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happy friday, everyone, and welcome to "power lunch." i'm sue herera. simon -- >> thank you for having me. >> it's a pleasure. we have a lot to talk about including a sinking stock market, giving up early gains. among the losers today, exxon and microsoft is one of the winners. >> microsoft shares are surging to an 18-month high. the chief financial officer will join us to give us his profit outlook. is china stealing jobs away from the u.s. because of what it does with its currency? that's what paul krugman is saying. home sales, existing home sales surging 10% in september. highest level since mid-2007. wha maybe recovery is stronger than everyone thinks. here's what else is on the menu. ben bernanke is talking about new restrictions on banks. compensation restrictions, liquidity restrictions, and f t faster ways to wind the big banks down. is steve actually working? is the pen mightier than walmart? these book price wars are bad for you, the reader? we'll explain. verizon is stepping up its competition with the cable companies with its new service, which is rolling out to new quadruple play bundled offers. all right. quadruple play. let's get to the market action. bob pisani is at the new york stock exchange. >> september home sales. good comments from microsoft. everybody beating on the bottom line. three points i want to make sure. put up the screen. number one problem we have is the existing home sales numbers being discounted because everybody's saying expiration of the first time home buyer tax credit. two, look at the moves we've had. we're at 19 times forward earnings. when there were 16, it was easier to move the market up. finally, the dollar strength. remember, it's the dollar carry trade. not the yen carry tad. the dollar is being used in a different way, so now, you've got economic strength means interest rates are likely going to go up. short covering on the dollar. dollar goes up and then you've got that problem. you've got stocks moving to the downside. you'll notice if you look here, the dollar is moving down. the markets have stabilized since about 11:00. since then, it's been doing a little better. really is a relationship here. sue, back to you. our top story right now, microsoft shares surging on the back of its latest earnings report. profit fell almost 20%. however, the company managed to still beat wall street estimates. let's join jim goldman, who is with microsoft's chief financial officer. over to you. >> good afternoon. chris liddell is microsoft's cfo. now, he's coming to us for this interview. good afternoon to you and thanks for being with us. >> great to be here. >> you look at this quarter, when you look at what microsoft was able to do, what was this company able to do right and how did wall street miss what appears to be a significant rally? >> was really a good quarter on both perspectives, on revenue and cost side. on the revenue side, we saw particularly strong consumer demand in our winin division and xbox division, so great, early response to windows 7 laun launch. that was on the revenues side. also, people were pleasantly surprised by what we're doing on the cost side. microsoft has not always been seen to have a great cost focus, but we're really focussing on costs, so i think it was a combination of both. >> let's talk about costs for just a little while longer because on the company's conference call, microsoft is reducing its full year operating expenses once again. how are you able to get your arms around expenses and see this number decline? >> well, i think it's one of those things you never waste a good crisis is the way that i'd put it. clearly, our response to what happened over the last year was actually very fast. i think i've talked about that in the last couple of conference calls. we really saw the economic downturn as everyone did last year and took a really instantaneous response to it. the hardening thing is that it wasn't just a one or two impact. this is a different world we're going into. we spend a lot of time with him and he has this concept of the new normal. we also subscribe to it. we said we're moving into a new world and we need a cost space appropriate for that. so, we took very fast response and have been able to achieve a cost reduction on a continuous basis. not just one quarter. >> let me ask you a windows 7 question here. we are seeing average selling prices stabilize, but as you recognize revenue, is it when that software goes out the there? with the big pc build we saw during the calendar third quarter, it seems like business might be better for you guys in your fourth quarter than people are anticipating. >> they buy licenses in anticipation of selling pcs, so it's up to a couple of months before the actual pc is sold. in the first quarter, we were starting to recognize sales for pcs sold in this quarter. as hopefully the economy recovers and we see not only consumer