Transcripts For CNBC Squawk Box 20091014 : vimarsana.com

open. dow, 10,000, a psychologically important level is within reach as squawk box begins right now. good morning, everybody, and welcome to squawk box right here on cnbc. i m becky quick along with joe kernen. carl is out today. our top stories, joe just told you, this is earnings and more earnings. intel, a huge mover after the bell. the company reported earnings of 33 cents a share. that was well above expectations. intel is raising its outlook for the current quarter. now it sees fourth quarter growth margins of an unbelievable 43%. at one point, it was up by as much as 7%. intel s cfo stacey smith talking to cnbc last night. when we segment out the market, what we see is that the consumer market is relatively stronger, the enterprise market is relatively weaker. but i think you have to put it into perspective in that this was an all-time record in terms of units shipped. we re seeing good strength. it s ranging from china to the cob assumer segment and other pockets in between. joining us now, brendan furlong. and for people that don t understand everything about the way intel manufacturers and sells, what dictates when margins rise like that, brendan? predominantly, it s utilization. intel said they were running at the sweet spot of where it looksic to be. what does that mean? unit res at record highs. so when you have a fixed cost environment where you re pumping out a lot of units, your margins basically go higher. so they re manufacturing process is clicking on all cylinders. but that doesn t seem like it says anything, it doesn t speak to the demand, which is what we re trying to tie here to a tech recovery globally. this is true. i mean, that s been the fair case to some extent for the last six months, that it s all inventory refill. but my analysis of the situation is that others are at multi year lows. they all got caught off guard over the last six months with the strength for demand. at the beginning of the year, pc units were expected to be down on the order of 12%, 13% and now they re expected to be up. that s a massive swing in demand and people just got caught off guard. that s why unit res going higher. so this is truly a leading indicator to business activity in terms of information technology for the world s companies? again, referring back to stacey there a second ago, it s largely consumer driven right now. on the call last night, the company said that pc units for the desktop into enterprises is still pretty weak. there is a but leading indicator is that their server sales, particularly in the heal of vx is showing good growth and that s a leading indicator that enterprises are starting to spend. i thought the low-end chips that we didn t see a larger proportion of those being sold. i thought that would have indicated that the consumer is more active. who is buying these expensive ones? well, while it is that depends on whether you want to look at them in low end chips. intill generates a lot of profit margin. notebooks are far out. notebook sales were up 22% sequentially. and that is what is driving intel s revenue and the gross margins, versus desktop which are lower st and lower gross margins. brendan, you take a look at the guidance they re offering, 62% of gross margins, that sounds phenomenal. they said it could be a margin of error, plus or minus three points. so you can be talking as high as 65%. what do you think is most likely to happen here? that is a phenomenal number here when you look at it. the last time they printed anywhere near 62% was back in 2005. it is a widespread on the you know, 62 plus or minus 3%. so anything can happen. so 59 on a low, i mean, that was only i mean, 59 is amazing, too, right? 59 is amazing. and it s going to go back down in q1. you know, it s going to be a peak order in q4. that s to be expected. what is microsoft introducing in october, is that going to help the business cycle upgrade? what is that? 7.0, i think. windows 7, there is conflicting arguments out in the industry right now. some people say it will lead to an upgrade cycle next year, but again, people in the industry kind of downplay that. it can only be better than vitsa, which is an absolute disaster. will it get enterprises to buy again? is that the type of thing that businesses say, okay, we need this? definitely, that s what could lead for an enterprise cycle in 2010 which will be huge for intel because it would lead to last night, they alluded to on the call up 10% units in 2010 sxp if there is an ender price upgrade cycle, it could be more than 10%. do you sell when the margins peak? typically, that s what happened. when margins peak out, people start to sell the stock. if they can keep the margins up, normally it peaks out at 62 and then collapses back to 55. if they can keep the margins in the high 50s, it s not over. one last question, a big macro question. with this stock market, there is nothing more exciting than a technology rally. we had a great one in the late 90s. we ve paid for that for a long time. this is the mother of all hangov hangovers. the highs of these stock ves fallen off the ten-year charts which tells you something. are we ready snch have we paid our dues? i don t think that s the way you should look at it. i think you should look at it that we just came off a ferocious sell-off back at the end of last year and early this year. to some extent, the market or the world overreacted to the lehman collapse and, you know, things weren t nearly as bad as people thought. i think we can continue to go high perpendicular. that s a headline right there. brendan, though, the market got caught by surprise. we saw that stock up by about 5%. would you still be telling people to buy even after those big gains that we saw last night in the market? i would. so 10.1 plus or minus 4, again, widespread, but it still beats the whisper, lack of growth margins. $22 seems to be the resistance both on the upside and the downside for intel. i see 22 as being a problem with these numbers. tu bought this stock at 80, will you ever get your money back or will that be your grandchildren? it s your grandchildren will be lucky to see 80. i think cisco had a $6 billion or $7 billion market cap. so no 80 next year? i ll be retired hopefully by the time it hits 80. and you re young. and chip res going to drive health care, brendan, too. there is a lot. thank you. jpmorgan tops today s earnings calendar. analysts are loolg for this reported giant to top 52 cents a share. jpmorgan is widely considered to be one of the healthiest of the banks. rival citigroup and goldman sachs will be reporting their quarterly results tomorrow. but this will give us a good indication of what to expect from the banking sector. people will be watching this closely. we ve got economic data, today, as well. at 8:30 eastern time we get september retail sales. economists are looking for a drop of 2.1%. that is a large mart because the cash for clunkers program is over. when you exclude the auto sales, september sales are expected to seem higher by about 0.3%. also on the agenda today, we get import prices, business inventories and we ll get bet gooding the minutes from the last fomc meeting, as well. we ve got rick mishkin on the show to tell us what to expect on those minutes. as a guy who used to be in the room, he had a pretty good idea. $2.9 billion to get these guys that will help them with wireless stuff. then you ve got that s understating it to say you re excited about technology. it s been a while. how long can we talk about toxic assets? banks don t do anything interesting. banks make loans to companies that do interesting things. but that s good. i think you re right. think provide the flows and liquidity for real companies to do things about transportation and energy and mohr s law and all these exciting things, the banks lubricate that and give you the capital for it. but in and of themselves, they re boring. i m sick of watching them. when we re lucky, they re boring. yeah, exactly. right. when things are going well. on track for record pay. that s the most interesting them about them right now. but blackstone, swartzman says that the worst of the industry slump is behind it. he s speaking in dubai. he predicted the deal flow and ipo investments are opening up again. he cautions, though, that the that the scale of economic growth through next year is still unclear as for the bank financing market. he says now that swartzman can certainly do transactions that as long as they re in the $3 billion to $4 billion range, but he can write that check himself. i don t know whether he needs a bank for that. not quite. not quite. joe just mentioned how wall street bonuses are expecteded to rise once again. the wall street journal is reported that a kitchen assistant reportedly received a bonus from aig. neal barofsky is going to make that revelation in a report today. the funding could undermine g s claims that the bonuses were neff necessary to prevent key employees from leaving. you can bet that that will cause a little bit of a dustup. how do we know, though? he made the best tuna, tar tar anywhere out there. people need to eat. people need to eat. let s check on the markets this morning. the futures look good. we re up over 100 points. fair value was up i think 9 or so. but the futures are up over 100, so indicating about a 95-point that s all intel, isn t it? yeah. and it s 98.71 on the dow. so if you add 90 to that, that s 99.60. you get up there and then people start thinking let s go ahead and do it. you know, oil, i hate to see it happen, because it hurts economic growth. but it definitely is understand indicative of something. let s look at the half full version of that and that is that maybe the global economy is chugging along, china is chugging along. csx thinks the worst is over. the 10-year bond, that should start the yield should eventually start moving higher, you would think, but there it is at 3.37%. the dollar, i m not sure what to hope for here. i don t know whether to believe the poem that say that it needs to go down to make it fair for the rest of the world so we can sell stuff to the rest of the world. i kind of i don t like this euro, the europeans are carving about it, they re going to have problems if the dollar drops. not just the europeans, but the asians. the exporters were all under pressure because they re getting killed since the yen is so high. and then gold. right around this level. clear. you have to read that really as economic activity that eventually leads to inflation, i guess. i m not ready to say it s printing dollars. some people say it s the early indication that inflation japan s central bankng its key interest rate unchanged at 0.1%. that decision was widely expected. the bank of japan is upgrading its view of improved business sentiment. christine tan is standing by in singapore, but first we ll have the latest with louisa bojesen out of europe. hey, guys. gold, you re talking about the new highs for oil for the year and let s add in the new highs for european bourses for 2009. we re higher by almost 2% from any of these markets. and you re being led higher by some of the basic resource stocks, about basf, for example, hive i by 6.5%, the heavyweight chemical company based in germany. they re up on the back of strong quarterly figures. but the dollars are having an impact on these commodity trades, still, as indicated by rio tinto and nokia. the basic resources up by 4% as you can see with banks, oil and technology creeping in there. i heard you talking about intel and that s an interesting one. you ve had that trade as you ve been indicating, as well, but then you came back again to have asml, a dutch equipmentmaker post numbers that were better than expected. they have been outperforming the market. i haven t saved it, but it s higher by approximately 2%, i can tell you. and intel is one of the key clients. asml, they tend to be more of a bellwether than intel. when it comes to command and what type of a fourth quarter we could see play out, these tech stocks are giving really interesting indications. christine, how is it looking out of singapore? louisa, asian markets rose to its highest levels in terms of markets. japan finished lower, on.2%. the nikkei spent most of the day there. the exporters hirting from the stronger yen. the bank of japan kept rates on hold and said it would decide whether to end its review support measures later. a lot of talk that ending the support measures could take place and that is the speculation right now. in south korea, earnings were in focus with the kospi up a strong 1.2%. shares of steelmaker posco. the company remains upbeat about the industry s recovery. a rally in shanghai. investor sentiment got a boost from trade data which signaled a better picture of recovery in the country. both ex ports and imports fell, but less than expected. now, the strength in the china market helped the hang seng market close higher by 2%. illustrate benefited from ex ports, driving commodity and export-related stocks higher. overall, a pretty strong session here in asia. when we return, we re going to have a task force that is ready to kick off today s trading session here in the united states. and later, we will jump on the volatility roller coaster and give you the front seat on how to play this market. the ceo of cap stone global markets will be joining us in the