Transcripts For CNBC Squawk Box 20091028 : vimarsana.com

all right. good morning, everybody. welcome to squawk box right here on cnbc. i m becky quick along with joe kernen. carl is out today. he s feeling a little under the weather, so we hope he s feeling better very soon. let s get to this morning s top stories. new questions out today about links between hector ruiz and the largest insider trading scandal in decade. he s the unnamed executive according to reports accused of sharing confidential information in the company with the defendant in the galleon case. amd says it is unaware of any allegations of misconduct regarding its current and former employees. this is getting stranger and stranger. it makes you wonder whether there are any gray lines in this or not, conversations had all the time by people. it has to come from somewhere, right? yeah. did you see the editorial that said all information should be okay and that insiders should be able to trade? over the weekend, the weekend journal said the same thing, allow it all and the markets will be able to figure out where the money is going and know what the smart inside i guess it depends on how pervasive you think it is. there are a lot of people that think you said buddy, you are either on the inside or on the outside and get me some information that i can use. and then you see buddy fox driving around following sur lawrence wildman wherever he was going, looking at private jets, taking tail numbers down to see if they re in different cities. so i don t know how much of it goes on, but it seems like is it an isolated case? i mean, that s what you have to wonder. is it the beginning of a new thing they re building up against hedge funds everywhere? well, there is a perception that the playing field is not fair for the individual investor and hedge funds that return great that have great returns over and over, are they doing the fast trading where they re able to do that and capitalize on discrepancies? do they have inside info? i don t know. this does raise questions. it does. elsewhere, the treasury department is in talks with gmac. more money. possible third cash infusion. how important is the u.s. auto industry to this country and to this administration? so you can t we re in this far. we might at was go up on our ownership. the journal reports that the government may need to pump under another $3 billion, maybe $5.6 billion into the lender which would increase the government s stake somewhere upwards of 35%? yeah. this is the only company that has had to go back for a third time. aig has been back a couple of times. yes, but there would be the first company to lend to three times. aig we lent a lot of money. 12 plus three and this is you know, while we re watching cit go down, too. i guess this is deemed much more important for the health of the auto industry because this makes up so much of the loans that allow people to buy cars. anyw anyway, government pay czar ken feinberg increased base pay at u.s. firms. on average base salaries rose 14% to $437,896 a year. 89 of the 136 employees under the feinberg review got a raise in base salary. feinberg will be testifying before a house oversight committee on executive compensation at 11:00 a.m. eastern this morning. it sounds like he does not want the scope of his position to be expanded to look at any other firms. he s asked congress in addition not to do that, that this is something to look at these seven firms. that final comment in the very first article where it says you re going to hear it from both, he s in a very tough position. he hasn t gone far enough and he s gone the too far. and maybe that means he s doing something right when it seems that both sides are irritated. i don t know. i was reading the journal today on some of what we are now left with in term of compensation. it s hard. if you have a certain viewpoint, you re going to think that the government probably we own these firms now. and you want them to do well. and you re going to have the anger on the populist side that says, forget about it. which is why he may be able to do things right. he s not looking to extend this to other firms. do you read provida? and i don t mean the new york times. time talk about the actual provda. it has an article that the u.s. has realized capitalism is not the way to go. they re rejected capitalism. they re not going to try and control the world any more. they re going to try and be friends. they got rid of the missile defense deals. they re not going to try and force all of its rules on the rest of us now. they are going to it s an olive branch for friendship as they reject capitalism in favor of where did you find that? you don t read provida? i can t divulge my sources. but it might be on drudge. oh, got it. president obama is making gains in his i read huffington post too. i know. yesterday, the house financial services committee voted to regulate hedge funds and other large pools of privately managed capital for the first time. chairman barney frank, a great quote from him on drudge, too. what did he say? we are trying to put government in all areas of the economy. we re trying to increase government in all areas of the economy. it s a quote, it s a tape. not a not a you don t have to read it, you can watch him say it. frank is going to unveil a systemic risk bill that would grant vast powers to a new regulatory council as well as the fed and the fdic. and the president hailed the bij as crucial to prevent executive risk taking by firms and treasury secretary tim geithner echoed that message while speaking to wall street dealers and bankers. watch. you want to build a system where neither investors nor institutions live with the expectation that the government will come in and insulate them from the cost of their mistakes in the future. today, the house financial services committee is expected to approve legislation that would give the s.e.c. more money and power to regulate the stock market and it set new rules for credit ratings agencies. let s check on the markets this morning. we are coming off of a mixed performance for the markets. the dow was higher, but most other major indices were lower. this morning, you will see futures are off, the dow is down by 35 points below fair value. the s&p is lower, as well. it s down by just over four points below fair value. this morning, we will get new data. new home sales coming out today. also durable goods. if you check out oil prices, as well, you ll take a look and see right now oil is down by about 77 cents to $78.78, still sitting just below that $80 that it breached recently. if you want to take a look at the 10-year, the 10-year noeld is yielding 3.47%. another big number to watch is the third quarter gdp. that is coming on thursday. the dollar has been weaker this morning, at least against the yen. it s down right now, trading at 9 90.96. and the euro is trading at 1.4785. it s stronger against both the euro and the pound. the interesting moves have been the dollar versus the yen. you ll see gold is sitting up barely by about 80 cents at $1,036.20 an ounce. let s get to the overseas markets right now. saijal patel is standing by in singapore, but we re going to start things off in london with geoff cutmore. geoff, what can you tell us? well, there is a little bit of indigestion in the risk appetite this morning in the european session, it would seem. we are down across major exchanges as you can see here by some margin. i think it s your consumer confidence number overnight that has started to rattle investors who may have been inclined to chase the rallies that we ve seen. across the seshths, telecoms and fo food, autos and constructions are leading the losers across europe. on the corporate stories, s&p, the software company here in europe, that s the biggest european software company by a country mile coming out with net numbers that didn t trouble anybody. but it was what they said about the sales outlook that just had a few people concerned, perhaps revising down their expectations on that front. santander, the spanish bank, no reelt problems in line. that was fine. arcelormitt arcelormittal, back to profit, but no one is listening because they re wondering whether it s worth chasing after the rally we ve had. let me send it on to saijal at this point. we were weak over here in asia, the markets closing at a three-week low after that weak consumer confidence data coming out of the u.s. japan is down at a two-week low. big sell-off in a lot of the consumer electronics, especially the techs moving, nasdaq drops, as well. chip related stocks are very weak. on the earnings front, things don t look too great for some of these japanese chipmakers. also cutsing its full year cast, saying they re going to close a japanese fact tier next year. so some slump there. now do brice hike nomura, second quarterly profit beat expectations. trading revenue helped the bottom line there. as for the greatest china region, hong kong was down 1.8%. big sell-off in the resource related stocks, as well. hsbc, the big heavyweight closing down, as well. a lot of investors dumping win macau after a big down outlook. after the shanghai composite, managing to edge up 0.3%, that s after we saw the top airlines return to profit, saying they saw solid passenger demand. so that was one of the few exceptions in the market. and on that note, joe, back to you. s.a.p. reporting third quarter results overnight. the company s ceo joins us from germany to discuss the results and we re a long way from germany, so there will be a little delay, but i will ask a question and then just shut up. 29 is the low, so you were above 50. you ll be down at the 47 range today, so a little bit of a pullback. but i ll give you the benefit of the doubt. the stocks made a great move. but you still surprised people by lowering the revenue guide. what happened? well, good morning, joe. how are you? thank you for having me on the program. you know, this is still a market that you have to treat in a very careful way. we actually set out 2009 telling people that 2009 was going to be a very, very challenging year, a very difficult year, and that at the same time, we were trying to manage a change in the economy and the change in the behavior of customers. we have done a pretty good job of that as can be witnessed by our result in q 3. our global product revenue came down by 5%. at the same time, we ll be managing our cost structure in a very, very efficient way. our margin is up again. there is another quarter of increasing margin. our margin