strength, but potentially business strength as well, we'll start to see buying in advance. this first quarter was great in the sense that we're getting great early response to windows 7, but the real impact is going to come in this second quarter. >> you indicated that maybe the worst is finally behind us. the u.s. consumer seems stronger than expected. your entertainment division was ahead of where everyone thaugd it would be. it seems like we are firmly entrenched in what you guys call a recovery. >> we're still keeping people's expectations in check. i describe the conditions as stabilized and potentially getting better. you mentioned xbox, which had a great quarter, but at this point, we're still sees on the business side, relatively subdued. we don't forsee an economic recovery on the business side until next calendar year. certainly, a conditions are great and evidence on the consumer side with windows 7 is fantastic. the pc cycle has its own dynamic, but we're still reasonably cautious. >> the world's largest software maker. with a report like this, it's getting bigger, faster. stocks taking a bit of a breather. what can investors expect for the remainder of the season? let's gather our "power lunch" market insiders. david joins us, and tim seymour, host of "trading the globe," which airs tonight. >> we'll talk about that in a second. >> towards the end of wednesday's close, we got to 100. we suddenly died back. couple of downgrades. to what extent do you think the market is now disconnects from the earnings story? >> you get that push -- i think the market on wednesday afternoon was hedging up. i think volatility is so low. i think there's a lot of guys out there that were selling the back end. to me, we all want to see the machines are in control, that's what that was wednesday afternoon. people wants to talk about the downgrade of wells fargo, the beige book. i think this was technical. >> how much of this is about the dollar? seems to me every time it gets strong -- >> there's a link to the dollar. clearly, the dollar is an off st setting move to the market. you also see lots of participation in companies which are translating earnings and hence getting a boost, but you also have this very powerful tech sector. you saw it kick off with intel. it says there's going to be investment recovery. not labor job creating recovery. that's very bullish for the tech sector and very u.s. companies because they'll get productivity gains, wider profit margins. it's big. >> do you agree with that, tim, and basically, we've had a much better earnings season than people thought. >> i think it's been fantastic and i think that the stronger dollar here is a sign that actually things are better. remember, if this was crisis time, the dollar was getting stronger because of quality. this is getting stronger because the economy's getting stronger. there's expectations, i don't think they're going to happen, but you're going to see stimulus come out of the market. we know around the world, china's data two days ago, they were concerned about inflation. brazil is concerned about inflation. emerging market countries will be the first two him rates and and that tells you how far ahead of us we are. >> earnings companies have been surprising. will it happen to offset revenue? amazon predicting 35% and walmart predicting up to 6% revenue growth nex year on a $400 billion base. >> dennis, if we get revenue growth, the top line starts to grow on top of these productivity gains and cost-cutting margins, we could have explosive stocks. we think that is coming in some of the sectors. not only that, we could see the s&p at 1250 or 1300 next spring because of that reason. >> hold that prediction there. >> you kind of opened the door for me to ask you about your show tonight. when you talked about some of the other countries, like china, like brazil, tell what you're going to be covering in this show. >> thank you for the opportunity to talk about the show. i think our goal is to kind of demystify the emerging markets game. in other words, i think this is a generational trade. i've been looking at these markets for over 15 years and have never been this excited about the growth we're seeing. we're looking at companies that may be more innovative, more modern. that a lot of people don't know about. the goal of the network and the show is to bring in some of the best traders on the street and highlight the opportunities, the risks and give people the linkage back to the markets and see how they can make money. >> which is why we want to do this now. as you said, it is a generational trade. >> i think we're in the first third of this trade. i think it's a five to ten-year trade. the power stats on emerging markets, this is 81% of the population. this is what we want to be buying. the consumer. >> emerging middle class all over the world. finally. >> absolutely. >> all right. 