win. So heres the brutal math for democrats whod like to take over the house of represents. They start with 177 very solid seats theyre likely to get. Then theres five seats that are likely democratic according to the cook political reports analysis. And then eight that just lean democratic. And then there are those 17 tossup seats if the democrats were to sweep all of those, all the tossups, all the likely ds, all the lean ds, they would still be short of the 218 that they need to take over the chamber. That means they need to start picking away at some of the lean republican and even tougher likely republican districts. That is a tough thing for the democrats to do this year, but you need sort of the bottom to fall out of the Republican Party in order for that to happen. That said, we are seeing open warfare at the top of the ticket. It does feel like one of those years where just about anything could happen. But the math would suggest, kayla, that this is just a very, very difficult thing for the democrats to do. And that suggests that you could have one scenario where you have a Hillary Clinton victory, paul ryan remains as speaker of the house in a much smaller majority and therefore more conservative republican majority squaring off in the house of representatives against a president Hillary Clinton next year. Not to get too far out over our skis, but that could be one scenario that were looking at for january, kayla. Eamon, i was going to ask you about just that. You know, we talk about this balance of power tipping, but even if it doesnt, how do you handicap the difficulty of having a smaller majority of republicans in congress of passing any legislation that either candidate is proposing . Well, you cant see very much of anything happening in that scenario. I mean, republicans are not going to like anything thats on Hillary Clintons agenda. Hillary clintons not going to sign anything the republicans pass out of a conservative house. The challenge is for speaker of the house paul ryan is that if the republicans do lose seats but dont lose the majority, hes going to be facing a republican conference majority that is more conservativconserv tilted toward the freedom caucus, the Trump Supporters, who he has alienated by his moves this week. Thats going to make his leadership potentially challenging. Hes going to face a very similar challenge to the one john boehner faced in riding herd over that fractured majority if it remains majority. There are only a couple deals out there. People talking about a potential Infrastructure Spending deal in exchange for some sort of tax repatriation effort. Thats one deal you could maybe see happening, maybe something on opioid abuse. But other than that theres just not a whole lot of legislation that observers think is really practical in any or many of these scenarios next year. Eamon, before we go, whats the scenario if youre gaming out how the democrats could potentially take the house, is it about the kind of turnout . I mean, what would basically be the ingredients of that on the turnout question . Well, like i said, you need the floor to fall out of the Republican Party in order for that to happen. Remember, theyve got to get those leaning republican districts and those likely republican districts thats where the republicans are polling well ahead right now. They would need republicans, and a lot of them, to stay home this year. And thats why youre seeing republicans so reluctant now to distance themselves from donald trump because they really need those trump voters to come out and vote for the bottom of the ticket. Even if a lot of republicans here in washington have concluded that trump is going to lose and possibly lose bigly, to coin a phrase, there is the possibility here that those trump voters would vote for the down ballot republicans and keep them in office. Thats what they need, whether thats going to happen or not is anybodys guess at this point. I can see thats now made its way into the general vernacular. Thats right. Eamon javers in washington. Thanks. When we come back, the samsung saga continues as the company says q3 profits could fall by a third. And just how much did the chairman of the company lose in two days . Numbers are pretty eye popping. Squawk on the street continues in a moment. Ping are yoall right . I was in a room full of light. You were there. You were financially secure it was glorious. How do you know that . I work at ally its my job to know about finances. Whatlse did you see . T . Did i have a speedboat or anythin toss me back in, ill check. Hes fiing t if i have a spebo nothing ops us from doing right by our customers. Ally. Dot rit. Netive on the speedboat. Ing right by our customers. Woman how do we protect them from 4 billion in new cuts to california schools . Man vote yes on proposition 55. Woman prop 55 doesnt raise taxes on anyone. Man not on working californians, not Small Businesses. No one. Woman instead, prop 55 simply maintains the current tax rate on the wealthiest californians. Man so those who can most afford it continue paying their fair share. Woman . To prevent new education cuts. Man . And keep improving californias schools. Woman vote yes on prop 55 to help our children thrive. Latest crisis, the galaxy note 7 recall is a true test for the companys heir apparent. Our su san lee takes a look. They are run by a Family Dynasty now run by the Third Generation of the lee family. 