Transcripts For CNBC Squawk Box 20091016 : vimarsana.com

other. plus, becky becky is reporting live from greenwich. is that close to worcester. again witch is very close. we are going inside a secret society as hedge funds control more than $400 million. by the way, it s happy national boss today, so to our loyal head hauncho viewers, happy boss day. do we have a problem here? yeah. you apparently didn t put one of the new cover sheets on your tps reports. oh, yeah, i m sorry about that. i forgot. yeah. paid it calls to be the boss i m paid to call to be the boss. good morning, everybody. i m becky quick along with joe kernen. carl is out today, but we have a very big show lined up for you today. we have coming to you live from the bruce museum in greenwich, connecticut. the members of this group control about $400 million in hedge funds. a number of the exclusive group s members are going to be joining us live through the show this morning. in the next half hour, the executive director of the greenwich round table steve mcmenamin and alexs weiler will be joining us talking about the challenges of are facing this group especially after what we ve seen in the last year and a half. later this morning, glenn tropin runs a $5.6 billion hedge fund. all of the firm s programs had positive returns last year. joe, i know this is something you re going to be interested in. some of those funds had massive gains over the last year. also, veteran sedlechek manages more than $25 billion for nonprofits and other institution peps obviously, we ve seen a change in some of the most powerful and prestigis universities. coming up at 8:30 eastern time, myron scholes is known for knowing something about the lessons we ve learned in the past. he s going to talk to us about the lessons we should have picked up out of this last go round. he ll be talking about the current crisis and what we can expect, what some of those regulators should be doing to keep this from happening again. first, why don t we get to some of the top headlines for today. i saw those returns. are those for public record? yes. in some of the publications, i think it was in baron s already. and it s hard to believe anybody even flat lining, so that s pretty impressive. commodities based, or some of it? i know one of the things they focus on is risk management. they spend a lot of time talking about what they shouldn t invest in. these are guys that have risk management meetings every single day. they re the only company i know that spends hours and hours meeting about what they shouldn t invest their money in. were you working on mcmenihman, to say that? no. that s a hard one for me. when you do it, when you re talking to him, i m going to be watching to see if you now i m going to be seconding that every time i say it, thank you. i saw your car out here today. i thought you canceled and were here instead. me and mac. i was there. i came in early this morning. i got there and left before you even came in. korea, me and my buddy, mac. there he is. he s over here. hi, mac. that s all i hear. he s nervous because you re looking at him. i know. thanks, beck. we have two dow components reporting today on earnings central, as we call it. we re looking for ge to post earnings of 20 cents a share on revenue of $39.5 billion. meantime, the vote expects bank of america to come in with revenue of $27 of 6 billion. that s a loss of 21 cents a share. the other story today is ken feinberg and how much of the 2009 compensation is going to accrue to mr. ken lewis. but don t worry about that. elsewhere, we have two big tech reports, ibm reporting a profit ofed 206 and i was ahead only by two cents on consensus. the company raised full year guidance to 985 a share, which is ahead of expectations. but it was the same old story. it was a drop in revenue. even if you factor out currency, down about 5%. some concern about corporate ordering of hardware, big mainframes and servers and other things that have people a little bit chagrinned, maybe, but it s run up to a new 52-week high. so $5, while it s a big number on a $127 stock, not that big. meantime, google shares got a boost after hours after earnings handling beat the street, posted its strongest revenue growth in more than a we re. the search giant says the worst of the recession is behind us. mark mehaney follows citigroup. mark, you always back out that tac or something and if you back it out, this was still good? yeah. the results were a little bit better than expected. fundamentally, you had a reacceleration of revenue growth and fundamentally, you had real nice expansions and margins. the fundamentals should get stronger for at least next two or three quarters. it s hard to believe that the $ ,000 numbers people were talking about a couple of years ago, you had a chance to buy the stock for $212. now today we ll be at $540. we ve had a cyclical recover in google s fundamentals and in google stock. it s now trading around 0 times earnings of $27. so that is pretty good. it seems to be relatively full. on a cyclical basis, you guy google here. one of the more interesting data points from last night was that mobile searches for google grew 30% sequentially from the june quarter to the september quarter. we just left the smart phone somewhere. smart phone are now 20 pefrs of all install basis. and it turns out people are using smart phones to search on google. this is a new growth driver for google. what about some of the other initiatives that have never sloan any incremental profit or revenue? i guess radio is gone. and so is print and so is google tv. they ve thrown a lot of things up against the wall and some of them have stuck and some of them haven t. by the way we they went out of the way to say, expect us to lift again. so you have to be careful going forward. youtube, they say they re now monetizing 1,000 videos a week now. we think they have turned break even on revenue in the past few years, but unfortunately there s extremely little disclosure from the company on that. well, that means if they had anything to crow about, you figure they probably would be crowing, wouldn t they? yeah, you re probably right. is google just like an advertising firm? should we be talking about google the same way? because we re waiting for people to come back into the water if the economy globally gets a lot better inspect. yeah, i think that s right. look, it s still 98% advertising revenue. what may be a little different about google and search is that it wasn t as impacted as other ad mediums going through the reseg and surprisingly, seems to be snapping back faster than or ad mediums. but it s pretty clear that other ad medium res going to rise, as well. google is a realtime indicator because all of the pricing for google is really almost set moment by moment as people see whether they are shopping more, whether they re converting at higher rates, etcetera. so when google comes out, it s probably a pretty good bet that companies in those three sectors on the internet are seeing a nice pick up in their fundamentals, as well. mark, you put price targets on things any more? yes, i always have. and where are we? so our price target here is $640. what we re doing is using our 2011 estimate. we re looking for about $ 1 in earnings that year. we re putting an the 20 multiple on that to get to 640. 640. all right, mark, thank you. thank you for getting up early. yeah. thanks, joe. you re welcome. in other news this morning, president obama s national economic council director larry summers says the national economy is turning a corner. he s sitting down with john harwood and they talked about everything from the employment picture to the dollar to also executive compensation. once firms free themselves from the need to rely on government finance, there doesn t need to be, shouldn t be limits on compensation. what there should be is requirements on the form and structure of compensation so that regulators are making sure you re not encouraging that excessive risk taking where the idea is you rely if you lose on the taxpayers. and john harwood joins us from where he s most comfortable, washington, d.c. hey, joe. how are you doing, john? it s good to see you. your other interviews, they always had something really they had leads. is there a lead for what mr. summers said or just your impressions, john, with what is happening? is he optimistic about the next couple of years, not just the near term? well, i think he is fairly optimistic. i have to say, first of all, on the in the big picture, joe, that is one guy that s hard to get news out of. he knows that the words that top economic officials speak can move markets. so, you know, on the dollar, he has that little computer chip in his brain about, you know, the strong dollar in the interest of the united states. that will come out a million times if you ask him the question a manage times. but look, i think larry was trying to reflect some of the market sensibility that he brought to the job. that s why a lot of wall street thought he was a centrist. when we talk about compensation, for example, he said we re not capping the dollar amounts of compensation. we re shifting, trying to regulate a shift in the risk reward relationship. and, you know, we discussed the wall street bonuses which are now on track to be a record $140 billion. he said, you know, the amount is not the problem. the problem is if you encourage, as you just heard in that sound bite, excessive risk taking. and i guess off the record we can t get into, anyway, but what s your feeling on what he said? because there is a perception now, probably globally, that the administration is not unhappy with the continued weakness. i think that perception is correct, joe, but you can t get economic officials and you can t get larry summers to say that. did he wink or twitch or anything? did the legs start moving, anything, when you asked him you know, i didn t see that kind of truth i didn t get the truth serum reaction to that, but here is how i asked the question. you know, fred bergsten, who is a former economic official who has been around washington a long tyler time wrote a piece that was out yesterday. and he said, if the united states is serious about economic recovery, it needs to embrace the declining dollar. so i asked larry is that true? and fred s reasoning is a declining dollar will fuel this rebalancing. larry said, oh, no, no, that s not the issue. we re focused on fundamentals. we realize we have a flexible exchange rate system and the value of the dollar will go up and down been but that s what larry said. my interpretation is, in fact, what you just said a moment ago, which is that the obama administration is okay with this. and if the dollar has been overstructural overvalued, that s one of the reasons for this trade imbalance that we ve had. it seems like we re never going to get identity of it, john, since manufacturing moved abroad. i don t know. i have people say you never see a nation flourish when it let s its currency go down. but then i have other people saying, well, it s just too high and it needs to happen. i was going to ask you, how serious a problem do you think it is? when i talk to former jimmy carter administrations, he doesn t think that s a big deal. do you? i have others that think it s a catastrophe to have it happen and then you have other people that point out, if we re going to have these huge deficits, and how are we not going to have the huge deficits, you d rather pay for what you re borrowing at a 50% doesn t, wouldn t you? it seems like the only way out is to let that happen and to bring back some jobs and to sell stuff to china. i don t know. well, i do think it puts a premium on the administration. if you re going to embrace or accept the weak dollar, you have to take steps to shore up your own balance sheet at home while you re doing that. yeah. and every time china buys another bond, you wonder when is the straw that s going to break the camel s back there? exactly. all right, john, thank you. he bet. see you later. let s check on the markets this morning. we ll check out the futures of the dow. yesterday they had a lot of opportunity to trade back down underneath that psychiatrologic important 10,000 level. it didn t. but it was the strength in really chevron and exxon that ig nated the laterally and that kept the dow above 10,000 a day. so we re looking at about 30 points of downward pressure. oil, not much happening in crude today. $77.46. let s take a look at the 10-year, which is still below 3.5%. is here is the dollar which we were just talking about and alluding to in john s interview with mr. summers. finally gold, $1,050.5, down just 10 cents now. i was listening to everything. i was listening to everything you were saying. remember, byron wayne yesterday was a little concerned about the dollar. yeah. were you actually sitting there talking to yourself with people watching? i was. yeah, i was mumbling, crazy lady in the corner. i stopped with mahaney a couple of times. nobody else is here to ask, so i ve got to i m listening and i ll jump in. don t worry. if you re running out of questions or something, i will jump in. good. we can do it this way. i promise. we know each other well enough. i know exactly what you re doing right now. you re turning over and looking at the