8:00 p.m. eastern time. >> thank you very much. >> thank you very much for joining us. "trading the globe." very nice logo, by the way. >> i had nothing to do with it. >> he's got the chin, the whole thing going on. now, he's blushing. microsoft and big industrial stocks weighing in this morning. michelle and matt will have it all for you. also, home sales surging almost 10%. that was the data out this morning. is the recovery better than you think? plus, more on the bonus backlash. the very same feds who many believe helped cause the crisis now are piling on to restrict pay. is it going to work? and get ready for the "fast money halftime report." there it is. earnings season is in full swing. 2/3 of the dow, nearly 200 companies have reported. here to talk us inside, matt nesto. how we doing so far? >> 199 stocks out of 500. i think that's 40%. if you look at the score card, 81% have beaten the estimate. the surprise factor is now 18%. >> on average. >> exactly. we're better than yesterday, which is going to be the blended earnings. that gets us to minus 18%. >> everybody thought earnings would decline 25%. thus far though, it's coming in at only 18%. >> exactly. this is alcoa. this is what the s&p 500 has done and the key number, sorry about my scratchy there. the 2.7%. that's unfortunate. so far, on the s&p 500. depending on where you take it from. if you go from just monday, you're up about 1.2%, but so far this week, we are down about 3%. so, there is a debate out there in earnings land in terms of just how good this score card is and why the response, 81% better than expected number is so muted. >> however, you're saying that is because of this whisper number.com. when we say 81% have beat, 69% have beat by 12%. >> if you take microsoft for example, the range of estimates was 25 to 37. consensus was 32. they came in at 40. so eight cents better than xekted. the whisper was 35. a lot less enthusiasm. >> why don't the analysts just actually make the whisper number the number? >> they don't. it's complicated. what have you're an analyst and you go on maternity leave? it's still part of the -- >> that cannot be a good explanation. >> what if you're a lousy analyst? the whisper number is the real number. >> all right. thank you, matt nesto. >> the look on your face was perfect. all right. >> it's working. up next -- where is that camera? bernanke speaks. economic summit. is the recovery a whole lot better than people think? we're going to tackle that for you. and check out the new 52-week highs. whole bunch of them on the list including whirlpool. up more than three bucks on the trading session. back in a minute. tdd#: 1-800-345-2550 tdd#: 1-800-345-2550 i want everything right where i can find it. tdd#: 1-800-345-2550 anything that makes trading easier. tdd#: 1-800-345-2550 i want to be right in the middle of the action-- tdd#: 1-800-345-2550 you know-- i have to see what's going on. tdd#: 1-800-345-2550 and when i pull the trigger... tdd#: 1-800-345-2550 ...i've got to get the best price out there. tdd#: 1-800-345-2550 (announcer) try the new schwab.com tdd#: 1-800-345-2550 for yourself. tdd#: 1-800-345-2550 call 1-888-4schwab tdd#: 1-800-345-2550 or visit schwab.com/trader today. tdd#: 1-800-345-2550 'course a trade doesn't always work out my way. tdd#: 1-800-345-2550 but when it does... tdd#: 1-800-345-2550 ...man... do i love that feeling. a day on the days that you have arthritis pain, you could end up taking 4 times the number... of pills compared to aleve. choose aleve and you could start taking fewer pills. just 2 aleve have the strength... a man who played second base here some 45 years ago. actually, 47. ladies and gentlemen, mr. larry mccarthy. amidst today's financial turmoil, our sophisticated wealth transfer strategies... and philanthropic expertise ensure your legacy... is passed on to family or your favorite pastime. ♪ northern trust. wealth management. asset management. asset servicing. we're testing 10,000 on the dow, but 52-week highs -- ben bernanke speaking today about the state of the banks and financial regulatory reform. our steve liesman joins us from boston fed conference with highlights. steve? >> yes, thanks very much, dennis. the fed chairman making a pretty wide ranging series of comments on new regulation when it comes to banks. it's going to be a lot harder to run a big bank or costlier, after they get done. let me show you a list of the ideas that were in chairman bernanke's speech. compensation restrictions. big story today. guidelines to eliminate compensation of the banks. let's say all that does help to limit the banks and keep them under control, some might still bail. chairman bernanke wants this resolution authority to wind down these big banks. >> the bankruptcy code does not always protect the public's strong interest in avoiding the collapse of a nonbank financial firm that could destabilize the financial system and damage the economy. in light of the experience of the past year, it is clear that we need an option other