48yearold lee jaeyong who took over for his ailing father two years ago, the biggest debacle crisis of the company and lee has faced. Samsung Electronics Just really one part of the largest Business Empire in south korea, which also includes shipbuilding, insurance, construction, advertising, pharmaceuticals. I mean the list just goes on and on. And its not just samsung thats run this way. Hyundai, hian jin as well as others. They shore up family control through all these subsidiaries. In the samsung case Samsung Holdings with a stake in Samsung Electronics which then owns a stake in shale industry, samsung cnt is in the mix as well, they own stakes and the chipmaker samsung sdi and other parts the empire, its really this complex matrix thats impenetrable if foreign investor is looking to buy just one part of any company in this structure and basically they protect the entire table and the dynasty itself. There have been criticisms that these south Korean Companies are not run the most efficiently this way or actually put Family Interest ahead of stake holders and lack transparency. In the Samsung Galaxy note 7 case, you know, there are bets out there that maybe ceo lee jaeyong he was several steps away from the daytoday Decision Making and delegating more of the Decision Making to mobile chief, but again it is complex in south korea. And there have been calls particularly from Elliott Management to maybe shake up control holdings or maybe control of the large south korea companies. Thank you so much, susan, it is complicated indeed. What should samsung management be doing to temper the crisis . Joining us is former medtronics ceo, cnbc contributor bill george. Jon fortt joins us onset here as well. Bill, ill start with you, First Leadership test to the heir apparent to samsung, how did he do . Terrible. Im sorry to say it, but, you know, he replaced one defective product with another defective product. Look, companies have problems, they have difficulties. But you better get the fix right. They didnt have their engineers get to the root cause, no one came to the u. S. To find out what the real problems were. The engineers in the labs have not been able to replicate what the problem was. So they said, oh, must be the battery, except it wasnt the battery. And they put out another product with a different battery and they have the same problems. They havent figured out their own system. And i think theyre too turned inward, too hierary, this will be much bigger. One analyst said 17 billion but th doesnt compare to the loss of the brand, theyre going to lose bigtimeshare to people like lg electronics, and when google comes to market people love their android. They want to stay with android. Im actually an iphone user. I love my iphone, but they get used to it and they dont necessarily switch ecosystems so i think the big winners are going to be other than apple. But i think the ceo and mr. Lee have got to get over to the United States, make a public apology, probably have to appear in front of congress or someone otherwise theyre going to wind up like volkswagen has with tremendous damage to a great brand. And its really a tragedy. Samsung is a Great Company but behaving very poorly in crisis. But, jon, think about the biggest recalls in history. Most involved fatalities. Thats not the case here. This is a phone. It overheated. And the images are awful, is there anything they can do to ring fence it within the company at this point . Well, the problem i think in analyzing this is we know so little about how samsung is actually run. I mean, a challenge is a lot of companies, apple, if youre an apple fan, you probably know tim cook and johnny a couple people at the top who can speak for the design, operation, running of the company. But when it comes to samsung, theyve got lots of celebrity endorsers but who really speaks for the brand . It would be great if executives were to come over here and testify before congress, but ive sat down a couple times with high level samsung executives they dont even like sitting down for tv interviews over conces over how their english comes across. So this is a challenge in operating in this kind of a space, particularly in a premium market. True, no fatalities, but the reason why samsung is doing so well in phones is because theyre a premium player, theyre able to charge this premium because of the brand. Theyve already projected for their q3 a third of their profit is going away as of today because of this. The question raises well what about q4, what if they cant figure out either supply chain wise or logistics wise what