side of your computer. no, wait, now you re checking on viewer e-mails. okay. let s go overseas this morning. christine tan is standing by in london and we re going to start first in london with geoff cutmo cutmoremore. what are you seeing? we have our uran markets higher and there is some strength and i feel a lot of that was coming off the back of the earnings that was delivered in the united states. i ll show you the half numbers. we ve got some good gains on the board. the surprising thing, joe is talking about the energy prices not really going anywhere. but we do have our energy stocks topping the gainers in europe right now and the likes of bp and shell and those european majors are the ones that are making the legwork here. outside of that, you know, a couple of stories to tell you about. acor, the french hotel group coming down with numbers. but they ve held their guidance and we have numbers out from august, a decline of about 5.5% or so. right now, we are in positive territory by some measure on the european trading day. let s send it out to singapore and christine with a story on the asian close. geoff, thanks for that. most asian markets finished lower today giving up early gains. the japanese market managed to claw back some gains to end 0.2% higher. retailers and drug companies posted gains offsetting the losses in gains. in south korea, the strength in the won once again weighing on the exporter stocks and au automakers, as well. the kospi losing over 1%. in china, the shanghai composite ended 0.1% lower. sentiment was hurt from china s control bank thinking that it was moving away from its ultra loose monetary policy. in hong kong, the shanghai composite dipped 0.1%. that s the picture here in asia this friday. back to joe and becky. christine, thank you very much. womg up, we re going to peek with some of the world s most powerful hedge fund managers. plus, we have your weekend forecast forecast coming up. i m going to need you to go ahead and come in tomorrow. so if you could be here around 9:00, that would be great. okay? all right. welcome back, everybody. it is friday and we are celebrating national boss day all morning long right here on squawk. that s right. it is national boss day. i know what you re thinking pup thought every day was national boss day, but today is the day you re supposed to walk into your boss and say, hey, boss, happy boss day. scott williams of the weather channel is here and scott, what about you, i thought every day was boss day. well maybe today, becky, you can ask your boss for the day off. we continue to talk about a heavy nor easter. still the wet, heavy snow is falling around binghamton. new york city, look for cloud cover, occasional drizzle from time to time and boston, expect airport delays there. as we opinion to move farther to the south florida, watch out for scattered showers and storms around orlando and tampa if you have travel plans there. as we look at the overall board here, focusing in on your forecast for traveling, look for likely airport delays we move in through tampa, chicago and philadelphia. the tweakend forecast, we ll see cold rain and showers continuing in the northeast and new england. but certainly sunny and cool conditions for most of the country as we move into the latter part of the weekend. even florida will get a break from the heat. now back to you. scott, thank you very much. come up on squawk, quarterly results from dow component general electric. they re due out within minutes. we will have the numbers and the instant analysis as soon as they hit the wires. plus, we re going to take you inside an influential, powerful and incredibly secret society. the roundtable discussion for boards, straight ahead. to stay on top of my game after 50, i switched to a complete multivitamin with more. only one a day men s 50+ advantage. has gingko for memory and concentration. plus support for heart health. ( crowd roars ) that s a great call. one a day men s. 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. good morning. welcome back to squawk box here on cnbc. i m joe kernen along with becky quick who is reporting live from the greenwich round table in connecticut. we re waiting for quarterly results from dow component general electric and bank of america this morning. ahead of those nebs, the futures are indicating some weakness, even though they re higher, the futures are. by fair value is much higher, up about 46 points. we re talking about 28 or so, becky. we re waiting for ge. when you say boss, i think wife. you know, every day is sort of you re right, it is the boss s birthday is coming up, too, so i ve got a lot of that s right. it s halloween, right? yeah, it is hallow week. and did you see, in those gary cole shots, he s totally different as he is when he is the boss. he s a pretty good actor. oh, that s right, it s the same guy. same guy. that s so different, i ve never put the two of them together. it s never occurred to me. he s pretty good as the obnoxious boss. he was pretty good as that guy who murdered his family, too. we have ge. i forgot about that. ge is out, becky, and the company is reporting it looks like 22 cents with a charge, a restructuring charge and other charges of a nickel, so that makes 27 cents, which would put the number seven cents ahead of expectations, which is a pretty nice beat on the bottom line. however, you know what, we keep looking for revenue numbers because people say, you know, revenues are what people are looking for. revenue was 37.8 billion, down 20%, and that is below expect ages. the street was looking for 39.5 billion, so we re talking about 37.8. the company says that was primarily due to ge capital reduction. also industrial organic sales decline, no counterpart to the olympics from last year. also, currency exchange, which makes sense. some other highlights, total company orders, 18.4 billion was down 18%. but equipment orders were actually up from the second quarter. the total bag log is at a record high of $174 billion. capital finance earned $263 million. now, that is not what it used to earn, but it is still profitable. $2 billion year-to-date, favorable tax credits obviously factor into that, as well. and then people watch to see how ge capital has done on its long-term tet funding plan. it completed 2009. jeffrey immelt, the ceo and chairman says in a global economic environment that is beginning to slowly recover, ge delivered solid thirty quarter business results. we continue to execute on our plan at capital finance and perform well in a slow growth industrial environment, strengthening the balance sheet was strong cash generation. we re aggressively controlling costs, increasing our industrial backlog while expanding margins. i m particularly proud of the team s execution on industrial cash flow. this strong performance, despite the tough environment, has on us pace to generate more than $15 billion in can a cash this year. we continue to executor plan. it remains a tough environment for ge capital, but we are seeing signs of stabilization. every segment of ge capital was profitable with the exception of real estate, which is experiencing a tough environment. i m looking for you know what i m looking for. i m looking for some comment on nbc. i don t see it. i m looking for the same thing. nbc universal contributed. increase 13% to $732 million. energy infrastructure was up 11%. technology up, capital finance while profitable down 87%. i think people thought it could be as much as 90%. so it was 2 billion, 20 million in a year ago period and consumer and industrial, they have an f there because it s not very much money. it rose to $117 million from 47 million in the year ago period. o, the street is obviously going to look at that revenue number. they say this revenue was in line with their expectations, obviously a little below frat street was looking for. industrial sales down 13%. still organic sales, they mentioned that as one of the reasons. ge capital services revenue down 31%. and the penske truck leasing deconsolidation, too. yeah. let s bring in someone who owns ge, jack degan, for more perspective. he is the chief investment officer for harbor advisory, which holds a position in ge. we talk almost every quarter, jack. what are your feeling today after seeing these numbers? joe, i think it s a mediocre report. and we were expecting a mediocre report. we re a little concerned. it s up 41% since you and i sat here last quarter. i think ge capital is what we ll be listening to on the conference call today. we were expecting some gap impairment charges on the commercial real estate portfolio. as you probably know, they acquired almost half of that in the last two years before the top of the commercial real estate market. so it s hard to imagine that there aren t some gap impairment charges coming there. but you know, even on the industrial side, it s only an average report. we were hoping to see a little bit better orders. i think the stock knot going to like this. even though it s just fractionally lower now. so you in the past, jack, a 7 cent beat would have been big news for general electric, especially on a 20 cent estimate. but i guess the 20 cents is significantly below what the company will earn in a year ago period when it was 45 cents or the 20 cent estimate. so 27 cents being above you think that the revenue number, being below expectations, not the company s, but the street s expectations, that s more important? i think so, joe. but i think in terms of a conglomerate, analysts and traders wait for the analyst call because they re we should concerned about earnings, where is it coming from, we ll look at other issues that feed into tax operating earnsing, were there charges. i mean, the profit there would indicate that the low level profit would indicate there was actually an operating loss there of some significance and the tax credit is what brought it positive. i see what you re saying. even though the company doesn t you know, when it s talking about the revenues, it says in line with our expectations, but down 20% year over year, primarily due to planned shrinkage of ge capital. so there s a difference between a sales shortfall in your industrial businesses and a planned shrinkage of a unit that you re trying to shrink. and that s good news. there is runoff in ge capital. that s where a a lot of the cash flow is coming from. they re doing a great job with the capital plan over there, as you pointed out. away ahead on the plan of raising capital. so they re doing a good job over there. and you re absolutely right. that s where the shortfall is coming from. jack, we have to go. do you think it s a good move to divest itself eventually of nbc? joe, we ve talked about this before. it s a nonstrategic asset. but until this yeah, us for you to see. go ahead. i m kidding. well, you guys are strategic, clearly. but you know, management has been steadfast behind the business. until recently, right. until recently. but getting a price on it and getting liquidity for it is probably a good idea and they can decide whether they divest later. earnings did go up a few percentage points on nbc universal. the valuation is now whether this it s going to sav vivend and others. he is the headline, i think, and stop the presses that he s dragging his sorry butt out of bed and is going to be here. did you know that, becky? that he s coming in at 7:00? yeah b i did. he probably won t have time for makeup. you know what, joe? he did this twice last week while you were out and he was up and there on time. it was amazing. he walked in before the cameras started rolling at 7:00. i ve got a lump in my throat. did he really, becky? that s nice. i m going to give him a hug when i see him. give him grief in the meantime. but it s just like carl i have cahn, if he s not up, he won t hear us. exactly, exactly. all right. enough any questions or comments, please call us. coming up, i m in green yich and aleks weiler and mcmenimen. these are two powerful players. we ll have more when squawk box comes right back. 