guidance remains high, 25.5% to 27% for the remainder of the year and very important, as well, our free cash flow is 2.2 billion euros in the first months of the year. up 28% since the beginning of the year compared to last year. so you are talking to a very fragile, a very flexible, very efficient company that is bringing a lot of innovation to the market and i m confident that all of the innovation will bring growth in the future. maybe very important to note, the shortcoming in the top line performance in the third quarter was driven by callinging conditions that we were facing in japan and in particular in japan given the environment there and in some of the emerging markets. but i m confident that also in these markets and also in japan we ll see a return to greeting in the future. whenever we talk technology, we used to when we think quarter to quarter to try to determine how a company is doing, there is always the notion of pushouts that maybe a deal doesn t close, it closes a couple of weeks later. will that happen? will you get the business you re expecting in japan in the emerging markets eventually? is it as simple as that? or is there something underlying the weakness? you know, joe, let me help you understand what we are doing in the markets such as the asian markets. some numbers will help you understand that. in asia, we do about 1.5 billion euros in sales. that s quite a big number. we are the market leader in every single asian market. japan included. equally important if not more is china is included where we are the largest non-chinese based software vendor operating there with a market share that is about three times larger than the number two non-chinese competitor. we serve more than 12,500 customers in asia. we have a substantial presence there. i am confident that we will get the growth back in these markets. i can see it from the volume of business that we are doing in these markets. the trend are going in the right direction. so all in all, while we are still operating in a very, very difficult and challenging environment, i do believe that things have stabilized. now we just have to push hard so that we can get the growth back. should we view s.a.p. maybe from a currency perspective in terms of the strength of the euro? because we had intel, we were heartened by intel, microsoft, amazon, apple, we had a lot of our domestic technology companies bolstering our confidence that things were improving. you ve got a very strong euro. is that affecting your sales to japan and the emerging markets? well, let s put it this way. a very strong market doesn t help when you re competing with vendors who price everything in u.s. dollars. that goes without saying. i do believe that we can compensate with a very strong product line and with very competitive products that compensate for the exchange rate. you know, situations is rather simple. i think there is a shift in the way people consume software, people want to delay in a certain case, but what they really want is to phase away the consumer software. we are going to work very hard to increase our deal of volume. that s very important. we will offer our customers even greater flexibility in the way they can consume our software and i think that the real metric we need to look at is total product revenue and there there are some very interesting signs showing that we are shifting from one time license fees more to a repetitive business with customers and medium term that s a healthy thing for s.a.p. and for our customers. but would you like to see something done to fight the strong dollar? would you like or the weak dollar? would you like to see something done by either european governments or the u.s. government? you know what everyone really would like is some stability in the exchange market. it s not about the rate. what is way more important is to have some stability in the exchange rate so that we can have a longer term perspective in planning our business. i think that would be welcome for the u.s. friends that we have, as well, and for the global economy. so stability in the exchange rates, that s a very important thing. but let me maybe talk about another element in innovation that i think is going to change our business and the business of our competitors, as well. i was recently in the u.s. we talked a lot about sustainability. you know that s.a.p. is on the forefront of bringing software for sustainability to the market. we re doing this, by the way, in the class. and i believe that many businesses will want to start aderiving their sustainability in a much more focused way and i think that that is where s.a.p. is going to be a significant driver in the future, as well. very good, sir. we have to end it there. i appreciate your time this morning and be glad you re not here. it s raining here. i m sure even in germany although it rain necessary germany from time to time, but be glad you re not here. see you later. actually, we have nice weather today. thank you. okay. i m coming over there. all right. if you have any comments or questions about anything you see here on squawk, e-mail us squawk@cnbc.com. yes, we are reading the e-mails. we re going to take a break and then we have a midweek task force when squawk box comes right back. for over 150 years, wells fargo has been putting our clients first. according to a leading independent research firm, in 2009 clients rated wells fargo advisors the #1 u.s investment firm for doing what s best for them. with advisors nearby and nationwide, we re with you when you need advice and planning expertise to meet today s challenges. wells fargo advisors. together we ll go far. welcome back, everybody. astrazeneca pulling regulatory submissions for an intrirmtal lung cancer drug. this submission shows no overall survival advantage when the drug was added to chemotherapy. phase three tests will at any still continue. the value of china s internet market is up in the third quarter. google has continued to expand its market share in china. it s now grabbing about 31% of homegrown search. baidu has about 64% of the market. vitamin shop ipo up about $17. this is the first retailer in two years to go public. home health care provider added home care price below expect ages, but it was increased in size. let s get to our wednesday task force right now. joining us this morning is serat. he s the portfolio. around this week, for hesitation on the market. we knew things were going to improve. it s ever increasing. we ve seen consumer confidence come down. especially when you re investing in the index. rates are low. we know they re going higher. oil is back to $80. so as an investor, you have to kind of sort through all this data and say, i want to invest in companies that are stronger, thaund risks and can grow and not just invest in the overall markets. do you get the sense, serat, that people have seen big gains and at this point some of the portfolio managers just want to lock in those gains? absolutely. so you re seeing some of that derisking. some of the junk that went, you know, three or four times, you re taking that off the table. you re seeing people say, look, i can now go back to my normal allocations and take equities off the table. but then again, bonds are expensive, too. where is the cash going to go? nariman, part of what serat was talking about are were strong headwinds. i know we get home sales. tomorrow we re going to get third quarter gdp. what do you expect in terms of all these numbers in terms of how it sets up the landscape? these numbers will be deceptively strong. home sales will get boosted by that tax credit for first time home buyers. first quarter gdp we think will be 3% or 4% because of cash for clunkers. but then we think gloeth growth will start to slip a little bit. already we re seeing it in some of the numbers. it will get back to maybe 2% instead of 4.3% last quarter. so i think that may start to weigh. it s starting to weigh on the markets a little bit on investors. so it s a what we call a soft w. up, down, not into negative territory, but down nevertheless. we hear all this talk right now that maybe they ll extend that tax credit for first time home buyers, maybe open it up to any home buyer and instead of $8,000, some people want it to be $15,000. do you think any of that stuff is going to happen? is any of it built into your forecast. i don t think we need it. ohm about 16% to 20% of the stimulus that already got passed has shown up. the biggest bulk of it has yet to come. it s early to be talking about a second stimulus. we re dealing at the left of markets, left of recoveries or let et heal on its own. that s where we re at. next year, you ve got a lot of politicians will be up for election. some in washington are willing to put up with. i think they re worried about the midterm election. i m not sure they can afford to, frankly. but they may do some symbolic thing. it s fairly small potatoes, i would think, though. this is the time when people get back to their normal methodology. what should investors start looking into? what sectors or stocks are you talking about? so i think pricing into what we think rgdp, 1% to 2%, some of the seshths are overvalued, i think you would be very careful and pick bottoms up as to where you want to be. but i think the areas that are going to do well are the necessities, the companies that are going to grow top line revenue, companies that have a small market share are growing and i think that s where you have to dig in and do your work. because if you can raise prices in this environment and you have a good capital starship going forward, because what the markets let you do in the last six months is raise capital. so now you have to look at not only the management team, but also the products and i think you re going to find good opportunities especially as the sell-off comes or you have a slow decline in the last two years. what are the things you re looking at? it s been cost cutting. so an industrial gas company that has 20% of its revenue from brazil but has growth all over the world has pricing power, recurring revenue, you could do something like that or a company like an eco lab, like a chemical cleaning company, no matter what happens in the world, you ll still have new products and pricing has come down. so you re going to look at companies separately and say this is the area i want to be in. it s going to have second ewe lat lar growth, not just profit growth. and i take it you own both of those names? yes, we own both of those. coming up, this morning s top stories. plus, cash or credit. visa s quarterly results is a unique barometer of the american consumer. squawk box will be right back. 