Transcripts For CNBC Squawk On The Street 20170811

Invidia are focused. Our road map begin with stocks having the worst day in months as tensions over north korea rise the president tweeting that military solutions are locked and load. Dispinting earnings despite the fact that it added 7 million daily users in the quarter well dig through the report plus awkward moments on the Conference Call. Shares of jcpenney said to open at a record low well take a look at the future of that company and of course retail at large. Straight to the markets coming off the worst day for the dowt s p, the nasdaq since may 17th the rising tension between the United States and north korea although being balanced out today by this inflation data that we got in the earnings. Everyone looking for whether yesterday was going to be a one day jolt or not. Seemed like a different tone maybe a change in character for the market you didnt have a late day rally. Closed on the loes of the day. Sort of more sensitivity for the north korea headlines than had been before. Its hard to say what youre looking for to say this is the extent of the dip but a lot of people are saying we have to wait for maybe a little more of a flush but the data today is all of a sudden got pushing out again what the fed might do. The inflation at a at a is worth digging into because it tells a very mixed story about this economy overall, prices, consumer prices, what we pay rising 1. 7 from last year that doesnt tell the whole story. If you break it apart by groups t goods groups are actually showing deflation in a lot of place. Apparel is still negative vehicles are negative when it comes to used cars and trucks down 4 from last year but then you have the services, medical services, transportation, shelter, all of that is seeing year over year gains medical services up 2. 3 so what you have here is a tail of a mixed economy and overall soft number which does, i think, raise questions about whether the fed can raise Interest Rates in this environment given the falling Unemployment Rate one on side and falling inflation on the other. The fifth straight month when core cpi missed expectations. Its not about wire lesser vis. Remember you had janet yellen say there was this odd ball thing. Everyone went to unlimited data which was true but goods have been persistently on the decline. Except for food thats going to help stock like kroger and walmart that sell food and we didnt see that as a negative number. Was in the low 40s yesterday and bullard has been pretty clear. Theres things going on in technology and other places that make this difficult to read. Its the markets getting jumpy in themselves. A lot of times thats the immediate next story maybe this is going to put the fed on the defensive by the way, also german ten year yields below. 4 thats a level a lot of people were looking at so this general global tone of slower and disinflation is in place. We have the transports below a 200 Day Moving Average its been about a year. People are look at 5 . Yes so i think the message there is that yesterday wasnt this kind of one day or two day reaction theres been an undertoe to the market for awhile. You had a lot of the cyclicals and small caps not participating and it got stretched so were doing too much of the work and have been pulled back. Amazon is down 12 from the high. If youre talking about north korean tensions you did start to see it weigh on the asian stocks overnight. Hong kong one of the best performing markets of the year down 2 . The kospi that we have all been watching closely tells the story of resilience all yearlong but that cracked a little this week. Yes it follows what we saw with global stocks but samsung down 6 this week that was a big drag. Whether thats part of the tech story or part of the worries around North Carolina story. A little bit of both. Kospi is look at the worst week for a year. The war or words is continuing this morning between the president and north korea. Theres a lot to bring you up to speed on. Weve seen a new tweet from the president of the United States rationing up the tensions between the United States and north korea. Take a look at the language used in the tweet this is a president thats very much focused on this engagement right now. He said military solutions are fully in place locked and loaded should north korea act unwisely. Hopefully kim jong un will find another path that just within the past hour also hitting the wires are comments from Russian Foreign minister lavrov that is speak, those comments hitting the wires. He is saying there is a russianchinese plan to diffuse this crisis in north korea and theyre also saying that the risk is high of a north korea conflict thats something he says that russia does not want to see. Thats an interesting comment because part of the speculation here has been that Donald Trumps escalation of rhetoric has been designed to bring the chinese into the diplomacy here to solve the north korea problem if the chinese and russias are getting in with a solution of their own that could be a development to monitor throughout the morning as well were also seeing news from Angela Merkel the german chancellor that says she sees no military solutions to this conflict whatsoever. So Angela Merkel here urging caution as the two sides continue their war of words throughout the morning this morning. Meanwhile, you mention merkel, as World Leaders begin to weigh in here but a lot of people paying attention to this editorial in one of the communist Party Official newspapers in china basically saying that china will oppose any u. S. Effort to try to depose kim. Right and thats so important because it shows that china is not yet with the United States in terms of the diplomacy here the chinese used north korea as a proxy here against the United States for decades whether or not they can be brought fully on board in terms of a diplomatic solution here is the question if theyre signaling that they would not be part of a regime change effort now that might be reassuring to the north Korean Leader and well have to see the impact of that in one sense it could be a stabilizing thing. In the sense that it doesnt provide north Korean Leadership with a reason to panic now. The president ramped up his rhetoric against north korea and has also done so against the Senate Majority leader whats the reaction to that on capitol hill especially from Senate Republicans as we all try to ponder the status of tax reform and whether theyll be able to raise the debt ceiling on time and avert a Government Shutdown . People are baffled. Republicans are baffled by the president s attacks on Mitch Mcconnell. The reason hes doing this is to show that hes an outsider but then you saw him give his full support to Mitch Mcconnell saying hes been one of the best leaders they have seen in the senate on the republican side so this is a lead their has a lot of support among his colleagues that look at the president s efforts here to be little him as simply unhelpful the president would like them to come back around to balm care repeal and replace and it seems very much like Senate Republican leadership would like to move on and do tax reform this fall as promised remember they have got a big legislative calendar here. They have a debt ceiling fight coming up. They have to do a budget and they want to do the tax reform effort as well all of that is going to require the president and the Republican Leadership to work closely together and right now what were seeing is that. Well talk to you in a bit. Thank you. Well switch to snap following double digits after reporting a bigger than expected loss missing on the top and the bottom line. Fewer users than anticipated further controls about competition which was addressed on the Earnings Call last night. We have always been last to market come peeth against companies and we have been able to grow our business in markets that are highly competitive and saturated by our competitors because were so focused on innovation that explains why were willing to take this wait and see approach in markets that dont make Financial Sense for our business at this point but may make sense in the future. Of course saying he wont sell any shares this year except for those that are tax obligated but still under pressure this morning for not giving more clear guidance to the street. And perhaps because they cant do it. A diversity of opinions most of them are less than