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. all right. welcome back, everybody. we are reporting from the bruce museum in greenwich, connecticut. joining us right now is steve mcmenimahn, the executive director of the greenwich round table. that is part of the industry whose members control over $4 billion. aleks weiler, that has more than $16 billion under canadian management, as well. thank you, gentlemen, for joining us today. thank you, becky. the greenwich round table, it s been around cincinnati 1994. why don t you tell us, steve, what this society is. becky, welcome to greenwich. we are not necessarily a secret society, but our board has said, we ve got a good thing going. if you re making money, you don t want to broadcast that to the world. who are we? we re a nonprofit research and education. . what we re in the business of doing is finding managers who can dmru influence the outcome of the investment legally and ethically, of course. but also managers who can find inefficient sources of pricing. so we ve been doing this for about 15 years now. and when we started, we got together because we re trying to figure out all these crazy new styles of investing. and we did. we came here at the brucemy see yumm. we started meeting. the people who are presenting to us are gps. what that means is they re the hedge fund managers and the people in the audience are the investors. we also have conducted a series of due diligence projects, i m sorry, best practice projects on due diligence and portfolio instructions. we get invited to go down with policymakers and tell them the investors perspective. for example, we went down two years ago on the data market was melting down and we met with chairman bernanke and he asked should we regulate edge funds. our comment to him was investors performing due diligence on hedge funds are the clearing mechanism for the marketplace so we don t necessarily think that they need to be regulated. that they need to be regulated and the push back was? he says, thank you very much for coming in. we ll take that under advisement. but there has been a huge movement towards more regulation of hedge funds. all the big banks are facing more regulation, there s an joef all taking place in congress right now. what do you think the outcome is going to be? let s be clear. we re not the investors. there s your start to the s.e.c. why are you letting me in right now? to look at our due diligence soed maoff doesn t happen again and portfolio construction. how do we put it altogether? basically, all the research for this, original research was done by alex. we have the report right here, the greenwich round table resort. alex, it talks a lot about best practices. some of it is out there. was madoff seen as the main reason because he casts such a pow on investments everywhere? not at all. we started this about a year and a half ago. we had started a piece on due diligence on fixed and incoming credit. we found the managers were warning us, as well as investors, that they were seeing this budding risk. what types of red flags. buildups of leverage, buildups of position concentration. they were seeing those that their managers were telling them about. we said, okay, we re doing all this. how are people s portfolios going to stand up on that. when they started talking about these things, i know some of the people in your group, some of the presenters saw some of the things coming, some of the big downturns. they started to see things that you pointed out, like leverage. were they positioning their funds at that point to try and prepare for that? it s hard to generalize. it really is hard to generalize. each situation has its own set of circumstances. one thing that in alex s initial report on due diligence, a very simple thing was beware of when the cycle turns in fixed income. in other words, when they start to raise interest rates, the dynamics, the laws of gravity aren t going to change, but yet people kept investing in subprime. and that was a clear sign. it was as clear as day. was part of the problem this explosion in hedge funds? i think i was reading over 10,000 funds that were out there. this wasn t necessarily the small, petite group that it used to be. no. becky, when we started, there was no money in this field. the money for hedge funds was scarce and our i m going to answer your questions two ways. our mission was to try and educate investors so we could figure out what was going on. but also, there s a lot of birth and death going on. this is one of the most entrepreneurial industries in the united states today. so our members, because they were early into hedge funds, venture and private equity are largely overfundeded because of these alternative investments. however, there continues to be a lot of birth and death going on, so it s business as usual. aleks, what are some signs? if there are investor us out there looking for different funds, what are things that they should be checking to make sure this is on the up-and-up? well, we wrote three publications in detail. but a lot of it boils down to a couple of things. the first st that don t trust a track record. a track record and we emphasize this is purely a set of numbers and that s gotten more people in trouble. you really need to understand why people are making money and then we spent a lot of time talking about understanding the character of the people. so are these trustworthy people that really you are entrusting your institution s endowment with? are these people that you would really trust with that? and so doing the hard work, then, of not taking every claim at face value and doing your own digging, really doing your own homework and not trusting what someone else said. you re getting married, right? you re getting married. you also pointed out that you need to be making sure that these funds are putting it in the perspective of what s happening in the economy and other macro issues? deflation, last year, inflation people are talking about and roundtable is the skill-based diverse fire. alex, stevev i want to thank you for hosting us. i appreciate your time. obviously we have a lot more coming up. in fact, up next from today s squawk box summit, we re going to speak with the leader of a hedge fund. all his so-called programs had positive returns. that s hardly an accomplishment to brush aside when lou at last year. these are hedge funds that worked like they were supposed to. he ll join us live at 7:15 eastern. stay here. yes, you re lovely. what do you think? hey, why don t we use our points from chase sapphire and take a break? we can t. sure, we can. the points don t expire. there is nothing for me. there s no travel restrictions. we could leave tomorrow. we can t use them for a vacation. you can use the points for just about anything. i know. the way you look tonight chase what matters. get your new chase sapphire card at chase.com/sapphire. remember the anticipation of hearing the ice cream truck? in poland, cargill borrowed the idea. for something quite different. small polish farms had difficulty getting. affordable feed for their smaller herds of animals. so cargill created a way to bring the feed. directly to them. on musical delivery trucks, selling a few bags per visit. ( dog barks, horse neighs ) keeping the small farmers competitive, and their animals happier. this is how cargill works with customers. coming up we ll have this morning s top stories including quarterly reports, ge, ibm and google. bank of america is about to take center stage in earnings central. the numbers and instant analysis ahead. becky has many more great guests from the roundtable. some of the most powerful hedge fund managers tell us when squawk box comes right back. you re watching squawk box on cnbc, first in business worldwide. if you re taking 8 extra-strength tylenol. a day on the days that you have arthritis pain, you could end up taking 4 times the number. of pills compared to aleve. choose aleve and you could start taking fewer pills. just 2 aleve have the strength. a squawk box exclusive. becky quick goes inside an influential, powerful and incredibly secret society. the greenwich roundtable. its members control over $4 million. cameras have never been allowed inside until now. i m new vp of development, universal kmart. it s national boss day, so get back to work. squawk box begins right now. i love my boss good morning. welcome to squawk box on cnbc. i m joe kernen with becky quick who is in greenwich, connecticut. carl is off today but have no fear we have david faber with makeup. told you he d be here. how was the alarm. reminded me of college days, i got dressed in the dark. tell the people what i did for you quickly. you bought me some collar stays. host jason trent is here. do you remember your college days, sir? i forgot my belt this morning. you forgot your belt. that was embarrassing when you walked up, down at your ankles. becky, i m going to ask you what you have coming up. can i just ask you for a favor when you leave, can you bring one of those paintings, take one off the wall and bring it back. sure. i ll just sneak it with me. bank of america, third quarter loss of a billion dollars. that equates to $0.26 a share, which is a little lighter than the estimate of $0.21. revenue 26.04 billion dollars, which is also below $27.6 billion estimate. this is why the brain is here today, because he is a bank earning genius. there were $2.6 billion in pretax market to market credit valuation and credit valuation adjustments on certain liabilities. every quarter we ve been dealing when the credit spreads tighten, it s more expensive for the company to buy back its debt. that is an increased liability. they did have headwind there, joe, but obviously have to work through the press release first, then you want to look at the filing as well. knee-jerk reaction, the stock down about $0.60 or so if you go on the ask. do you want to look at this? how about i put an analyst on the spot that just got these same numbers. let faber read the report while you have to come up with whether it s good or bad immediately from isi research, head of bank research. once again, revenue number a little bit light. even the bottom line number was a loss, ed whachlt do you see so far? the bottom line number is a wider loss. as you pointed out, the revenue is a bit light. i would say that $2.6 billion in market to market adjustments was a little higher than the street anticipated. what we re still digging for here is the credit number. so i m trying to hone in on those. a lot of times we get a debt width, too, which i ll take a look on the internet. we ll get more insight into credit and delinquency side. jpmorgan provided a lot of data on that, citi not quite as much. what are you looking at in these numbers as joe said a 40-page release. a lot of noise going to be a lot of noise in these bank numbers for a long time. what guide post do investors look at to determine whether this the real thing? the one thing i m seeing here is $9.6 billion of credit losses in the third quarter. that s fairly significantly a little bit higher than we were looking for. we were at 9.2. that s up almost a billion from the third quarter, which is not too bad. not off the charts. they did build the reserve. they took a provision for credit losses chafs about $2.1 billion higher than that. given they built the reserve by $2 billion, and that the adjustment for the debt valuation loss is coming over from the merrill lynch debt was higher than expected by nearly a billion, that $0.26 loss is not really that surprising. i think people won t get too concerned about the loss number itself. what probably will be a little concerning is the light revenue. says he s heartened by some early positive signs like the leveling of delinquencies among credit card customers. trust data from a lot of banks, a lot of these card companies. bank of america, jpmorgan yesterday. didn t look too bad, august versus september in a lot of cases was more or less flat. capital one audiotape bit, couple of others down a bit. cost of $4 million to terminate government guaranteed term sheet and they lost a billion. that s $402 million there, too. did you know that was going to happen? yeah. we did. so that s not new either. did you see tangible common equity? citi group was over 10% yesterday. as is goldman sachs. let me just interject here, the other thing i would say as we look more at these credit numbers, the non-performing assets actually rose only a little less than 10%, which is probably a little bit better than we were anticipating. actually was a little better than we anticipated. so credit loss is a little higher, but growth in non-performing loans, a little lower. they built the reserve on somewhat more than anticipated. as you re pointing out all these one-time types of charges on the revenue side, certainly the core underlying revenue was probably pretty close to expectations. you just have a lot of one-time items driving it down, which was not expected. stock down 3% premarket. we have to move on. thanks for being available for us, ed. dow component and nbc universal parent general electric reported earlier today as well. earnings cain at $0.22 with a $0.05 charge. put that in there. $0.27 not $0.22. $0.27 versus $0.20, the revenue number, faber, was the one that has the stock trading down this morning. revenue number 37.8 versus 39.5. the company attributes it to shrinking ge capital. does that hold water in your book or was it weak sales, global recession. you re shrugging? you know a lot about i continue to think the story not discussed and may not be addressed because they can t at this point, ge is a company that will end up being significant transformation. talked a great deal about the possible likely, in fact, deal with comcast in which nbc universal will be spun off and will be 49% owned by ge for some period of time. ultimately an exit by ge from nbcu. that is a significant step and one that should not be viewed in isolation. there s going to be more one would imagine. made a decision that nbc is no longer a core asset of the company. what else has been decided. what else is at least being considered as the company moves ahead? you saw that ge, there were only two units that were up. one was nbcu, up 13%, $732 million. becky, do you have a question? yeah, david, i just want to ask you. we keep talking about this deal. i know a lot of people are assuming the comcast/ge deal is very far down the road. isn t vivendi the one this controls the decision. even though a 20% stake, they get to decide whether the deal goes ahead or