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. elieve arthri day. allet s fine-tuneat the eyour businessanged, to take advantage of new opportunities. 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(backbeat swells) there, now that sounds perfect. hi, may i help you? we need to start saving on car insurance. and if that means making sacrifices, we re used to that. not here! when you choose progressive, you get more. more? oh, you ll love more. you also get concierge claims service, 24/7 live support, and pet injury coverage. that s totally awesome! brother jeffrey hasn t spoken in 12 years! i once went 12 whole minutes! saving more while getting more. now, that s progressive. call or click today. the gold delta skymiles credit card. from american express. it s the official card. of the world s largest airline. and it s the only credit card. that earns miles on delta. miles that take you. to more places than ever before. over 350 destinations worldwide. so switch today. get up to 25,000 bonus miles good for a free flight. call now to apply. there s no annual fee for the first year. and you can redeem. with no blackout dates or seat restrictions. these are just a few of the benefits. of carrying the official card of delta air lines. switch now and you can earn miles. on delta with your purchases: groceries, gas, entertainment, and more. get up to 25,000 bonus miles. with the gold delta skymiles credit card. call 1-800-skymiles to apply. this is the official card. of the world s largest airline. charges charge it if you please good morning. welcome back to squawk box here on cnbc. i m joe kernen along with becky quick. carl quintanilla is acti littlet under the weather today. it s earnings season halftime. there s a few dow components, walmart and home depot who report late, as well. we have to be mostly done with the companies that we re almost at the end of october. they trickle out. it s mostly done by the end of the month following. they can figure out how to put all the you know, do the fuzzy math. they have a month to do all the fuzzy math. today s opening bell will have reports from more than 50% of the s&p that are in. among the names of the docket, we ve got a conco phillips with the ceo named molva. we have general dynamics. we have hess and we have the former dow component international paper. is john in audio? i don t get a seinfeld from molva? i don t know. is john here? yeah b i talked to him earlier. from earnings to the economy, september durable goods hit the tape. there s another big auction of treasuries at 1:00 eastern today. $41 billion in five-year notes following yesterday s blockbuster $44 billion in two-year notes. that was one of the best auctions that we ve done, which, you know, if year worried about supply, we haven t seen it yet. no. and we re going to talk to rick santelli a little later, i think. he talked about how if you re looking for somewhere to worry about whether there s going to be money to roll this stuff based on these auctions, yeah. it s two year notes, so and a lot of people have been talking about the short end. i think there s five and seven years that s coming. it might be. visa is a stock to keep an eye on today. the company posting better than expected quarterly results after the close. the company says numbers are better than expected. craig, these numbers tell us more about visa and probably about the broader economy, correct? yeah. what we re seeing is visa posting very strong results and they re talking about october trends improving to a positive 3% in u.s. payment volume, which is a material improvement over what we ve seen all year. now, there are some headwinds that are turning into tail winds, including gas prices and currency exposure due to the weakening dollar. but yeah, you can t argue with the trends. we are seeing improvement and management did state for the first time in a long time, they are feeling materially better about the environment. the payment volume growth, that s a very important number to look at in the u.s. because it tells us what? what is it telling us about the strength of the dollar or are we coming off a very low number? we are still looking at october ooh last year when things aren t quite as bad as they had gotten in november and december. but we do need to see an improvement over last year if we re going to see an improvement out of retailers and whatnot come the holiday season. what we re seeing is and we saw it in american express s numbers are people that are willing to shop just a little bit more than they were maybe a year ago and are possibly feeling a bit better about themselves. the payment volume growth, though, is that a number of the amount that people are putting on the cards or the amount that they re paying off, that people are actually going ahead and paying their bills? no, no, no, this is payment volume. this is purchases at the point of sale. all right. in terms of bad debts, people who don t pay their bills, what did they tell you about that? visa is not a card issuer. visa is strictly the payment network. they re not going to comment on bad debt. that s a credit card issue or that s a bank issue. what we re seeing there is separation of good versus bad credit card companies. really, the company that is separating itself at this point is american express, who is showing exceptional credit quality improvements while building reserves in an overconservative manner and using strong top line to reinvest in the business. so as a visitor, we absolutely prefer american express versus the rest of the group. they re clearly the only one showing material improvement in their balance sheet, as well with as strong pnl right now. american express was the first to pull back a lot of credit cards from cob assumers. is that why they re showing improvement? well, i also think well, yes, they are very aggressive in calling their balance sheet. but i think their own mistakes have taught them a lesson. they were very aggressive in chasing money into florida, california and nevada. and at clsa, we had made a guess or we call it an educated guess back in january when we had upgraded american express at about $14 a share stating that because of their concentration in what were clearly the worst markets in the united states, that those markets would bottom faster and that their credit quality would be able to turn the corner at least six months ahead of the group and that s exactly what we re seeing with american express. so they used what they learned by being overly aggressive during the boom times to outperform the group in clearly what s become pretty bad time for consumer credit quality. craig, you ve got a buy rating on visa, as well, correct? i do. and is this one of your favorite stocks in the group? yes. well, we we prefer transactionary names, whether it s on the processing bank side, like state street, or something like visa, mastercard, american express to a slightly lesser extent. the brazilian payment processors or western union, we want to see things with secular growth or transitionary growth that isn t necessarily related to taking spread on lending that s expensive for the balance sheet and risky long-term. so when you look at something like discovery, a stock we don t like, they have a lot of their earnings being driven by their balance sheet and to compensate for declining card balances, they re getting into studenting. that s not exactly a strategy we want to see from a company that talks about being a processing network. we would much rather being in something like visa and mastercard where global growth will continue for many, many, many years providing high top line growth without the need to materially grow expenses for a lot of income statement leverage. we re very confident in visa, mastercard going into the next few years. craig, thank you very much for joining us today. we appreciate your time. thank you. is it me or have you heard all the advertisements, one after another about is your credit card company trying to get the money that you borrowed back no, i haven t heard that. over and over and over again. let us get you your those credit cards are trying to line their pockets. a lot of those ads that you hear are scams, too. walk away from your desk. we ll give these credit card companies what they deserve. we ll help you stiff them free throwly so you can run you.big bills and not pay anything. the big banks got bailed out by the taxpayer. now it s your turn. one after another on radio. it must be the early morning when we drive in. in the morning on the radio and then when i m on the treadmill. over and over again on it must be epsn. comments, questions on anything not that i m not watching power lunch when i m running. a quick break now and we ll have a trip to the futures pits. i have more than one tv. a trip to the futures pits is in the cards when we come back. deeper and deeper. #ñ#ñ#ñ#ñññ welcome back, everybody. disney is launching a free ipod interactive application. yahoo! is holding an analyst meeting at 11:00 a.m. eastern today. investors will hear from carol bartz for the first time since those earnings were released. and two more local uaws have voted against the deal with ford. six of the eight unions have rejected the changes that were endorsed by union leaders. right now, it s time for a check on the news outside the world of business. monica novotny is here with a roundup of the headlines. good morning, becky. the taliban claiming responsibility for an attack in kabul, afghanistan. 