went wrong here . How does that effect rollouts for 2017 . Bill, your response to that . Yeah, lets go deeper into what jons saying. Heres the problem is ive been urging Companies Like samsung to diversify the people sitting around the Decision Making table the headquarters in seoul. And theyre not doing that. Theyre all korean, they all think one way, theyre clueless about the impact on the public in the u. S. And when things go viral in the u. S. And how the damage. Okay. Maybe there werent any deaths. There werent any deaths with volkswagen either, but brand damage goes far beyond 25 or 30 billion theyll lose. Thats interesting though. The reputation of the brand, they need more diversity advising them and the executives need to get over here and engage in the marketplace. Talk to real consumers, get into stores. Maybe they talk to i havent thought of it that way, bill, but youre exactly right. Its a diversity issue at the top level of samsung in terms of the board, in terms of the management. One of their most important markets is the u. S. Market and they have no body at the very top of the corporation whos able literally to speak to this market in a comfortable way. Bill, weve had you on a number of times this year to talk about corporate crises, i took a poll on twitter the other day. I said whats the crisis of the year, mylan, wells, deutsche, valeant or samsung. You got a vote . Howd it come out . I think samsung narrowly beat wells. Okay. Its a very bad year. And i can tell you john stumpf didnt handle that well either. Why dont we learn we were just teaching a group of ceos last week at harvard, Large Company ceos from very big Global Companies about the importance. And we used jim burk at tylenol, you know why . Because he was real. He was authentic. He admitted that they made a mistake in going back in the market after six weeks and putting out a product that led to the same problems again. He admitted that. The lawyers say, oh, you never do that. No, he was real and he was authentic, he was sweating, he was perspiring and he said, you know, this is really upsetting to me. We dont see any feelings, any emotion, Consumers Want to know youre connected with me, you know about my problem. And im scared about this problem. And thats the issue. You have to trust the brand. You dont know if that brand works or not. Its a decision of trust and theyre destroying trust every day. Going back to the founding myth of samsungs smartphone really their phone business in 1995 lee kunhe, he was the chairman, he burned 2,000 phones on a manufacturing plant floor. Theyd been handed out to employees and they didnt work. And he burned them to show that we wont accept anything defe defective. How do you think this is playing out in the psyche of the samsung worker . And how far do you think morale has to climb back from this kind of a debacle . Its a good question. Wonderful example. Why didnt he come over and do that here and go into the store and throw them in the trash and do it in front of cnbc on National Television . You know, actually get real. Youre exactly right. Thats a great example of what setting a standard for the people. But i think theyre probably all scared in korea and they dont understand the u. S. Market and theyre afraid of our language, they have to get over that. And they have to be real and come here. Well see if the safety regulations of the New York Stock Exchange would let us do that. Bill, always good to see if this recent spate of crises means anything. Well probably see you very soon. Yeah, too many crises this year. Keeps you going, but its not good for the general public. Oh, man. Yeah, bill, take care. Jon, see you soon. Breach of trust. Remember that, guys, breach of trust. Bill george, jon fortt. Lets get a check on humana here waiting for resumption of trade having been halted. Now getting news they are upping their 2016 outlook to 950 adjusted a share. Estimate 9. 24, so above expectations. Q3 see 315, streets at 288 according to some medicare reports star quality. Well watch that when it reopens well get you latest trade. Probably welcome shift to upward guidance as opposed to downward. When we come back, amazon announcing Music Service that directly competes with spotify and apple music. Our next analyst joined the 1,000 club raising price target for amazon. Hell make his case when we return. Gu, whats happening here . Y nicole, this imy nealt system r enever athing happens in the marke kids a natura but thkorswim already lets you create custom alerts foall the thgs that are important to you. Shhh. Alerts on anhing at all . Not on that, you can act on thaopportun withust one tap w, i guess we nt need t kid amore. Amazg sleep stays withyou a. With sleep number, u choose the and so does your partn for the best sep ever. With the queen c4 mattress t now only 1399. 