not. vivendi can make a decision that will impact whether this happens or not. that will be whether they want to sell their stake back to nbcu essentially for what will be what i am told closer to this deal a much higher price than they would get if they would register shares and take the company public. so vivendi is going to be presented with a decision of its own in the next week to ten days, i m guessing here, but very soon which says here is almost $6 billion let s call it $6 billion, 20% of the $30 billion valuation of nbcu. take vivendi now. if you don t want to take it, that s your right. you can obviously take us public. we don t think you ll get anywhere near the multiple to ebitda in the market than the valuation we re giving that 20%. if you re a seller, why wouldn t you sell now if you re vivendi. that s the thinking on the part of ge. sounds sound to me. vivendi, if they decided they were not going to sell would end this transaction. it will not occur, as been explained to me, unless vivendi participates. but ge and comcast fully expected vivendi when presented with that choice is going to choose the $6 billion over what may be as little as $4 billion in an ipo. got it. more on what. nbc is a small part not small but there are some other significant parts are of general electric. can you give me more insight? they said every part of ge capital is profitable except for real estate. also it was down 87% i think in terms of in terms of earnings, over $2 billion to $200 million. everything profitable but real estate. would it have been a loss if they didn t have tax credit? is that something to think about? yeah. also wondering whether you want to comment on this? i m going back to david s question new york people are so fixated on media. what s core. obviously not this. when you start thinking about it, it seems to me ge at 60% of the revenue comes from outside the united states, if not higher. it seems to be awfully well positioned for a global recovery, i would assume. earlier this week you saw blackstone obviously talking about selling some of its private equity investments. kind of wondering whether a lot of people are seeing this as a window how things are back from a year ago, have a window where things will be a little better. this isn t a bad time to get rid of assets you don t think are core. i don t know how he s making those decisions. i think when you go through a period like ge did, as so many other companies in march, you see it may change your thinking about the future. we re not getting obviously the company is saying nothing at this point. at some point who has the answer from media. to take media forward without the what seems like it s going to be a losing proposition. digital cleansing. you combine that with vivendi saying all right. we want out. we want $5 or $6 billion. you ve got to give them that. also to invest money into this operation that you re not sure is going to be part of the future anyway. the calculation over the next five years, they would rather spend capital elsewhere for ge. that s got to be what the company is thinking. comcast people complain about cable companies. i just don t get it. becky, comments? you re going to read this. did you pick out the piece of art you re going to bring back here for the squawk box boardroom upstairs. there s a really nice one around the corner. this is a top class museum. did you see any where they didn t color in one of the numbers? any where they forgot that or you see through the paint to one of the numbers? in fact, these are all pictures that are real and that you would actually like. i know how you ve made fun of some art in the past. these you would mrs. a mark roscoe. you say greenwich and you say hedge fund, i figure they have nice art. they do. they definitely do. a couple of picassos right here around the corner. if they are not watching closely, pick one out. thanks for pointing that out. it will make it a little tougher to sneak out. any comments or questions about anything you ve seen on squawk box, anything we ve been talking about, e-mail us at squawk@cnbc.com. joe is keeping a close eye on e-mails. coming up, say risk and many investors will say stay away. not our next guest. ken tropin takes it to a new level, big returns in the process. the chairman joins us live when squawk box comes right back. time now for today s aflac trivia question. what was the first rock and roll song to hit number one on the charts? the answer when cnbc squawk box continues. out 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 the answer to today s aflac trivia question. what was the first rock and roll song to hit number one on the charts? the answer, rock around the clock by bill haley and the comets which held the top spot for eight weeks in 1955. welcome back to squawk box. sorry about the hair there. let s takeke a look at futures this hour. you can see where fair value is on the s&p. of course, two strong days, relatively strong days passing that 10,000 mark a day ago on wednesday and yesterday. the dow and s&p and nasdaq up again. ge, our parent company, at least for now, reporting x items $0.27. take a look, stock has a pretty nice move, most significant move like so many others, 6 to 16 from march to september. ge also as i said. bank of america, bigger than expected loss. revenue falling a bit short. a lot of noise having to do with credit spreads and the like. chargeups, chargedowns. we ll take a closer look at bank of america trying to get ahold of the filing and decks and slides and get some sense as to whether or not they gave us some sense to commercial real estate, credit cards, things of that nature. so many people are focused on. all right, david. thank you very much. we are continuing our exclusive look into one of the investment industry s best kept secrets, greenwich roundtable, rare interview with a top fund manager for 2008. joining us is noted hedge fund manager ken tropin, chairman of the global macrofound, graham capital. the fund has $6 million under management. ken, thanks for joining us this morning. you re welcome. thanks for inviting me. we ve already been talking this morning about your performance for 2008, which is pretty amazing. across the board all 13 of the programs you ran in your fund had gains for 2008. that s pretty stunning when you think about the collapse of the financial markets last year. what happened? how were you able to come up with gains? well, we don t have an embedded long exposure in our portfolio. we re macrotraders. we re go to take short positions in markets going down, long positions in markets going up. as i reflect back on 2008, in the first half of the year we did pretty well with commodities, as they were going up as you recall in the first couple of quarters. the second half of the year we did pretty well on futures global basis, fixed income basis on a quality trade and also short commodities. it was one of those years, there were a number of sectors that all basically performed for us. but you say that pretty casually. not very many people saw these big problems coming. you re known for your risk management. you guys meet every single day to talk about risk factors? we do. it s a policy we put in place in november, 2007. we felt at that time the credit markets were looking a little bit frightening. we thought the best way to sort of stay ahead of the curve was to have a daily risk meeting at 9:30 every morning, which we ve done every day since then. at that meeting we focus on external risks such as who are we trading with, the banks are holding our capital, who are prime brokers. we also focus on liquidity and adverse changes in liquidity in the markets, because one of the big problems we ve seen in our industry is when liquidity goes away, that can be a cause for hedge funds that wanted to leverage problems. we focus on external factors. we also focus every single day on every trader s risk from the previous day, risk trader s performance the previous day to make sure we re comfortable. we micro management but it serves us well. what did you see in the fall 2007 that made you institute these daily meetings. if you go back to the mortgage markets, there was really no liquidity at all in the mortgage rates in 2007. bid ask you could drive a bus through. it became clear to us that a lot of people were really not properly analyzing the liquidity market and were perhaps a little bit, i don t know, overconfident is one way of putting it that they could get in on trades as easily as they thought they could. sometimes credit will lead the other markets. in this case credit, which began to worsen a lot quicker than equities did was the leading indicator. obviously equities had their problems. so you have these meetings every day at 9:30 in the morning. how do you kind of run it? it s pretty trait forward. the first thing we focus on are some global risk indicators. we look at different volatility indicators, different measures of liquidity. we quantify changes in liquidity. that s one of the things we re focusing on bid offers in any of the assets classes we trade widening the previous day. we focus on the stock price of everyone we re trading through. for example, we want to know if we have business with jpmorgan or bank of america or whoever it might be, is there anything uncomfortable that s going on with their stock price. we focus on where is our cash managed. this is not particularly an intense subject the last six months but a year ago it was a concerning part of our business, where is our cash and so on. then after we finish our external analysis, which perhaps takes 15 minutes in this market environment, a little long area year ago, we focus on what s happening internally. what traders are doing well. what traders aren t doing well. what are their risks. how are their portfolio change on the previous day. i want to be in a position we re never behind the curve and understanding what my trader s books look like and how they might change the previous day. i heard someone say they have never seen any place taking as much time talking about what they shouldn t do. what risk do you see when lou at now. i think obviously it would be easy to point out equities have gone up an awful lot, yet we still have 10% unemployment roughly. is it possible equities are overpriced? certainly my macroview is that equities equities may reach higher between now and year end. we ve been incentivized as investor to take risk. there s no return on money market funds. so if you re making 25 basis points on money market, people are going to look for alternatives. so there is this inherent incentive people have to take risk. and i think without necessarily people believing that equities should go up, they are investing in them. there s a lot of people that didn t invest early on and sort of feeling like, wow, i need to put some capital work and have some tracking problems. i look for equities to work higher, commodities to follow equities. i think the dollar, which has been acting weak probably continues to be weak. is it fair to say you re risk averse? you re risk averse but still see stocks headed higher from here? yeah. i think my views are notoriously prone to change. like before the market opens today? not that quick. about you i always have a line we use in our firm, don t have a prenuptial with your position. if you start losing money and it goes against you, get out. ken, we want to thank you very much for joining us. my pleasure. thanks for having me. joe, we ll send it back to you in the studio. becky, thanks. general electric, bank of america, two dow components, earnings story, check results, market moves, bid ask, premarket trading. as we head to break, check ow the price of oil this morning. down. faber report here. do your faber report. coming up this morning s top stories and a picture from the futures pit and then the world s most powerful hedge fund investors are gathering in greenwich today. squawk box is there. still ahead, the former harvard management cfo on the struggles of college endowments including harvard plus. infamous ltcm infamous co-founder myron he s more famous for the black shoals model of option pricing, 1997 nobel economics laureate. he ll be on as well. squawk box will be right back. 100 years of engineering excellence is right on time. it s gmc truck month. shop sierra 1500 slt with the 403 horsepower 6.2 liter v8. it s the most powerful half ton v8 in its class. step up to the best. it s gmc truck month. get 0% apr for 60 months on 2009 gmc sierra or get $6,000 total cash back on select 09 sierra 1500 extended and crew cabs in stock. see your gmc dealer today. good morning, everybody. welcome back to squawk box on cnbc. first in business worldwide. we are coming to you live this morning from the bruce museum in gree greenwich, connecticut. this group controls more than $4 trillion, try to meet about the best strategies and ways for alternative investments to make money. they talk about best practices, what needs to be done. a huge focus for us. it s the first time they are allowing television cameras inside. coming up shortly we ll meet with president and ceo of the common fun. he manages more than $25 billion for school endowments and other non-profit institutions. this is an arena we ve been focusing on. if you look across the board at some endowment