next half hour. welcome back to squawk box, everybody. let s get a check on some of this morning s headlines. michael bell says his $4 billion cost cutting goal looks achievable. dell making those comments at a event in california. as we focus in on your weather across the nation, you can see the radar right now showing rainfall around metro atlanta. a cold and chilly rain is on tap as we move throughout the day today. we saw numerous airport delays moving in. winds have subsided a bit. we have low ceilings if you are going to san francisco. looking at the overall travel map across the nation today, you can see where we have highlighted some possible delays. atlanta, chicago, san francisco, and it, look like a great daily day in parts of the northeast. looking at the overall travel forecast, we will see high temperatures around 51 degrees, pack the rain gear and more showers and even some snow as we move into the northern tier around the dakotas. that is your business traveler s forecast. scott, that you can very much. rob morgan is joining us. welcome to both of you. guys, i want to start off by talking about what we ve been seeing in earnings season. some are saying there s better demand than the street was looking for. that s good news that we re starting to see top line revenue growth. that s not been the case in most earnings revenue reports as i understand it. we are turning the corner. we re confirming that the economy has turned the corner in the third quarter. we re growing and mow the question is to get good momentum. you sound hesitant, though. are you worried that there s another shoe to drop in all of this? well, i think we have to be careful and not get too bulis about where things are headed. i still see the economy growing. we re looking for 2% to 3% growth in the second half of this year and then around that for most of next year. pretty much like the federal is looking for, as well. and in order to get the economy back on a much stronger trajectory, you have to get the numbers moving. even when we get employment growth. until that comes, there s still some doubt. rob, that s a broad overall look at the economy. when you start looking around as a stock analyst, do you think there are some sectors that are clearly going to be benefitting from this? i do, becky. our favorite sectors include technology is really i guess our top sector. but the company gave some pretty significant boost to guidance in both areas. and they re saying that consumers are coming to the play here. so technology, and looking into 2010, we would overweight the commodity paces here, materials and energy. rob, we ve been talking about the high levels for gold and oil, higher levels that we haven t seen in months. is that because of the weak dollar or do you think it s part of the demand picture? i think it s more the weak dollar, but yet, at the same time, you know, china, india, brazil, russia, the bric countries, their economy is coming back and they re very commodity based. that s playing into it, as well. but i think it s mainly, right now, anyway, the declining dollar. david, we re going to get a lot of numbers today. retail sales are coming out and the headline numbers are a pretty miserable expectation. a lot of this is because of cash for clunkers, though. what is really happening underneath all of that? underneath it, we think the numbers will look a little different. and that includes the increase for gasoline prices. so we think wind this retail sales number will be some signs of improvement and stabilization of consumer spending that will give us enough momentum to carry us well into the fourth quarter with growth and consumer spending. but again, you re talking about modest gains. not gang busters kind of sales. one of the things that we track, the weekly retail sales reports were looking much weaker in august than the final numbers that the xherz department gave us for the month. this month in september they re looking stronger. so we re concerned there might be a technical pay back in the september data, but there s momentum in those weekly numbers that looks like it s continuing into october. so even if the numbers are weaker than people are expecting, this number ex autos, you re saying don t worry about it yet? yeah. look closely at the underlying details. and these weekly reports that we ve seen for the first week of october, they re once again above target. i think the red book numbers are above target for seven straight weeks. that s very good news. rob, aside from intel, are there other stocks that you really like? we re just getting into this earnings season. what other stocks are you watching? yeah. i mean, the large cap names, becky, back to the declining dollar scenario, the large cap names with overseas exposure should do well. so cisco is certainly a name that we like. corning, another you know, it s not your it s not the same company tvs? yeah, tvs. and you think how many can people buy? but the estimates keep being revised up globally. those are a couple of names and i do not own those stocks from a disclosure standpoint. rob, thank you very much. david, thank you for coming in. comments or questions about anything you see here on squawk, e-mail us, squawk@cnbc.com. we ll have a quick break right now and coming up, the pictures from the futures pit. don t forget, we re waiting for quarterly results from jpmorgan. the numbers and instant analysis will follow. t. oh please. you got the presentation? oh yeah right here. let me stow that for you, sir. thank you. you know, just to be safe i used fedex office print online. oh you did? yeah they printed and bound 20 copies of the presentation, shipped it to portland, they re gonna be there waiting for us. that s a good idea. yeah. you have a nice flight. thank you. (announcer) print online.you upload your document we ll take care of the rest. good morning. welcome back to squawk on cnbc. i m joe kernen along with becky quick. carl is out today. our top story, earnings and more earnings. intel is a big mover after the bell. the company reporting earnings from 33 cents a share to 66 cents ahead of expectations. and the company is raising its outlook for the current quarter. now sees third quarter growth margins at 62%. shares responding after the bell, cfo stacey smith talking to cnbc last night. i think this is really an indication of the strategy that we ve had where we re trying to have the right products at the right cost structure to serve the different segments of the market. and so we have adam going into the more price sensitive internet access devices and then we re refreshing our product line with new products that are driving more futures and performance at the higher end of the market. this stock and company boosted the dow after reporting second quarter results. back in late august, we got a bounce again when intel protect did itted it got 36% higher than the previous month. the numbers that the company reported yesterday were 4% higher. so you can almost see the actually, if we have a six-month chart, it probably shows you that. and actually, it looks like it gets in the trading range for the past six weeks or so, even in light of the good news. we ll see now whether it can move ahead of that $21 to $22 area of whether, as a lot of people say, you can see it s just above that six week level and we ll see now whether the naysayers who say when margins peak, sell the stock, the margin is at 62%. but we had an analyst that said maybe margins stayed in the high 50s or low 60s and then you don t necessarily take your profit. as a matter of fact, that analyst we spoke to said he would be buying even when you saw a big pop in that stock after hours. in other news after the bell, csx posting a report of a profit of 76 cents a share. the company reporting a 15% drop in quarterly volume on a year over year basis, but saying that the rate of decline, when you re looking at this, continued to slow in nearly all of its markets. in fact, csx said the worst of the recession is behind us. now, that doesn t mean things are completely improved at this point, but we ll be speaking with csx later this morning. and jpmorgan tops the calendar. analysts expect the financial giant to report a profit of 52 cents a share. revenue is seen rising to 69% year over year. jpmorgan is considered one of the healthiest banks. goldman sachs will report results tomorrow. 2007, the company earned 46 cents. next year, peek expected it to go from $1.42. finally, in 2012, it should be earning six bucks. so the earnings power reflected in $1.69 is not what the company is capable of. it s been climbing. questioning the valuation. there was a headline in the journal that said is the honey moon with banks over at this point? i think it talked about regulations. banks should be there to provide financing for interesting companies. i m tired of these banks. being interesting themselves? they re not! well, they have been for the last two years. microanalyzing the basis point moves and charge off and credit cards. i m with you. i m hoping that it gets back to the points season in every single thing they do. interest rate difference republicanals. i m ready to move on. ready to move on to the future. they are in pretty fine territory, especially if you are a bull after everything we heard from intel last night. ben lichtenstein is standing by in chicago and ben, obviously, what we heard from intel last night has to have a big impact down there. what s your take? 4/. well, we are substantially higher right now. the s&ps are trading up above the weak highs that we are at and up about above this key level of 1075 right now. z so this is going to factor in to whether or not rewhoever from these levels or not. but really the focus at this point and what a lot of traders are talking about right now is what a difference a huge year will make. in 2008, we are falling like a zone through these levels right now. these are levels that we need to get up above right now. then if the numbers are either in line with expectations for a lot of these reports and the economic numbers today, if they re either in line or better than expected, you can easily see the markets making very quick runs at those levels. what happens once you push past those levels? well, again, i think you have to look at whether we get acceptance or not. i think we have to look at the contributing factors. high oil is important right now? yeah. but at some point, we re going to see levels which will see things right now. the dollar is a little bit of a concern, as well. so we have to wait and see how the market guy guests some of the other market participants or some of the other market factors contributing to them. but i think, again, if we see some of these earnings come in strong, the markets will surge higher. we ve seen only a couple pullbacks through this major strength that we ve seen some march. one was at march. the other was in july. and they ve basically been double bottomed type patterns which have been met by strong buy and strong surge higher. so we just came out of one of those double bottom patterns, end of september, beginning of october right now. so if we see those same characteristics, then we re going to see a strong run to the up side and that will be, again, a follow through and acceptance of they say those levels. ben, thank you. thank you. volatility, at a low level right now. the vix at about 22 after trading near 90 within the past year. just under 23. trading around these levels can make or break your portfolio. our next guest is here to tell us what moves you should be making. joining us now, paul britain. paul, if the market trades higher today, and the vix goes higher, would that make sense? i mean, do you think we re near lows or are we going down into the teens? good morning, joe. i think that this makes absolutely all the sense in the world to protect your portfolio at the moment. i think no one buys this rally. it s purely based on technicals. and you should use volatility and the option to lock in some of the gains that both investors have made this year. it s very, very important. you said that i thought you just said some bulis things, though, didn t you? for me? on the vix or on the market, joe? on the market. you said nobody is in, nobody is buying this rally, the money is all ott of the market. for me, i can we re going higher in markets. until the end of the year, i think people are too short equities, completely underweight equities and at the end of the year, that is the tipping point for me and i think it makes all the sense in the world to provide insurance via technicals. so just in case, buy and would it be if the market continues to act pretty well and, in fact, starts bringing in some people and you get more euphoric about it, would you expect the vix to go down or would you still stabilize where it is right now as people like you who are bulis continue to buy it? it s a volatility trade. we re faced with an interesting dilemma at the moment. i don t think we re going to see fear on the downside. i think as i said, people are underweight equities and i think we re going to see panic, which is to the upside. and that is not tip kral, as you just pointed out, to the volatility markets. and that s why you re seeing a lot of institutions, you re seeing a lot of investors buying upside protections to be able to hedge out some of this exposure they ve got. the interesting thing, i think, is the beginning of the year. that i think is going to be a very, very interesting time for the volatility markets and the underlying markets as a whole and that s when you should be looking at the other sectors, joe. okay. so if volatility is not reflected up, that is usually not detected if the vix is trading higher. absolutely right. so the vix is not necessarily selling at the same time you re moving the stocks or something like that? yes. typically, if the market goes up, the vix will go down. when i m saying is i think user going to see an interesting pattern here that there is going to be fear to the upside. people are still short equities and i don t see how the vix can get lower than where it is based on the vix at 90 at this time last year. it s too short on people with memories. people i think you ll see a substantial support level in the vix around the 20, 21 level. and it doesn t matter how far we go up. people are short equities. the vix is known as the fear index. i don t think you re going to see the vix because people are fearful for the upside, not the downside. that s the interesting point right now. i like it. so you would be long the vix, where that would short of curb i couldn t sayon you as the market were to come down and maybe you don t have a lot to lose if the market were to trade higher. absolutely spot on. thank you. if you have any comments orring questions about anything we ve been talking about this morning, e-mail us squawk@cnbc.com. i ve seen a couple of people writing in saying, we don t read these. coming up, we ll have the stories that have us talking this morning. we ll head over to chairs. plus, michael ward tells us if the u.s. economy is back on the rails after his latest earnings reports. we ll have more squawk right after this. 