positive lets call it. Here in the u. S. As a positive sign the growth there not bad still not meeting some analyst anticipation what it would be but those at least trying to be positive are certainly looking at that. At the same time we have people that say well if the market cap that this company has doing about 180, 2 million in revenues now and losing 194 million why am i anywhere near this. Its still not clear to me that the growth path is there i would refer them, our friends saying snap should never have gone public when they did or how they did. Obviously with that valuation you have to hang your hat on things like momentum and advertiser adoption, momentum and usage. All of these things that are nonfinancial they can say fine this is getting us quicker to a place we can justify the valuation and a lot of people are saying we cant find it yet. Maybe its a longterm story and six months you wont have the evidence but also the overhang of it. Nobody is really sure. Which is monday. Monday morning so if the market going to be swamped with new stock or is that going to be that occasion that said like facebook okay all the supply all the analysts are wright about the facebookinstagram competition and thats when the results started to turn. When momentum started to slow and same with the average revenue per user there was a funny moment, i dont know if you caught it on the Conference Call when he asked aquestion and there was hot mic moment when one of his assistant analysts got caught make fun of the response listen to this. People as they become more reliant on notifications relaxed the standards there and its important for our business. Thank you. Our next question i didnt even understand his response okay. Thanks. Everybody heard that. That was the response to the question which is a difficult to understand concept. I guarantee not the first time a snarky comment was made this one just happened to be caught. But to your overall point whats the value of proposition for advertisers on this platform our own Parent Company owns half a billion dollars worth of stock. I dont think were spending more than 10 million from universal and some people are looking at that and saying if the big owner is not spending who will be. Some people are fixated on the iphone 8 the capabilities in terms of augmented reality and better camera features and as if thats going to be this rush of new sign ups i dont know if thats justified or not. Overall a lot of price target trimming but not many downgrades p per se theyre still early in the process of monetization. When we come back, speaking about the pressure, jcpenney getting hammered at the open thats on track to open at aa record low you have to go back to the early 70s to see a stock price this low. Well dig through the earnings take another look at the premarket. More squawk on thetrt om st 9 continues in a moment Courtney Reagan joins us with more on the report and this ugly reaction as well. Thats true hate bringing all of this bad news but shares hitting 45 year lo lows more shares traded premarket than we get in a typical day already. The ceo is currently speaking to analysts on the earnings Conference Call. Hes not his typical upbeat self a 9 cent loss. Thats almost double the loss forecast they say its the results of Liquidation Sales of stores. They sell everything as much as 90 off tin the end. The Department Store is reiterating its full year earnings guy danidance but it ho make up all the earnings and today the premarket share price indicates investors do not believe that it can get there. Revenue is coming in stronger than expected with comparable sales shutting 1. 3 which was in line with expectations nearly all categories approved particularly kids apparel but cosmetics was weak and thats an issue because we know it drives a lot of traffic nordstrom reported it beat across the board but unlike macys and kohls comp sales improved premarket shares only marginally higher because of the pressure from the sector. Thursday we got those low area cross the board. Even those that beat consensus for two key reasons. Shares have run up anticipating an improvement in trends that we did get in fairness but investors are losing faith in the longterm viability of that Department Store format. Next week well hear from coach, home depot, tjx. Thats on tuesday and target on wednesday and the biggest retailer of them all, walmart on thursday along with ross stores. Its a tough day again for Department Stores. A lot of those. Arent there . Thank you very much Courtney Reagan covering jcpenney today well take a break and another look at the premarket as futures rebounded. Well cover them as well requk enlk ahead of the op mo sawon the street in a minute um. Im babysitting. Thatll be 50 bucks. You said 30. Yeah, well it was 30 before my fees, like the pizzaordering fee and the dogsitting fee. And the rummage through your closet fee. Are those my heels . Yeah yeah, were the same size. In shoes. With tmobile taxes and fees are already included, so you get four lines of unlimited for just 40 bucks each. And now, get zero down on the hottest smartphone brands. At ally, were doing Digital Financial services right. But if thats not enough, we have 7500 allys looking out for one thing, you. Call in the next ten minutes to save on. And if thats not enough, well look after your every dollar. Put down the phone. And if thats not enough, well look after your every cent. Grab your wallet. Access denied. And if thats still not enough to help you save. Ooo i need these well just bring out the snowplow. You dont need those well do anything, seriously anything, to help our customers. Thanks. Ally. Do it right. Are you ok . What happened . Dad kinda walked into my swing. Huh . Dont you mean dad kind of ruined our hawaii fund . I thud go to the thothpital. There goes the airfair. I dont think Health Insurance will cover all. Of that. Buth my fathe without that cash from aflac we might have to choose between hawaii or your face. Hawaii what . Haha. Hawaii you might have less coverage than you think. Visit aflac. Com and keep your lifestyle healthy. Aflac were taking a little bit of a day off. People decided that nothing much is going to happen until korea makes its decision about whether its going to fly some missiles close to guam or not and thats due later in the week next week so we have time here for rhetoric thats an editorial in one of the prominent chinese papers that seems to be a warning to both sides to north korea that if they initiate hostilities china will not aid or assist them and the u. S. If they initiate hostilities then china will come to the aid of north korea and thats a warning and then finally i think theres concern here that the president may be boxing himself in rhetorically that hes kind of got into the line in the sand kind of routine that if they do something theyre going to be surprised. Were going to hit them in a much harder fashion than they believe and then if something comes up and there arent any military options his credibility is a little bit stretched. So you have all of that confusion and these hard to quantify factors on top of a market, it was tired and there were areas that were a drag on things so now you have this cool inflation number what does that leave us here in a late summer period where sometimes it gets choppy. Well, people recall a couple of weeks ago i was on saying that in years ending in a 7 you have a top emotion in the second week in august and maybe thats happening. But i think youre right there were divergences and other signs and right now they probably decided its not going to be a nuclear event. And thats why we didnt get hit much worse and theyre going to try to drag their feet assuming the next move is up to the north koreans and Nothing Happened so nearly the move of next week. Did you see the latest posting recommending 5 to 10 of assets should be in gold theres an increased bid for safe havens this week in gold in the japanese yen a little bit in treasuries, do you we know when that buying turns into panic interestingly this morning you had to move toward the havens that has sense changed the goal is not seeing the upward buying pressure so i have been saying this since the quote, unquote, crisis began i would continue to watch the safe havens. They will be your thermometer and tell you how hard the fever pitch is going to go finally, people are circulating a story of the late mike epstien can you