funds they have been down 20, 25, 35% in some cases. it s certainly changing the way things will be down in the endowment industry. david, send it back to you and joe. thanks, becky. welcome back to squawk box. 7:31. let s get a check on the markets. we were looking a little lower, because fair value is so high, 36 points now. we ve actually gotten a little bit worse. we re now looking at 80 points of downward pressure even though the market was able to trade higher yesterday on the strength of chevron exxon. dow component of general electric weighing a little bit. we ve got about a quarter, $0.25 of downward pressure. gtp estimates on the bottom line but fell short on the top line. nbc universal parent earned $0.22 a share, $0.27 structuring when other charges are excluded. then bank of america loss with revenue falling short of consensus. that stock was down about 3%. looks like it s closer to maybe about 2% at this point, maybe a little above. let s check the markets again. we re looking at 80 points of downward pressure. see what traders are watching. matt jones us from cme and jason here. do we stay firmly above 10,000 or do the numbers we have today make it likely there s some profit taking. i think right now, i have a bet we stay above. options, expiration day. how many? two. there s quite a few. today is just a single. regular. but i think the rally we saw late in the day yesterday, a lot of that was because a lot of guys have short calls on s&p are having it covered. right now i think the smart money is the fact we stay above. the big question, the two things i m looking at number one 50%, s&p from high to low. right around 1120. basically within striking distance, one day away. the other thing, too, talking with people, people along this market last october when we went crashing through 10,000, these people had to sweat out one heck of a year. i wonder at this point, now that we re back above 10,000 will people get an itchy trigger finger and start to sell and basically be getting out even. that s something that may weigh on the markets in the coming week as well. nasdaq futures. what just happened to the nasdaq futures? they were just down significantly, dropped about 10 points over the last couple of minutes. i wonder if there s a number. all right, matt. so at this point you think the 50%. so you re talking about s&p sold off down to what low are you talking about? march lows. 600. what was the low on that. 666. so now we ve come back exactly 50%. some of the other averages up 60% or so. this is a 50% retracement on s&p. from the high, yes. more statistically important number, according to our one of our guests this morning, david faber. jason, you heard the comments. what do you think? i think the big tension among a lot of our clients is cyclical verse secular, long-term issues for the market. well-known, worried about it. same time, i think there s a lot of people i would say hold their nose bullish right now. my experience is that things aren t over generally until people pound the table. so i have the feeling markets are going to grind higher although i recognize the fact that there are very serious structural problems like the deficit doing to be a problem in 2010. i wouldn t stand in front of this right now. only 20% of the stimulus package that was passed earlier this year has been spent. 80% of it still remains to be spent as we go into next year. is it 80 in i thought it was getting closer to 60% remains to be spent. no, no. it s still 80. states are basically holding onto a lot of the cash that the federal government has disbursed to them. in terms of what has actually been spent. the banks are setting with a lot of reserves that the federal reserves that s right. some ways accrete on the balance sheet. i think what you re looking at, you want to say another liquidity bubble. why don t you want to say it s a liquidity bubble. it might become one. a lot of people are concerned over time, of course, that s exactly what we d be dealing with, take bank reserves down, lending, obviously the money supply will go up, $1.2 trillion quantitative by the fed, when can they pull that back. david, i think you re right. dollar, commodity prices, stock prices all giving an indication, a very difficult position. it s trying to avoid 30s and 70s at the same time. it s trying to avoid going right down the tubes in terms of inflation. let s it go too long you create obviously hyperinflation someplace. what s interesting about inflation from my point of view, it s very heterogenous. housing crushed, inflation in commodities and weakness in the dollar. to me that makes the fed s job much harder. the administration is not particularly concerned about spending it seems. cost relatively low. at some point there s a day of reckoning in definitely without the problem. wage price spirl and say the only thing that causes inflation. that s true. last year, wages and housing got prices from doubling. those in the core. there s still inflation someplace. you re not looking at this right. computer prices are going down, too. this is one of these situations where the headline number can be zero and yet inflation could be all over the place. did you see what you can by david faber s ground breaking book for? like ten bucks. ma amson immediately came back and matched walmart. content is digital nickels. that s the big story. matt, in october single witching. don t you think it should be double, triple. thanks. we appreciate it. stay above 10,000. if we don t, i m going to mention your name, probably, on monday. kidding. i won t be here anyway. becky, what s coming up. all right, joe. coming up we ll head to earnings central for a check on this morning s big movers. when i say we, i think i mean joe. college endowments hit hard and market prices. we ll talk to a man that manages $25 billion for schools and other non-profit institutions. we re going to find out what went wrong and what needs to be done to make money notice. common funds vern sedlacek joins us when squawk box comes back. [ telephone rings ] [ ring ] [ catch the wind plays ] what is the sign of a good decision? in the world of personal finance, it s massmutual. find strength and stability in a company that s owned by its policyholders. ask your advisor or visit massmutual.com. 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. welcome back to squawk box futures right now. futures probably about where they were last time. you can see down 35, 36 points plus 45 is indicating about 80 points now. let s check where bank of america and ge are trading. ge indicated open somewhere around 16.50 dollars, earning $0.26 for the quarter, other charges excluded. revenues short of expectation. the company attributes that to shrinking ge capital. bank of america lost $0.26 a share for the latest quarter. wider loss than analysts forecasting. ken lewis, giving up $1.5 million salary. he ll repay the company $1 million he s already received this year. lewis agreed to the suggestion made by pay czar ken salazar. david, he can at this point go back on any vested stuff, 50 or $60 million. he d probably like to go after that. all he could really go after was when i saw initially that some people were outraged fineberg were taking this move, they aren t outraged he s getting more than 50 or 60. they are people that think to take 100% of his salary is a punitive measure against him and has no right to do. analysis from the journal. you know, listen. i d love tooz board of directors step up and say, we really think you ve done a lousy job, we don t want to pay you, rather than the pay czar. you re sure ken lewis did a lousy job? no. time will tell. listen, we re not worried about ken lewis and his ability to feed his family. the man has tens of millions of dollars. that s not the point and that s not the issue. you re taking away a man s salary, aren t you? do you think the government ought to be taking a man s salary. you do thinknk i told you the board of directors should be stepping up. to take away his salary. to making a decision on whether or not a report that said merrill lynch doing really well for bank of america. people say both acquisitions will be home runs. in the fullness of time, that s true. that s the difficulty always. they pay stan o neal at merrill lynch $100 million. much was in stock. but based on his 2006 performance while they were laying waste to the company. carl is my liberal foil now that i use. he replaced you, basically. now when you come back, you come right back into that mold. are you comfortable with that. absolutely. i don t like being characterized that way because i don t think that s necessarily fair. really? because i m a believer in free markets. you believe on free markets. you live on the upper east side? aren t you a metrosexual. metrosexual, please. i ll show you sexual. becky, do you miss this? i wish you were here. i was just saying i m so glad david is bearing the brunt because i d be the one you re in the middle. you re kind of like the i m the girl. yeah. we re back to the exclusive peek into the world of hedge funds, our next guest, investor, alternative investor, world of endowments and non-profit institutions. joining us now verne sedlacek, president and ceo of common fund, the fund that manages over $25 billion. he s also the former cfo of harvard management company which runs the harvard endowment. thanks for joining us. morning, becky. thanks for coming to connecticut. we appreciate you coming all this way to join us. we appreciate you letting us in. this is an exclusive area, the first time cameras allowed in. we appreciate getting in today and getting a chance to talk to you. verne, when you look around what s happening over the last year, year and a half, this has not been a banner year for endowments, especially university endowments. what happened? i think if you look back, when you think about it, other than a few blips, we ve had 25 good years of equity returns. endowments have grown. endowments have tended to look at equity as the main driver of their long-term returns. and related to that, i think people have started to think about assets that were diversifying that we re actually not diversifying. international equity is not good relative meaning there s no decoupling. no decoupling. if you go back to the early 80s when people started getting into international equities, those are very different markets of the french market was owned by french people and had frernlg companies. today they are multinational with multinational capital flows. that s one of the things that happened. private equities in other areas. people thought in their mind, maybe not correlated with public equity. found out it is particularly in these down markets. so as we think about looking forward, we have to think about asset allocation a slightly different way, along the lines of greenwich roundtable came out with is you think about equity as equity or growth as growth. doesn t really matter how you take that exposure but not diversifying relative to one another. i think as we look forward, thinking about truly diversifying asset classes, hedge fun as a way to structure a portfolio which has more stamina in very difficult times. on the other hand if you look at some large endowments, still have even with the down 25 or 27% returns, they still had very good ten-year returns in the double digits. not only big schools like harvard, yale, stanford that started doing some unusual moves, things over the last five or ten years where they were getting into timber, getting into real estate, getting into arenas where they had never spent that money before, the big shots were doing that and other schools were starting to follow soot. that is a safe investment strategy, things like commodities where you see bubbles that disappear rapidly. i think when lou at it, obviously you ve got to worry about overcrowding in any space, particularly alternative space. too much money flowing into asset class, u.s. treasuries or whether that be domestic equities, you re going to get overvaluations, bubbles. that s really what happened. as we see this shrinkage going on in endowments, concern about liquidity being risen to the top, which was never really a concern of most endowments, you know, we re also seeing opportunities in those areas. when you have dislocations like we ve had, least liquid asset classes tend to be the cheapest. we re seeing that today. do you get the sense from the endowments and foundations you deal with they are more reluctant to move into arenas because of headlines. i think a couple things are happening, becky. first of all they are worried about being overallocated. as they look at it and look at future commitments to these asset classes and a significant decrease in their marketable assets, particularly inequities, they are looking at the concern that they may be overallocated in the short run or long run. a lot of people are relooking at that. i think they are also looking at it from liquidity standpoint. did we have enough liquidity to either take advantages of opportunities that have presented themselves in the last year or to deal with operational issues that have sprung up, you know, as a result of other parts of the operations of the organization. that mean they are keeping more cash on hand? i think cash is one. i think also more liquid assets, whether equities or fixed income. one of the things one of the shocking things about what s happened is things that were formerly liquid became ill liquid. if you look at the bottom of the crisis, bonds were invested in things thamp liquid and all of a sudden weren t liquid. only thing liquid was basically large stocks and treasuries during that crisis period. people are looking and reevaluating liquidities. thank you very much. we appreciate your time. thanks. coming up, we have more of this morning s stocks to watch. also look at earnings central headliners. general electric, bank of america both out today. we ll check where the bid ask is on those stocks. later myron scholes, nobel prize winner. he s seen what happened in the past. he was on the front lines of the bailout. his take on what regulators should be doing when he joins us live still ahead. uuuw let s take a look to have some stocks to watch this morning starting with general electric reporting $0.22 a share, 27 ex-items, reuters estimate was 20, 37.88 billion, first call estimate trailed by 39.5 billion was the estimate. bank of america. you re just going to move on. you don t talk at all here. no, i don t. but you can. appropriate multiple of ge based on $0.22 in 2010. what s an appropriate multiple of that stock? depends whether you re talking peak or trough earnings. you always see peak multiples at trough earnings. 