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. we re starting in the chairs today with some sad news. al martino is dead at the age of 82. i think he died october 14th. that s today. he may not be familiar with a name, but i guarantee you you re familiar with the name of johnny fontaine. i tried to get a couple of scenes from g-1. this is my favorite we re going to run right now. i guess i don t know what to do. i don t know what to do. you can act like a man! what s the matter with you? is this how you turn down and cries like a woman? you remember this classic scene with young michael talking to diane keaton saying, oh, yeah, that s a wedding. do you know johnny fontaine? yeah, he s here. my dad helped him out with his career not too long a while back when he was trying to get out of a contract to get in that movie based on the frank sinatra movie. i can t remember, was it from here to eternity? is that the one it was base odd? i think it was based on that. this was me, i wouldn t even have to act to play this character. i guess he had just finished telling marlin brando, my voice was weak. i can t. and he said, act like a machine! act like a man. he was born alfred chini. he was a pretty well known krooner. valaret, which you might remember. spanish eyes, and he also sang the classic love scene from the godfather. he sang but he was a classic character and we all know the references to frank sanatra. i want to talk about the orthopedic industry. why are you looking at me when you talk about this? i m not. i m actually very interested in this because i went to warsaw, indiana, where many of these companies are based. this is where zimmer holdings is based. they make up about a third of the global orthopedic devices. it s a town that s done pretty well through the recession because hip replacements have not dropped off that much. they ve felt the recession a little bit, but not terribly. however, there s a big concern when we go over that town now because is in the senate finance committee yesterday, there s a proposal that would add about $40 billion in tax industry over the next ten years. now, a lot of different industries are being asked to step up, include the drugmakers and the hospitals, which have all agreed to help out. but this industry feels like it is being unfairly persecuted with this. they say, in fact, this is the ceo of biomed. one of the companies based in the town says this particular fee is completely out of proportions with what any other sector that s agreed to do. it would cost cut our company alone from $50 million to $40 million a year. that s the equivalent of about 800 jobs. i was talking to others and there were the same comments. you re going to hear this from all over the place. unions were up in arms yesterday saying if this doesn t do more to help working men and women, they won t support it. so the bill is out. this is one of five bills that are the going to be considered here. there s still a lot of questions in the details on this and we ll continue to hear more about that. we do have you know, health care is expensive and this stuff can change your life. you put a new ser rannic joint in there or something and all the pain you have, we can do great things, but it s expensive. i think it s interesting where all the details come out. we re going to see a lot of different things that come out. mcconnell says it s never going to see the light of day. but obama says we re closer than ever. we certainly are. yeah, but we got it out of a committee. now you have to reconcile it with health and then you have to reconcile the house. olympia snow voted for it and she said that doesn t guarantee her vote on the floor when the final proposal comes back. bipartisan. anyway, something is happening and we ll keep an eye on that. when we return, byron ween. the vice chairman of blacktone investment strategist is going to be here as our guest host for two hours. plus, earnings strlt is back. jpmorgan is due out at the top of the hour. we ll get the results and instant reactions. you re watching squawk box on cnbc. someday, cars will be engineered using nanotechnology to convert plants into components. the first-ever hs hybrid. only from lexus. as you can see, this isn t your typical 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signs of consumer credit stability we are not yet certain this trend will continue. despite the uncertainty of the path of the economy, our strong capital position will enable us to continue to invest in our business, creating a last iing r years to come. it was indicated higher before the numbers come out. i have a much higher bid than this. that 46 was around where it was trading, up 2.1% so far this morning. they go on to talk a little bit financial story, we have a pretty good idea what s happening here, don t you think, byron? byron weir is our guest today. jp morgan, the consumer will still be weak, we ll crunch through all this stuff. i wanted to talk to you about intel and we re going to. let s finish up here with jp morgan, 479 million in losses from the tightening of, i guess, provisions for credit losses was $4 billion. capital strength end up 8.2% over $101 billion. all right. we ll get back to this. we re going to talk to an analyst in a second, are we not? you have to find out whether this is jp morgan or the whole financial services. they re better than anybody else probably. we re seeing similar things across the board in financial services, right? we talk about that with intel. is it intel or technology generally? exactly. that s the point we re going to make. but go ahead. why don t we go ahead and bring in our analyst on this? we ve been waiting for reaction on this okay. we ll have the analyst in a moment on this. let s talk more about intell, so you have an idea of what s happening. soaking hopes of a tech rebound, we re seeing it with jp morgan and fngs, the chip maker posting a nickel ahead of estimates. revenue beating the street. intel raising its outlook for the quarter as well. stacey smith talking about those results. i think this is an indication of the strategy we ve had, trying to have the right products at the right cost structure to serve the different segments of the market. access devices and refreshing our product line with products that are driving more features and performance at the higher end of the market. veteran strategist byron wein is here this morning. last time you were on, you were not necessarily bearish. you said we ll get a 5% to 10% possibly at this point. i said we would get to 1,200. still bullish long term. one thing i chal you on a little bit, you are trying to figure out what the one big thing that leads us out of this is going to be. right. i want to make a case to you today. you look what intel is talking about today, and look at how demand suddenly the financials are one thing. you look at the nand that we may be seeing for technology with wireless and with what we re going to do with health care and what we re going to do with nrnl and transportation. you look at technology with the internet and all this stuff. couldn t this be the tech the future of technology is bright it s ever been? you remind me of the guy in the 19th century who said we don t need a patent office because everything has already been invented. i remind you of this guy? by saying i don t know what the next big thing will be. there will be something, and cutting edge engineering and nano technology, that it will be there for us. god bless you, joe. i hope you re right. you think i m right? i think technology is going to be important. remember the last time this happened in the 1990s, you had the cell phone, internet, widespread use of pcs, a whole wave that changed civilization. wireless now. wire le has been going on for a while. there s hardly a living person on the planet that doesn t have a cell phone today. it seems to me we re pretty far along on this. think of the application of all this technology to everything we do and flees in productivity. i hope you re right. i hope you re right. i just don t see i see it as incremental change, not as a revolutionary change. really? i would think that this could make the late 90s and that boom, given the advances we made over the past ten years, that could make that look like like looking at the jettisons now with what we really know is going to be the future. maybe if there were a massive conversion to green technology, that could do it. green technology. how about health care, and the sharing of information technology? how about transportation? how about all these well, i guess i m talking about the green stuff. the green stuff. that s a standing start. you know, that could be a major change. i just don t see the capital to go into it. that s what was okay. so, we still need to talk about the financials and capital and that. right. i was getting ready to say banks are getting both inting b because they provide the seed banks are the comeback kids. that s what you see in jp morgan. investment banking, look at the results on that. investment banking revenue was up 3%, year over year it was up 85%. capital markets were expected to be strong. i guess we re still worried about whether the consumer consumer is there. the key from what he says on this, jamie diamond says we re seeing initial signs of consumer credit stability. he s note willing to say this is it for sure. why would he say that, knowing unemployment is still headed up to 10%? right. that was in the intel statement, too, that pcs were an area of strength. and consumers. the implication is the consumers. and that s what s causing the market. right. intel is so far and away, in august they said revenue will be 6% higher than we thought and it was 4% higher than the raise that they biggest growth in decades for revenue and even though it was down year over year, we re jonesing for revenue growth, right? you know that term, jonesing? no. you want to ask this guy about let s bring in our analyst. go ahead. more reaction on this jp morgan s earnings report. senior managing director and head of research. you had a chance to look through some of these numbers. that s a huge beat to see that number 82 versus 52 that the street was looking for. what happened? real quickly obviously the 82 cents a much bigger number than anticipated. the street was in the high 40s. it looks like most of the revenue beetle came on the capital market side. very strong debt trading revenue. i would say fairly strong revenue results acrosos the board. it s also interesting to note that the company continues to build reserves very significantly. i believe by over a little over $2 billion, $2.5 billion. covering credit losses, as you indicated, some indication from jamie diamond that they re starting to see some better stabilization and credit quality. just looks initially like a lot of strength pretty much across the board. with the upside coming from the capital markets businesses, as was somewhat anticipated. you re seeing a strong jump in the bid ask this morning, $47.11 to $47.79. would you tell people to still be buying it at this point? yes. people will be taking estimates up today for the balance of this year as well as 210 and 2011. the other thing i ll be looking for on the conference call is indication from jamie diamond that the reserve bill is potentially over subsequent to the third quarter. in other words they won t need to build reserves. that will tell us two things. first it will tell us as jp morgan is looking out, they re starting to see very good stabilization in credit quality. the second thing we ll know, if they re no longer needing