tell that story really quick. Its actually, i think mike took it from me. We were good friends my version of the story was my dad died when i was a senior in high school so hi to pass up a college scholarship. I got my education in bar as around wall street and as long as i had enough money to pay for it an anyway, there was a heavy rumor that the russians had actually pressed the button i tried to buy some puts it didnt work as only an 18yearold would i ran hurriedly into the bar an i said the rumor was the russians pressed the button and i tried to sell the mark and i couldnt. He said buy me a drink and sit down and listen to me. When you hear the missiles are flying you buy them, you dont sell them. I looked puzzled and he said you buy them you dont sell them if youre wrong the trade will never clear, well all be dead so buy them rather than sell them. Thats nice. Thank you welbeig bk. L rhtac predictable. The comfort in knowing where things are headed. Because as we live longer. And markets continue to rise and fall. Predictable is one thing you need in retirement to help protect what youve earned and ensure it lasts. Introducing brighthouse financial. A new company established by metlife to specialize in annuities life insurance. Talk to your advisor about a brighter financial future. That and see if anything else cooperates. Yeah, 1. 1 on the dow for the week going into today. Its about 1. 6 lower after a day like yesterday i think a lot of people with the head wind. You had to work off a lot of sentiment. The vicks looks like it could be down that was the key focus yesterday. It was off more than you would have expected. 45 . Puts it on the table a little bit of a pet peeve about expressing changes but it was no doubt. Highest level since back before the november election. Exactly and the volatility of the vicks was also at a high lets get to the opening bell its Ranger Energy services. Sell bra celebrating its ipo today over the nasdaq, cvs pharmaceuticals focused on Critical Care products down 5 plus although 1. 10. Revenue was ahead. Talked about the double exponential and thats the ability of algorithms to read voice, read photo which is is doubling every year. Which to me is the market, how high the bar was for the stock which basic through whole story, shortterm, longterm is intact after these results nobody is quicklying with the performance of the stock it got so much air under it. Youre talking about a name that is roughly 40 or 41 times calendar year 18 times earnings estimates just to give you a sense. Many would say thats deserved given the top line growth this company is seeing and its incredibly well positioned in gaming and the world of Artificial Intelligence but to be fair thats a high multiple so if you dont deliver well above sometimes youll get penalized. Im sure a lot of people are still shocked it was a 100 billion market cap its been amazing and everyone crowding in because the story was so good. The bitcoin card this quarter that offset the data center weakness i guess the test will be whether jim keeps his dog name, nvidia. I think so. Our headline on online digital is stocks rise for the first time four days after tame inflation data so was the tame inflation is that now seen as a positive this morning . I dont know if in itself its seen as a positive until we know how the fed is going to view it. I think the market is just not waiting and saying the fed is slow or side lines for now you it seems as if the bond market is not really rushing into panic mode you see the ten year yield pick up a little bit. Retail should be top of the agenda but lets get nordstrom they reported positive Comp Store Sales for the first time in moss. Sales there under pressure with the rest of the group but not as much the anniversary sale certainly helped and theyre starting to he see traction online they arent helping. And they didnt update us on what theyre thinking in terms of the option which a lot of people were wondering which also helped this stock out perform. It has. All i can tell you is people, the company of course immediately formed a special committee of this board of directors as you do when youre informed by a large shareholder. That they want to try to buy the company but at this point, from what i have heard nothing has been presented to that special committee of the board or its advisers in terms of an actual proposal only that they continue to potentially try to put together some sort of a group in order to do that. So well see whether it actually does come. Right now massive liability and extending and renegotiating our revolving credit and guidance on margins. To the point is if youre an investor okay when is that going to stop exactly . You know whats so interesting about retail if you look at the s ps best performer so far this week, its michael kors up 22 . The worst performer of the week is macys down 11 and i think this divergence based on the Earnings Report tells the investor mood now that the brands, the kors and ralph laurens, the better results they posted is working. They can sell online, they can sell everywhere else the Department Stores though, not giving the bulls much of a case to be made. But i think macys came into this quarter or the announcement probably not expecting their stock would get crushed the way that it does they had what was it 2. 8 i think same store sales decline that was a lot better than what was it 5. 2 last quarter and they showed other positive science and they talked positively on the all. The cfo said i dont want to make too much of one quarter but it feels better than it has in a long time. All investors have sold the stock. Mike the dividend yield on macys is 7. 4 . Exactly i wonder what that means they dont want to hear the Second Quarter which by the way is not that important of a quarter in our financials for the year was okay. They wanted to say were taking a greater measure. I dont think they wanted to see a dividend cut but its very con spiko spi conspicuous. That probably wont last. And the market value of macys has now dropped below nordstrom and kohls and macys does a lot more in sales that tells you the lack of optimism on that. I wanted to mention a favorite of yours sarah which is p g thats not doing much of anything but over the last couple of days a rumor is in the marketplace that they might be considering a large deal to take a look at estee lauder shares have been moving up. Theres no truth to that according to people that would be in a position to know theres no plan whatsoever of trying to do a large deal or anything involving estee lauder which again had been moving up quite nicely the key consideration for p g of course is what has been a relatively civil and expected to be a civil fight with nelson peltz and that will pick up after labor day. October 10th. October 10th is the meeting the youll have a month or month and a half of real back and forth there although some say even if peltz loses he could in some sense win because they would have then put them truly on notice and if they dont follow through hell be in a position to take a board seat at a later date but thats coming thats all thats coming apparently. It has moved the stock. The stock has come bachblth they also had a better quarter most recently where they point to actual results from their strategy. They did. Which is slimming down which is why you shooting down that rumor makes sense because they just sold a multibillion dollars business. Yeah, absurd was the word that was youded. Reuters has a piece that says saudi arabia favors the nyse although some recommended london as less problematic. Posted that earlier this morning. We all know what a big deal that would be. Oh yeah. We heard a lot of talk about how you have to make allowances for that listing in terms of listing standards and things like that to there was a lot of talk in terms of which exchanges might want to do that. I believe tom farley made some pilgrimages to saudi arabia and it will be the biggest deal of all time by far depending on where it gets valued and its more than just taking a Company Public its akined to taking a country public given the importance, the seoul importance of this business for that country. One more report after a busy week of news between netflix and disney that the two Companies Continue to discuss about whether or not netflix would hang on to at least marvel and star wars dont forget disney derives a good amount of income