Good Tuesday Morning welcome to squawk alley. Im jon fortt with Morgan Brennan and sara eisen carls got the morning off the art of the deal. Stocks up for a second day on renewed optimism for u. S. china trade talks. At the g7 meeting in france, President Trump told reporters that china will come to the negotiating table, whether it likes it or not. Im not sure they have a choice and i dont say that as a threat i dont think they have a choice in the meantime, the United States, which has never collected ten cents from china, will, in a fairly short period of time, be over 100 billion in tariffs. So, i think they want to make a deal, very badly those tariffs, of course, not coming directly from china joining us now, scott clemens, brown brothers, harryman, ceo of private wealth management. Also with us, mark mahaney, managing director and lead internet analyst guys, good morning good morning. Scott, youre optimistic about a trade deal and about the economy in general, because of consumer spending. Well, i just its good to remind ones self what the underlying fundamental drivers of this economy are. Trade, as importants s as it isd as many headlines as it engenders, is 34 of gdp personal consumption, closer to 70 of gdp as long as the labor market is strong, wages are okay, were in a noninflationary environment, the consumer keeps spending. We see that from microeconomic data and macroeconomic data. So the trade disputes are like waves crashing on the shore, but the economic tide, driven by personal consumption, is still coming in. And not too many sharks in the water sounds like, mark, and that would be good for netflix, no yeah, the one shark, though are regulators, and there seem to be more of them in the water to work this analogy so let me switch over to netflix. I think of the kind of largecap internet companies, the most dislocated one now is netflix. You blow a quarter, ie, you miss subnumbers, that will cause your stock to be dislocated and you have these new competitive entrants, disney and apple coming up. That will cause the stock to be dislocated, too. Partly for those reasons, this is our favorite large cap. A name, we just published a report over the weekend or yesterday with some new survey data this is the strongest content slate the company has ever launched its coming out in the back half of this year, and specifically in this september quarter. We think that can lead to a real nice pop in subscribers. They need to have record high subadds the next two quarters to meet their goal of accelerating subs. We think this content slate will enable it. We like this stock, especially at 300 bucks why do you think netflix has underperformed the other f. A. A. N. G. Names here to date. It has been the make out of those five Big Tech Companies that we so closely follow that has been the least exposed to regulatory and antitrust scrutiny youre actually youre right. Its got the least Regulatory Risk i think, one, maybe the clearest reason is its valuation is most tenuous. Its got negative free cash flow, its not generating 20 billion in cash flow like facebook or google its generating negative 3. 5 billion in cash flow so the valuation support isnt there as much. They did have a clear miss in terms of subnumbers. The singlemost important metric that all investors focus on in the june quarter and this big competitor coming up in the back half of the year. Theres no big competitor coming up for google or facebook or amazon so i think that explains why netflix has underperformed it also helps explain why it can start outperforming if those subnumbers come in better, despite the disney and apple headwinds, it probably proves something that this Business Model and the Value Proposition is more enduring than we all think. And i want to try to get one simple point across. Whats happening is the breakup of the big cable bundle, and people are going a la carte. And survey work that we do shows that 66 or twothirds of consumers are willing to sign up for more than one streaming service. We think they will netflix is going to be one of those. And what the other one is is hard to know probably disney, but there could be other players in there, but netflix is still going to be in that bundle. So netflix has underperformed, but for the month of august, all the f. A. A. N. G. Names are down. And when you have such a large market cap group, you know, that represents such a big part of the market and has led the entire bull market over the last ten years, stop going up, can you still have conviction that the market can go up i think you can actually, as a stock picker, i welcomed a Broader Market leadership markets that are very narrowly led tend to be fragile we saw that last year, late last year with the market selloff led by these f. A. A. N. G. Names. So as an individual stock picker, i prefer a Broader Market and a wider choice of companies that arent necessarily moving in tandem with each other. But you dont see it as a risk off move. I dont, i dont. I want to get back to something that you mentioned with netflix when it comes to the subads needed how many of those need to be domestic because we talk about netflix as if everybodys got it. But if youre not a Netflix Subscriber at this point, with apple and disney coming out, are you really going to sign up . Yeah, so netflix has gone global over the last couple of years. And what i mean by that is its now over 80 i think its over 85 of all of their new subscribers are coming from outside of the u. Se approximate0 million in the u. S we think that number can get to 70, 75 million, maybe 80 million. But youre clearly sixth inning or Something Like that into the netflix growth in the u. S. Market they used to be able to consistently add 5 million subscribers a year we think that number will be more like 4 million going down to 3 million over the next couple of years. Theres no question that theyve got a very strong position in the u. S. , growth is fading for them it