to build reserve, they simply have to cover credit losses themselves and that will create upside earnings leverage in future quarters. meredith whitney recently just said on evaluation based on a lot of good news already in these things it was a $15 stock. it s going to trade at a new high today, at least it s trading there. you don t think that this story is pretty well known at this point? certainly, it is very well known. that certainly is what s driven the stock higher to date. as we look out to earnings potential in 2010 and 2011, our 2011 estimate stands at 525. financials trade at nine times earning. that s where it is right now. no. financials typically trade at 10 to 13 times earnings. we still have some movement there. and we have the opportunity likely to be taking estimates up. when you compare jp morgan to the rest of the banks, does it stand apart? certainly, yeah. i would say that especially for the credit based financials that still are dealing with fairly significant credit losses in their health and maturity loan portfolios, jp morgan stands apart in its capacity to absorb that credit loss and still report fairly strong earning, which you saute. they stand apart in terms of higher capital ratios and in terms of higher reserve coverage. definitely the leader of the pack in terms of the credit-based financials. based on the numbers you see here, or do you think there s more jp morgan specific? we re going to get citigroup and goldman tomorrow, bank of america friday. we re likely to see their numbers before we change their numbers. ed, we appreciate your time today. really enjoyed talking to you. we ll see you again very soon. thank you very much. if you have commentors questions about anything you see here on squawk, go ahead and e-mail us at squawk@cnbc.com. we have the ceo of csx, talking about the company s quarterly results. if this economic recovery is on track. later, we ve got more on those earnings from jp morgan. also, rivals like goldman and citi. stay with us. squawk will be right back. time now for today s aflac trivia question. what was the first movie by pixar to receive a rating higher than g in the united states? the answer when cnbc squawk box continues. well.i couldn t have gotten by without aflac! is that different from health insurance? well yeah. .aflac pays you cash to help with the bills that health insurance doesn t cover. really? well, if you re hurt and can t work, who s going to help pay for gas? ..the mortgage, all kinds of expenses? aflacc it s the protection you need to stay ahead of the game. exactly! aflac. we ve got you under our wing. aflac, aflac, aflac. aflac, aflac, aflac now the answer to today s aflac trivia question. what was the first movie by pixar to receive a rating higher than g in the united states? the answer, the incredibles, which received a pg rating. welcome back to squawk box, everybody. take a look at the futures. everything was strong, what we heard from intel last night. jp morgan is reporting bigger gains. those dow futures are up and s&p 14 1/2 points above fair value. jp morgan, beating the street s expectations by a wide margin with its latest earnings. 82 cent ace share, street was looking for 52 cents. showing quite a bit of gains. an analyst said he would continue to buy at these levels. quite a surprise. jamie diamond says we re certain some initial signs of consumer they are seeing initial signs of consumer credit stability. he s warning they re not certain the trend will continue. you can see today that is going to help out shares of jp morgan case and broader markets today. not to be forgotten among the earnings reports, economic daty at 8:30 eastern time, september s retail sales. economists are expecting a drop of 2.1% most because cash for clunkers is over. it gave big gains to auto sales in august. when you strip out the auto sales, september sales are expected to kick higher by .3%. i m giving 95 points of the intel, at 95 now. 95 to 10. is that fair? yeah, 10 to 15, i would say, jp morgan. all right. i m on i know, i m on a vendetta here. csx beating consensus with its latest earning, reporting 74 cents a share, 3 cents above expectations. revenue 2.3 billion. that was down 23% from a year ago, about in line with expectations. joining us first on cnbc to discuss results with michael ward, president, chairman and ceo of csx. and you can t carry everyone on your back, michael, but we want some revenue growth in addition to bottom line growth. that s what everybody is asking for. this will not be the quarter for the rails, obviously. when will the quarter when will we see revenue growth in your business? joe, i think we re encouraged at our second quarter call. the third quarter virtually every market improved sequentially in volume and year over year basis, total buys are 22 in the second and only 15 in the third. in the fourth we expect to continue to see sequential improvements in volumes and year over year comparisons getting down into the high single digits. we think it s gradually improving. we re not experts and our viewers aren t, on the business mix of each individual rail. how much of your business is ag and commodity and how much is related to the auto industry? break it down so we know what has to do a lot better for you to start dpoing better? ag is roughly 10%, auto dms motive is 7%. what s the rest? coal is 25%, intermodule is 25%. okay. so this is a very good our finger is right on the pulse of the u.s. economy specifically, right? i guess it eventually goes overseas, some of this stuff. as well as imports. they are down. they improved somewhat. imports of containers improved from 30% down in the third to only 22% i mean 30% in the second to 22% in the third. again, modest sequential improvement. how about housing? we don t see that recovering strongly. that market has some time to come. how much of your business is that? it s probably, if you look at the lumber related products, asphalt, roofing tiles, probably in the 8% to 9% range in total. a really wide mix. we had an analyst on to preview your report yesterday, michael. and his concern was about pending things in washington that could affect the rails. what was he talking about? there s potential legislation that will further regulate the industry. fortunately, the policy makers are taking a very balanced viewment they know we need to earn sufficient monies to increase our investment and infrastructure to ease highway construction. we re very encouraged if there is lenlsilation, it will be such to allow us to continue returns. where is it? how can we watch it? is it a specific bill, number or name? it does not, joe. it s in the senate competitors committ commerce committee. that legislation has not been introduced yet. you re being nice. what if they decide not to you re hoping they do some balance. what if they didn t? what was this guy worried about? i think the threat of further regulations in our industry out in the last 10 to 15 years and the policy makers look at this, they realize the highways are getting more and more congested. rail is going to play into easing that highway congested is more and more important. we re very comfortable there s unlikely going to be any draconian situation. you have a buy on your side? kidding. you can t really do that. thanks for coming on squawk box today. still to come, ron ge geldehinger. mplt as we head to a break this morning, take a look at oil prices. we ve seen them touch willing around $75, up 82 cents to $74.97. when we return, today s top business stories. find out what s moving the markets before you make a trade. welcome back, everybody. oil prices again touching one-year high this is morning, rising above $75 earlier, now sitting just below. that s the first time in a year that we ve seen numbers like this. we ll see how prices react later this morning when the energy department releases those weekly inventory report numbers that come out at 10:30 eastern time. u.s. bank corp. is buying branches in nevada. that transaction is expected to close early next year. recapping the earnings news this morning, jp morgan beating expectations handily in terms of the bottom line and top line. with the comments that you would expect from jamie diamond, that i wouldn t necessarily say that we re completely out of the woods at this point. how could you they are seeing some strength. how could you with unemployment still still headed higher. and consumer and all the other well-documented worries we have. as a result jm morgan still beefing up those reserves. $2 billion in consumer credit reserves. watching out for all these things that are out there. but seeing some improvement. new high for that dow component, $47.27. new high being registered by intel, posting profits of 33 cents a share. estimates were 27, 28 cents. revenue also beat the street. the thing is that revenue was still below last year. revenues are the key. you get good earning from every company you talk about, because costs have been cut so severely. the key is whether you ll be see revenue growth. revenue better than expected or better than a year ago? i don t know if you re going to get revenue better than a year ago. revenue better than expected. after all it was before the biggest recession since it was before the great recession. the last three or four quarters have been during the great recession. you can t necessarily expect to beat the prerecession numbers. correct. sequentially, intel was up from the second to third quarter. and with good margins. unbelievable margins. yeah. and headed to 62. right. so, look, i m looking for technology to be one of the leadership groups. let s see if it spreads to other companies as they report. technology has been down for a long time. they re coming out with new products. is there anything more exciting than a bull market in technology? maybe that was misplaced, the internet boom. we had a 12-year hangover, right? joe, i go back to the xerox machine. i know. digital equipment. right. all the way back to haloid. right. and polaroid. i guess i m just tired of talking about net asset spreads between all the financial stuff. give me stuff that s fun and exciting, right? we have a hard break coming up. when we return, cnbc interview with ron geldelfinger when we come back. futures well above fair value. right now you re talking about dow futures up by 107 points above fair value. s&p is also soaring, right now about 14 points above fair value, nasdaq is hanging in there, 21 points above. all because of what we heard from intel last night and jp morgan this morning, came in with a profit of 82 cent ace share, 30 cents better than expectations. the bid ask there also showing some big gains. 47.40 to 47.44 after closing at 45.66. look out hewlett packard, acer expects to overtake del to become the number two manufacturer as measured in terms of shipment. acer is particularly active in the market, which you know has been china, up 79% from a year earlier. year to date sales in china, up by 32%. joe? thanks, beck. 770, sixes about a week ago. ford and uaw had have reached a tentative deal on modifications to a 2007 labor agreement. provisions are similar to those at chrysler and gm. phil lebeau joins us with another first on interview. we are joined by ron ge geldefinger. thanks for joining us. good morning, phil. thanks for having the uaw on. this contract is similar to what chrysler and general motors received from the uaw through bankruptcy. is it exact or is it just similar? well, it s the situation at ford, so it s very similar in many ways. when you look at this contract, you like to portray it as a contract of positives rather than negatives, even though there are some con segments in here. but it is tougher to get the rank and file to agree to go along with a contract that ford, given ford is in a much better financial spot than general motors and chrysler, right? yes, they are, but we need to remember, phil, general motors and chrysler both went through bankruptcy as a result of that, they were able to reduce their debt. ford did not have that capability. in addition, they were able to unload facilities that they didn t need by putting them into an old company. they also were able to downsize their dealerships through the bankruptcy. so, there is a difference there for ford. the main thing is here, we just never had intended for ford to be disadvantaged. and this is the second shot at this, as you know, because on february 15th of this year, we worked out the first modifications to the 07 agreement. this brings us closer, if you will, to the other companies. ron, this contract, similar to the ones at gm and chrysler, calls for mediation as opposed to the ability to strike when the next contract comes up for negotiation in 2011. i m reading comments this morning from ford workers in michigan who are saying, listen, what do we have a union for if we ve given up the most important bargaining chip in the future? well, if you take a close look at that language, what it really says is arbitration on wanl and benefit improvements. everything else we do have the right to strike over. you heard a lot about the right to strike. first of all, we don t want to hear about right to strike. health and safety where we feel the right to strike. now, that is one area where it is different at ford than it is at chrysler and general motors. how so? can you explain how that s different? just because at chrysler