than bankruptcy or bailout. >> all right. who's going to pay for this? the chairman says the industry should pay. it should be with another sort of assessment out there. finally, congress should ensure not just the banks, but all financial institutions that are subject to strong supervision. vice chairman says we need to coordinate this internationally to make sure there's an even playing field, so a lot of stuff in the works. they are talking about some pretty strong regulations. >> stay with us. i want to talk to you about the great recovery. all the experts say consumer is dead. people can't afford homes. gdp can't grow. but what if they're wrong? look at the latest data. bam. existing home sales up in september. retail sales, amazon up 20% in q3. that's stock getting a lift today of more than 20%. walmart says sales could rise up to 6% next year. as for gdp, bam, leading economic indicators project growth of up towards 4% next year. what do you say, steve? join me in hailing the recovery that's better than everyone thought it would be. >> you know what, i actually share sympathy with your thoughts. the idea that we've forgotten how to grow, that somehow we've entered the dark achblg ages is the wrong idea. we have a lot of things to get over and head winds, but the idea that we can grow the economy with productivity, i think you're right about that and that people may be underselling the possibly of the economy. >> the thought that american consumer is dead after decades was a little premature. >> this is the whole idea of the new normal. we should all get ready for this. are they talking about the new normal out there and do they believe it? >> to answer that question, i want to bring in a special guest. mickey, you heard the question. a new normal. first of all, your idea, dennis's idea. maybe we're underselling the idea of the recovery. >> how is all this affected potential growth? not by that much. we're growing way below potential. the private sector has adjusted and the fed's policy is geared toward an increase in demand. so, the economy's going to recover and history tells us that once economic recoveries begin, unless there's a major policy mistake, that they gather momentum. >> and tend to be sharper. the harder they fall, the sharper they bounce back. >> historically, that's been the case and we had been through a financial crisis. there is evidence that internationally, when you have the crisis, the recoveries are slower, but the aggressiveness of the federal reserve and our fiscal authorities may make it stronger than people expect. and we're seeing evidence of that. >> michelle? >> if you and mickey agreeing with dennis that it may be stronger. >> make notes, everyone. the one time steve liesman has had sympathy for me. >> reluctantly. >> also, steve, that you went from santa barbara to cape cod. >> we don't think you're actually working. coming up next, the fire storm over wall street paychecks continues and the same federal reserve many believe helped cause the crisis now piling on to restrict pay. is it right? will it work? coming up at 12:45 eastern, get ready for the "fast money halftime report." we're back in two minutes on cnbc. national car rental? that's my choice. because with national, i roll past the counter... and choose any car in the aisle. choosing your own car? now, that's a good call. go national. go like a pro. ♪ yes, you're lovely... ♪ what do you think? hey, why don't we use our points from chase sapphire and take a break? we can't. sure, we can. the points don't expire... ♪ there is nothing for me... ♪ there's no travel restrictions... we could leave tomorrow. we can't use them for a vacation. you can use the points for just about anything. i know... ♪ the way you look tonight ♪ chase what matters. get your new chase sapphire card at chase.com/sapphire. we're watching two live events happening this hour. president obama's going to speak on clean energy at the energying institution in cambridge, massachusetts. on the right, here's pay czar, ken feinberg, about to speak at george washington university law school. we'll bring you any headlines that cross. the controversy over executive pay is now seeping into popular culture. check out "30 rock" from last night. >> is it true that your executives routinely use company helicopters to dry their home tennis courts? >> yes, and no. >> and the ge kept a party clown on retainer with a six-figure salary. i've been told that company money is being gambled at racetracks. you tell your president the truth. we don't need the government telling us how to run our industry. why do you have a gavel? this isn't the congress. >> i brought it from home. >> "30 rock" is so great. back to the serious stuff. should the same people who dropped the ball on the financial crisis set the rules for executive compensation? the federal reserve unable to recognize the risk in the system is now going to manage compensation in order to reduce risk?