Good wednesday morning welcome to squawk alley. Im john quicarl quintanilla tensions between north korea and the u. S. Continue to escalate. Kim jongun threatens to release a missile on the u. S. Base guam, but the u. S. Threatens that they will see fury like no one has ever seen. Good morning, good to see you both brian, do you think the change of the market has changed over the medium term here . I think they do a little bit. Especially if you look at the performance of the s p 500 since july 19th. For all intents and purposes, it is august. We have had other potential negative headlines hitting the market in september with respect to the debt ceiling and the fed and a potential taper tantrum, but it doesnt derail the longer term side of things. Were still steadfastly bullish in the 20year call for the bull market to remain in u. S. Stocks, but things have gotten frothy here the way that the market responded, i mean didnt respond to positive earnings and positive macro, kind of tells you overall, even before this geopolitical firestorm this week, that the market was ready to stall and thats what we are more prepared for on the nearterm basis. I thought the lesson recently of august was that theres no such thing as a quiet august we had the chinese devaluation in 2015. The brexit fallout last year, brian, you mentioned earnings, how much of this is about earnings disney is dragging down the dow, priceline and trip advisor are weighing on Consumer Discretionary, the worst performer right now in the s p how much is north korea . How much is earnings well, i think right now in the nearterm basis, sara, it is north korea. Im so glad you brought up the august side of things. I remember ten years ago in 2007, i was working at another firm called merrill lynch, and we were told, wink, wink, to cancel vacations in august because it was so busy and then, of course, we knew what happened in august of 2008 or september of 2008 so youre right, august has been kind of the rock and roll month in terms of market timing with respect to pullbacks. But on the nearterm basis, we have had such concentrated performance, not just in four or five stocks, everybody wants to pick on the feds, but not acting as traditionally, you have people in Consumer Discretionary owning anything but retail that inflated some of the stocks that you just talked about you have Consumer Staples and disarray, especially considering the weakness we saw in costco. And we have utilities still hanging on to near alltime highs. And you have started to see the market want to try to rotate into areas like energy, energy is kind of picking up over the last couple of weeks we, in fact, have called for the technical rally in both canadian and u. S. Energy stocks and even telecom in response to performance. So the market kind of wants to rotate, maybe this geopolitical quote unquote storm may be the tipping point. Mike santoli, when you look at the way stocks are moving so far this morning after all of this north korea bruhaha, disne is down almost 5 . Seems like a bit much, even for disney, which tends to move after earnings on travelrelated stocks what do you think . I think the pickup in volatility shows you theres a little bit of a hedging instinct out there. It is a minor pullback in the indexes. In terms of the earning stocks, i think thats the way the earnings season has played out good results, doubledigit growth was kind of baked in heading into the earnings season the surprising thing is that the indexes have held up so well on the news and i agree with brian, that you have seen below the surface, a little bit of fatigue. I mean, i think of Something Like a quarter of s p 500 stocks are down at least 20 from the high only about half of all stocks are in the 50day average. Thats happening below the surface. The headlines out of north korea are like maybe, finally, this market will seize on some excuse to have a real pullback its ignored all the possibilities for a long time. This could be used as an excuse does it elongate whatever dip we might have gotten already out of earnings season . I wonder. I honestly think people are going to say, if its quiet on that front for a couple days, it was another bullet dodged. Then you have to see if the credit market will get shaken up if there is Something Else that causes this very kind of calm sort of selfmaintaining level for these markets, it basically is, as we were talking about, the rotation has been this, its been this kind of perpetual motion for a while now that being said, it has not approached alltime highs this time around with a lot of energy and force and enthusiasm its just almost like begrudging, okay, path of least resistance is a little higher every day. The number of days with this has been long. Mike, good to see you. Thanks, guys when we come back, disney taking on netflix saying it will launch a streaming service of its own. What that means for content coming up. Plus, why investing in facebook and google, quote, helps create a monster hell join us later on also, as john said in the cnbc exclusive with oracles ceo mark herd, busy hours are coming up on sawaly. Nt go anywhere. Earching for so like the perfect deal. On the perfect hotel. So wouldnt it be perfect if. There was a single site. Where you could find the. Right hotel for you at the best price . There is. Because tripadvisor now compares. Prices from over 200 booking. Sites. To save you up to 30 . On the hotel you want. Trust this birds words. Tripadvisor. The latest reviews. The lowest prices. For years, centurylink has been promising fast internet to small businesses. But for many businesses, its out of reach. Why promise something you cant deliver . Comcast business is different. We deliver superfast internet with speeds of 250 megabits per second across our entire network, to more companies, in more locations, than centurylink. We do business where you do business. Julia boorstin is here to bring us the latest on disney. Reporter disney buying majority stake in bantix to launch a new espn service next year, which will include so,000 live sporting