the margin on it was unbelievable that will go away at disney but theres those in the industry that say that we as an industry became too dependent on netflix to help us make our numbers. And that we therefore gave them the market power and now its too late and now the pend you lumb pendulum has swung who knows what the number will be in the next couple of years has simply taken the power from us as a result of all the deals we have done over the last five years. Which is why if they come to a deal it will be really interesting. It will give you an indicator. I have heard subsequent to that that netflix in its renewal deals is not offering anywhere near what it did originally with some of the content providers. Now perhaps not disney that still has an incredible franchise but others on a weaker position not in as good a position to negotiate or get as much as they did the first time around. Thats why some have walked away. Stocks up marginally. The vicks is down. The ten year yield is up a touch. Lets get to bob. Good morning, happy friday, everybody. I want to show you oversaes because we were down not that much down all week. Theyre all down close to 2 to 3 pk3 on the week still down you can argue about that cpi it moved about five points after the news came out about lower than expected cpi. People think lower chances of a rate hike there. You can see here in the United States the ten year yield didnt really drop. It moved up a little bit later on here. So bank stocks, some of the sectors are on the upside. Some of the stocks that got beaten up this week like biotech. Thats because nvidia is down here after its Earnings Report. The vicks theres a lot of comments about the vicks heres what i would note yesterday the contract was higher priced than future contracts out 2 or 3 months. That rarely happens and in the past its been a buying opportunity. Traders believe theres a shortterm event thats going to spike volatility and then it will calm down thats happening as you can see today. In terms of whats the damages, its been fairly modest. Fang names are off of their highs. Netflix had issues with disney but amazon is 8 very modest declines a lot of you said they reaffirmed their guidance for the year the guidance is very wide. That is not reassuring anybody as you can see here. I think the concern here is same store sales are continuing to decline. The only good news is perhaps the rate of deceleration is not as bad and nordstrom is the only positive data point here investors are not convinced that a bottom is in place right now theres little if any Revenue Growth there nordstrom was the seoul exception here so if you go to the bottom line here this is hard to do to get Revenue Growth when youre Closing Stores and moving online. This is the bottom line for the Department Stores right now. A lot of people ask me about where can you invest safer how about just in the United States there is an etf that just came out that is exactly about this pure u. S. Revenue etf, companies that got 85 or more of their sales in the United States it just opened so its small youll be surprised how Many Companies get 85 or more of their sales in the United States at t does, bank of america gets more than 85 of its sales wells fargo does comcast does united health, union pacific, verizon, a number of the other ones finally, carl mentioned reports that saudi arabia is considering the new york stock exchange. This has been around for a long time London Stock Exchange has been trying hard to attract saw day rab i cant. They only want to float 5 of the stock. Thats hard to get a Premium Listing so theyre considering altering listing standards theres a lot going on and this would be a gold mine of information about saudi arabia and aramco the Listing Requirements for the sec and anything over there that would require them to disclose less information might be interesting. But a lot is about disclosure and how much youre going to learn. Interesting angle lets get to the bond pitts as well Rick Santelli already had a busy morning. It is really pretty neat and you know bob had it right. Its a better indicator of strategy in the marketplace. We can debate why the fed wants your phone bills to be higher and why policy should address that were down 3 for 30. Down 5 for 10. Not a huge week and one thing should jump out at you we traded down to 218 on the fly on the number. Right there in the middle of june you want to watch that very closely. Lets switch gears yesterday and the day befores event is an event on risk. Foreign exchange. The dollar index dollar index moves down because many look at this as the feds percentages we could debate that as well. Its very significant and euro liked the notion and today even though that today the proactive trade was the dollar moving down and staying long the euro which means if they lose it they go the other way. Mike, carl and the gang back to you. Rick, thank you well take a short break here. Markets losing some of their early opening gas. In dow is up almost 11 points well be back in a minute. You are loved thats a good thing, but it doesnt cover everything. Only about 80 of your part b medical expenses. The rest is up to you. So consider an aarp Medicare Supplement insurance plan, insured by unitedhealthcare insurance company. Like all standardized Medicare Supplement insurance plans, they pick up some of what medicare doesnt pay and could save you in outofpocket medical costs. Call today to request a free decision guide to help you better understand what medicare is all about and which aarp Medicare Supplement plan works best for you. With these types of plans, youll be able to visit any doctor or hospital that accepts medicare patients. Plus, there are no networks, and virtually no referrals needed. Theres a range of plans to choose from, too, and they all travel with you anywhere in the country. 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That is the situation here certainly by historical standards the big defense names are pricey this is one reason we have seen thm come off a bit after the big spike on the north korea President Trump comments earlier in the week. Now its out performed the s p this year. Its up over 18 and it has done that for several years running still analysts arguing those stocks are poised for more upside as we head into the final moss of the year earlier this year initiated coverage with a favorable outlook and highlighted the same catalysts been cited by everyone that kovrs these stocks. Defense spending establish ka lathe g escalati geopolitical threats thats already starting to materialize. And a measure of future revenue. Remember when they book these orders it takes years for them to translate on the top line also indicating more growth. And its likely to continue to be returned to Share Holders since the sector is already so very consolidated. Defense stocks theyre being seen as a defensive play they act as when the Broader Market sells off thats also contributing to these names that we have seen guys over to you. Thank you very much when we come back remo on whats moving the market this morning squawk on the street continues in a moment. Its part of the whole pattern. Pretty tepid bounce in terms of the overall market so its very tentative right now. It interesting that technology is the leading sector right now in the s p 500 even with the move lower in nvidia thats been a bell weather for the tech group after reading these Analyst Reports theres actually two price target raises and some points look weaker. Going up with such momentum you get the so called whisper numbers that are a far cry from what reality can achieve. According to people familiar apple is close to a deal to protect the Irish Government from any losses that could occur in a resolution of the tax fight with the eu. Very complicated story but anything close to it could be seen as bullish. Sure. On the stock. When we come back well cover that along with snap today continuing to fall away from its ipo icpre. Dow is up almost 30 points and were back in a minute stay with me, mr. Parker. When a critical patient is far from the hospital, the hospital must come to the patient. Stay with me, mr. Parker. The at t network is helping First Responders connect with medical teams in near real time. Stay with me, mr. Parker. Saving time when it matters most. Stay with me, mrs. Parker. Thats the power of and. Fixodent plus adhesives. Theres a denture adhesive that