16 times, 17 times where it is now. which is where it is. i don t know. i don t invest people s money but i think for a bellwether company like that, probably 17 seems fair. loss of $0.26 trails $0.21 estimate, also lower revenues. that stock is indicated lower. halliburton, $0.31 a share, nickel ahead of expectation, revenue above 6.8. you think you see revenue growth at halliburton? 25% decrease, 26 bill. 25% decrease although there was a sequential gain in revenues. mattel reported $0.63 in line. revenue was also in line. barbie sales down, down 8%. hot wheels up 9% and core fisher-price down. american girl brand up 4%. they told me right when i said american girl brand to toss to you, becky. this is not my idea. uh-huh. yeah. i believe you. i swear. they did. did you hear? take it away. okay. all right, joe. thank you very much. we ll be back in just a moment. when we return, more top stories. nobel prize laureate myron scholes, bess known for running capital management. now he s speaking out on this current crisis and what regulators should be on the lookout for to try to keep this from happening again. plus the son of the world s most famous investor howard buffet joining us live. his latest venture when squawk box comes right back. you re watching squawk box on cnbc, first in business worldwide. 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. at the end of the day in sitka, alaska, the fishermen bring in the catch. and cargill brings in the sea salt to help them preserve it, shipped in an efficient supply chain to save the fishermen money and their catch. this is how cargill works with customers. 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. throw me a fricking bone here. i m the boss. i need info. national boss day. thursday. some suggestion on how to discipline him. that didn t work, obviously because they are stupid. i am now going to fake fire him. not a good idea. it s the only possible solution i ve got. get back to work, squawk box begins right now. coffee, not from the kitchen. large. if it s a medium i send it back. if it s an extra large i send it back. how do you return coffee. government. welcome back to squawk box on cnbc first in business worldwide. national boss day. i m joe kernen along with becky quick and david faber. carl is off today. our guest host i m the boss. becky in connect this morning. what do you have coming up for us, beck. joe, as you know we re in greenwich connecticut at the museum. today is the gathering of the greenwich roundtable. the members of this group control more than $4 trillion. they don t like talking generally. this the first time they have allowed cameras inside. we ve been speaking with several this morning. coming up, 1997 nobel economic laureate, myron scholes. the very fund that took down the financial system in the 1990s. he s the man who knows about crisis. he has thoughts about what regulators should be doing to make sure it doesn t happen again. we ve been speaking to him on a lot of issues. he s not a member of the greenwich roundtable. this is another man traveled to connecticut to talk about the impact. howard buffet, the son of the world s most famous investor. berkshire hathaway board member. ambassador to united nations, now a book author as well. he s joining us at 8:30 a.m. eastern time. right now, guys, i ll send it back to you. joe and david you ve got some of the big earnings news of the day. three dow components, bank of america posting a larger than expected loss and that stock is looking down as you can see it. not that much percentagewise. 3% or so. i ve been looking through some of the data on bank of america as well which we ll hope fully share with you in terms of the supplement, quite expensive giving insight to the state of the consumer. ge better than expected earnings, although revenues falling short. parent of our company still. you can take a look there. stock looking down. ibm s earnings and revenue ahead of the street. company also raising its full year guidance for what it will earn. that s definitely part of the weakness in the dow, because as you always point out, more of an effect 7 1/2 times ge, versus $16. that s proprietary weighted index as opposed to market weighted. ibm has seven-fold impact. you had that number ready. yes. we called you because we put a plastic brain in your place. you re ready. you are smart. keep that take. don t throw it away. i m going to use it. watching the markets comesly this morning as they continue to digest the news we received with us who is new with us now, jason has been here, david malpass, president. we had a long discussion earlier about people that say a weak dollar is the end of the world and people that say a weak dollar is the answer to all of our problems. you are a guy who doesn t think we should be devaluing our currency. that s right. it measures your wealth. i heard you say there was a bush administration person saying it was okay to have had the dollar collapse in the bush administration. how can they say that, real wages didn t go up. u.s. lost a huge amount of stature in the world. the money and innovation move away from companies with weak currencies. the opposite happens. when countries put in stable money, you end up with better results. as examples, hong kong in 1982 put in stable money. everything went wild. china in 1993 turned the whole country around when they adopted stable money. brazil in 2003, just a few years ago. they have had a boom every day since they put in stable money. the u.s. would have that same thing. the money in the world would come back to the united states if we didn t have the dollar constantly devalued. i thought the depression, part of the way we got out of that was moving away from the gold standard and devaluing our currency. that helped us recover. i don t see how we can do that. the 1970s were the worst decade for the u.s. i m not a fan of the gold standard. that s not what i m saying. what you want is a currency stable over a long period of time. what if we have all these future debts we need to pay back. people say if we pay them back perhaps half the money, it makes it easier. the only way we re ever going to get back to even is devalue the currency. if you re doing that people aren t going onwant to buy more of your debt. we have a hlot more debt to isse going forward than outstanding. we haven t seen problems yet. that s true. we just came off a crisis. it s an eating away kind of a problem. what about the trading in what about selling stuff for the rest of the world especially when that s where the consumers are? i was born and raised in michigan. so for years and years people have been saying we need to weaken the dollar to help manufacturing. what s it done to michigan. the capital moves to other countries to make cars there because they can get a higher return on stable money. so in the 80s, remember the u.s. strategy, the brilliant strategy was to make the yen strengthen against the dollar so we could compete against the japanese cars. the result was all the money, the money in the world flowed to japan and built an even better car. it undercut our competitiveness. it s not working as a strategy. economics, you know, has really twisted this debate away from real people. david, i m just wondering i think what everyone is wondering why bonds have strengthened. from economics point of view if you increase supply by six times normally the price goes down. an instance where the price seems to be hanging in there. i call it the barbell trade, people buying gold and bonds because they are protecting themselves from inflation and deflation. why is that? because over the last 20 years, what have we had? we ve swung because the fed let the dollar go way up, way down, way up, way down. interest rates have done that you ve needed protection on both sides of the barbell. that s an incredibly bad trade for the country. you ve got americans buying gold coins rather than investing in their small business. at the same time buying treasuries just in case there s deflation. is the government orchestrating a decline in the dollar? the treasury or the fed. it comes from the president, but it s with the acquiescence of the fed. any one of them, the fed could stop it, the treasury could stop it, the president could stop it. are they just not standing in the way? are you saying by not taking steps to bolster the dollar, they are actually causing them? i think there s been a wink in our policy every since how would they stem the decline. remember, this is the straw man. people say oh, well we couldn t stop it from going down. countries have shown all through history that the one who prints the money controls the value. we always say, well, the markets control the value. that s silly. all the markets are doing is trying to figure out how much the government is going to print and then the markets follow the government. so if president obama came out and said i d prefer the dollar were stronger, it would be up 20% very fast. we ve seen this over and over. remember in 1999 and 2000 the euro was weakening. they had a central bank governor who said the euro is reflecting fundamentals. so everybody knew sell, sell, sell. whenever he said fundamentals you sell the euro. a new central bank governor came in and he said the euro is going to be strong. i don t care what fundamentals are. regardless i m printing the money. i can make it stable. so the market just started buying euros. why would the fed have to do what the president said, if he said i want a strong dollar? it s not the fed causing the why would they stop turning money. they actually they aren t creating all that much money. remember, as the demand goes down for dollars, you don t get to print very many dollars. so the policy is coming from treasury and from the president and the fed is going along with it. all right. let me leave the key point, washington controls the currency, they are creating a weak dollar and it s very bad for living standards and jobs in the u.s. that s why it was a weak economic policy in the bush administration and the obama administration is just doing exactly the same bad policy that hurts the living standard. thank you, david. appreciate it. i m worried again. jason will be with us for the rest of the hour. you worried? i m always worried. all right, becky. all right, guys. thank you very much. we are getting inside the very elite and exclusive greenwich roundtable table today. our next guest is a member. he has experience with dealing with crazy markets in the past. 1997 nobel economics lawyer yet myron scholes, chairman of asset management. before he headed up long-term capital management he did not. he worked there. he ll talk to us in an exclusive interview, financial meltdown to next big market trend. squawk box will be right back. you re watching squawk box on cnbc, first in business worldwide. 