all depends on the international markets. Thats really where the growth is for netflix now so, scott, to go back to the point you just made, looking beyond f. A. A. N. G. , what do you like in the market right now i Like Companies that are exposed though this underlying strength of personal consumption that i referred to so the oldfashioned dividendyielding stocks are nice and also in the discretionary space, because i think the consumer is fine weve seen that for the past couple of years, despite the litany of concerns about the economy, the litany of tariffs rounds, when the going gets tough, people go shopping, and thats been the case and i think it will continue to be the case. Well see if the consumer continues to power it. Scott, mark, thanks. Thank you, jon. Thanks, jon shares of honeywell have gained 20 so far this year, outperforming the s p and the xdi. The company is making a big bet on software. But given the current geopolitical climate, question around Global Economic growth, how does all of that uncertainty factor in . Take a listen to what ceo darrius adomchick told me when we sat down at honeywells new North Carolina hq. Im always impatient, so i want to accelerate as much as i can. I think there is some political uncertainty. There are geopolitical events going on and were monitoring those very, very closely to make longerterm decisions, but independent of that, i really want to drive software at a much accelerated pace versus the rest of businesses. And even created a separate kind of unit called the honeywell connected enterprise, which plays by different rules, by different Investment Decisions and just to give them the autonomy, the freedom, and operate a whole different speed than the rest of honeywell and i think that thats working. So is it driven by the geopolitical perhaps, a little. But even if the geopolitical is very stable, we would still be running this at an accelerated pace because i really believe its the future of honeywell. In terms of nufuture of honeywell, guys, adamczyk telling me the goal is to create a swlr company, a vision hes had before he took over the ceo role in 2017 i sat down for a wideranging interview. Talked about the technology, also talked about his take on the Global Economy also, the Business Roundtable statement, that new statement that we got, because he signed on to it, too. Ge has made me suspicious of industrials, saying that theyre Tech Companies now, right . Because three years ago, they were all, you know, commercials hey, were a tech company. Look at all the Software People were hiring. How is this different . It is different and were definitely going to get into that a little bit more later in the show. For as many Industrial Companies out there in the sector that are looking at the industrial internet of things and this idea of connectivity and digitization of heavy industry, there have been many Business Models. Ge was looking to be the platform of all things for everyone that is not the direction that honeywell is taking and were going to dig into that anyway, still to come, more from that exclusive sitdown with honeywells ceo what he told me about the coming digitalization of heavy industry and next, later, looking beyond the tweets and the trade war, how investors should be lamitioning themselves ad votility squawk alley returns in less than five minutes. O research. Yep, td ameritrades got that. Free access to every platform. Yeah, that too. I dont want any trade minimums. Yeah, i totally agree, they dont have any of those. I want to know what im paying upfront. Yes, absolutely. Do you just say yes to everything . Hm. Well i say no to kale. Mm. Yeah, they say if you blanch it its better, but that seems like a lot of work. No hidden fees. No platform fees. No trade minimums. And yes, its all at one low price. Td ameritrade. My Car Insurance to geico. This is how it made me feel. It was like that feeling when you pull your green sock out of the dryer and then the very next sock is the other green one. And then you pull out two blue ones. And you keep going till youve matched every single sock in perfect order. And the owner of the laundromat is so impressed, he hangs a picture of you next to the dryer. Geico. Fifteen minutes could save you fifteen percent or more on Car Insurance. Those Early Morning gains slipping away. In fact, dow just turning negative moments ago were sort of hovering around the flat line right now. All the major averages still on pace to break the twomonth win streaks with the down month of august in this final week of trading. Ubs director of floor operations, art cashin joins us now at post 9, art why the loss of momentum here . Well, i think that you got that followthrough because a good chunk of the Trading Community believes that trump may have learned his lesson on friday i think the Market Action shook him up a little bit and he realized that, finally, that his tweets are what can be counterproductive. So you see, hes remained remarkably quiet today and its why you started to get that rally but when youre putting your money on the line, you begin to say, okay, were up a hundred points do we press him further . Wait a minute, he hasnt tweeted anything yet so i think what were seeing here is a bit of a pullback because of that. I think the viewers want to be very careful to watch them, if they turn negative how they deal when they turn negative will be very important. You see youve got yields coming down again here. So well be waiting for the final news out of italy, whether they can form a government or not. But the key thing, obviously, to watch is the president s tweet does he go back to the game . As i say, im hoping along with several traders down here that he may have learned his lesson and hell be relatively quiet. So basically, no news the good news right now, it would seem heres what im struggling with, though nothing has fundamentally changed from friday. Yes, the rhetoric has changed, the headlines