holds strong until evening. Just one application gives you superior hold even at the end of the day fixodent. Strong more like natural teeth. Ltry align probiotic. N your digestive system . For a nonstop, sweet treat goodness, hold on to your tiara kind of day. Get 24 7 digestive support, with align. The 1 doctor recommended probiotic brand. Now in kids chewables. Oil is having a rough morning down almost 4 . Cpi data released remains soft for the fifth straight month in july. What it means for the fed and your money straight ahead. Snap is down as user Growth Continues to struggle. That comes to light in the social Media Companies Earnings Report plus we have a retail route. Jcpenney getting slammed its hitting an all time record slow extending what has been a gloomy week. Well discuss. Lets start with markets in the green this morning following the worst performance since mid may yesterday. The dow is on pace for the worst week still since march for the s p 500 and nasdaq hoping to avoid their worst weeks of the year good morning to you. The pull back that we saw from these record highs is it healthy and is it a buying opportunity well im not sure if any pull back is healthy. It always feels probably more painful than it is and thats kind of a system to how much more there is to run with this bull market is that you can have a down day like we did and have it feel perhaps worse than what it really was and that will probably rebound from here the thing is whether kim jong un tries to test whether or not its signifying nothing coming out with their threat of fire and fury. Talk us through that a little bit more how does that actually impact this market, valuations and what we might see Going Forward if that does happen. Well, you always have to play up the different scenarios you also have to wait on probabilities. We cant just assume that any possible scenario that you imagine is equally likely. Its quite likely that well see things simmer down a little bit to the fact that china and russia went along with the un security counsel recommendation for enhancing sanctions against north korea suggests there could be some screws twisted a little bit so this there probably just fade into the past quitely and with a strong earnings backdrop and economic numbers are looking pretty robust. Whats your take on whether they should makeshifts. That was for dan. Dan, go ahead. Sorry about that. I dont think it makes a lot of sense to make major shifts on the back of the geopolitical tensions pretty much everyone thats come on your show has been telling you that these types of events are always buying opportunities for the market so if youre concerned about some of the other fundamental risks out there or some of the other political issue out there that makes sense to be concerned there but specifically with respect to these type of geopolitical events i dont think it makes sense to make any shifts to your allocations right now. So youre not in the camp of having a certain are you thinking more dan about what percentage of your assets are in gold for instance . No so we have been calling for a pull back but i dont think the pull back with these types of events as the catalyst are the things that you want to be concerned about i have more concerns around the fundamental issue and concerns around what is going to happen with respect to tax reform as well so i think, you know, when we weigh out the big risk in the market i think, you know, listen were very late in this bull market so i sympathize with all the people coming out lately with these bearish views because i do think that youre paying a lot for todays market for pretty mediocre fundamentals that being said were at a point in the cycle where sentiment or valuation of fundamentals tends to take a backseat to sentiment and technicals and thats going to drive the upside from here so so we try to look at whats happening from a sentiment perspective. We have seen a shift from skepticism to optimism but the fact is were moving into that optimistic phase means theres probably a lot more room to run before we get to those levels that would have us concerned whats interesting is if you look through the Conference Calls this earnings season, they would be noting the highest levels of gnaw count opening since the tech bubble. Those are the signs that were looking for and for those to increase before we get the signs that we think the bull market is at an end but were definitely from a fundamental perspective i sympathize with a lot of the views out there today. I wonder how inflation feeds into that brian. Thats fundamental story and could have implications for the fed. Todays weaker than expected inflation number on top of yesterdays wholesale inflation number does it change the trajectory for either of the markets we get a more definitive move and even though the headline number was a miss today as opposed to. 2 which is what the consensus was calling for. You have to take a look at how there werent any more of these one off effects that chair yellen was highlighting. There werent any of those in this particular reading unless you want to consider the over 6 increase in the cost of hotdogs and the cpi report as an underlying Inflationary Pressure thankfully that was offset by the 5 decline in the cost of lamps apparently so there arent anymore of these big one off effects that change the course for the fed. Theyre not going to change their mind that much september will likely see the Balance Sheet run off and we could see a little bit of yield curve steepening and thats what the fed wants to see before they hike again it would almost be a little foolhardy of them with the yield curve as flat as what it is. Well see what happens in the markets. Thank you. Well leave it there lets hit that inflation number further. Cpi remaining soft for the fifth straight month in july he likes to joke around. Breaking economy and cpi inflation, there is none still waiting for it heres the data he is talking about. Unchanged to 01 a little tick up were looking for 02 and the headline number up a tick. 1. 7. At least its stabilize and not dropping the softer inflation data prompted the market to reduce the chance for that december rate hike. Our probabilities here are a little bit lower than the cme group but you can see how much it dropped since july 7th. Down almost 20 percent when it comes to the december rate hike around 31 to be sure some economists join they continue to forecast inflation is going to move up by december and that will support a rate hike. They point to the mixed results in todays data. Vehicle sales, down and medical care up 0. 4. Theres four more inflation reports. That would find the market off sides for the next rate hike the market sprieis pricing whatn front of it now. Plenty of time, sarah, to worry later about whats going to happen in december. So your view is that its still a go for december. Its still possible the market is a bit off sides but sarah we have seen the market more off sides than this. We have seen like a 5 probability just a few weeks before the fed went. I think it raised in march this could come back and come back in a hurry. Theres four inflation reports the september debt ceiling debate and of course the geopolitical turmoil that started this downdraft in yields and also the outlook for the fed and thats got to be dealt with before the market is going to price anything in for december fully. Janet yellen will use that opportunity. Many fed officials some of whom well be speaking with here and on this show as well if they want to readjust Market Expectations theyll have ample opportunity. Better come on cnbc and talk to you to do it. I think theyll be on cnbc. Thanks steve. When we come back snaps user growth problems. Shares are down after the disappointing Earnings Report. Well get details and analysis jcpenny getting slammed on its earnings well look for any bright spots as theyre at a record low back to 1972. Dow is up 52 im living that yacht life, life, life top speed fifty knots life on the caribbean seas its a champagne and models potpourri on my yacht made of cuban mahogany, gany, gany, gany, gany watch this dont get mad bell mnemonic get e trade and get invested livestreat the airport. E sport binge dvrd shows while painting your toes. On demand laughs during long bubble baths. Tv on every screen is awesome. The Xfinity Stream app. All your tv at home. The most on demand your entire dvr. Top networks. And live sports on the go. Included with xfinity tv. Xfinity, the future of awesome. Though there were no comments on facebook and instagrams copy cat features hes bullish about Worldwide Growth despite competition. We have always been competing against giants companies and we have been able to grow our business in markets that are competitive and saturated by our competitors because were so focused on innovation and that explains why were willing to take this wait and see approach in markets in the rest of the world that dont make Financial Sense at this point but may make sense in the future. Analyst reports are coming in decreasing its price target but maintaining its neutral rating. Downgrading saying snaps number one enemy isnt facebook but snap itself. Barclays is an equal rate saying trends arent improving fast enough but steeple with a buy rating with growing engagement despite competition. Snap didnt add as many users as expected but did grow engagement users under the age of 25. Thats 10 minutes more than they spent in the 4th quarter also announced that this guy, this dancing hot dog has been viewed 1. 