98. Learn more a eepnumber. Com were drowning in information. Where, in all of this, is the stuff that matters . The stakes are so high, your finances, your future. How do you solve this . You dont. You partner with a fm that and the fortune 500, can deliver insight pson to person, on what tters ou. Morgan stanley. Amazon announcing a streaming on demand Music Service today that cracks the standard 10 a month barrier. Some analysts meanwhile already adjusting price targets to over 1,000 for the stock. Joining us now is one such analyst youssef from canter fitzgerald. Thanks for being here this morning. The Music Service announcement was not of course the basis for your increased price target, but tell us how it fits in to your thesis for amazon here. Sure. Thank you for having me. Yes, you are correct. It wasnt part of our thesis, but it certainly is a nice thing to see happening. Its an extension in terms of Music Service. And its not too dissimilar with what they had video where they initially included buying video as part of the subscription and as that library expanded they offered the potential of pricing it separately. So amazon is in the process of building a big, big ecosystem. And this is just one additional step in that direction. Now, 1,000 target, its obviously eye catching. It only represents only, a 20 increase from here. There are now three analysts with a target at or above the 1,000 level. What gives you the confidence that this stock, which really has become kind of a consensus favorite out there, has that much more upside given the run its had . So the call was really made on two assumptions. The first is that the ecommerce growth in general is accelerating. Were noticing a Tipping Point in overall ecommerce. If you look at industry data, which youll see as growth in ecommerce and aggregate in the first five months of 2015 was around 9, 10 , in the first nine months of 2016 it was within 9 . Within that period amazon showed a similar trend where they showed accelerating top line growth, mind you its the largest player in the space. So having acceleration on a very on 120 billion revenue base is pretty impressive. And because theres a ton of leverage in the model, they were able to show margin leverage almost despite themselves. And that we expect that to continue if you look at july and august. Weve actually seen a continuation of that. Thats why we think the stock has more room to go. Sorry. The last three holiday seasons we have seen double digit percentage increases in online sales. And im wondering why you think now is the Tipping Point for ecommerce. Yeah, sos something that has been happening or as i said over the last three quarters. Obviously one point doesnt make a trend, but seeing it repeating itself three quarters and doing all the channel checks that we can do throughout the Summer Season kind of slolidifies that theory. Look, obviously at the current valuation the stock is grown to tremendous amount of value of fluctuation. But we still think that, you know, if you look at the valuation today relative to the valuation a year ago when the stock was around 560, the multiple hasnt really changed. So all the stock is doing is filling or is growing into its valuation. Youssef, where does the percentage of ecommerce, of total retail plateau . And as a follow onto that, when that happens, how much does their play in cloud and in streaming and in now apparently music mitigate that . Yeah, thats a really good question. So we dont were somewhat in unchartered territory. You can look at the uk where ecommerce is already north of 20 of overall retail in the u. S. Its high single digits. We think theres absolutely no structural reasons why we shouldnt get north of 20 over the next, you know, five years or so. We would actually we believe that its going to get faster for us to get from where we are call it 8 , 9 , 10 , to 20 , than got us from 0 to 10 . That again speaks to the acceleration or the Tipping Point were seeing. In terms of what will continue to drive it, look, i think traditional retail is certainly or brick and mortar is morphing into digital. And i think the trend there is not going to go back. I think its only going to accelerate. But more importantly everything that amazon is investing a ton of money into and losing money at right now, video, music books, et cetera, we think that will only act as an accelerant to the traditional retail sales as those start to mature. And obviously even at a quarter at 25 over retail we dont think it will mature. I dont know what the number ultimately will get to. Could get to 30 , 35 over time, i dont see any reason why it wouldnt. All right. Well, amazon getting credit for investing lots of money. Been a story for almost 20 years now. Thank you very much for bringing it to us. Thank you. Lets get over to sue herera get a news update this morning. Hey, sue. Hi, carl, good morning everybody. Heres whats happening at this hour. During an Investment Conference in moscow today, Vladimir Putin told cnbc hes willing to work with the u. S. Regardless of who gets elected. Translator the United States is going to make the choice that they believe is important, giving any outcome