events that are not traditionally espn. This move capitalizes on a few trends that we have seen on the sports side, first of all, live sports continue to be very, very popular 94 out of the top 100 tv shows in 2006, the United States were suppo sporting events, for instance. Then espn is still a strong brand. We have seen a fairly significant increase in mediabased consumption on services that are over the top or direct to Consumer Services so we felt that it was time for us to take a bigger step in that direction. Disneys stock is sinking on revenue that missed wall streets expectations. Netflix shares are suffering on disney pulling its film from the streaming Service Starting in 2019 as disney launches the own disney brand and content app that here. Aikers says they are evaluating the possibility of launching star wars apps and prepared to potentially break espn free from the bundle this lays the groundwork for the company to do a number of things, it provides us with all sorts of optionalty we havent had before you know, its one thing to say youre going to be in the business of being direct to consumer or over the top its another thing to do it. And to do it, you need a really Strong Technology engine reporter no word on how much disneys streaming services will cost, but iger says they will price them to reach the maximum number of people sara, over to you. Julia, thank you for the setup for more, well bring in inside. Com founder and ceo, jason, you just heard julia say that iger describes this as a major strategic shift in the way we distribute our content. Wall street doesnt seem too impressed just yet what say you well, we talked about this last year that it would be an Incredible Opportunity at some point for disney to be able to collect credit cards and email addresses and go direct to consumers. They were, of course, selling their content to netflix and other services and that was a good model, but if you look at what happens longterm, when you put an intermediary like netflix in between you and the content, and that intermediary decides, hey, we could make content, too, and they are highly confident at it, and amazon decides to make their own content, then all of a sudden youre losing the end consumer you dont have a direct connection to them and its a major risk factor for the network. But espn owns the greatest ip in the world, the greatest collection of ip espn. Im sorry, disney and espn have the best content in the world. So disney with espn, with marvel, star wars, pixar and that whole connection including the disney assets of the original movie, they have an incredible, incredible collection when they go direct, it will be easy for them to get tens of millions of people to subscribe to that service. Will it be very easy, though . Im wonder, you have espn on the one hand, but then youve also got marvel and lucas film. And then youve got disney jr. Type stuff it doesnt seem like all of that fits under a single subscription so do you have to sell them each separately and do you end up with subscription fatigue unless theres Something Like a cable bundle that authenticates for all of them at once . No, i think that disney is the one company that could produce a top three offering so they will be right up there with amazon and netflix. Because if they were to just give, as an example, everybody who got the tens of millions of people who go to a theme park, if they each got a threemonth or sixmonth subscription with their ticket purchase, they would get to tens of millions of viewers. If they took every marvel comic book or every action figure sold for the next star wars films and included a threemonth or sixmonth cost, Customer Acquisition would be zero dollars. I believe they can create tens of millions of dollars with the zero acquisition cost and immediately be the number two or three player in going direct to consumers. All right so then what is the impact on netflix and how many more of these defections do you think they can survive yeah, so they have escaped velocity when you start to get to 100 million paid subscribers and you have a team that produces worldclass content then i think netflix and disney and amazon will be in the dogfight the people who will lose in this, people maybe who dont have a big enough library of viacomm as an example. Or maybe even people who havent entered yet like google, facebook and apple their window might, in fact, be closing to come into the original content space because disney realizes that they made a huge error in giving away the keys to the kingdom. And now they have to take the keys back. And its going to be a dogfight. If you look at netflix, they have, what, a sixth of a revenue of disney but theyre priced at half in terms of market cap. So the question becomes, is this going to be another facebook googlelike situation where google put its head in the sand and didnt watch facebook catching up in the Rearview Mirror or is disney going to attack and start producing massive amounts of online content . And espn has unique opportunities here espn is a collection of a lot of different sports as we all know. If Something Like poker becomes extremely popular, they could with a direct to consumer offering have a poker channel and do it with a level of professionalness that other people cant it will open up new opportunities for them and their challenge will be when the nba decides, nba is a global sport, were going direct to consumers, which obviously they do with league pass. If league pass gets too many subscriber, it will be a direct to consumer world. And this idea there will be intermediaries is going to go away. I think i would be more in favor of toy story 4 and the frozen sequel than the poker channel. But we did hear that you got your hands on the new at the scene tesla model 3. Ill speak about myself in the third person, but i get access to a lot of things. And let me just say, yum yum elan has created oh, my god, its a yum, yum, yum, yum, yum ive been driving it and it costs the same as a porsche and prius. All the people criticizing elan for the last decade to