have changed, maybe the tone of the president has changed. But from a fundamental standpoint, nothing actually has. And yet, weve seen these massive moves, these massive gyrations in the market on these headlines. Does that make sense to you . I mean, is this machines is this traders . What is, i guess, the sentiment thats going into that well, some of it is the machines you can see that when the headline looks partially negative, you can almost double down on the south side but i think that, morgan, i think its almost enough if the tone calms down. I dont think youd need some actual numbers dont forget, on friday, we had the president tweeting out that chairman xi was an enemy of the United States, as was the federal reserve. So that calming down is enough to give the market at least other things to look at. So i think what you get is with the tone calming down, now you can look, you can get some big development, geopolitically or any other way, then the market will begin to move how is the wise trader factoring in the president s statements at this point the president said there was a call with china. Was there or wasnt there . The chinese had a different take on what level of communication there was. Also, this issue of tariffs. He says there are tariffs. Then maybe there arent as many tariffs as he said there were going to be. And now he says that there are going to be more tariffs again do we believe it well, i dont know that there will be more tariffs, but i would tell you, if you took a poll down here, most of the people would tell you that they believe there was no phone call at all i think the president was spooked by what happened on friday, was trying to walk it back, seized on the newsprint story about vice chairman lee, who looked like he wanted to proceed with negotiations. And seized on that and the chinese obviously didnt want to say they made a phone call, because that would be somewhat a loss of face, as if under pressure, they were crying uncle so i think the fact that it just quiet enough is good enough. But now were going to have to let the market begin to stand on its own. We will be assessing things like where yields are going and where we go. Im crossing my fingers that the president stays relatively quiet. Certainly for the balance of the day. And well let the market work on its own internals. Will we stay above yesterdays lows where will we go from there . I think its interesting that yields are lower in the face of some upside surprises on the data consumer confidence, regional fed, Richmond Fed Manufacturing index. Why is that . Well, i think that they all believe that there is at least one or two more rate cuts coming so even though the data is better, its not fully outstanding. And the manufacturing pmis are in the contraction territory, so that gives rate watchers the assumption that were going to see lower rates. I dont think powell is off the hook here. Art cashin, always good to check in with you. Thanks my pleasure dow coming off of that 270point gain, hugging the flat line here, actually, just dipping negative, down 13. Still looking for its positive session in five, if we can get there throughout the remainder of the trading day here are the names leading the index in todays trade youve got a mix of defensive names like p g, which have also been strong growers, and j j, after that landmark decision, a case that actually went in favor of the state against j j, but j j still rallies off the lower ntder of payme were after a quick break here on squawk alley. Dow down 16. Instagram working on a new messaging app called threads thats not exactly like what weve seen from snapchat before. Julia boorstin is in los angeles with the details julia . Reporter a source close to the situation tells me that instagram is internally testing a new app its calling threads it was first reported by the verge. Threads is designed for messaging or sharing photos or videos with your Close Friends on instagram its effectively kind of like a spinoff of instagrams direct messaging service. Using the closed friends list feature which instagram introduced last november a key feature of this new app is that users will be able to automatically share their status with Close Friends such as if theyre busy, working, watching tv, or they can even use gps to share their general location or their speed, to show youre on the move though my source tells me they wouldnt share your exact location, because of privacy concerns now, this is a perfect example of the new focus that Mark Zuckerberg announced in march, shifting away from getting users to share to lots of people in their news feed towards getting people to message with just their closest friends. With concerns about facebooks slowing user growth and with instagram experimenting with removing like counts on posts, threads easing and even automatic sharing is designed to grow engagement. And threads is yet another attempt to copy snap, which has had success focusing on communication among Close Friends, with a streaks feature on snapchat that encourages users to keep their conversations going. Now, facebook shares are higher today. We see them up by about 1 snap shares are down by 2 and my source tells me that they are working to launch threads as an independent app, but ultimately the plan would be to integrate with all of facebooks different messaging services morgan, back over to you julia boorstin, thank you after the break, more from my exclusive interview with honeywell chairman and ceo, darrius adam chiczyk what he told me about the Recession Risks and this market climate, next. Meantime, take a look at the major indexes right now, all dipping into the red, though slightly the dow is down 16 points right now after being up as many as 155. Its safe haven, ratesensitive sectors like uliestiti and real estate, better outperforming were back in a moment [spokesman] if youve tried college but never finished, group cheering snhu lets you transfer up t