already to work with any president of the United States if the president of the United States was to work with us. Putin also brushed off u. S. Accusations that russia is behind the hacking of Democratic Committee emails. The death toll from Hurricane Matthew is rising. This morning North Carolinas governor said two more people haveuring flash flooding overnight. Officials tell nbc news federal agents are looking into whether a plane that crashed during a flying class in connecticut was brought down intentionally. Video shows the fuselage engulfed in flames after striking a utility pole. Tim tebow making headlines following his first day with the scottsdale scorpions. The former nfl quarterback coming to the aid of a fan who suffered a seizure, as tebow was signing autographs after the game. Well keep you posted on that. Thats our news update this hour. Kayla, back to you. Thanks so much, sue. When we come back, president obama getting interrupted at a rally in North Carolina yesterday. A new survey shows a quarter of top elected gop members refuse to endorse donald trump. Were of course just 26 days away from election day, and as we head to break take a quick look at humana which is open again after being halted up a quarter of 1 , raising Third Quarter and 2016 eps guidance. Well be right back. The conference call. The ultimate arena for business. Hour after hour of diving deep, touching base, and putting ducks in rows. The only problem with Conference Calls eventually they have to end. Unless you have the comcast business voiceedge mobile app. It lets you switch seamlessly from your desk phone to your mobile with no interruptions. Ive never felt so alive. Get the future of phone and the phones are free. Comcast business. Built for business. President obama was at a rally in North Carolina yesterday. Lets get over to john harwood with the latest on the campaign. Hello, john. Well, president obama carried North Carolina in 2008, didnt carry it in 2012, but hes a major asset for Hillary Clinton trying to pull that back into the democratic column. And some of the polls lately have shown her ahead in that state. The big problem for donald trump right now though is increasing defections from republicans as he turns his fire not just against democrats and Hillary Clinton, but also against fellow republicans like paul ryan. Take a look at this graphic that usa today compiled from republican members of congress, house, senate and governors. You see almost a quarter of them have turned away from donald trump saying that they cannot support him any longer. If you look at the rank and file in our nbc the wall street journal poll released yesterday that showed donald trump down ten points in a twoway race with Hillary Clinton, down ninepoints in a fourway race, hes getting 77 of republicans. That sounds like a big number, but its well below the historical averages that Party Candidates in our polarized system need to be competitive. Mitt romney got more than 90 of republicans last time. So the intraparty battle is a big part of the story of this election. And for the last four weeks donald trump needs to get that number up or hes not going to have a chance against Hillary Clinton. John, thank you for that. Our john harwood. Donald trump of course needs to rally his base, boost turnout to win on election day. But yesterday in florida he told supporters to be sure to head to the polls 20 days after the election. Take a listen. Register. You got to go and register or weve really you know, were doing something thats incredible. Its a movement. But if we dont win, all it is is a little asterisk in history. Theres never been anything like this. So go and register, make sure you get out and vote november 28th, if youve already registered, request an absentee ballot today and vote really early. Weve got to win. We welcome back now veteran political strategist chris kofinas, gentlemen, welcome to you both. Good morning. Good morning. Well set the date aside and assume he misspoke here, ed. You tweeted a few days ago every republican you know wants him to quit. Where does it stand right now . Well, everybody wishes we had some different combination, some different chemistry out there. This is a change election, Hillary Clinton is not the change candidate. If republicans had a candidate that could articulate change, could sincerely talk about policies, contrast with clinton, the republicans would be winning right now in a Pretty Healthy clip. Instead, we have trump. We have the opposite of discipline. We have the opposite of somebody with a clear governing conservative point of view. We have trump. And, yeah, just about everybody i talked to wishes we had something different. You said at the same time if pence were to quit, thered be outright panic. Why is that . Because he is the republican on the ticket. He gives a lot of reassurance to rank and file republicans that trump isnt crazy. The Third Party Validation for trump that pence brings within the Republican Party is irreplaceable. If