12 people are dead including six u.n. staff members. one american was killed. it s part of an ongoing insurgent assault with the presidential runoff now just days away. secretary of state hillary clinton arriving in pakistan overnight. the secretary hoping to cool off, rather, anti-american sentiment. the trip comes amid pakistan s offensive amid the pakistan. secretary clinton praised that operation and it has triggered attacks throughout pakistan, including a bombing today that has claimed 80 lives. and for the second straight day, there you see the shots, nasa trying again to launch its new experimental rocket. yesterday s liftoff of the ares-i rocket was scrubbed because of several hitches, namely the weather. ando, it looks like they re having weather issues again, so they said 8:00 a.m., now maybe 8:30 if it happens at all. let s push it back a little bit. let s try and get it back 9:00 if we could. they ve only got until noon, so the rocket launch, yes, they were watching it all day yesterday. i d like the ratings on squawk box and morning joe to be maintained. i don t really care about after 9:00. thanks, monica. thank you. now to the futures pits and jessica hoversen with mf global. jessica, we were able to bounce just a little bit yesterday, but the notion is that this is gaddeau and that we at best go sideways and maybe head lower on the averages. with what do you think? first off, that s a great samuel beckett reference. i appreciate that. got it? i got it. secondly, if you look at what we ve gone through over the past year, it s analogous to an individual that s been through a major car crash and now we re in this recovery stage. at first off, maybe the patient is excited that they re still alive and the possibility of recovery is there. but as with most traumatic cases, physical therapy takes a very long time and it is prone to have setbacks. i think what we re going through right now is a setback. if you look at the collection of news as of late, it does i think it is very conducive to a correction in the markets. the corporate news is constructive, but cautious. the economic data received yesterday, the abc consumer confidence, the richmond fed index all point towards a recovery that is sort of leveling off here. and also the internals of the equity market are start to go break down, the transport index, which is something you guys mentioned many times. also the bkx looks likes it s going to test those october lows. i think all those factors put together at one time create the perfect storm and allow it to pullback. finally, money market assets are now about $3.1 trillion. that doesn t necessarily suggest to me that all investors are comfortably invested, but more so than they were two or three weeks ago. i think that will allow for more of a pullback. there s something to correct. were you surprised at how well the two-year went? that s a given and we ve got to watch these longer maturities. yes. the two-year has a tendency to perform quite well. i would say that since 2009, the bid to coverage has been fairly impressive. a lot of commercial banks are actually still quite active. you look at history as loans and leases continue to fall on their balance sheets, commercial banks will i iase their holdings of treasury and agency securities. so i m not very shocked that the direct bid was quite high and is that they re participating in the short end of the curve, but yes, the long end is where my concern is, the five-year and the seven-year. thanks, jessica. thanks. have a great day. quickly, we re getting headlines right now on ford. ford says that geely, that s how you say it, right? i don t know. the movie sfp. maybe it s geely. i don t know. g-e-e-l-y. that move essential is so forgot.. i know that movie. but ford is now confirming that geely is the preferred bidder on volvo cars. we ll have more for you in just a moment. anyway, when we come back, new findings on what americans think about the u.s. economy right now. and then, you are not in newport beach any more, bond king. bill gross is in the house. tdd#: 1-800-345-2550 if i m breathing, i m thinking about trading. tdd#: 1-800-345-2550 i always have my eye out for a stock on the move. tdd#: 1-800-345-2550 doesn t matter if a company sells computer chips tdd#: 1-800-345-2550 or, i don t know, fish and chips. tdd#: 1-800-345-2550 i ll look at all kinds of stocks before i settle on one. tdd#: 1-800-345-2550 if i think i m onto something i ll check it out, tdd#: 1-800-345-2550 you know, see what other traders are up to. tdd#: 1-800-345-2550 when everything feels right though, tdd#: 1-800-345-2550 that s when i get serious. tdd#: 1-800-345-2550 and the minute i get into something, tdd#: 1-800-345-2550 i already know when i want to get out. tdd#: 1-800-345-2550 of course, every now and then i ll talk with somebody tdd#: 1-800-345-2550 who knows what i m trying to do. tdd#: 1-800-345-2550 (announcer) switch to schwab today. tdd#: 1-800-345-2550 you ll get the tools, the technology tdd#: 1-800-345-2550 and the support to trade your way. tdd#: 1-800-345-2550 go to schwab.com/trader tdd#: 1-800-345-2550 or call 1-800-540-7304 tdd#: 1-800-345-2550 right now. tdd#: 1-800-345-2550 but opportunities can vanish like that. tdd#: 1-800-345-2550 .so most days, i m right there tdd#: 1-800-345-2550 when the market opens. 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. a new nbc news wall street journal poll this morning, among the notable findings was an increase in pessimism about the economy and, for the first time since president obama took office, a majority believe the country is had headed in the wrong direction. john harwood is our chief washington correspondent. those are both interesting, john. the thing being played up the most is the flip flop and the plurality of the public option, now 48-42 for a public option. although the plurality is reversed for whether you think the overall plan is a good idea. it s a mess. the health care public option stuff, joe, i think polling is a very limited value on particulars of the health care remove issue. so, i wouldn t place a whole lot of stock in that public option number. very much is dependent on how you describe to the respondents what you re testing. you can get the opposite if you say how about a big government plan? i agree. tas very easy and your old paper i m surprised, the journal is it s their poll, i guess. but playing that angle up. maybe it s to galvanize the town hall people again, can t figure out any other reason why they would play it up. you know how crazy left wing that wall street journal is. no, i m saying they re galvannizing the town hall people to say look, this public option is a possibility again. they need to stir things up again. there s a lot of talk in the last week or so about supposedly a big shift toward a public option politically and in public opinion. i don t really buy t in other words, i think there s decent support out there for that idea, depending on how you describe it. but i don t see a whole lot of change in the political winds that is going to make that happen. i think we re going through a little bit of a political dance on the hill. i think you re right. what harry reid has up his sleeves makes sense. he could say to his grassroots people in nevada, hey, i tried. exactly. and a bargaining chip to give away. but they ll probably lose olympia snowe if they keep that. and they do not want to lose olympia snowe, which is why i don t think it s going to happen. let me address your first point you raised about majority people now saying the country is going in the wrong direction. gradually as we get through the course of the year, barack obama acquiring ownership for the condition of the country. and so because we ve got a bad economy, because we ve got unemployment headed toward 10%, and we ll see pretty soon what october delivers us in terms of the number. there are other findings in this poll that also indicate that did barack obama inherit these conditions or cause these conditions? still a majority saying he inherited them. that majority is shrinking. people are finally beginning to say, hey, this is barack obama s country and he s responsible. and that is a political challenge for him. and unemployment doesn t help, obviously, john. but neither does the number of u.s. service men that we lost in october in afghanistan. it s bad to use this as a way to attack the president, because you wouldn t want someone that would make a real sober decision about what to do here. 80 years, it seems impossible to beat these. this is a decision he has to take his time on, but, you know, the clock is ticking and we re losing guys and that probably goes into this some of these numbers too. absolutely. and we saw in the poll a pretty tepid response to adding 40,000 more troops. people are more inclined to embrace the smaller option. there was a 10,000 troop addition that drew support. what really surprised me was more robust support than we ve seen in the past for going after iran in its nuclear program and i think that s a consequence of the secret nuclear facility found last month. you now have the majority of americans saying they are willing to hit iran to take out that nuclear facility. i don t think that s going to happen and they re moving ahead with the diplomatic process, but that was surprising support to me. thanks, john. that is interesting. see you later. coming up, this morning s top stories. plus, he is a fixture in newport beach, california, but not today. bill gross is live and in person, stopping by the squawk set to spend the morning with us. been putting our clients first. according to a leading independent research firm, in 2009 clients rated wells fargo advisors the #1 u.s investment firm for doing what s best for them. with advisors nearby and nationwide, we re with you when you need advice and planning expertise to meet today s challenges. wells fargo advisors. together we ll go far. good morning. volatility returning to the markets. is this a sign that this market is overheated or will corporate earnings win over investors? an all-star round table to point you in the right direction. early look at the holiday shopping season. no, no, i want a you ll shoot your eye out, kid. will retailers shouudder at e latest? we ll tell you if there will be a holiday on wall street. a very special guest host, bond king bill gross as the second hour of squawk box begins right now. good morning, everybody. welcome back to squawk box here on cnbc. i m becky quick along with joe kernen. carl is out sick, little under the weather. we hope he s feeling better soon. the dow futures are a little under the weather, too. at 8:30, new home sales and durable goods, and that could impact markets as well. let s get some of the stories that are making headline this is morning. the treasury department is in talk with his gmac financial services about a possible third cash infusion. the government may have to inject another $2.8 million. gmac has already received $12.8 million in taxpayer funds. tim geithner says he is confident that the dollar will remain as the world s currency. absolutely, i think the dollar will remain the principle reserve currency for a long time. that rule in the system is not a privilege. it comes with responsibilities and obligations. it puts a greater burden on us to make sure we re doing things that improves the world s confidence in the capacity to run our economy carefully and prudently. those are important things for people to understand. secretary geithner speaking with charlie rose. dollar s status has come under be fire as it weakens, particularly from country s like china, which holds huge reserves in dollar assets. the dollar is down against the yen today, but is up against the euro and the pound. government pay czar ken feinburg is increasing base pay at seven firms after cutting total compensation for the top earners. wall street journal cites its own analysis of data and says salaries rose 14% to $437,000 a year, above that actually at $437,896. 