5 billion times he says, he called this hot dog the worlds first augmented reality super star this is one of many reasons that snap users are creating an average of more than 20 snaps per day. Now one other piece here, remember these the sales are already slowing. Snap saying that they generate about 5. 5 million this quarter. Thats about a third less than was spent on these glasses back to you. We all wore them at this very desk not too long ago. Wearables are tough. Thank you for that for more on the earnings lets bring in Victor Anthony on this. Senior research analyst, happy friday guys. Good to see you both. Thank you. Brian you have been sceptical. Do you feel justified after last nights results. Heres the ironic thing i consider myself an optimist on the business i think it was wildly overvalued an even now still a little overvald that quarter was actually pretty descent. Theyre on pace to have 900 million worth of revenue in the year they can carve out a solid niche in the industry and its not the right way to go for what is essentially a venture stage company. Expectations are out of whack in terms of what the valuation should be and if you look at the business and are they progressing theres a lot of descent things to look at. When you say niche what does that look like in the face of competition from instagram is there anything that instagram can still do that they havent yet done to them heres the funny thing. I dont think most people have access to good data on consumption. Despite instagrams traction in the last year or so snap has done a good job of increasing the time with the platform data. Pretty rapid increase and that coincide with the data that the company talked about last night. So theres things that theyre doing that are allowing them to maintain a user base the monetization takes time and because its such a niche platform and not facebook theyll never have the sales traction or targeting capability of facebook. Theyll be a niche. With a do you think anthony do you see as many promising signs in last quarters report . Certainly investors dont see the light at this point. Maybe it is the valuation concerns but shares are down another 12 . I think snap is a work in progress its largely experimental. A lot more work to be done still trails facebook, youtube, google, a lot more work to be done there a lot more in terms of measurement analytics. I think they really try to work hard and come out of that dem graphic and attract all the users because what is clear coming out of the 2nd Quarter Results is that platforms like snap and twitter are having a difficult time monetizing so they need to expand that user base a lot more work to be done there. A lot more work to be done in terms of improving a path to profitability on the platform. But i do think the same things and investing in a stock to hang your hat on. Media partnerships with nbc and universal and the Parent Company of this network. Theres time warner, cbs, all of these partnerships are helping the story of the next year that becomes a bigger part of the mix. That should help bring new advertisers on to the platform and increase the monetization. All is not doom and gloom. Theres some upside Going Forward. But i think they have to prove all of these points i made earlier. Brian, going after an older audience, runs in the face of everything the company has already said and also flies in the face of what the overall ad strategy at large on this planet is right now and thats that advertisers covet younger users. Would that work . I push back on that advertisers if they have to choose between one or another, would they like a younger ore older one thats true. The larger brand is 98 of the world still brushes their teeth every day. What about the other 2 . And the point is that Everyone Needs to be reached by platforms to get the bulk of the advertising budget if youre snap and you want to tap into a broader array of adverse tie advertising budgets you need broader reach. Media ownersdy tribute their content. The older their audience get and the bigger the reach will be that said it cant compete with youtube or facebook. I think that facebook, Instagram Stories narrative is is still very much out there and when you see 7 million daily active users added thats a real pronounced slow down from what this company was doing in recent quarters and years have they managed to convince investors that theyre on top of this competition and that they have a plan . That feels to me to be still a big part of the case. Competition for users and advertising dollars remains the key concern on this stock. They havent really proven that. I think the one positive that came out of it is slightly better and you compare that to twit their lost too many users in the quarter, that was a positive so some tracking data for the month of july to show stronger trends as both traffic and the u. S. Is concerned. They need to do more in terms of the performance issues outside of the u. S. A work in progress a lot of issues to resolve and fix and perhaps a bigger Marketing Campaign in terms of driving more users to the platform. More dancing hot dogs. Dancing hot dog and inflation data we got today. Thanks guys. Thanks. When we come back, a busy week of retail earnings. Many more on deck. This morning, jcpenney is getting slammed on earnings. Were going to dig through those numbers and some of the concerns there straight aad whehen squawk on the street comes right back look at the stock down 16 . Nordstrom is fairing better after it reported after the bell yesterday and did manage to beat expectations for more were joined by Jp Morgan Equity Research analyst and Deutsche Bank retail analyst. So paul was jcpenney the worst of the group that reported this week. Actually not. Jcpenney had a very difficult Second Quarter result particularly versus expectations there were many of the buy side that were hopeful that comps turned the corner into positive territory and they have very weak Gross Margins but we would actually outline dillards as the worst that reported this week. They in particular had extremely weak margins they had to clear inventory as well similar to what jcpenney had to do yet their inventory levels remain up on a year over year basis and thats the one Department Store that we still remain with a sell rating on. Penney was able to bring inventory down. Correct down 6. 