something were to happen to pence, you have full scale you would have they would be fleeing trump like a burning building. Pence brings trump a lot of peace. Chris, is that true . Is pence a leveling effect . And if thats the case why would trump throw him under the bus like he did in the second debate . Well, at a minimum i think pence helps kind of establish or maintain his conservative base. I think the statistic that stands out for me having done politics for a while now is when youre getting only 77 of selfidentified republicans, youre in a deep hole. I dont know how this gets better for him over the next three, four weeks. In fact, what were seeing, you know, when we did a focus group for the debate of undecided voters and he is just alienating these folks real badly. And im not sure how hes going to win them back. If he simply just goes on this jihad of attacking Hillary Clinton personally and otherwise every single day. Thats not what undecided voters want, its not what i think a lot of moderate republicans or swing democrats want. They want someone to talk abo a positive vision in issues and that is clearly not his strategy. Its going to be a real problem for the Republican Party because hes starting to bleed down in particular in the senate races and potentially into the house. But, chris, it was pointed out earlier this morning that gore had a lead in early october in 2000 as well and we still have another debate happening a week from today. No chance of turning it around . Well, listen, in politics its never over until its over. I mean, four weeks is a long time. And weve seen a lot of twists and turns in what is probably the most bizarre president ial election any of us have ever seen. But part of this is starting to get baked in. And what youre seeing is the closer we get to the election, the smaller the number of undecided voters and you want to be able to mobilize and excite your base, start moving some of those swing voters over to you. Hes not doing that. And partly its a reflection of his strategy that he basically wants to tear clinton apart. That is not a winning strategy. And i agree that its a change election, but people are afraid of the change that trump and a pence ticket bring. That is his problem. He hasnt articulated that, just simply saying dont vote for Hillary Clinton is not somehow explaining why they should vote for you. That has always been trumps problem. Its getting more pronounced and in the most critical time for his candidacy. Ed, if many republicans are now turning their attention to defending house races and senate races instead of the top of the ticket, is there any kind of precedent for that of making that work tactically . Yeah, sure. My friend and partner, business partn partner barber reminds bob dole got 41 of the vote but republicans picked up two senate seats. So there is such a thing as decoupling the down ballot races from the top of the ticket. And thats been going on for quite a while. Our republican and House Campaign leaders have been seeing this potential for a debacle coming. And have been separating themselves from the Trump Campaign ia lot of ways. Now, its hard to do. And republicans are vulnerable to some sort of double whammy where you can have disgusted republican suburbanite voters who just dont want to vote and then core Trump Supporters that feel abandoned by the republicans and have some take some sort of punitive measure against down ballot republicans, it could happen. But the notion of there being a decoupling from the top of the ticket in the down ballot races is not unprecedented. Ed, chris, we appreciate it, guys. We have to work ou way through a few more weeks. Thank you very much. Thanks. Thank you. Meanwhile, pennsylvanias Greene County mines more than half of the coal in the state, and Hillary Clinton is trying to persuade coal families to vote for her promising to retain jobs and other benefits there. Our Contessa Brewer is there live with implications for the swing state. Good to see you, carl. Greene county is home to the nations largest underground mine. In fact this is home of the second largest coal producing in the nation. You can see behind me the emerald mine shut down last year, nearly 300 workers laid off. More than 30,000 coal jobs have disappeared nationwide in the last five years. The share of electricity generated from coal has declined from 45 to 31 . Hillarys push for Renewable Energy and her 30 billion proposal to retrainoal miners for other Industries Just doesnt really sit very well here in waynesburg where laid off coal miners are now working at the local Career Center trying to find jobs for their former coworkers. I mean, this is a town that relies on coal incomes, restaurants, stores that sell work boots, new car sales, if coal miners suffer, everyone here suffers. Trumps simple message that hell bring back coal persuades even longtime democrats. If Hillary Clinton gets in, she said first thing shes going to shut the coal mines down. Known fact. So its a gimme who i got to vote for. I said do you have a Campaign One Person say theyre going to shut you down and one say theyre not going to, theyre going to help you, theres no choice who i got to vote for. Clinton may lose this former democratic county, but shes counting on support in pennsylvanias big cities where bigger more liberal populations and good turnout on election day really could cement her victory in pennsylvania. The recent polls in this state show shes leading by 8. 