89 of the 136 employees of the review got a raise in salary. he will testify before an oversight committee coming up at 11:00 eastern this morning. also, there are new questions about links between a former amd ceo, hector ruiz, and the largest trading scheme in decades. in a criminal case filed by the manhattan u.s. attorneys office, the executive in the case is accused of sharing confidential information about the company with the defendant in that insider trading case. also, amd says it is unaware of any allegations of criminal misconduct regarding its current or former employees. special guest host this morning is the man known as the bond king himself, bill gross is founder and co-chief investment officer of timco and he is here on set. our interviews are never long enough in newport beach. now we have two hours to spend. what is it, mohammed to the mountain, mountain to mohammed. we brought bill gross to the mountain or whatever it is, you are here. and it s good. you heard becky read that china is worried about the dollar. doesn t china love what s happening with the dollar? china exporters do but not necessarily trading partners. trading partners are ticked off. if you re talking about how much they hold in treasuries. but their currency is not changing. it s going with us, right? you have this going pretty good. we don t need you. you think china is unhappy with it? i think they are. let s face it, they re earning 0% on their treasury bills or close to it. they re suffering depreciating currency at same time. their assets are going down 5%, 10% a year. as becky mentioned, they are benefiting at the expense of south korea, at the expense of singapore and japan in terms of the dollar going down, and in effect, the chinese yen going down as well and being competitive against asia and the rest of the world. they re losing money in dollars on their securities that they re holding, but not in yen, are they? to the extent they fix it to the dollar, they are. ultimately at some point in time, in the future, far off future the yuan has to appreciate relative to the dollar in order to rebalance. then you ll see, right? then you ll see the hook and the cost, really, in terms of their dollar holdings. at the moment, the real cost is in this low interest rate. which savers in this country have the same problem. we sure do. the delinking of the yuan and the dollar. what happened to get back in lock and step? a year ago, part of the chinese government to fix at 6.830, and it never moves from that on an overnight basis. what they did back then was they recognized that the global economy was going down, that they wanted to become more and more competitive relative to their asian competitors and other countries. so, by fixing, as you pointed out, they basically let other currencies appreciate the euro, the japanese yen, south korean yuan. that was the key point. key point in the markets for equity markets, for risk markets globally will be when the chinese decide that the world has normalized to a sufficient point that they can unfix that. bill, you recently made the wires, saying that the risk trade was ending, right? couple of days ago? right. that was the first time you said that? no, but i said it, i guess, rather emphatically, or reinforced it. our view, joe, as you know, is for a new normal economy, which me means slower growth, maybe half of what we ve experienced. i ll go into the reasons for that the next several hours. i will refer to you and mohammed on fixed income any time. i ve had a running feud with whether you guys, because you know so much about the economy and fixed income, whether that gives you a right to forecast stock prices because i don t think they re related. well, thr. they are, but priced earnings either go from five to 50 and momentum goes and who knows what s going on. i ve seen really smart people decide the stock market is overvalued and they don t have a clue. you guys have missed half this rally. i will agree with you. animal spirits. it s human nature. makes no sense. can take you from five to 20, based upon optimism. you and your smart friends end up being in the consensus that the market ends up no. you provide the consensus to con found the markets. not exactly. we recognize the fragility of trying to forecast human emotion and animal spirits, that was the problem with the buildup in the past 25 years and very few people recognized the problem. having said that, there are fundamentals underlying all markets, bond markets, fixed income markets, risk market, high yield, all the way out to hayek wits and real estate. to the extent that the fundamentals are a determining factor, too, let s not cast them aside, the baby along with the bath water. you re not going to start telling me pork bellies are undervalued, are you? your heads have gotten so big with the recent success you ve had that i expect that next. no. you think you can figure out stamps. our heads what is it? it s a very scary word. what is it? i m not going to try to say it. there you go. try to keep our heads relatively small and shrunken in this business. to be as successful as you have been. to get over confident is the spell of doom. if you think this risk trade is over, what s that going to mean? and for how long? the next six months? over for good or temporarily? no. what we see going forward, really, is an asset return market, equities at the higher end of that return, maybe 4% to 5% bonds at the lower end, 2% to 3% in cash. of course, at 1%. but a very low return on asset market. and so, you know, this aversion to the risk trade basically says, hey, we ve had a great run. stocks are up 50%, 60%, high yield bonds are up over the past six months. so, we ve renormalized. you can really see that, joe, in terms of investment grade spreads, in terms of high yield spreads. it s not so easy in the stock market. 5 to 50. but everything else is pretty much normalized. to in the new normal? renormalized, 85% back to the old normal. i mean, the old spread of the basis points which blew out the 300 which the fed tried to bring back in is back. so in certain areas we ve normalized. to the extent that we have and to the extent that we see gdp growth at 2% at best in real terms, nominal maybe 4%, then assets as a whole, as a class, aren t growing more than 4% or 5%. the reset, and you talk about it, we were flushed with liquidity before the crisis. money was so cheap, it flowed everywhere. right. we had this situation where the government had to step up and provide all of the liquidity, which it has done, which we have seen of course. eventually that gets pulled back. will the new normal be like the old normal or being able to borrow money and do private equity transactions and leverage your balance sheet 40-1? well, no. maybe that doesn t come back. the new normal basically recognizes that we re in an economy that s delevering and that will move, at some point to an average level of leverage that is much lower than before. i mean, the goldman sachs, lehman brothers that are now defunk were 25-1 in terms of leverage. that no longer is a new normal, even from the standpoint of risk or from a standpoint of regulation, an acceptable standard. so, we re delevering. loans will be less available. not only to homeowners they have to put 20% down now as opposed to zero. is that the next five years, you think, or are we talking about i think so. to the extent that one recognizes and we do that what we ve gone through the past 18 months is a very significant shift in terms of risk preferences and the investment world going forward, regulation being part of that. yes, we re headed into different times as opposed to back to the old normal. okay. already, we are getting questions that are coming in for bill gross. if you have additional questions, bill will be with us for the rest of the show. go ahead and e-mail us at squawk@cnbc.com. still to come this morning, about a month way from the holiday shopping season, but already hard-hitting data about how enthusiastic shoppers will be or won t be, depending who you re listening to. holiday shopping survey results are just ahead. time for today s aflac trivia question. what u.s. president won the nobel peace prize for the role of a peace maker in the russo-japanese war? aflac! is that different from health insurance? well yeah. .aflac pays you cash to help with the bills that health insurance doesn t cover. really? well, if you re hurt and can t work, who s going to help pay for gas? ..the mortgage, all kinds of expenses? aflacc it s the protection you need to stay ahead of the game. exactly! aflac. we ve got you under our wing. aflac, aflac, aflac. aflac, aflac, aflac now the answer to today s aflac trivia question. what u.s. president won the nobel peace prize for his role as a peacemaker in the russo-japanese war? the answer, president theodore roosevelt, who was the very first american to receive the award. welcome back to squawk box. futures right now indicating a lower opening. we got a little bit of a bounce back after two tough days, two tough sessions. lot of people think this might be the beginning of that long-awaited correction. yahoo! will hold an analyst meeting starting at 11:00 am eastern time. people don t care about what time it is in fashion island. we live on eastern time. you do. just remember that. i know it s not raining and it s 80 degrees, but you are based on our time. until we hit the range at 3:00. it will be the first time we hear from ceo carol barts, since the company released earnings last week. that s at 11:00 am. it s officially half time. this is misleading. after today s opening bell, reports over 50% of the s&p. we re done. earning season is basically over. let see if john is still here. names reported today include conoco philips with the ceo name mulva, general dynamics, southern company and symantec. retailers come up. but they re not stretch, is that fair? their quarter is not over yet. but this is the earning season. it is. they re still counting up october sales. little