and at general motors, the language says that all subjects that we cannot resolve are subject to arbitration, whereas at ford it s wage and benefit improvements only that are subject to arbitration. mr. gettelfinger, i think mr. wein has a question for you. right. i m byron wein, the ghost host today. where are they in terms of a position, do you think we re in a position to see american auto companies start to gain market share from foreign producers? obviously that s going to come down to product. and what it is that the customer is after. we believe the companies are positioned right now, from a standpoint of call structure to be very competitive. so, that s not the issue. the issue is getting product out there that the consumer wants, and we believe that they re on the right road to accomplishing that goal. would you say ford is further along, ron, than gm, in your view? i would have said that prior to the bankruptcy, but now that general motors is down just to four brands, i think this makes a difference. ford does have great product out there. but general motors is following very closely on their heels. the good thing is here, we ve got great product out there if we can just get the consumer to come into the showroom and take a look at it i think you ll see the market share improve, as it has at ford. ron, i know a lot of the automaker, big three have cut back production pretty much to the barry bones and are starting to bring back chips as well as capacity at some plants. how much more of bringing uaw workers back on to the payrolls do you expect this year? we re still going to see downsizing at general motors and at chrysler, but we re hopeful with the agreements we have in place that as they increase market share that we will be able to bring in more people. as you know, part of the general motors agreement initially was instead of putting three of their assembly facilities into the old company, we kept them out. they ve already announced a product for one of those facilities, and we re hopeful to get product in the other two. so it s just going to be a matter of time. we really need to get through october here because of the cash for clumnkers and see really we think october will be a pretty good gauge from a standpoint, the public going back into the vehicle buying mode. so, we re just hopeful that it will pick up next year. as it does, we re looking to gain some jobs back. given the concessions that the uaw has made over last year for the big three and the fact that we expect the automakers will be doing much better by the next contract in 2011, how contentious do you expect the next contract negotiations to be? well, look, auto companies realize what we did for them in 05, mid contract in regards to health care. they know what we did in 07. they know what we ve done twice in 09, and i m not looking for it to be that contentious. first of all, at chryslere and general motors we have full representationment we ve been able to successfully negotiate contracts at ford without an altercation or work stoppage, if you will. we re looking for the next set of negotiations to go very smoothly. the companies should be positioned in the marketplace to where they re competitive and they ll have great product out there. we just want to share in a little of the fruits and i m hopeful that that will come about without any problems. ron gettelfinger, president of the uaw joining us first this morning on cnbc. similar to the one at criesler and general motors. he made it very clear it s not expect. they still have the right to strike over wage issues. it s hopeful they will not have to do that when the next contract comes along. have you driven a flex? yes, i have. uh-uh like it don t you? i bought one. you bought one? i did. little refrigerator in the back? little refrigerator. navy blue. white top. love it. i m tailgating with you next time i m in new york. i like hip. i could put a surfboard on top of that thing. some people like the look of it. others don t necessarily like the look. tinted windows? tinted windows, limited. it is a cool ride. i was going to ask bob thanks, phil. what is your drive? what do you have your driver driving around in right now? joe, you re going to be very disappointed with this question. it will be my last appearance here. the new he felt car i have is 16 years old. what? the newest car. i have two cars that are you didn t do the cash for clunkers? no. i have two cars that are 23 years old. you re part of the auto upgrade. will you get moving, please? you are part of the ougauto upgrade. trade those clunkers in, will you? no. you have me on this program because i m an historical rellic. i don t want to lose that reputation. i wish i could buy ford stock. i can t. we re not allowed to buy anything. we ll see. let s check on the markets. probably has a bentley or something like a lot of those chicagoans. i don t know. what about the markets, todd? going to 1,200 on the s&p by the enof the year. can we do that? that s a little aggressive. the way we see the market trading over the past three to six months, it certainly is trending that way. i think we ll see pretty good resistance up at 1,100. once we get through the rest of these earnings, banks will be key. looks like they re going to outperform. bankers eutopia with the slope of the curve being so cheap. they can buy treasury and get a real good yield. i think that s why the banks probably should have been expected to see them perform better over the last quarter. i m not surprised jp morgan s numbers were so strong. that would be my point. do you really think they re key now? we need to see company that is act companies use banks to do what they do. are the banks that interesting if they re not in crisis? well, you make a good point there. what we do want to see is see the bampgs repair their balance sheets, which they have, obviously. as we go forward with the rates staying as low as they re going to stay, we heard from donald cohen, backing with what chairman bernanke said last week. that will continue to help the banks. the consumer, you and me, we need the rates bumped up so we can get a flatter curve and start to benefit from some of the yield at some of the banks. money markets are close to zero and it really doesn t help you and i put money in savings. we basically need the banks to help us out a little bit. do you think rates will go up with the unemployment rate where it is? no, i don t. i think that s what advice chairman cohen was saying. we have to see repair in the economy and more specifically jobs. likewise, we re hearing from the uaw president, getting people to walk into the dealerships is way down on the chart. auto sales will continue to struggle. retail sales that we get today probably will not be a pretty picture. likewise, christmas season, we re seeing the sale signs out and it s only october. retailers will struggle. autos will struggle. bank also do well. we ll see the tech stocks do well, as we saw with intel and there will be areas to buy. right now it seems that autos and retail will not be the one. thanks, todd. good to see you. byron, you didn t say what kind of cars they were. if they re 16 years old they must be japanese cars. time for you to buy american, my friend? i have one ford. you have six cars. wait a second. you only own one ford too. what s the other car you drive in here? that s irrelevant. come on, step up to the plate. what do you want to know? nothing. just join us. these are the best workers in the world. let s support them. all right? okay. are you with me? yeah. i have three. i win. i know. but yours are italian. no. yeah, they are. no, they re not. they re fiats. what? no. well, now. i bought them from chrysler when they were still chrysler. they re fiats. i have a ford too. a recap of some of our stories from today. plus in the next hour, rick michigan on the economy. stick arpd. more squawk box on cnbc when we come right back. as we head to the break, here is a look at the widely held stocks. squawk box on cnbc returns after this. [ bicycle bell rings ] [ bell dings, kids cheering ] [ cheering ] [ female announcer ] sharing. that s video on the human network. cisco. welcome to the human network. this is maggie. a very smart little girl. and this is a seat from the seven passenger toyota highlander. this is a little seat, i m a big girl. this is the eight- passenger chevy traverse. which offers more room and it gets an epa estimated 24 highway. that s a big girl car. a very smart little girl. the chevy traverse americas best crossover. introducing the 60-day satisfaction guarantee. buy a new chevy and if you don t love it, we ll take it back. well, say you re looking afor it in new places,. like working with a supplier in china and a manufacturer in germany to reach new customers in the u.s. well, ups can help bring it all together with efficient solutions like paperless invoice that can help make customs a breeze. hey, the opportunities are out there. seize them with ups. you know, it s hard drawing those perfect circles. welcome back to squawk box, everyone. we ve been watching what has been happening with the futures. intel news overnight got a bigger pop after what we heard from jp morgan this morning, coming in with 82 crepts a share, 30 cents better than what the street was expecting. for more on the financial sector, we re join ed by the president and ceo, five-star rated fund, overo $22 million in assets. year to date it s up about 26%. anton, we re looking at jp morgan. do you think this is something that is indicative of the banks, financials overall? certainly earnings will be carried through to others. fixed income was very, very strong. so, i think in affirmation, the capital market business will look very strong at bank of america, at citi, goldman sachs and citi. i think i would expect good reports from those units at those companies. one thing that jamie diamond said that we ve been focusing on is that while they are seeing initial signs of consumer credit stability, they re not certain the trend will continue. still, it s a relatively hopeful sign of what they re seeing from consumer credit. it s certainly hopeful. things appear to be stabilizing. they certainly put aside more in the way of loan loss reserves. jp morgan can do it. that number was that strong. they put together more again. the real helpful issue was the margin so strong. with funds so low, industry margin improving. the core banking business is stronger. clearly fear there. as long as people continue to lose jobs, the consumer segment will not recover. and i think that clearly has to be some stabilization in unemployment and that may not happen for some time, but jp morgan certainly set aside a lot in reserves to be able to handle it. the earnings power will be shown when they don t have to overprovide. are they making money because they re a baker bank or because they re in a financial service firm? from both sides. from the margins, the costs are very low and spreads are terrific right now. certainly anybody else that wants to come in who they lend m money to, new loan, restructured loan, they re getting paid much better spread. said funds are, given how much cash is sitting on the sidelines in deposits. they really benefited. obviously the fixed income business has been tremendous. the investment bank has done very, very well. it s helped to offset the weak consumer part of the bank. anton, jp morgan shares, we re talking about a new high today after that stock has seen some significant gains. do you think there are more gains to come or is most of this story out there at this point? i think a lot of story is out there, near term. when i talk about this company earning $6 when normal happens, present value today, maybe it s close to today s fair value. i think if you go out to normal, which may not be until 2011, you may have a stock that s in the mid 60s or even 70s. i think there s still upside. if you own it i think you can hang on to it. if you re a trader i think the story is out there today. goldman sachs has put up a monster given valuations at this time. morgan stanley and other banks that could earn quite a bit. what stock is in the best position? well, to me it s always valuation. i think bampg of america has had some of the big issues out there and valuation has yet to come up a lot off its lows. still very low relative to earnings potential. i think they can earn $3 to $3.50 a share in normal. you have an $18 stock, there s upside there. i think there s a lot of credit issues to deal with. i think capital markets will be very strong there. citi bank as well, very controversial. once the government gets out there, seeing bank of america there s some upside that exists in these stock. anton, thank you for joining us today. we really appreciate it. pleasure. raising outlook for 09 for abbott labs, that may abe good number, too. coming up you want the animal orchestra today, byron? sure. i love the animal orchestra. how about the penguins? we had that last week one day. yeah. anyway, you heard from the chief no. we re going to hear from the chief equity global analyst. why he s bullish and how long he p plans to stay on for the ride. interview and survey you won t want to miss. business is changing all the time. there is an unabated pace of continuous communication 24 hours a day. technology drives communication. allows people to collaborate giving them stimuli to think