5 points, but here in Greene County it looks like the United Mine Workers wont endorse her. Theyve refused to endorse anyone this president ial election. And the local state representative, a democrat, is telling her constituents here vote for whoever you think should be president. Mike. All right, contessa, thank you very much, appreciate it. More news out of humana. Lets get to dom chu for the latest. Okay, mike, what we have right now are humana shares reopening for trading after they provided guidance and an update on certain of their Business Practices here. The stock initially moved a little higher on better guidance than some anticipated, however now the stock is moving lower and may be in part attributable they say that the number of their medicare plans that received certain star ratings by the centers for medicare and Medicaid Services showed a rather sharp decline from those that had fourstar ratings decline approximately 37 from from the prior year, many noted in fourstar medicaid plans didnt take into certain operational actions the company is going to do over the coming months, however humana believes star ratings for 2018 do not accurately reflect the companys actual performance. Theyre going to appeal this, basically a lot fewer of their plans, mike, have received this four to five star rating. Theyre going to find out why theyre going to appeal the ruling but for now it seems to be one of the things moving the stock to the downside, back to you guys. All right, dom, now we have shoppers doing their own work in policies, thank you, dom chu. Meanwhile, is a twitter buyout still on the table at these prices . Coming up on squawk alley, professor at Nyu Stern School of business is taking a look at the company. Squawk on the street will be right back. Guess what guys, i switched to sprint. Sprint . Im hearing good things about the network. All the networks are gre now. Were talking within a 1 difference in reliability of ch other. An sprint saves you 50 on most Current National carrier rates. Save money on your phone bill, invest it in your small buness. Wouldnt you love more customers . I would definitely love some new customers. Sprint will he you add customers and cut your costs. Swit your business to sprint and save 50 on most current verizon, at t and tmobile rates. Dont let a 1 Difference Cost you twice as much. Whoo for people with heing loss, visit sprintrelay. Com. Day on trading nation, we are taking a look at the five s p 500 stocks that trade at the lowest valuations. Is there a case for buying any of these cheap but beaten up names . Find out on tradingnation. Cnbc. Com. More squawk on the street coming up. Welcome back to squawk on the street. Markets moving up and down. Right now just fractionally higher, utilities, financials competing for the best performing s p sector this ahead of the afternoon release of the fed september meeting minutes, nearly all constituents in that utility sector positive today with alliant energy. Utilities one of this years best sector us up by about 9 . Interest rate sensitive, kayla, back to you guys. Thanks, dom. Lets head to Rick Santelli in chicago with the the santelli exchange. Rick . Thanks, kayla. Im wound up today. One of my favorite guests, Homan Jenkins jr. Thanks for taking the time, homan my pleasure, rick. Thank you. Listen, you write about a lot of issues. Well play the fed game. Connect the dots. All these issues really are the same issue. Youve written about brexit, trump, central bank policies, the imf, Deutsche Bank, dodd frank and the Consumer Financial protection bureau. Take it away and connect those dots. Well, i think a big factor in all of that is the effort of Central Banks to prop up insolvent or functionally insolvent governments by keeping Interest Rates low. Unfortunately, that kills the profits of the banks, kills confidence down the economy, it kills the source of growth of funding for Small Business. Mostly, though, it just kills confidence, what business really needs in order to invest and create jobs. You know, i think brexit should be taught as its own topic from now on in social studies. It encapsulates everything. Im listening to our channel today, wonderful channel, they always get to the nitty gritty, and the new nitty gritty is all these republicans are not for trump. Im not for or against any candidate at this point, but i will tell you one thing, hes running because hes running against their policies. Their endorsement would be like saying, well, i need white sox fans to cheer for the cubs in the world