Happy friday and welcome to squawk alley here at post nine sara eisen and andrew ross sor again. The u. S. Economy losing 33,000 jobs in september, with hurricanes having a major impact on hiring, while employment, unemployment rate, did see a slight drop, all as stocks continue to hit historic highs with the s p 500 looking for its ninth straight positive session. Its in the red right now, but lets see what happens throughout the course of the day. For more, diane schawn, and ryan levet, Senior Investment strategist welcome to both of you diane, the market may be the bigger story here coming off this amazing stretch that we havent seen the likes of since 1997 sixth Straight Record closes for stocks does the weaker jobs report, at least on the headline number, do anything to derail the story of better growth and higher stocks . Well, i actually think the stock markets probably reacting to the fact they think the fed may now delay a rate hike at the end of the year or in january. I still think were going to get that rate hike, but i think theres this sort of sense out there that, you know, perhaps this data makes it a little more easy for them to have easy money forever. I think its also important to note that the uniqueness of the storms, they are already pushing up Construction Costs quite dramatically ive talked to builders all over the country and materials costs, particularly lumber, has surged at the same time 70 of all builders, Single Family home builders, did not have enough workers prior to the crisis, so its really going to all the activity is going to show more in inflation in the shelter area, which is not exactly welcome inflation for the u. S. Economy. Its not where the fed wants to see the warming trend. Im surprised to hear you say that about the fed the dollars at the threemonth high, treasury yields are higher, and the odds for december are, like, 98 for the Federal Reserve. I actually think the fed is going to raise rates, but i think people are looking forward and thinking that this is not going to be as much of an issue Going Forward. I think theres still a lot of complacency about what Monetary Policy looks like Going Forward. They are expecting gradualism forever when were on the verge of really a significant regime change at the Federal Reserve board. I think i now put in an extra rate hike for 2018 in response to higher Interest RatesGoing Forward. That is not priced into the market the markets are also very much counting on a tax cut now. We finally saw some movement in wage growth, but unclear how much of that is, again, because of these hurricanes. How much do you factor that in when youre making Investment Decisions based on these numbers . I think we do want to the move in the wage growth has been a trend. Weve been on a gradual rise up in wage growth, so thats a good sign, good news for the consumers and households this is what weve been waiting for for a long time as the labor market has gotten tighter. The Federal Reserve may raise Interest Rates in december, but they do need to proceed with some caution were still only at 2. 30 something on the tenyear, we dont have a lot of room before we flatten the yield curve so at this part of the cycle, what were focusing on is where does growth exist. Growth is reasonably good in europe, reasonably good in the emerging markets, so were focusing strategies there, and within the united states, focusing still more on growth. If you get stimulus, then youll shift more brian, is the story now a bet solely on the fed, or do you how much more multiple expansion can we really have, and what are comps going to look like a year from now thats why the story about the dollar is so important, because when if the dollar is weak to stable, then corporate earnings should continue to look good in the united states, which companies can grow into their multiples. If the fed gets too tight and the dollar starts to depreciate significantly on expectations of higher growth that we might not deliver you say grow into the multiples. You dont think the multiples have room to move higher from here doesnt this feel like were high compared to average. Were reasonable compared to other alternatives stocks are still into bonds as they have been for some time here, so i dont think that valuations are necessarily a very good indicator of shortterm performance for the market might point to an intermediate longer term time period, but doesnt mean this cycle is coming to an end diane, you spoke about a regime change on the Federal Reserve board. What sort of implications does that have for the markets . Well, this is something thats not priced in the markets. It could happen very gradually given the appointments that weve seen, but the deregulation in terms of whos being chosen, they are favored for deregulation, Financial Sector is personnel driven, they are picking people who are likely going to be deregulating and not enforcing regulations from the feds perspective as much as they have in the past, but what that means Going Forward is also its no free lunch all the people that are in that category and that are currentl being looked at are really tend to be people also want to raise rates more rapidly and reduce the Balance Sheet more rapidly i dont think its going to happen to the latter part of 2018, but i think its something the market has not gotten its head around yet. I also think its important to understand some of the ripple effects, although puerto rico is not included in the National Economic data, i would take issue the wage data was boosted billow wage workers falling out this month, wages have decelerated recently, something that concerns many at the fed, but we are going to also see likely this very large migration from puerto rico, into the mainland, which will show up in the data over the next several months that will be a lot of low wage workers showing up in states and it could be