in different ways. having a foundation of innovation is the way that you differentiate yourself from the competition. it s the lifeblood of growth. making businesses richer, stronger, more resilient. nyse euronext powering the exchanging world. i asked if we have an esteemed guest host, i ll ask him, do we go with the animal orchestra, if he says yes, we do. if he says no, we don t. i said yes. i know. byron wein. no, is it plaquestone wein. not byron. wien. don t tell people that. are you out of your mind? we re not on, are we? yes. oh, okay. two cents ahead of expectations. revenue was inline with expectations. full year line was guided up to $3.70 to $3.72, that stock up a little bit. the bid up a nickel, the ask is much higher. intel is indicated higher after a solid report yesterday even though revenue was below last year. a nickel ahead. fourth quarter margin was also higher. jp morgan, we ve been reporting better than expected results of 82 cents and better than expected revenue. a lot of metrics we ll be talking about that people look for with financials, credit losses, consumer we ll talk about all that as the show winds down here. csx, 74 cents ahead of sxengss, and the number of revenue was slightly below. we had michael ward on and maybe most notable in this for this story is that he s pretty sure that we ve rounded the corner or bounced off the bottom and things will get better. i thought it was interesting what he said about regulation that the analyst was worried about red. he said he s not all that worried but you have to wonder how much of that is not wanting to irrate anybody in washington. i agree. high-priority item, joe. what s that? not a high priority item. the administration has a lot of bigger fish to fry. that s right. they talk to you about what to do. they don t talk to me. they listen on squawk box. another big hour ahead, including the results of a new survey that measures the appetite for risk. plus, a former fed insider will tell us how the central bampg will handle the dollar dilemma. breaking news on retail sales and a spriez for byron wien s ten surprises for 2009. fithe same tools the pros use, so you can be a disciplined trader. by selecting from eight advanced triggers, your order gets executed, even when you re busy. and with trailing stops to help you lock in profits and minimize risk, you can be confident in your strategy, no matter which way the market moves. find out why more and more active traders are turning to fidelity for a smarter way to trade online. trade like a pro. trade with fidelity. so i got my nephew to build a website. i hired someone to make my website. five months ago. we are building a website by ourselves. woman: there s an easier way. create your own small business site with intuit websites. just choose a style that fits your business, and customize, publish, and get found in three easy steps. ( register bell dings ) sweet. all for just $4.99 a month. get a 30-day free trial at intuit.com. leading the charge for the bulls. intel s earnings and positive comments providing power to the markets. will technology push the dow become over 10,000? the appetite for risk. does it have to be human? feed me. does it have to be mine? feed me. the results of bank of america survey. animal with three letters in his name. you said alligator! our survey said [ buzz ] and the dilemma, dollar days. former fed board member gives us a look on how the fed is handling that situation. squawk box begins right now. welcome back to squawk box on cnbc. good morning, everybody. i m becky quick along with joe kernen. carl quintanilla is off today. our guest host is byron wien from blackstone. we ll get an update on his ten surprises for 2009, which he has done very, very well on this year. we ll get to that in a minute. first we ll look at the futures. you are talking about the fewers well above positive territory at this point. futures up about 100.s, s&p futures up by about 13 point. joe is over at earning central to talk about what is driving those future this is morning. joe? how does it feel over there? has this happened before when you you re all by yourself. i cannot believe it. i m over here. we have two big earnings reports to cover, both are helping to drive the markets higher this morning. jp morgan, the banking giant, added 10 to 15 points to the fewers, company posting a better than expected profit of 82 cents a share, losses on credit cards and other consumer loans were offset by underwriting revenue at its investment bank. people said capital markets would be strong and that is the case even before jp morgan reported, futures had already caught fire after intel s results posted late yesterday. fewers were showing about 95 to 100 points, now we re at 110, 115. the company reported 33 cent ace sha a share, rose 17% sequentially, even though it was still down year over year. intel is raising its revenue outlook for the fourth quarter. gross margins seen at 62%. shares were up 6.5% yesterday. they re above 21, a new high. after the bell, cfo stacey smith talked to cnbc about what is going right at the company. i think this is a great example of the superior results our business can generate when a few things go right. we saw strengthening pc market during the quarter, excellent execution across the board in the company but particularly out of the factory network and the impact of our leadership product portfolio, generating some growth and innovation in the marketplace. and abott labs beating the street. moments ago, the company earned 92 cents, causing the bid to move to 50.52 with an ask at 50.95. all this after a close at 49.65. abbott also raisingity full year earning guides. you have all the moves. i think you should do all of the earnings hits. let me get this off. okay. there you go. back to earnings central. to the other top stories of the day. michael bell says his company s $4 billion cost cutting goal looks, in his words shall quite achievable, making the comments at an event in california. blackstone s ceo says the worts of the industry slump is behind them, speaking in dubai, saying that vechls are opening up again, but does caution the scale of economic growth through next year is still a little unclear. as for the banking finance market, he says he can certainly do now transactions in the $3 to $4 million range. mortgage pliks falling 1.48% after rates creeped over 5%, sizeable 16% gain from the week before. mortgage bankers association says the average 30-year fixed was at 5.02%, up from 3.89% the prior week. that sounds like a very big jump. 5.02 from 4.89%. bank of america/merrill lynch releasing its survey overnight. appetite for risk is at the high he felt point we ve seen in more than three years. now first on cnbc with reaction to that is the chief global equity strategist at bank of america/merrill lynch. what is this telling us, michael? investors are really ready to jump back into the pool? they are jumping back into the pool. i think the rally we ve seen since march, one of the reasons for it is that people have been bearish and the bulls have been too embarrassed to say that they re bullish. i think now you re seeing cash levels run down, the lowest they ve been in five years. the archl cash balance is now 3.7%. you know, people are back in. i don t think it means top for the market, probably means we grind higher from here. grinding higher from here, what do you mean in terms of grinding? do you have a target for the s&p 500? the target we have is 1,200. although that s a 12-month target. i think that the global index, 350 on the index which gives you 20% upside over the next 12 months is pretty much driven by nothing to do with the economy, valuation or fundamentals but three things. positioning, hedge funds is not in there, retail is not in there and investors begrudgingly got back in, it s driven by policy, which is the key driver. because we think it s extremely positive for risk assets till it g gets taken away and it s driven by credit. bubbling credit market and a bubble in china. great news for the banks. everyone is still under weight. people are not overweight, the banks. that s the most positive reading you get from the survey. bampgs are being more fairly valued, correct? possibly. again i can only tell you what the merrill lynch bank of america shows. one out of 600 investors admitted to being overweighted. admitted. bearishness that meant that the market was going to go up. now 27 out of every hundred investors admit to being overweight. that s far from a mantle. arguably you could say until investors embrace the idea of financial leadership, embrace the idea that banks are backed as an investment, this is a market that can continue to move higher. let s talk for a moment about valuation. looking for $70. he s a great set of has a lot of backing for that statistic. he thinks the market will go up because earnings will surprise on the upside. in this survey today, investors believe earnings will do quite well going forward from here. earnings at some stage are going to be key. i certainly would say you ll get a correction at some stage in the next three to six months if you don t start to see the economy exhibit top line growth. for the moment i don t think that s the primal reason that markets are going up. i think the reason markets are going up, as i said, are driven by position, policy and credit. michael, how quickly did you actually start to see investors willing to put their toes back in the water? how long has this taken? how rapidly? i think you still have last eight weeks or so we ve started to see them say they don t want cash and they do want equities. a diffusion index that measures bullishness. we surveyed about 180 of them each month. diffusion index is plus 34%. when we see that diffusion index rise to plus 50, 55, it s a warning sign that you need to retreat from the equity market. we haven t seen that level of bullishness. i have a lot of people tell me that sentiment is so overwhelmingly positive right now. i m with you. i think people are embharsed to admit they buy at levels like this. diffusion index, 34% of asset indicators you pull are bullish, is that it? right. the amount that s overweight versus the amount that s underweight. it s still off a euphoric level. hedge funds within this survey reduced their net exposure from roughly 34% to 26%. we saw a big drop in hedge fund exposure. i didn t see retail there. i didn t see hedge funds there. i do think investors clearly have become more rhetorically bullish, whether they are positioned in size overweight equities, i m still the price action certainly doesn t suggest that. they re getting there. mid july, the we ve come too far too fast with any underpinning, that was up 100% for the people we hit on and the people we spoke to. that s right. again, i m not saying that it is necessarily under pinned. i m saying that no, i know. and it didn t happen they were wrong about it. they said there s no and it was so clear that, you know, that was a consensus view that nothing was backing up the move in the market. you knew it was going to hit higher in july. that s right. at some point you re going to need to see the e grow in. there s no doubt about that. by valentine s day next year, if you do not have evidence of final nand picking up, the market will start going up. the economy is driven by the equity market to an extent. so, certainly you would expect some sort of fee through from what they re seeing in the equity market into activity and that s certainly our hope and why david bianca has a 2,500 target for the s&p. is there any hope for revenues? do you see any life in the consumer at christmas? well i haven t started buying my christmas presents yet. you re probably asking the wrong guy. certainly around the globe, the best news for the u.s. consumer is that if you go to london, go to sydney, two places where they also speak english, probably have too many cars and too many houses, too much debt, so on, so forth, you ve clearly seen a pick up in consumer activity. we ve seen the overnight figures out of australia. consumer confidence off the charts. and, again, they have had similar cycles in terms of real estate, debt, so on, so forth. the difference there is that they have adjustable rate mortgages, very verks low and that has stimulated the consumer balance sheet there. here, we probably haven t quite had the fee through from that. and you ve also got the taxation issue, health care issue, so on and so forth. there are question marks going into next year, legitimate question marks in the u.s. if you look overseas certainly there has been son-in-law evidence. you mentioned a year ago 6% of the people you surveyed would admit to having an overweight position. that s right. what s the least loved arena right now? consumer discretionary, followed by utilities. most love is tech followed by nrnl. should we read anything into that? i think that when you get extremes, you also need a c catalyst to shift the dial, so to speak. clearly with regards to the consumer discretionary is easy. you have to see consistent month-to-month growth in retail sales. if you see that, consumer discretion starts to pick up. obviously tech, the intel result overnight, that keeps people there. energy, some relying on the oil price i think. michael thank you very much for joining us. pleasure. michael hartnett from bank of america/merrill lynch. jp morgan shares, there are comments on the wires right now cfo is making compensates to analysts, saying it could be close to the end of the reserve building. they took another $2 billion from their credit reserves. byron said the key will be when they stop taking those reserves and they re saying on the conference call they could be close to the end of the reserve building. that stock is sharply hire at bid ask this morning. what did you make of that guy, hartnett? he s sharp. what do you think? i don t know. i m thinking about as a co-host. south florida i m very comfortable here. i know. we can t have you here every day. i m thinking we ll invite that coming up. breaking news on the way the government retail sales report. next it s all about surprises. guest host byron wien is unveiling his ten surprises for 2009 and it s not that he s going to finally buy a new car. that s not one of them. price of the s&p 500 to the price of gold. we ll find out if any of those predictions that have come true, are close to come true, how many of them and what might come true for the past couple of months we have left. 