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 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wider than expected loss in revenue with lower than expected. send it back to becky. that s right. we re in connecticut today, joe. thank you very much. our next guest is referred to as the intellectual father of credit. no stranger for a crisis. joining us in a rare interview, nobel economic laureate myron shoel, chairman of asset management and formerly worked at asset management. mr. scholes, thank you for joining us today. you re welcome, becky, thank you. we ve been trying to get a feel in a broad sense of where the market stands. back in may you made comments where you worried what you saw in the credit markets thinking maybe we weren t through the worst of things. when we look through the credit markets and stock markets today, where do you think we stand? well, it s obviously an interesting question and can involve a very long answer pt i ll try to be succinct. obviously liquidity is coming back to the markets. we re seeing transactions now we didn t see before. i find it interesting that in the debt markets with the zero rate policy of the federal reserve bank and buying of all the illiquid assets, namely in the united states, quantitative easing program, acquiring large amounts of mortgages it might be difficult for the fed when it wants to change its policy to sell or reduce the money supply because they have been aggressively increasing the money supply. in the short run, look at the taylor rule, think of the taylor rule indicating to us zero rate policy sufficient without having to buy all these assets. if their goal is to provide liquidity, then we ve increased the money supply dramatically. in the short run since the output gap is so large, it might most likely we don t have inflation in the short run but yet can the fed eliminate excess liberty in the system and there by prevent us from having inflation down the road. if we look at market today, debt market, the front end of the curve, tends to be quite rich in the sense that yields are low because people are worried about potential inflation going forward. in the equity markets, it s very strange it s happening in the equity market since march of this year with large turnaround, which is has been amazing to me. interestingly enough, if you look at the market and the components of the market, it seems to me if we use the professor petrov ski s technique looks at the quality of the company, the higher the quality, the higher the score. good cash flow earnings, low debt is a nine. but it s turned out if the companies that have done the best and really outperformed the other companies in the market on a risk adjusted basis are those companies one would classify as low score companies or junk companies. we ve had a rally here that s been unprecedented because historically we don t see that. the interesting part of this, sorry, the interesting part of this junk rally is it reminds me a little bit of the dot-com world where we had stocks rallying and people trying to justify the increase in value of stocks by building other models. so one of the reasons i believe we ve had this rally in the market is because the federal reserve bank and the government has said we re going to support all companies. so companies that were in difficulty prior to march in the market knew they were in difficulty, had fallen in value so dramatically. all of a sudden were supported by the government or told by the fed that we re not going to let companies fail. flexibility is lacking for these companies in operating characteristics and in their debt policies, now supported by the government. so they have a second life. that leads to you a couple of points. one would be if you re looking at some sort of a bubble when it comes to the junk companies. when it comes to the lower tier companies, do you worry those companies are going to come back down as the government starts to unwind some of these programs. the second is do you look at quality companies and think they are undervalued now. the first point is very good. i think we had the dot-com bubble. now i think we might have the fed com bubble, fed com bubble in the sense young companies themselves might turn out to be overvalued if the fed has to reduce liquidity. the counter argument, as in the dot-com era was that the new model evaluation is such that long-term growth or normalized earnings are such that it supports evaluations for these lower quality companies. but we ll see. we don t know. is it the case that if you re building in growth three years from now or four years from now given economy is going slow going forward. that might not be true. it might not arise. didn t happen during the do the-com bubble. that s right. didn t happen necessarily. this leads to a follow-on question, whether we had a temmic risk regulator. a systemic risk regulator was going to warn us there was a bubble and try to break the bubble. how is the systemic risk regulator going to know today whether say these junk companies that have done very well are really a bubble, or is it the case that normalized long-term earnings are such that they will be supported and the prices are correct today. these aren t whether the short end of the government bond market is overvalued or is it really the case that people are worried about inflation and therefore buying at the short end of the market and trying to avoid the long end of the market. federal reserves trying to recapitalize the banking system. leads to a lot of questions about what regulators should be doing and some of these problems have gotten into before. seems like all of these recent crises at least have been about overregulation. is there a way for regulators to get their arm around that and see it coming and prevent it from happening. that s an hour and a half discussion. i thank you for bringing it up. obviously we know that there was too much leverage in the system. consumers had overlevered. homeowners had overlevered. student loans were over. we ve had obviously private equity loans, other leverage entities are in trouble, not only the united states but in europe and emerging markets. in asia, the interesting point is we have to go back to a higher level and ask why did people lever. you can see leverage is too great, why do people lever. was it the central bank s part, congress s part for pushing home loans? where do you go back and look at the genesis for it. my thinking is that volatility was low in the 2000 period. we don t know, really, what the true world is, state of the world, so we observe. we observe over time that things look as though they are quiet. we might conclude that things will continue to be quiet. so there s the envelope there of economics which says that you want to take risks to the risks you re comfortable with. when you think richk sk is lowe you tend to take more risks. risk in more leverage, risk in how you operate your life, less reserves, more go for it as opposed to more diversification in your activity. so that leads to more risk. now, the problem becomes if the tiger is only sleeping and not tame. when the tiger wakes up, we realize we re in a different world. doesn t the tiger always wake up? we don t know. see, we don t know sure. the analogy i gave, the tiger wakes up. sometimes there s a well fed tiger, it s been normalized and it s fine. occasionally it bites us. if it s truly what happened, we don t know the natural amount of volatility it has in the economy. i think the government makes a mistake. federal reserve bank makes a mistake. if there s a shock in the economy, we have a recession, they say the fundamentals of the economy are great, or congress will get up and say fundamentals are there. mr. greenspan said derivatives transfer risk around the world, so we re safer. you know, i wish there were a law which said that the government officials couldn t think things were great. i think the analogy i d like to give, which to me is a fascinating analogy i ve given before is when i would be in person i would go to the movies on saturday, they would have a news reel. we always saw the galant firefighters who put out the forest fires in the west. what we did is we reduced natural volatility. what happens, you put out the fire, the underbrush grew and grew. for 50 years. we had a lightning strike. we built homes right against the forest wall, now we have fires and they are just gigantic, because we should have let there be a natural volatility. that s an argument against everything the government has done at this point to keep us from the precipice a lot of people think we were looking into last year. are you opposed? i think at the time, once the fire is occurring you have to put it out. in the short run you have to make sure the financial system doesn t collapse. i do worry in society we have to we have a political side and economic side. if we have a cost, there s two costs, one to let it all cost, which it did, let it collapse, and how much time would it take to recover, vis-a-vis, trying to support it and the length of time it will be necessary to get back to normal again after that occurs. so both have costs. maybe the idea is that the thinking in advance is saying that being cautious about what the true state of the world is, and that it s very difficult for us to know whether we re in a volatile time period and we ll continue to be volatile or quiescent going forward. i don t know what the true level of volatility is but it should be greater than normal. we look at the shocks, 87 shocks. we had a shock and recovered. we went through the 90s shock, the 94 shock, peso crisis, 97 asia crisis, russia crisis, the 2000 dot-com crisis, 2001-2003 ceo crisis. we had the 2003 general motors liquidity crisis, interest rates are 1%, et cetera. so every time we recover, people learn from that and then they take action. the problem we have in leverage, the problem is negative convection. what i mean by that, when things are quiet, how do intermediaries make returns. they are low so they have to lever returns. they target return on equity. you target return on equity, you have low return, only way to higher return on equity is taking more leverage when things are quiet. the problem is when you re driving down the highway at the correct speed limit and everyone else is driving fast, okay. you don t notice. you don t notice and you start driving more quickly. right. okay. now when you go over the hill, there s a bad accident, if everyone is driving very quickly, the cost of stopping is much greater. so then the stop and start cost, the negative convexity costs are very large. that s the problem. without a speed limit, people speed up. target more volatility, take more risks. the cost to adjust are much greater at that time. mr. scholes, i want to thank you very much for your time today. i hope we get to spend more time with you very soon. thank you. appreciate it. myron scholes. up next from greenwich more, so stick around. squawk box will be right back. the first-ever hs hybrid. only from lexus. 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. someday, the driver will get to choose how efficient or powerful their car will be. the first ever hs hybrid. only from lexus. the most fuel-efficient of all luxury vehicles. things that worsen in the markets now. that is over 100 points, 110 points. things worsen in the three dow components that will factor into what happened this morning. ge has deteriorated down in the low 16s now. bank america now in the low- to mid-17, 1730 or so from 1810. ibm down five bucks from 127. all that adds up to about 110 points of a refresher. rick santelli with us and our guest host jason. did you see that malpass interview? did you hear any of that? which interview. david malpass about the dollar. sp he spoke to me and probably spoke to you about concerns about the dollar policy how in the long run it could come back to haunt us. i don t need to speak to him. we pretty much know that. we re having fun in chicago, on the front page of tribune going through bankruptcy speculation they misspelled gauntlet on the first page. here is my request. we need a spelling czar, don t we? a spelling czar, please. come on, joe. that s just terrible. they got rid of the spell checker. they are in bankruptcy, rick, what do you want? i know. i know. i guess it s amazing the cubs transaction is going through. we re all pretty hopeful there. i already bought my world series tickets for nextier. keep on hoping on that one. the new york post had gephardt running for vice president at one point. did he pick his running mate yet? running for vice president. what else, rick? here is the deal with both malpass, looking at julian robertson s comments i just saw in the ft. sooner or later if china were to stop, we would be in a heap of trouble. joe, i don t think there s any chance in the foreseeable future that s doing to happen. once again, i think it s absolutely reprehensible that leaders have put us into a situation where the possibility exists to the extent that you and i are talking about it on the world s premier business channel. that is the part that makes me just uncomfortable. the greatest power in the world should not be vulnerable even to a degree that isn t likely for a decade. but we are going to hear more and more of this. we need to nip it in the bud. mr. greenspan said he wasn t worried about the dollar. he wasn t worried about tight credit spreads. where do you want to go from there next? low interest rates or housing bubble. they passed the regulatory bill yesterday. i thought that was absolutely marvelous. still have these hedgers and over the counter swaps market they are not going to address. still have the institution called mark that makes cbo, cbs s i have an idea this organization ought to margaret an end of the world option, because, see, then they can sell all they want and they don t need to worry about having capital to pay it off. go ahead. remarkably talking about this, it seems like the treasury has adopted kind of a bear stearns mess funding itself. enormous long-term liabilities yet we keep funding our debt short. the average maturity of our debt. 49 months. i thought it was 52 months, back where it was in 1984 when ten-year treasuries were 13%. i will say, rick, though, i agree with you there s probably very little chance china s best interest to buy our