quite significant numbers, and i think thats something it causes inflation, because they need shelter jobs, schooling, health care, but until they are absorbed, they dont get jobs and they are also adding to the labor force. Something needed and, i think, will be absorbed but thats going to be another distortion coming forward in the next several months brian, given that we were just talking about shortage of, yes, materials, but also labor at a lot of these places could an influx of lowskilled workers from puerto rico actually be a plus in the medium term . Well, sure. I think we want to be careful when looking at the Inflation Numbers that were not looking at transient things and setting policy based on transient things, shortage of materials. Its precisely why the fed is looking at a core personal Consumption Expenditure than a headline cpi number. But the reality is, were still in a were still in the same situation that weve been in for a long time in the united states, which is reasonable growth, not significant inflation, and as long as that persists, we should expect the markets to continue to trend higher and market volatility to not be substantial all right, well leave it there. Good discussion, guys, thank you very much, brian, and diane. Always on the jobs day when we return here on squawk alley, is netflix running away from the other stocks early netflix investor and Foundation Capital investment paul holland joins us with the latest in the streaming wars and the stock moves. And a quick programming note, be sure to tune in tuesday. Well be live from cincinnati with p g ceo david taylor, an exclusive, as soon as that proxy vote, highly anticipated, becomes official more squawk alley coming up. Post nine is sponsored by Fidelity Investments at fidelity, trades are now just 4. 95. We cut the price of trades to give investors even more value. And at 4. 95, you can trade with a clear advantage. Fidelity, where smarter investors will always be. And at 4. 95, you can trade with a clear advantage. Can we at least analyze can we push the offer online . Legacy technology can handcuff any company. But yes is here. The new app will go live monday . Yeah. With hewlettpackard enterprise, were transforming the way we work. With the right mix of hybrid it, everything computes. Welcome back to squawk alley. With us now to break down some of the days top headlines, paul holland. Paul, thanks for being with us happy friday first, netflix sharpening its fangs. The streaming giant up 5 yesterday, even after announcing an increase in its subscription prices and the wall street journal saying netflix is breaking away from the fang stocks, outpacing the pack 85 in the past year. Paul, foundation was an early netflix investor youve worked closely with Reid Hastings in the past is this companys potential more like a comcast, because they bill directly, they have this direct relationship with the viewer, or is it more like a disney and what has to go right over the next few quarters for this valuation to make sense well, i think youre asking Great Questions around that. I would actually have you think about this differently i dont think they are like anything weve seen before, from that perspective so think about go back to 1999 when my partner made the investment in netflix when the company was, obviously, very tiny at that time what were looking for are, size of market, strength of the idea, and then the strength of the team so what we saw was a math market, the entertainment market, i dont know how to estimate that, is it a trillion dollars . We said this notion of disintermediating the current players and creating a direct connection to the consumer over the internet was going to be a very exciting idea, which, of course, was the original thought of the company, then we looked at the strength of the team, as i mentioned before, i think its the best Management Team on the planet, best ceo on the planet, so you combine those things and i think youre seeing a lot of reasons for the breakout that we can talk about, but its that fundamental nature of the quality of this investment and then where its gone has been extraordinary. But at some point, paul, do they have to pull an amazon and start a different sort of relationship with third party content, sort of in the way that they used to when they were the next blockbuster and that was the big hope for them . Or is the model just really, you think, going to continue along this original content line so, i ask people when you think about netflix, id say because people tend to look at it and say, wow, look how much its appreciated over this time period, i think of it this way, start with a clean sheet of paper. Forget about where they are today and simply say, okay, what is the size of this market worldwide, and then what percentage of that market does netflix now own with the approaches theyve taken into the market, and look at the trend line of what percentage of that market that theyve owned over the last, say, ten years. Of course, the trepd line is strongly up to the right and you have to come back and argue to me why that trend lines going to change. Why is something going to change when theyve been number one, most aggressive, most ambitious, and achieved the most in terms of that. From what i can see, the markets larger than people estimated and their approach to it has been far the most superior well, one argument could be that the cash burn is great and they are spending so much money on original content. What did we learn this week, 7 billion potentially. And thats worked as long as they continue to add worldwide subscribers, but if that slows down or doesnt live up to investor expectations, wouldnt that stop the stock in its tracks so, sara, its a very good point. That point has been a debate point around the netflix stock for a long time. We helped take the Company Public back in 2003, and i dont