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. futures not at the highest levels of the day, dow up close to fair value because of the earnings we ve been hearing about. intel last night, jp morgan this morning. let s go over those reports and the market reaction today. jp morgan chase, earning 30 cents better than the street was expected. on a conference call going on with reporters right now, the company s cfo says that jp morgan is getting close to the end of adding to the loan loss reserves. they added another $2 billion in the last quarter, but many people, including byron wien, say the important thing is when they stop adding to those reserves, that s when they ll be able to earn some mopey. you saw that bid ask sharply higher this morning. also intel getting a big boost after the company gave a bullsh forecast last night, up by about 4.3%. abbott labs, 92 creptses for the quarter, two cents better than expectations. byron wien is our guest host. every year, he releases the top ten surprises. we ve got the ones from 09 here. i know you said obama in a landslide. that was a big call. for 08. remember the election was in 08. oh, yeah, i forgot. i m thinking the inauguration. you don t vote on the ip august ration. did you predict the peace prize for 09? i did not. s&p 500, you re not there yet. y may have time. this call was such an out liar when you made it, people thought maybe you needed your head examined. they wouldn t make eye contact with me. i did. january 2nd i said s&p 500 will go to 1,200. what did you say about 1,200 again? i did. not a bad colors lately. very similar right now. people never would have thought that a year ago or so. or two years ago even more joe, when you re older and you re wrong, people think you ve lost it. they do. at the beginning of the year, people thought i lost it. what about oil prices? 80 bucks. that s what you said? yes. oh, my gosh. january 2nd. january 2nd? oil was 57. you came on the show to reveal this. yeah. by year end or happens during the year? by year end bhu could happen during the year. how about treasury rate? 4%. ten-year treasury 4%. they pulled back. it will get there again. ten-year? ten-year will get to 4%. china greth? 7%, already 8 or 9%. people thought china was going off a cliff. falling tax revenue. this is new york. becomes a real issue. new york and california become a real budget issue. what was your surprise for housing? that the bottom will fall, which i think they re doing. yeah, or they haven t bottomed yet? i think they probably bottomed, yeah. i think they bottomed. and what do you say about the savings rate? 3 per. it was six. it s back to three. it got all the way up to six? it got all the way up to six in the summer, but it s back to 3% now. do we want it to go up or down? we want it to stay around here. we don t want to paradox a thrift. we want people to spend at christmas. what did you say about obama becomes more hawkish, slows the withdrawal from iraq, which is done, and adds troops to afghanistan. you think that s going to happen? the jury s not out. he s going to add troops? absolutely. go against biden. gates was waffling, but it looks like he ll go with mccrystal. you can t have a commander there asking for troops without giving it to him unless you remove him. the secretary of state wouldn t have objected to adding more troops. she s not the commander in chief. he is. i know, but she advises him, right? well no? are you breaking some news here? this is a war, not a diplomatic issue. it s a different kind of thing. all right. byron will be here another i can t add. eight plus 38 minutes. will you dpiv us some 2010 potential surprises? oh, sure. you will? no, of course not. why not? because i don t have them, joe. it s october. he spends a lot of time working on these things. this is not something i think up in the shower. we re going to break. yeah. you ve got two minutes. we ll be back after a commercial. think of one. huh? come on. all right. we ll give him a couple minutes to think about this. coming up, though, the spotlight turns to the fed. former how ben bernanke and company will be talking about the dollar, inflation and the future course of interest rates. squawk box will be right back. bull market or bear, traders are always hungry for ideas. trading is all about strategy. and strategy. is all about information. heat mapping shows me where the money s moving. twenty five hundred stocks. one quick look. that s where the action is. plus, this amazing gadget. it s called the telephone. i can call td ameritrade anytime and talk trades, strategy. anything. td ameritrade. built by traders, for traders. this is what i need. announcer: trade commission free for 30 days, plus get 100 dollars cash, when you open an account. you know why i sell tools? tools are uncomplicated? nothing complicated about a pair of 10 inch hose clamp pliers. you know what s complicated? shipping. shipping s complicated. not really. with priority mail flat rate boxes from the postal service shipping is easy. if it fits, it ships anywhere in the country for a low flat rate. that s not complicated. come on. how about.a handshake. alright. priority mail flat rate boxes only from the postal service. a simpler way to ship. for the first time in history, more people live in cities than anywhere else. which means cities have to get smarter. new york has smart crime fighting. paris has smart healthcare. smart traffic systems in brisbane keep traffic moving. galway has smart water. smart meters in dallas, houston. and a smart grid in copenhagen keep energy flowing. smart ideas are happening. all over the world. i want to bring them all together in your city. a smarter paris. a smarter stuttgart. sao paulo. copenhagen. kyoto. a planet of smarter cities. that s what i m working on. i m an ibmer. let s build a smarter planet. jp morgan chase is the earnings report of the morning. that stock is indicated sharply higher, 47.52 to 47.56 of the they beat expectations by 30 cents. it s helping the futures and it s helping all of the financials across the board this morning. bank of america also indicated higher, 18.31 after a 17.81 close. take a look at shares of goldman sachs, which gave back ground this week. goldman sachs is also indicated higher this it morning. last check i looked at this, you re talking about a bid ask of 191.73 to 191.88. they re going to need a very big number to surprise the market after those strong gains we saw out of jp morgan. much more squawk box quks still ahead as we count down to the opening bell. byron s top ten surprises for 2010 after the break. and a firmer fed governor on how the central bank will handle the dollar dilemma. squawk box will be right back. he has five done. time is ticking. the exchanging world is at the heart of the collaborative economy. and collaboration is good no one has a monopoly on good ideas. we have at least half a dozen relationships, 50 percent of my time is spent outside our company, collaborating with other companies, finding the next cure for the most serious diseases. the global opportunity is a fantastic one. we re able to reach audiences, connect with them in their local cultures and take our brands around the world. nyse euronext. powering the exchanging world. all right. the government releasing retail sales for the month of september, also import prices. rick santelli is here, larry levin is here and byron wien. all right. numbers coming out here. import price up close expectations, last look moves from originally reported up 2% to up 1.6%. take it year over year, of course, downward moves in certain down 12 and that s revised minus 15.3. retail sales september, down 1.5. autos, we knew this would be a better metric. that s up .5. take out autos and gas, it s up .4. not a significant revision to last month s ex-autos that lingers at 1%. 2.7, diminished to 2.2. a bit disappointing on retail sales. cash for clunkers post mortem was expected. continued upside, we re holdoing some of those earnings-related gains. dow still up 100, gained about another seven points. and interest rates moved a bit higher as, of course, equities have moved higher. certain dynamic to pay attention to. big pressure coming in as it moderated. little bit stronger. the dollar is weaker you mean? little stronger. little stronger. still down on that change, but making a bit of a comeback. back to you. rick, maybe the stuff that intel said about consumers is sort of what little bit disappointing, right? headline number is significantly disappointing. but the clunkers, you re right. ex-autos, we are looking not so bad. you could argue up five-tenths was better than we anticipated. guest host, rick, he has four c cars. the newest one is 16 years old. well, i find that fascinating. i have new cars that are many decades old as well. all right. more reaction and aforementioned guest host byron wien. he says 1,200 by the end of the year at the s&p. i ll be honest, i don t think this market should be going up at all. technically, it is very strong, trading 1084, s&p as we speak, big move overnight on post session, s&p day session yesterday to another 12 points higher overnight. just continues to see buyers coming into this market. like rick said, the numbers weren t terrific, but weren t too bad either. more buying going on even if the market dropped over the next couple of days, in nye opinion, 1072 in the s&p, good support down 10,062. there are places to do it for sure. why do you say it shouldn t be going up at all? what is the market ignoring in your view that makes it overbought here? couple of things, joe. unemployment continues to rise. slowing a little bit? yes. is it slowing and stopping the other way? absolutely not. the consumer. i feel like we re almost teaching the consumer the wrong thing. cash for clunkers, $8,000 tax break on homes through the end of the year. people are getting set up for only buying when there s deals. that s put pricing pressure on all businesses out there. things like that, i believe, are the fundamental reasons that the market shouldn t be going up. that doesn t bother me, to be honest with you. the market is going up. if you re trying to be short in this market you re not making money at all. losing money if you re a short buyer? yep. what would you say to him co-incident indicators, does it mean anything for the market? he s indicative of why the market is going up. he doesn t know why the market is going up. he has all these negatives primarily related to the fact that consumer in spending. i bet you feel better about your job, better about the outlook than you did a month ago. now you can start spending a little again at christmas. if christmas exceeds expectations, that will be the republican i hear you. you ve been in this camp, rick. you ve been talking about markets that seem to be sort of floating without any under pinnings, right? i consider myself in a bit of a unique camp. i certainly wouldn t do things like short equities. i think we better get the levels of some of these areas to a lofty point. i think there sy long good-bye out there. someone was in my ear. what? a long good-bye. whether it s some of the articles look at the articles today. there s articles about how second lien mortgages are usurping the legal rankings of getting, taking care of before primary lie inform s because the banks have problems and mostly are held by foreign banks. we ve seen some of our gifts today talk about banks that have earnings when they get some of tees bad write-offs off the books. then you add in other issues, the uncertain outlook regarding taxes and the uncertain outlook regarding the effects of inventory building and i think all this liquidity is going to continue pushing equities up for a while. in the end it s going to be a long run here and the next several quarters aren t necessarily indicative of the next several years. you think some of the intel stuff was inventory stocking? is that what you re referring to, or technology? technology is kind of unique, yes. we re all going to find ways to stay relevant with cell phones and computers. the number of times we go out to dinner and the big drops in consumer credit along with tax revenues, federal and local, are the big harpin gechlt rs of news to come. rick, is the market going to hit 1,200 on the s&p by year end? i don t