debt. what s interesting is they are buying all the short-term debt. 27% of the debts they are buying, holding is one year end. maybe they are thinking rollover costs will allow them to get much higher rates down the world because the 11th commandment is don t borrow short and lend long. we have a long history proving that one. all the private sector guys who have done that are no longer with us. they are in the great investment bank in the sky. ipso facto, where does that mean we re going? the concerns about the dollar are valid. i think it s reflective of worries about the fiscal situation of the country. bonds may not be that because of feds buying them quantitative easing. there s got to be some that is one spelling of gauntlet. jason is with us. let s toss this over to becky. thanks very much. global recession on wall street may be most publicized. if he gets on philanthropy in the third world are dire. our recent guest traveled to 65 countries documenting the human condition in the poorest places on earth. joining us, the president of howard buffet organization. he s a berkshire hathaway board member. thank you for being here today. thank you for having me. you re joining us because of the new book, fragile the human condition. you traveled the globe to find out what conditions they are in. what did you find? i think it s at times a little overwhelming. if you think about i think probably one of the things that highlighted it recently has been the global food crisis everybody is pretty aware of last year. the crisis doesn t just go away. it may lose the headlines. there s about a billion people a year that go to bed hungry and 2 billion people on top of that that are malnourished or undernourished in some form. that s about half the world population. i think it s very easy to forgot when we re in this environment and we live in a country where we have so many luxuries how tough it is for spoke many people. what is being done? what can be done? i know the howard g. buffet foundation is working in 35 african nations tried to help people out when it comes to agriculture, water, some of the skriz situations going on. what is being done now? actually, the good news is there s been a real revitalization put on particularly like agriculture development in poor countries. so you see a real push now from secretary clinton. you see some big foundations getting involved that weren t involved before. i think that s the good news. i think the challenge how do we go about, what s the process used to address those issues. if we try to do some of the things we ve done in the past, i think we ll fail. that s my concern. what type of things that we ve done? we ve used a lot of western thinking and a lot of muscle to tell other countries what to do and how to do it. if we ve been successful africa wouldn t be the only continent globally that s gone backward in per capita food production. have to admit we failed, figure out how to move forward. that s my biggest concern. you are a farmer yourself, with a farm back in nebraska. you used to be on the board of archer, daniels, mittland. you know what things are out there in the agriculture world. what are some of the things you see? the exciting things for what i do are very different than those things that would fit for solving problems in africa. i think that s where we have to look at what s appropriate. there s amazing technology being applied in the united states in agriculture in hydroproduction agriculture. the mistake we need to avoid is thinking we can take that kind of technology and simply apply it to populations that are on an equal economic equivalent. meaning their technology is too expensive. ? it doesn t apply to what they are doing. these are farmers producing what we produced in the late 1800s or 1900s in this country. becky it takes a real paradigm shift. as farmer fda will give statistics as a farmer i feed 144, 150 people a year with what i produce. the farmer in most african countries, most small scale farmers, about 80 million of them in africa, they don t produce enough to feed their family. so you have these hunger periods. when you ask a mother how she decides which child to feed when they are out of food. i mean, how do you make that decision? it s a real paradigm shift. these aren t farmers farming to produce they are net buyers of food. we re going to develop markets and talk about trade, that s all great, but it doesn t help somebody living on a dollar a day. what works? at least what are some of the things you re testing to see if they do work? the basic things. we talk about precision agriculture, i use gps auto sphere, i can plant corn, the key is learning. most don t know how to do this. training isn t available. how do you plant a seed, space it properly, very basic. that comes down to training. it s actually a bigger challenge than people think. you don t have the institutional capacity in most african countries to really do that well. when look at some of the commodity bubbles we ve seen, how have the boones and busts affected nations in africa? i think overall they are quite negative in africa. almost every african country, not all but most are net importers of food. if you re a net importer of food, anything that disrupts that market to the high side obviously is a pretty negative thing particularly with the low foreign currency they oftentimes have available. so if you look at it from that standpoint at the top level, it can be very negative. that is exactly what drove i think there were 30 some countries that had food riots last year. that s what drives us. it s very difficult to maintain a consistent output of food when you re importing it and costs go up. howard, we want to thank you very much for joining us today. great. again, the book is called fragile the human condition. it chronicles what howard has seen in his travels around the globe. guys we ll send it back to you. earnings central full of blue chips, ge, bank of america, ibm. we ll check on the investor reaction when we return and how it s influencing the dow. check out futures, down 57 with fair value up 45. that adds up to 110 points 100 points anyway. squawk box will be right back. you re watching squawk box on cnbc, first in business worldwide. okay. let s take one more somewhat detailed look at the three dow components that have us down 100 points premarket. general electric reported $0.22 a share, revenue that was $0.02 ahead. revenue, estimate 39.5, ge indicated down $0.60 or so. not quite, 3% or so. bank of america $0.26, a nickel wider than expectations, a loss. a nickel wider on lorne than expected revenue. did you have something really you can talk about with bank of america. looking at a bunch of things. leverage ratio, capital roshios are strong. when lou year over year you really get a sense for how much credit deteriorated. $5.4 billion in that chargeoff, 4.7% of the total portfolio. non-performing assets, $13 billion a year ago, 33.8 billion now. not a price of course given b of a generating a gel of cash. it is ultimately able to withstand those kinds of losses. they are significant to be sure. doesn t appear in terms of chargeoff rates on credit cards for example, 11.4% to 12.13% terms of credit card portfolio, second quarter 09 to third quarter 09. sequential. we go back a year when was bear stearns, august? the hedge funds. yeah. when did that start. july 07. as of last year we still hadn t had lehman for the first two quarters of this period off-first two months of this period last year, things were sort of okay, weren t they? for this quarter, the quarter that s being reported. for the quarter that s being reported now, wasn t it until september that the commercial paper locked up and that we looked into the abyss, right? so august and july would not have been that bad for credit. no. it really did start in the financial sector and spread to the overall economy sense then. the numbers are it s quite something to see a year ago credit cards also 6% now 12%. when was schwartz on. with you? the last interview he did here, march 10th or 9th of 2008. really? it was that much before the other stuff happened. bear stearns we thought was it. bear stearns went out i remember coming in from labor day in 08, s&p was 1300. everyone thought it was a terrible year up until that point. bear stearns was going to be the poster child. long-term capital, continental the name we associated with what happened. now he s so happy he came along. 11 bucks wasn t bad. you were very lucky. ibm is hurting the dow, too. $0.02 ahead of expectation, $2.40. revenue was slightly above expectations, full year guidance was okay. for whatever reason, that s one of the big drags on the dow today, david. are you ready to read your tease? thank you, joe. i was not but now i am. giving you a heads up. coming up art cashin has this morning s trader s edge as we get ready for the final trading day of the week. first let s take a look at the dollar that s been talked a lot about. as we head to break you can see what it s like this morning. you re watching squawk box on cnbc, first in business worldwide. looks like we re in for a bumpy ride. go ahead, ignore me. but in this turbulent market, you re going to need help. protecting some of your assets for retirement. an axa equitable annuity could give you. guaranteed income for life. i d call them, but what do i know? i m just the 800-pound gorilla in the room. don t worry. i m here. want guaranteed income for life? axa equitable is redefining what you expect from annuities. ooh, peanuts. time for the trader s edge. joining us art, we re going to start down here after some earnings, perhaps not all disappointments, but what s your sense of things as we crossed the 10,000 level two days ago. 10,000 was an artificial thing, david. we were there ten years ago, and things were greatly different. gold was selling at about i think $280 back then. so the world has changed, but we re still stuck. traders down here i would think in the majority remain somewhat skeptical. we re at a couple resistance points, so we ll see if explorations and rather mediocre earnings results will turn the tide and maybe take a little steam out of this rally. a lot of guys are continuing to play catch-up. nobody wants to be left behind, right? that s part of the problem. the money managers have that difficulty. i think the really was a lot of it short covering early on. you see the short position on the new york stock exchange drop precipitously, and then the amount of cash on hands shrank rapidly. it doesn t seem to be to the benefit of the bulls. so there s skepticism even among the public for now. you make anything of the fact we haven t been making a lot of recent highs on a lot of volume? absolutely. in the old trader s almanac, that s kind of a negative sign, also sometimes indicating a top being formed, but if it s a top, it s being formed over the last three months. the other thing also that the rally yesterday, putting one more new high for the year in came with more declines in advances and declining volume outstripped advancing volume. those are the kind of diverge e divergences you don t like to see. it doesn t give you a lot of faith in the rally. you can t have a 25% gain putting a top in it, though, art, right? that s what i said. it s been three months of negative divergence. but you can t form a top when you re advancing 25 percentage points. that s like well, it is. joe, what s happening is the divergence after divergence. as cain said, the market can remain irrational longer than i can remain solvent. i could see five percentage points, maybe, but you can t call it a top. that s not forming a top if you re up a quarter of the value of the market. right it would be highly dramatic. i isle marinate in ice cubes over the weekend and think about it. i ve heard you are the man. someone said do not have a contest with art that you will end up probably dead before he would. thank you, art. all right. the cfo of ge has extended to five years from three, the period of time that the parent company would government ge capital s dead costs, going from five years to three years. the other thing i thought was interested, they said that just more conjecture on the new regulations, ge capital would be grandfathered in terms of any new regulations. some of for a while, some would have been punitive ge capital. it was only seven months when so many were keddo concerned about the debt profile. 2010 s 90% done. and here we are. that s the key, i think, really. we can debate the market, but the capital markets, the way they opened up over the last seven months, nobody can debate that. the fed has tripled the size of the balance sheet. it solves a lot of ills when you have the curve this steep. you said it right here and grill keith jauron on a day when the stock was six and change. right around six. it wasn t that long ago. if you re the boss, penelope, here s some parting shots. we ll be right back. bad cholesterol but your good cholesterol and triglycerides are still out of line? 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get the picture. we want to thank jason trender for coming in. jason, thank you. thanks for having me. any quick close thoughts? i think the path of least resistance. i think the reckoning will be higher, but we ve got to dance in the meantime.