remember if you remember this, but the market cap at that point was 350 million at that time the argument netflix kept having was youre spending too much on marketing, youre spending too much money, and reids argument back was, you dont understand the size of this market. You just dont understand the size of this opportunity and if you go back to johns original point we started this with, whats different about netflix compared to the other fangs . Its a subscription service, its pure heroin, it is money coming directly into the company. Its not a lets float this out there and run some advertising, see how we get the hit rates, see how we can optimize that, how the advertisers work around us, whatever it happens to be. Its a direct relationship with the consumer, its a fantastic one, and one they have continued to exploit paul, when you think long term for the stock to be worth what it is today and perhaps what its worth in the future, are you betting they either have to scale back how much they are spending on content or at least for it to not grow the same way . Are you a believer all this money they are spending on content is working as efficiently as it should im definitely a believer that the strategy theyve taken around content so far has worked well the point i would have you and other people who think about the netflix stock think about is just the scale of the market opportunity. So think of it this way, Foundation Capitals invested in about 200 companies over the course of our history. Netflix is on the way to actually equaling or exceeding the value of all the other 199 companies weve invested in that time period. And the reason is, the scale of this market opportunity, the strength of their solutions, and the strength of their Management Team as long as you have that, then youre just going to continue to grow theres no inherent barrier to them to grow i dont know what their proportion or their portion of the Global Market for entertainment is today, but i bet you its pretty small and if im betting, which is what we do at some level, do i think they are going to have a chance to grow substantially from where they are today in terms of portion of that market i think they will. Well, congratulations on that call, by the way next up, big tech facing increasing political pressure. Facebook, twitter, google, all asked to testify in public hearings before both the house and senate next month for their role in russian interference in the 2016 election. Paul, tech pressure seems to be the new valuation conversation were having a lot, but what do you think are the most likely legal or regulatory outcomes from all of this and what could the downstream effects be on some of the companies youre investing in . So, like many of these things that occur, once they hit sort of page one and they become part of the popular consciousness, they tend to be overstated from the value of the companies themselves so, yes, facebook and google and other folks will face political pressure because, of course, they have become essentially the mouthpiece of peoples opinion theyve become this marketplace of opinion, and its extraordinary. Obviously, all the things that have been brought on by the ability to be able to communicate thu the internet have been an amazing blessing and at times also a difficult curse, so when i look at Something Like this, what i guess will happen is well see lots of press coverage, lots of concerns, gloom and doom around this could happen, that could happen at the end of the day, those businesses are very, very healthy underlying businesses, and as the Internet Penetration begins to grow across the country and across the world, i see a tremendous amount of Growth Opportunities for them. As they grow and mature, i mean these are companies sort of in theiradolescence at some level when you think of them some of these companies are less than 20 years old. As they grow they are going to have to become mature when they think about regulation, these are just part of the growing pains the companies go through and i see nothing unusual in that paul, i remember a time when it felt like Silicon Valley and tech writ large could largely avoid, ignore, washington. With the exception of microsoft here and there, there wasnt that much lobbying going on. How much has that changed . Well, i think its changed quite a bit. I think its changed for the reasons that weve cited here, the public consciousness, the things that tend to happen around the internet, both in terms of commerce and also free speech now when we saw just the perversion of the entire election process, which is so dispiriting for people, and then they want to look and say, okay, what are the reasons that happened, how can we make this better in terms of Going Forward in the future, the way ive always looked at it being out here for the last 33 years and an amateur historian on the valley as a whole, we generally just dont want to be bothered like, please just let us keep producing these companies that are hiring all these people and creating all these new opportunities. But at the end of the day, theres a tax of sorts that has to be paid, and part of that is you have to stay within the regulatory guidelines and stay within the civil guidelines. Its a price of success when you get those big wins, suddenly youre a part of it. Paul holland from Foundation Capital. Thanks for joining us. Thanks, everybody and coming up, Artificial Intelligence often blamed as the cause of fake news, but can it be the antidote . But first, the fall of harvey xu hasenn, the latest on the sealarsmt claims against the infamous producer. More squawk alley after this cheering a triangle solo . Surprising. Whats not surprising . How much money sam and yohanna saved by switching to geico. Fifteen minutes could save you fifteen percent or more. whoo woman class, lets turn to page 136, recessive traits skip generation