late, but he s there. is he in europe? is he one of our remote guests? thank you for finally speaking of the retailers, out with its annual holiday survey this morning. seasonal cheer is expected to make comeback this year. joining us now is stacey janiak, sector leader at deloit and teush. what do you find retailers are thinking about christmas this year? holiday cheer is making a comeback. they said they would spend 16% more than less. i think we re seeing more confidence, less uncertainty and a little bit of release of that pent-up demand. why is the national federal retail association predicting drop in holiday sales again this year? you have to look at the months they re looking at holiday sales. we take a look at both november, december and january. january is a very important month because of the gift card revenue that comes in, typically, during that month. i think that across sectors, we re going to see different results. i think discount stores, they ranked number one on the list in deloitte s survey again, followed by internet retailers, online sales. i think it will be a little bit different, depending on which sector you re looking at. retailers have been not expecting great things either. a lot of companies have said that they will not be stocking as much inventory. what s that going to mean? i think it means a couple things. retailers will be looking to get consumers in early. i think consumers who are thinking that there will be fire sales this season are going to be disappointed, because inventory is not going to be there. a little bit of the early bird gets the worm this year. i also think that tuckly where we saw consumers say they were going to increase was not on the gift side so much as it was on socializing in the home, socializing away from the home. and a little bit of a replenishment factor. so home and holiday furnishings. if a year ago people did without buying that holiday tablecloth or that holiday outfit again, two years running is probably a little too much and they re going to go back and replenish in those areas. what about in terms of electronics? flat screen televisions had been huge for several years. we heard from corning earlier this week that it s still expecting about 50% growth in the glass it makes for some of those flat panel television scre screens. any thoughts about whether that can continue to be a big seller? prices keep coming down. right. i think it can. actually, we looked at the catego categories of gifts that consumers indicated they would be purchasing. the entire technology arena showed a significant uptick this year. home electronics, game consoles, actual computer games, the whole area was something that consumers so many to be very responsive to in this year s survey. when we look at the final tallies after we get the january numbers, what s going to be a picture of success versus maybe a little bit of a disappointment? you know, at this point, picture of success would be even flat to last year. just given the fact that consumers have been pulling back. we know many of them have the wherewithal, but just don t have the willpower to spend. if we can get to flat, that s successful. even a little bit up. retailers are positioned to have a profitable season if they can get those top line sales. stacey, thank you very much for joining us today. we appreciate it. thank you. coming up on squawk box, how much do u.s. citizens trust the government? results from the latest wall street journal/nbc poll will be up next. 150 years of legendary financial strength and the proven experience of a leading investment firm have come together. wachovia securities is now wells fargo advisors, with financial advisors nearby and nationwide. for the advice and planning expertise you need to address today s unique challenges, we re with you. wachovia securities is now wells fargo advisors. together we ll go far. welcome back, everybody. the number of people trusting the government, it has hit the lowest level in 12 years. according to the latest nbc wall street journal poll. nearly half of americans favor the creation of a new political party. that s something bill gross, our guest today, has some thoughts on. we ll get to that in a moment. on the health care front, this survey shows highest level since the health care debate began. senate majority leader harry reid moves forward with crafting a bill that would actually include that public option. on the economy, an increase in pessimism after improvement in september. 58% of those polled say that the economic slide still has a ways to go and, bill, we were just talking off camera about this idea of a new political party. third party? you think it has legs? i don t think it has legs, but i can understand the justification for the displeasure, i suppose, with republicans and democrats and, yes, they emphasize different things supposedly. republicans want to increase, as deficits go up and down, legislation differs to some extent. but the american public in terms of jobs, unemployment, standard of living, is falling far, far behind. so, this frustration with democrats and republicans is evident. huge wrench in the jersey race for governor. it is, third party. third candidate. ralph nader used to be the darling of the left. look what happened to him after taking away votes from al gore. it never works. no, it doesn t. it usually does the opposite. it cuts off the nose of the it does never work. so the polls should be perot. disenchantment of the public with the system. so, let s look at main street as opposed to wall street. that s the message there. if we end up with about 12 parties because of what you re saying, like over in europe, and 30% wins and they do these ridiculous coalitions. don t suggest that, gross. i didn t suggest it. i know you lean left out there. it wasn t our poll. i set him up. you did. mccauley and comments or questions, go ahead and send us an e-mail at squawk@cnbc.com. welcome to the now network, population 49 million. right now 1.2 million people are on sprint mobile broadband. 31 are streaming a sales conference from the road. 154 are tracking shipments on a train. 33 are iming on a ferry. and 1300 are secretly checking email on a vacation. that s happening now. america s most dependable 3g network. bringing you the first and only wireless 4g network. right now get a free 3g/4g device for your laptop. sprint. the now network. deaf, hard-of-hearing and people with speech disabilities access www.sprintrelay.com let s take a check on the markets now. futures under some pressure this morning. in fact, down by about 55 points for the dow futures. numbers are coming up in an hour s time. we ll be getting new home sales for september and durable goods for the month as well. mortgage bankers association says applications fell 12.3% even as the average 30-year mortgage rate edged lower, 5.4%. guessing? earlier i saw someone 5.4 is the one. all right. ford confirming that china s geely is the preferred bidder for its volvo unit. they ll now enter into exclusive negotiations, but no assurance that a deal will necessarily be finalized. walt disney company is the latest to try to reach its audience through apple s iphone, new application that is will work with the iphone and ipod touch, giving users access to a wide variety of disney content at they look for more ways to reach the consumer. we once had a car that in korean or japanese meant crap or something. like the nova, means no go. right. geely, they need to change that name. you think of ben affleck? yeah. you don t want to think of geely. the dollar showing never mind. my world. the dollar showing signs of a mild comeback of hitting 14-month lows over the past week or so. that is what it looks like. here now with more on the dollar, markets and the economy. cnbc contributor kevin fairly and also global president david mopass, chief economist at bear stearns. you re going to have a huge role in some government, david. what did they want you to be, fed chief or treasury secretary? they say you re going to be everything, right? good morning, joe. yeah, but i want a strong and stable dollar you won t fit in. i didn t fit in. definitely not listen, david, before i get to kevin, do you think, is this just another temporary bottom and it s headed lower or is there something to this, just maybe the inflection point on easy money and low interest rates, maybe we re getting close even though people don t think we are. i think all markets have gone up, so it was time for a bit of a breather. people have to be a little worried about the u.s. being having a little bit of a slowdown here in the fourth quarter. there s some concern about foreign central banks going into their tightening process. and i think overhanging the market this week is worry that the fed might be a little bit tighter in its upcoming meeting. i don t think that third risk is going to come about. i m thinking this is more like the pause that we had in june and july. remember when the markets gave back some of their gains? but the bigger problem, i think, comes in 2010, when the fiscal deficit is blowing out. washington will still be in disarray. bill gross was too diplomatic when he was talking about the can chaos in washington. it s utter, and it s really harmful to the economic outlook. i think the markets will have a bigger problem in 2010. as inflation begins going up a little bit. i never want to be too nice. the dollar is an overowned currency. the chinese, the asians, you know, they basically have owned too many dollars for too long. and to the extent, yes, that the united states is now borrowing a trillion and a half to two trillion of them in terms of longer maturities increasingly as we go along, then the dollar becomes more and more owned and less and less desirable. so ultimately, yeah, the direction is down. if only to rebalance the global economy from low production in the united states, high production in china. hole on, david. to higher production in the united states, lower production in china. i just want to get kevin in this for a second, david, then you can respond to that. sound like the optimist now, joe. we re going to get your long-term view of the dollar, which would end next week, your long-term view. right. as a trader, are we going to bounce a little here? yeah, but the only thing i would say is uh-uh have to stop talking about the dollar generically. in a world that s starting to fractionize you have to talk about it more specifically. if you look at the whole month, notes from five years and in, unchanged. s&p