8 as they closed 127 stores so at a minimum they do go into the second half of the year with a much cleaner slate they continue to get a nice contribution from appliances the ceo mentioned on the call that they have started august strong in terms of their back to school selling season and they do have easier come pairs. So still a very tough set up lots of hurdles remain but we would say it was a bit of a cleaner report versus dillards where we have a few more concerns. Any sign that sephora is at least starting to bring in some traffic . I missed you in the beginning there. So i would say traffic is the biggest component that all of these Department Stores are missing. Across the board, all five of the Department Stores that we heard from this week, its value and convenience, thats the missing recipe for the Department Stores. Thats what the off pricers have thats what the Dollar Stores have thats what amazon has thats the piece that in the back half of the year these guys really need to focus on. We think its going to take longer and we maintain sell ratings on dillards and nordstr nordstrom. Were neutral across the rest of the Department Stores. I didnt see anything in these sprints to get excited about and try to call a bottom in the space. Its interesting because many of them, macys nordstrom matt mentioned, paul did report better comps than what were expected which we also saw from the likes of kors and ralph this week and they were rewarded for it. There was an improvement across the names that you mentioned however two things of note one the Department Store group on average was up 20 from that standpoint since they last reported so it was expected and with such a favorable backdrop to investor response is is this as good as it gets and part two is that michael kors and ralph lauren are brands right . Much more in control of their own destiny. Global growth opportunities. Making strategic changes Closing Stores where as the Department Stores are still in a very difficult Place Overall balancing out their own brands and private label portfolio versus what they sell from everyone else. Matt, the guests we have had over the last week talking about this broader subject of what broad retail does in terms of changing its culture are largely negative when do they get there if they get there or is this going to be a recurring theme for quarter after quarter after quarter . Again i think step one is cleaning up the inventory and i think were therement the issue is the further the sales call the less relevant the inventory declines are meaning, it all comes down to the Value Proposition and the way the customer views it and that Value Proposition isnt weighed against the convenience factor where right now if youre an amazon prime member its a one stop shop an you dont have to leave your house. In order to make a brick and mortar shop which comprises 80 of the Department Store sales right now you have to focus on that value and you have the off pricers, t. J. Max, burlington and ross stores which in the consumers minds are a better value now. They have to match the values of the off pricers and figure out this convenience factor. Which means margins just continue to get compressed. Thats where the equation becomes the margin verses the top line all of these Department Stores seem like theyre in between a rock and a hard place where theyre struggling to drive positive comps and Gross Margins where you see the promotional activity the sales are there but theyre losing out to the competition and theyre losing market share. So next week we have walmart. Home depot, target, coach among others, t. J. Max how does this set us up for next week were in a place where we have frankly been now for a few quarters in which the retailers that are viewed to have more sustainable models and driving positive comps will be the longer term winners in terms of our view we are at a hold on walmart and target for example but we do think that both of those companies at least are comping positive and we know that traffic has improved. And very quickly, does macys deserve to have a smaller market cap than kohls and nordstrom . One of the issues that macys has faced is very meaningful margin pressure of late. Even though they have cut a lot of cost, done major restructuring, saytheir sales he declined mid to high Single Digits and i think its the rate of the decline thats really impacting their market cap and there were much greater expectations for real estate monetization thats not panned out and a lot of investors are excludeing the gains and seeing a much lower go forward earnings number than what the company is outlini outlining. Lets do this again next week thank you. Jp morgan. Nice to see you here at post 9. Thanks for having me. With when we come back as goes boeing so goes the dow. Ppw, jim swa iterts going to join us to explain squawk on the street will be right back the whisperer . Why do they call him the whisperer . He talks to planes. He talks to planes. Watch this. Hey watson, whats avionics telling you . Maintenance records and performance data suggest replacing capacitor c4. Not bad. Whats with the coffee maker . Sorry. We are not on speaking terms. Another warning for north korea. In his tweet this morning he says military solutions are now fully in place locked and loaded should north korea act unwisely hopefully kim jong un will find another path. A man suspected of ramming his car into french soldiers has bn transferred to a hospital but remains too badly injured so face prosecution no other arrests have been made over wednesdays attack. In kenya, opposition supporters burning tires and blocking roads. As kenyans await the official results of tuesdays disputed election three people have been shot and killed in clashes with police. Britney spears was hustled away by security after a man rushed the stage at her show in las vegas on wednesday it was her first night returning to her show after vacation she came back on stage in a bit to finish her show that is the news update at this hour carl back downtown to you. Those security guys are fast. They are fast and big. Dont mess with them. A lot of it is boeing as well. He joins us here to talk about it but what a turn it has been from the days where the 787 was under some pressure. Absolutely and i look back at the Media Coverage of boeing and they were getting beaten up by the week by the month. Well, you know, its over 50 this year. So what i found so interesting about it though is its like the poster child for everything thats driving the markets higher right now it has Global Growth behind it air traffic is out pacing Global Growth weak dollar that doesnt have that much effect on them but the key thing for them is people place their orders and get delivery and cant make the final payments 5, 6, 7 years out so the dollar doesnt figure too much in it thats probably the one thing that theyre not a big beneficiary of now hes posing in front of the 787 and went so far as to say god bless boeing boeing is the number one beneficiary. I mean the ceo there went on a Charm Offensive with him and its paid off. Something else is cost cutting which is very important for them. They have been aggressive about that they managed to grow revenues and cut costs. But you argue the focus of the strength is on the commercial side or the defense side theyre doing well but its the commercial order backlog and the 787 program and the new 737 program is really what got the analysts excited a nice big order you have geopolitical tensions and they are a big military contractor and i dont want to see this happen but thats who theyre going to go to. If a trade dispute with china really starts to build steam, right or if chinese competitors can start to build planes as nice as theirs yeah but thats going to be a Long Time Coming tnchts interesting question is where does it go from here and most people i talked to were thinking well no really you are seeing this shift from the super high growth fang stocks to some of the industrial cyclicals and the tail winds are pretty strong and those things dont turn overnight. Its interesting. Its the sbes performer in the dow so far this year but the worst performer in the dow is also ge. They make engines youd think theyre one of the suppliers so you cant just, you know, you have to look at each company very specifically but certainly if boeing has had a lot to do with the rise of the dow. I remember one of the bearish arguments for years was that the planes have gotten so good, so reliable and they last so long you can lease them or buy them new. That hasnt hurt. One thing pointed out to me is you get these ultrahigh range planes fuel efficient planes and suddenly you have all new possibilities opening up so theyre like nonstop flights from San Francisco to cities that a i cant pronounce and b i havent heard of them and they now have nonstop air service in the continental u. S. So the technological advances, the fuel efficiency, that has really, they have done a fabulous job of innovating. Thats a good point overall this week for the markets, introducing north korea, what does it do. The risks are higher now. No question about it but that is priced into the market youre not going to get an edge by jumping in today the time to be rebalancing is when everybody thinks nothing can go wrong. Thats a hard thing to do but its not when suddenly theres panic and reason is going