say hes not going to get it done, they wow. The model i have, of course, has all the features, its tries the prius, but the model available in the next year will be costing 35, prius level. But if elon has a big line of hamburgers, this is a wagu hamburger at a shake shack price. It is an achievement unlike anything in the history of technology it literally is up there with the iphone it drives like a porsche its incredibly fast the technology is amazing. Its rock solid. So are people going to be able to get their hands on them, though, is the question . Nobody questions that tesla makes droolworthy cars, but i have Heard Service complaints for some people who have the car. Love the car, but dont like the way they handle service. And the question of whether they can make it up those two things combined, if theyre having trouble servicing the small number of cars on the road now, how are they going to be able to make this many and then service the ones, even if they do get them out on the road yeah, this is like running out of ketchup and napkins at the very popular hamburger joint. They can solve that problem. If you can make a product this good, you can solve the Service Problems listen, i own all four cars. Every car is a couple months or weeks late every car they have had to tweak here or there. Elon is a complete perfectionist and really wants he cares about Customer Service in a deep way. So things are always a couple weeks late and then he always overdelivers. And we were sitting here five, six years ago when he was producing one or two roadsters a week saying hell never produce 100. Now he hit 100 and cant produce 10,000 betting against elon musk is betting against the future of humani humanity it is an incredibly stupid thing to do because millenials do not want to buy this may not be such a bad bet. Well, actually, yeah, given that trump is going to blow up half the planet. Okay, okay. If we dont go into world war, this will be a successful car. All right, youre cut off thank you. The rest of the 450,000 who put in orders have to wait longer than you did to get the car. They will get them and will be pleased, trust me we will see still to come, why Silicon Valley vcs legend says google and facebook helped to create a monster. And later, a cnbc exclusive with mark hurd and john donovan quk lecld. Out ou sawaly is back right after this the dow is down 67 lets goat et to Rick Santelli the santelli exchange. Foreign exchange, if youre looking for treasury volatility, its had its moments, but its like a 3 handle if you look at what the vix is telling us about equities, you understand that. But fx is the big equalizer, so to speak trying to get all the crazy dynamics that change, that is the be pro you dont want currencies moving like commodities it makes it hard to run a business, especially when exports and imports are next to impossible having said that, i find that it is interesting the next three charts are pretty obvious that last night we did see involvement there, whether on treasuries or the dollar yen. The euro yen, you see the crosstrades. And you see the king, the king always, but i havent talked about it as much because im trying to isolate the euro, dollar and the yen with this flight to safety this is the swiss franc, if youre nervous you run to the swiss. Its all about foreign exchange. It was a great oped in the journal. A weak dollar doesnt make a Strong Economy how does it help u. S. Workers to erode the value of the currency in which theyre paid . Thats basically the title of the piece by john tammy. If the dollar is in decline, americans will, at best, be exports more in return for fewer imports. It would be hard to conceive a more impoverishing policy. Im sorry, but i kind of agree with that, okay . Because at the end of the day, i have done this many time, it seems as though its in our wallet and its up for everybody to tinker with, from central banks, of course, to the notion of other countries but in the end, we dont seem to pay much attention to what we should pay more attention to bottom line here is, we know multinational likes to export. And the weak dollar is in a conventional wisdom fashion considered good for them so its kind of investor class versus working class, i get it theres always winners and losers in life, but at the end of the day there used to be a line, i believe in strong dollar policy no, im pretty much prepared and qualified to be treasury secretary. Because that was the line from mr. Reuben uttered many times, john snow. In the end, i think it is the best policy. At the end of the day, just because multinationals are doing better and the stock is going up, doesnt mean the average americans life is significantly better sara, back to you. I dont know. We export a lot of what the American Workers are making in some of the rustbelt states. I can take the other side of this, you know, rick we import a lot of the pieces that put them together it really is a complicated story. Absolutely. Rick santelli, thank you good topic, as always. Straight ahead, elevation partner Roger Mcnamee says early investments in facebook and google helped create a monster find out why, next 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. Good morning, everyone im sue herrera. Secretary of state Rex Tillerson aarriving in guam on a refueling stop on his way from washington to malaysia. He does not believe theres an imminent threat from north korea to the u. S. Or to guam i think americans should sleep well at night, have no concerns about this particular rhetoric of the last few days. I think the president , again, as commander in chief, i think he felt it necessary to issue a very strong statement directly to north korea french authorities telling nbc news the vehicle attack on soldiers in a paris suburb is a terrorist attack the suspect, a 36yearold man of french north african origins, has been arrested. He slammed his bmw into a group of soldiers injuring six kenya Police Engaging opposition protesters in nairobi as violent protests erupted across the capital it follows the allegation of Ele