series what do you think . Yeah and no. I think youre exactly right, trump is like brexit in the way that its the one chance that voters get to register their dissent from the entire way the economy has operated in the last eight years since the big crash of 2008. Theyre very unhappy with what governments have done because it hasnt worked. Youve got very low Interest Rates. Its killing savers and retired people, but its not doing anything to get the economy growing or creating jobs or rising incomes. You know, when i was a kid, there was a funny movie called the russians are coming the russians are coming during the 2012 campaign, they made fun of mitt romney for bringing up the russians. Now everything that goes wrong, its the russians, and they want to pin it on boris batternaut and donald trump. Listen, i just dont understand how politics these days is trying to hide from policy. The imf. Oh, the problem is its the political landscape. No, its not, its financial repression finish it up, homan i think youre exactly right. And its not a secret, central bankers have been telling their governments publicly and privately, we nude structural reform, tax cuts, deregulation before the economies will start to grow again. Central banks cant fix those problems. They can just make those problems worse with financial repression, as you call it. You know, finally, we are out of time. In a few words, can you tell me, what do you think about that federal court today kicking the cfbv with regard to constitutionality . Well, that was way overdue. You cant create basically, they created an unelected president for the financial sector. He can do whatever he wants with no regulatory or legal or political check. Thats a ridiculous setup. It was about time somebody did something about this. But the Obama Administration has been at war with the banks since 2008. Yeah, right after they saved them. Holman, thank you so much. Always interesting. Mike, back to you. All right, Rick Santelli, thanks very much. Deutsche bank selling new debt for the second straight session. Well have details on that coming up next. [phoneuzzing] some things are simply impossible to ignore. The strikily designed lexus nx turbo and hybrid. The suv that dares to go beyond utility. This is the pursuit of perfection. When youre on hold, your business is on hold. Thats why comcast business doesnt leave you there. When you call, a Small Business expert will answer you in about 30 seconds. No annoying hold music. Just a real person, real fast. Whenever you need them. Great, thats what i said. So your business can get back to business. Sounds like my rides ready. Dont get stuck on hold. Reach an expert fast. Comcast business. Built for business. Welcome back. Take a look at shares of Deutsche Bank, which have given up some of their gains today, now close to the flatne, despite the fact the bank is selling 1. 5 billion in Additional Debt following 3 billion in debt sold to investors last week. Mike, it was seen as a sign that there was demand in the market for Deutsche Bank debt, but now there are concerns about how much Deutsche Bank will have to spend on the interest to service that debt. We still dont have news of a settlement. This is for general corporate purposes which is shoring up the balance shaet a little bit. A little expensive debt, and i dont think its the capital people maybe expect down the road, so well have to see. Jon fortt has a look at whats coming up on isquawk alley. Amazons got a new Music Service that could upend the price structure in the industry. We are continuing to track the economic fallout of samsungs big galaxy note 7 debacle. And then finally, intel has got a new enticement to get you to buy a pc this holiday season. All that and more coming up on squawk alley. Ate, from long island to buffalo, from rochester to the hudson valley, from albany to utica, Creative Business incentives, infrastructure investment, university partnerships, and the lowest taxes in decades are creating a stronger economy and the right environment in new york state for business to thrive. Let us help grow your mpanys tomorrow today at business. Ny. Gov enjoy your phone you too. inner monologue all right, be cool. You got the amazing new iphone 7 on the house by switching to at t. What . . Aand u got unlimited data because you have directv . . Okay, just a few more steps. Door its cool get the iphone 7 on us and unlimited data when youtch to at t and have directv. Whats critical thinkingike . . A basketball costs 14. Whats team spirit worth . cheers whats it worth to talk to your mom . Whats the value of a walk in the woods . Nmorgan stanlth, but things that matter. Good morning. Its 8 00 a. M. At Amazon Headquarters in seattle. Its 11 00 a. M. On wall street, and squawk alley is live. Breaking rocks in the hot sun i fought the law and the law won i fought the law and the law won i needed money cause i had none welcome to squawk alley for a wednesday morning. Im Carl Quintanilla with jon fortt and Kayla Tausche at