think by year end, but i don t dismiss the logic of more upside going into year end and that all of thee products still aren t going to impact the jobs. it s a lagging indicator. it s the type of lagging indicator that will haunt us in a lagging fashion. interesting notion. maybe so. you just can t stop the momentum. sooner or later, it comes home to roost, i guess. everybody should listen to the option shows. and probably figure out selling a few against these lofty equity holdings might be a very respectable play. you can do that every three months. if you did that with a lot of stocks you would have had a much better return, sell opgs. anyway, going into a year ago. thanks, rick, larry levin and byron wien. we talked earlier about the oil inventory numbers. i think i said earlier they would be out later today. they re out tomorrow because of the holiday on monday. oil prices have been right around $75, highest levels we ve seen in about a year. coming up, big issues on the table for the fed. up next, we ve got former fed governor rick mishkin on interest rates, the dollar and the inflation front. plus, check out the futures. dow futures still up by 109 points. squawk box will be right back. take a look at gold prices, sitting just below that record level set. there was a record close on the comex yesterday, at this point down a dollar from that level, 1,064, inching ever closer to byron s guess at 1,200. predictions, we should say. our next guest is a former fed insider with a special eye for monetary policies. rick mishkin, former federal reserve board governor, and professor of economics. thanks for being here this morning. what do you think they ve been talking about the past two days, or today and yesterday? a lot of issues that they are facing. there s an issue about speaking how strong this recovery is going to be. cloerly that s an issue they re going to be focusing on. i think also very important, because the issue of a monetary policy decision at this meeting is not the central issue. it s thinking about the exit strategy, what s going on down the pike for a much longer run perspective. rick, when taer shey re sittn the meetings like this how much attention do they pay to the report from yp morgan this morning, intel reporting. is that something they take into account? sure. or much shorter numbers? you take everything into klt. each bit of information is only one small piece of the puzzle. it would be a clear cut mistake to overreact to any new information. as each piece of information comes in, it helps to complete a picture. that s very key in terms of getting the right kind of decisions in monetary policy. what s your sense of how strong the economy is, given everything we ve been hearing lately? earnings have caught a lot of people by surprise this time around. some of the government if you means we ve gotten recently have been pretty good. i think things are certainly better than we thought a little while ago. i think you should be very careful about not getting over exuberant here. the most important thing is that we looked like we dodged the bullet. the recession looks like it s over. a sustained recovery is getting into place. nevertheless there s still a lot of problems in the financial sectors that will take a lot of ti time. the recovery we expect to have, in fact, will not be a super strong one and a tremendous amount of slack in the xi for quite a number of years. do you think that the fed will keep rates at their independent level until the unemployment rate starts to tick down? well, i think that the issue here is that the way the fed is going to look at this. in fact, the way any good policy maker is going to look at the situation is you ask what is the likely path of the economy over the next two to three years? that s really the kind of horizon, in fact, that s extremely relevant. the fed needs to think about issues, particularly controlling inflation and stabilizing the economy. there are very long lags from actions taken by the federal reserve in terms of monetary policy and what actually happens to the economy. in this context, they re basically thinking about over longer horizons and the issue is how much slack will there be in the economy going down the road and if there s still a lot of slack, there s no reason to raise interest rates. in fact, it would be a big mistake. we ve seen this kind of thing, mistakes tliek have been made in japan. they were so anxious to normalize and get interest rates positive that they raised them in early 2000 and it was a huge mistake and actually led to continuing deinflammation in japan. the federal reserve will not make that kind of mistake. what s happening to inflation expectations? one of the things that was very important that the vice chairman cohen mentioned yesterday is that ip inflammation looks like it s solidly grounded, there s a lot of slack in the economy. for several years out, even if the economy grows at stronger rates than private forecasters and what people at the fed think is going to happen, it still mean, in fact, there s going to be a lot of slack in the economy for at least several years. in that kind of context, you need to raise interest rates is not there and, indeed, it would be a mistake. things could change. the economy could come back much stronger than expected. one big danger on the horizon is that given the fact that the fiscal situation is not a strong one, could expectations get unhinged, moving up positively in the direction, that would create a different environment for the fed to operate in. the fact that the fed has expanded so significantly over the past year and a half, does that bother you? and the does the quality of the balance sheet it used to be all treasury securities. now it s a variety of things. is that a dangerous signal for all of us? the issue for me is not the sxapgs of the fed balance sheet per se. that s not the big problem. the real issue is what are some of the actors they re holding in that balance sheet? some exit strat i didn t is happening. lending facilities, for example, have gone down to zero. no longer making any loans because the improvements in the credit markets mean it s not as necessary. so, that s fairly straightforward. but one of the big issues here is that the fed is going to have 1.25 trillion of ndss on its balance sheet, posing serious dangers in the long run. i think it was exactly the right thing for the fed to do in the short run, extremely important to stabilize the housing market. not only is that important to how the economy will evolve over time, but very important to the recovery of the financial system. once housing prices stabilize, you can price all these assets and that actually had will help to solve a lot of problems. the policy was completely appropriate, absolutely necessary. one of the key elements of this nonconventional policy, the problem in the long run is that the federal reserve is holding these private sector assets. that s very dangerous and is not the approximate appropriate thing for a sermt bank to do in the long run. the most politicized part of our financial structure, housing. we ve had huge subsidies, we have tax deductibility of interest. look what happened with the gses. for 15 years i have been talking about as many other economists did, that there would be a collapse in the gses. in the 1990s they actually allowed them to expand and look at the cost to the taxpayer. that sector is very politicized, not a sector a central bank should be involved in, very dangerous for the fed. in the long run, the fed needs to get out of those nndss. not the size of the balance sheet, but the fact that it can pay interest on reserve. large balance sheet is not a problem if banks are holding excess reserves. wh whatacy big issue is the fed being involved in private credit markets. that s exactly what needses to be done in an emergency of the type we had, but that s not what the central bank or federal reserve should be involved in, in the long run. i would think the yield curve is going to get steeper. am i interpreting your comments correctly? certainly in the long run, that having a long-term bond rate as low as it is is not what we expect to be true in the long run. sort of a normal rate of inflation is excuse me, inflation rate we think is appropriate is around 2%. real interest rates should be certainly in the long for long-term security, should be above 2%. so, clearly, this is not something that s going to last. but exactly when the markets will reserve is hard to know. professor mishkin, thank you very much. always nice to talk to you. you re very welcome. next art kashin, intel, jp morgan. goodwrench. we roll out the blue carpet for drivers of these great gm brands. we can do the small things, the big things, just about everything. right inside your gm dealership. find out more at goodwrench.com. gm drivers.. it s goodwrench & go time. three great services: all in one place. all at one time. all for one price for most gm vehicles. but it s only for a limited time. at participating gm dealers. stocks sto watch quickly, intel reported better than expected results last night. you probably heard by new. revenue is better than expected. the guidance is better than expected. we re looking for 90 cents or so. 6.5% initially. good margins expected. j.p. morgan in the mid 47s. last i looked yep, it s 47. that s a nice move. that s helping the dow. 82 cents a share is above expectations. revenue was above there. some of the other metrics in a financial also look pretty good. we ll see whether we see the similar results with citigroup and goldman sachs and bank of america later. finally, abbott labs. 92 cents ahead. i have the traders edge. any results that we re seeing, art, make you think that the market has legs from here? well, it could well, joe. i mean this is a perfect stoop for the bulls to mix the metaphor, it s a great party line and the banquet looks stupendous. i hear the wine is great. some of us are still worried that the food is tainted. so you can party on but some are going to sit on the sideline. byron says 1200 by the end of the year. he s been saying that a while, art. he s always been a wild and crazy guy. look at the normal vehicle he drives. you can t compare him to many people. he s a wise man. i look at gold. i look at the dollar. i look at bonds. it s still a universe that we would have never been able to predict a couple years ago. i just don t see how, you know, you can t use history to make any decisions at this point over what to do. just say one thing to you joe, nasdaq 3,000. okay? there were a lot of us that a lot of us in the dot-com bubble, one of the anchors on your network said how can you stha wh say that when it keeps going up. nasdaq 5,000 eventually. but at 3,000, i trade early. i have a habit of doing that. you want to ask a question, byron? yeah. don t you think, though, that the mood on the floor has gotten more positive over the last few weeks? oh, sure. there s a general sense of relief and we have taken out various resistance areas, byron. you know, people things feed on themselves. and as it grows better and better, people feel a kind of sense of relief. don t forget that was an a armageddon everybody has said. the world has not come to an end. and so you ve taken that insurance back off and we re back to where we started. and that s why a lot of folks are saying how much more do we go from here? i i m worried, byron, that there s $823 billion in excess reserves out there. people aren t borrowing. i don t think this economy is moving as much as some of the numbers say. although intel had to give you a little bit of cause to think that maybe the consumers just discounted out and it s not as bad as we thought. i see at least the initial side of what may be a pattern. and that is the component makers, intels and others along that line are doing better. the end use makers, the aggios and johnson & johnson aren t. so maybe this is inventory rebuild that is helping intel and everybody else. maybe so. thanks, art. appreciate it. see you later. all right. up next, we ve got some parting words of wisdom. squawk box will be right back. it doesn t cover everything. and what it doesn t cover can cost you some money. that s why you should consider. an aarp medicare supplement insurance plan. insured by united healthcare insurance company. it can help cover some of what medicare doesn t. so you could save up to thousands of dollars. in out-of-pocket expenses. call now for this free information kit. and medicare guide. you should know about this card; it s the only one of its kind. that carries the aarp name see if it s right for you. you choose your doctor. you choose your hospital. there are no networks and no referrals needed. help protect yourself from some of what medicare doesn t cover. save up to thousands of dollars. on potential out-of-pocket expenses. with an aarp medicare supplement insurance plan. insured by united healthcare insurance company. call now for your free information kit. and medicare guide and find out. how you could start saving. all right, the blackstone s group guest has parting thoughts. i think we should look at whether christmas will be advantageous. it s going to be better than people think. that s going to provide some encouragement for the market to go out. in terms of the retailers being able to sell more than expected. right. and the fact that consumer confidence is