future, unchanged. the only thing that s moved is the dollar is higher against the yen and lower against the broad market of currency. this is just like the ride at the boardwalk, get on the scrambler, it whips you around, get off and you re in the same place. you have to look at the entire structure and the fact is that it s the only thing that s move around. david s point is the best. bring some stability to it and these other markets will benefit dramatically. i don t sense stability in the dollar. i mean, the diversified index of the dollar, the dxy, is basically heading down to its all-time low. ultimately through it. the big test, as i suggested several minutes ago, in terms of the chinese yuan, to the extent that the chinese decide to revalue that the world has renormalized enough so that they can proceed with that risk, then the dollar stands a chance of moving substantially lower. now, david, what were you going to say to bill? hi. well, i agree with what bill said there. i want to raise two new points. washington has lots of control over this. the key variable in how this plays out over the next year depends on whether washington keeps the weak dollar policy, they keep reinforcing it. it keeps hurting the united states, keeps unemployment high. there s this overhang of the tax hikes coming down the pike, scaring small businesses. that was the front page story in the wall street journal yesterday. washington is controlling this or does control this, and is doing it in a way that has negative outcomes. but on the positive side, i ll throw back to bill gross, the idea that assets have value, depending on what the policies are around them. so, i think we could have something better than the new norm in the u.s. over the next two years, if there were better policies. assets depend on the policy environment that surrounds them. and so there s no reason that we have to be in this new norm. david, let me take you up on your point about the weak dollar being a negative. i mean, that s a larry cudlow type of argument and one that we disagree with. to the extent that the dollar goes down, it rebalances the production levels of the united states and the asians. and, secondly, you would have to agree that the stock market, because half the earnings of the s&p are basically overseas. the stock market has been propelled forward, based on a weaker dollar. so, the extent that the dollar goes up, it reverses all of those positive trends. right. i agree that rich people do well in a weak currency environment. they borrow money and take it abroad. whatto i don t think is factored into what you just described there, the s&p might go up to offset some of your dollar losses, but americans, for years now, have been doing better by having their money abroad. and that only applies to a few americans. the rest are left without jbs, without the capital that s needed to build new enterprises in the u.s. i ve heard him make that case before. you know, i wish someone would get to the bottom of whether it s good or bad, because i can hear it has pluses and minuses to the extent that the dollar goes down, our standard of living as americans goes down as well. that seems bad. it is bad. but that s the problem with the past 25 years. we spend too much. don t we get to pay back everything we built up with half as much money, david? no, that s not right at all. we don t have anything built up. as the dollar weakens, the capital flows out of the country. so, my difference i agree with bill on lots of things, so i think the difference is whether this is our fate. i don t think it s the proflicacy causing us to have lower standards of living, it s washington that s causing the lower living standards. we agree the living standards are going down. i think it could be changed and should be. if washington adopted a strong and stable dollar, president obama would be very popular and the money would start flowing back into the u.s. instead, he s doing what george bush did. it s the same policy. well, i would just say the other countries get to weigh in on this, too, you know. so, i think rebalancing is the proper word for it. right now, the negative consequences in fact, the weaker dollar has helped monetary policy at the fed. the fact that it moves if they were to move away a little bit, it would make the fed s job easier. i think you look at the whole thing and saying this is good. we re going to go buy stocks and bonds, but the dollar is going down. well, only for some time. so, i think less is more here. and less volatility in that structure, given the lack of volatility in the other structures, equity and debt, would even make the system more stable. all right. we re going to end it there. thanks, kevin. and david, it was good to see you. we ll see you again soon, i m sure. david malpass. either way. thanks, joe. and bill gross. you know the bond king kind of sounds like the mattress king or something. you probably don t like that that much, do you? well, to the extent that pimco becomes recognized, that s fine. the king part i can do without. you have a lot of questions cominging in. i was printing out some questions. we ll carve out some time in the 8:00 hour to go through those questions. we are seeing your e-mails. continue to send them in at squawk@cnbc.com. names in the oil sector that could energize your portfolio. as we head to the break, price of crude oil below $80, down another 73 cents today to $78.82. squawk box will be right back. [ thunder rumbles ] 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. of your business, when ywhat do you see?uture is the glass half-empty or half-full? well, with ups, you could eliminate warehouses. streamline your supply chain, and even reach new global markets. so your business is more adaptable, more efficient and more profitable. hey, the opportunities are out there. seize them with ups. is anybody else thirsty? you re still talking about oil at $78.77. our next guest says oil drillers and tanker should be on your radar right now. what s make these stocks attractive? omar joining us now with his picks. when you look around, why is this the place to be right now? hi. we re definitely start ing ing e a huge improvement, being strong the past six months, we re starting to see a lot of the oil and gas companies increase their spending and budgets for next year, bodes very well for the offshore drilling sector. a lot of capital has gone way from them this year and now we re starting to see the beginnings of a recovery. where do oil prices have to stand? north of 60, north of 75, near 80? probably lower than that. lot of major products in deep water. actual stable price of oil. that was the problem late last year as oil was in freefall, you saw companies hold back spending because they had no idea where the price would be. if you re looking at stability, you re talking about a year ago oil prices at $116. what are the odds we get any sort of stability, given how much money is floating around right now, looking for a place to park itself? that s definitely the big question. volatility will always be there. the big key for us and what we re honing in on is the past six years or so, oil has been pretty expensive by historical norms, global proven reserves have grown by maybe 1% on average each year. and that compares to, say, 10 years ago, the last oil spike we had in the late 90s. within a year, reserves grew by 17% or 18%. in the drilling space, you like two names, noble and rowen. why those two names? very good quality rigs. they have a lot of idle capacity that s not currently working. as budgets start to increase next year, we re already starting to see projects pick up and we re expecting a lot of those rigs they have offline, to see demand and we think they ll pen fit from having a potentially higher day rates as well. front line in the tanker space. that s a completely different sector. front line, we re positive going into next year. over the past six months or so, tanker rates have been pretty low, operating near cash costs because refineries here in the u.s. and globally are not making enough of a margin to want to pay up for tankers. with inventories coming down gradually the next three to six months, we think we ll get to a point where they get much more compensated for refining the crude into gasoline and heating oil. looking out into the spring season, it looks like u.s. inventories of gasoline will be very low, could lead to a huge ramp-up in refining margins, ultimate thing for tanker rates. thank you for your time. thank you. appreciate it. nasa will try a second time to launch its experimental test rocket this morning after cloudy weather spoiled a first attempt. that is scheduled to happen at 8:00 am eastern time. yesterday, there were a lot of delays. if it does happen, we ll bring you those pictures as it occurs. squawk box will be right back. for over 150 years, wells fargo has been putting our clients first. according to a leading independent research firm, in 2009 clients rated wells fargo advisors the #1 u.s investment firm for doing what s best for them. with advisors nearby and nationwide, we re with you when you need advice and planning expertise to meet today s challenges. wells fargo advisors. together we ll go far. 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. if you write, we will listen to you. pat burns, dear becky, carl and joe, could you please play the animal orchestra and yoko oo no s we are all water at the same time? i think that would be especially entertaining. thank you for a great show. i watch it every day. thank you, patrick. there, your request has been fulfilled. let s take a look. nothing to do with what i want. if you don t want to hear that anymore, can you write in that too. i don t know that one. take a look at stocks to watch this morning. general dynamics, third quarter was $1.48 ahead of expectations on revenue that was more or less in line. full year guidance has been raised to 6.15 to 6.206789 that s where the street already was. international paper reported 47 cents, above expectations of 24 cents and revenue was also slightly above. well point, hearing a lot about wellpoint and the other hmos as this health care stuff goes forward. third quarter 1.53. that included some items. it s unclear to compare to 1.38. it is better than expected. that stock is trading higher and apparently this company continues to earn a profit, which a lot of people don t like to see as far as insurers go. but they will pay taxes on that profit, which is good. qwest third quarter nine cents, ahead of expectations. revenue was in line. coca cola enterprises is reporting third quarter net of 50 cents a share, a nickel above expectations, revenue slightly below. full year guidance goes from 154 to 157. and that s at the high end of the previous guidance that the company gave, in line really with where wall street is. hess, 1.05, that stock indicated higher. southern company, 99 cents, a penny ahead. revenue was lower than expectations, though. significantly cooler than average weather for the period and the weak economy continued to have a negative impact on earnings in the third quarter. really cold. cold in a lot of places, bill. yes. global warming is not a thing of the past. but this year it s taken a backseat. warmest year was 1998. antarctica you are a good republican. you know that? windham. and you re a good democrat. windham worldwide reports third quarter no, no. third quarter was 58 cents, two cents ahead. company reporting $1 billion in revenue. that was in line with expectations. target upgraded to buy from sell, a two-notch upgrade. that s funny. the target on target was increased to 61 from 44. this is a nice they re going from a sell to a buy and their price target goes from 44 to 61 because it s already at almost 50 at citigroup. rubbermaid reporting third quarter ahead of expectations and revenue. 