to prevail here we made it through worse than this i can rest easy. Thank you. I have to say i got a little nervous when he said you can sleep easily because it hasnt occurred to me that i would be sleeping easily. Now have something to worry about here. Fire and fury makes me nervous. Speaking of washington the white house will release a brief document next month outlining a frame work for tax reform. Where the Trump Administration and Congressional Republicans agree. Reports also say it could include some input from democrats. Speaking of tax reform, washington uncertainty weighing on ceos who are putting their plans for their businesses on hold as they question whether or not anything will get passed delaying Capital Investments and waiting to spend in business development. Youre seeing these Cross Industries of Companies Big and small. Ad giant named maco uncertainty as political gridlock as to why theyre being cautious with their advertising budgets. Ralph lauren said it would not buy back and infrastructure spending, tax cuts, and deregulation all of those items that have been discussed but not executed so this is going to be a trend to watch our companies continuing to wait not because of any bad policy but because they dont know what could happen. That hack attack in hbo, the latest on the scandal. W ue to session highs here. Doisp 54 were back after a short break lets get out to chicago and Rick Santelli with the santelli exchange. Thanks, sarah thanks for showing up as our guest today. Thank you for having me. Yesterday we had what i would consider three ice cubes of ppi. This one was a cool drink but not as cool as yesterday how should we look at the data how should we look at the markets response what does the fed think about it well, i think the main story still remains the same we have goods deflation. Services inflation its the Services Side that has began to moderate as medical care and rents sort of plateau i dont think its going to change what the fed is going to do they still seem very focused on the tight labor market and what that means for potential wages and how companies will handle that rise in wages so i think they want to raise rates in december but a lot of that will be determined by how the stock market reacts to the quantitative tightening in september. You know, you talked about a tight labor market lets keep it really simple. Supply and demand. The demand doesnt seem to be pushing up wages is this a problem being misdiagnosed on why its occurring and how to fix it that havent propelled us in a forward progress fashion. A lot of this is nimissing lk of productive. In 2016 its zero and 2017 its up tick a little bit but what we have seen is by lowering the cost of money its not going to make Companies Invest more in their businesses. What its done is make them invest more in stock buy backs instead of their businesses which has been one of the reasons why productive has been so lame. Lets switch gears a bit. Ab or c. Does the fed prefer a flatter curve or steeper curve they somehow prefer a flatter curve even though the entire Banking System will tell you that they prefsh the exact on sit. Most people i talked to say, you know, the fed may not raise rates, they might do Balance Sheet because they want a steeper curve. So youre not buying into that we have the median home price at all time record highs and the fed is still buying back morgan backed security. On that portion of their Balance Sheet how do they say that continuing to invest proceeds is the right strategy at this point in the cycle. I used to program a long time ago if then statements but what you said in some of your writings is theyre going to do Balance Sheet first and then test the waters and if the market digests it without a gete hike if it doesnt digest well, theyll stand pat. Finish this up with that line of thinking the s p 500 determines whether we get a rate hike in december we know that that is essentially their implisive third mandate as higher stock prices aka the wealth infect. So, yeah, unfortunately, its the stock market that is going to determine whether we get that december rate hike or not. Some things never change. Peter, thank you so much david, back to you okay. Thank you very much coming up, the latest in the hack and ransom demands at hbo plus, more on the selloff and snap shares. Squawk on the street will be righba t ck theres a denture adhesive that holds strong until evening. Fixodent plus adhesives. Just one application gives you superior hold even at the end of the day fixodent. Strong more like natural teeth. Looking for a hotel that fits. Whoooo. Your budget . Tripadvisor now searches over. 200 sites to find you the. Hotel you want at the lowest price. Grazi, gino find a price that fits. Tripadvisor. California california getting new developments in the hbo hacking saga julia . Thats right, carl. More details emerging about that hack attack that resulted in the leak of two hbo shoes, a script summary for game of thrones and emails from a programming executive among other things weve obtained an email from july 27th which shows an hboi. T. Executive offering hackers a payoff saying we are asking you to extend the deadline for one week as the show of our good faith and our aside were willing to commit above bounlty payment of 250,000 as soon as we can establish the necessary account and acquire bitcoin. Hbo has no comment they sat email offering 250,000 was a delay tactic, never an attempt at real engagement with the hacker saying that hbo is having no communications with the hackers right now. Now none of this including unrelated leak of this past sundays game of thrones seems to have hurt ratings the show on sunday drew hbos best ever live ratings, 10. 2 Million Viewers tuning in that is compared to the previous average of more than eight million linear viewers now the hackers have released only some of the 1. 5 terabytes of data they claim to have stolen from hbo. Theyre working with cybersecurity firms and Law Enforcement but no comment from hbo on this latest development sarah, back to you all right julia, thank you let us know when you hear more on that one. Quick check on some of the retail names right now we mentioned the Department Stores getting crushed j. C. Pen jcpenney is among them. A worry about the bigger than expected loss. Concerns about pressure on margins, all weighing on the stock. Its down 14. 5 . Also want to check on nordstrom, reaction to yesterdays earning thoonz one which saw positive samestore sales for the first time in three quarters nordstrom shares down 1. 3 maybe in sympathy with the entire group there are still concerns, guys, as weve been talking about with a number of analysts about any type of turn around in traffic, in profitability and margins considering some of the big structural changes in this industry. Its interesting. You know, some of the gainers today, coach, ulta, pvh, ross stores and yet, david, some of the property, real estate Simon Property are the worst losers today. Yeah. Continues after what were really relative good quarters and owners of the higher end malls which are not seen as really being debilitated can you understand why people are selling them. Can you see what retail holds next week. Whether we come back, early investor with netflix back in the 09s what he makes of the companys moves this week and some of the changes in the media land xap. That landscape. Thats coming up on squawk alley in a moment okay. Our thinkorswim Trading Platform aggregates all the options data you need in one place and lets you visualize that information for any options series. Okay, cool. Hang on a second. You can even see the anticipated range of a stock expecting earnings. Impressive. Whats up, tim. See options data like never before. With thinkorswim only at td ameritrade. Welcome back to squawk on the street. Tech stocks are rebounding after posting the worst day since june yesterday. The sector is one of the best performers in the s p 500. Leaders include Semiconductor Stocks all up between 2 and 3 the sector still down 1 for the week so far. But still outperforming this year up by 20 year to date. That does it forthis hour of squawk on the street. Lets send it back downtown for the start of squawk alley. Back to you. Dom, thank you very much. Good friday morning. It is 8 00 a. M. At snap headquarters in venice, california its 11 00 a. M. On wall street and squawk alley is live happy friday to you. Welcome to