1.45 billion slightly below expectations. bill, we ve been getting a lot of questions for you. one real quickly from bob zimerman. with the states receiving less rv new from the tax base, how safe is the municipal bond snarkt. less safe, no doubt. california is down to triple as opposed to single and double what it was. states have significant problems. they have problems in terms of property sales taxes, income taxes and the budgets have really never been balanced. and now they re terribly imbalanced. that s not to say they re going to default. there have been some local defaults. to think that the state of california would go bankrupt is extreme, to say the least. it does suggest that there are yie yields and their yield spreads compared to other securities. okay. when we return, bonds breaking news and baseball, mario gabelli will join us, plus pennsylvania governor ed rendell. for a smarter way to trade online. only fidelity lets you back-test your strategies against an entire portfolio of stocks. plus you ll get advanced, customizable trading platforms. and you get the kind of execution you d expect from fidelity. .with a dedicated specialist to talk about even your most complex trades. they ll even help expedite the account transfer process. trade like a pro. trade with fidelity. bond king making a rare east coast appearance. stocks are up 50, 60% from the bottom. in terms of the total return the past six months. we ve renormalized. this hour, famed investor mario gabelli joins the conversation and he is always searching for value. breaking news on the way. the markets find out how many washers, driers and airplanes are being ordered. larry, where s the forklift? it s over there, by the baggage loader. and we are hours from the first pitch. there is more than yankee and philly pride on the line. i want rendell in a yankees skirt and you in a phillies skirt. what do you think? will you agree to that? i won t have to pay, so i ll take the bet. all right. pennsylvania governor ed rendell will get a chance to take a swing at the yanks. squawk box begins right now. that s good. our big yankee fan producer it must have been like pulling teeth to get him to play this. that is fair. we did the yankees yesterday. we re doing this. phillies today. welcome back to squawk box, first in business worldwide. i m joe kernen, along with becky quick. carl is a little bit under the weather, i think, today. he has a cold. something going around, too. half the staff. yeah, mario is here. he s feeling gabelli. he s not just the money manager, but a comedian. bill gross, guest host trying to follow your lead, joe. i know. just as effective as i am, too. bill gross is here, founder and co-investment officer of pimco and mario is here. we ll have him in a minute. we re going to do some headlines and then break out. these two gentlemen will be here the next half hour talking about from the high level down and from the bottom up. great conversation. these two guys together could pay for health care reform but we re not going to ask them to do that. futures now are indicating a little bit of weakness, down about what is that? 36. 37 points or so. i m not exaggerating. both of them kind of gasped when i said that. in talk with his gmac about a possible third cash infusion. the company has received $12.5 billion from the government. the journal now reporting that the government may now need to pump about $2.8 billion all the way up to $5.6 billion additional dollars into that lender. new questions today about links between former advanced microdevices ceo hector ruiz and the largest insider trading scheme in decades, the unnamed amd executive in that criminal case filed by the manhattan attorney s office, u.s. attorney s office. the executive in the case is accused of sharing confidential information about the company with a defendant in the gal young case. amd says it s unaware of any criminal misconduct by current or former employees. earnings reports this morning, wellpoint earning $1.53, 18 cents better than the street was expecting. profits declined 11% from a year ago because of its customers being laid off. that affected a significant number of workers. international paper earning 13 cents better than the street was expecting, despite falling sales as the company cut costs. now we are kicking off that special mega market round table we just mentioned. again, mario gabelli, famed money manager, chief investor and our guest host, pimco founder bill gross. you look at things from different perspectives. m mario, you re a bottoms up guy, and bill you re a top down. why don t want wee start talking about from the bottom up? we ve been talking about the top down. bill makes money for his clients. we make money for our clients. it s the same storiacy abrew maker. coors, anheuser-busch. how are you, bill? i m fine, mario. it s good to see you again. always a pleasure. you know, i was thinking about how to make money from the bottoms up. i have to do it tops down. it s too much fun not to do it with you here. i ll do some bottoms up. absolutely. you ve been trying to do that. i ve been trying to do tops down. we are interchangeable. maybe we should merge. we have the capital markets are $100 trillion. $60 trillion in fixed and you are very strong in that. they call you the king, not the queen. and there s 40 trillion of equities. i see you re trying to get into the equity market. $100 trillion. i m going to echo my recommendations i ve been doing for the last six or seven mon months. because they have a wanna-be, western, in the fixed income market and have been putting everything together, stock is $30. 160 million shares, and so i think they ll benefit from this enclosed global market that you re looking at. that s how i look at stocks. and then in addition to that, stronger gets stronger, jp morgan, goldman sachs. how do they take advantage of the next opportunity? how does the steve wynn, even though the stock is coming in, how do they get an advantage because of their capital structure? how does coca cola and pepsi compete on a global basis, and then the auto industry, they go in and buy stores while others are shrinking their stores. then we have financial engineering. company a wants to grow. they want to make acquisitions. company b, like bristol meyers, has a crown jewel in johnson, take it public and shrink their cap. there are a lot of ways to make money. in a market that is kind of flattish, you basically go back to making money by playing old stock picking. plain old stock picking. you own stakes in all the ones you re talking about. some more than others. we don t expect anybody to take over coca cola. we don t expect anyone to take over pepsi. they re the ones that will be doing the buying. in that context, we basically look at companies that are subject to financial engineering. for example, national fueling gas in buffalo, new york, they basically allow you to get 600,000 acres in one of the great natural gas places because of new technology. you think technology, you think about horizontal drilling. you do that all the time, not vertical. as a result of that, you basically can get 600,000 acres. what s going to happen is that you have a company that, at some point, will go through some form of financial engineering. we look for companies like that. trying to come at this from a top down perspective again, a lot of activity starting to pick up again. we ve seen credit markets loosen a little bit. how has that changed the types of companies you re look at? to the degree you re johnson and johnson and now you have a strong tail wind of earnings and visibility is pretty decent for you, for you to go out and do a $10 billion transaction and leverage up half a multiple, that s not a particularly challenging dynamic. private equity, doing a club deal again, guys looking to join up, are they back? clearly they re back, but they re not going to pay 10, 11 time that is they did in 05, 06, 07 for company. that s what we heard from david rubenstein, who was in earlier, he said you re going to be talking seven, eight times earnings for the new normal when it comes to deals. it s not the new normal. it s the way it used to be until guys like him got into too much liquidity and they were able to get all sorts of funny covenants that they didn t have to worry about in terms of refinancing. that s over. it s like the bad wine of 03 whereas the great wines of 09 you want to accumulate. doing deals that will work out. so worldly, isn t he? let s talk about the asset management business. we can t right now. we re going to a break? i got your interest. i piqued your interest. i m thinking about governor rendell in a dress. if we can talk to him about it we have to. world series kicks off here tonight. new york governor david paterson is predicting a victory for the yankees, willing to back it up with this challenge. governor, would you wear this dress on the cover of the new york post that s a bet. that would be a bet. i want rendell in a yankees skirt and you in a phillies skirt. what do you think? will you agree to that? i won t have to pay, so i ll take the bet. oh, okay. all right. wow! he was cocky, arrogant. joining us now with his response, pennsylvania governor and die-hard frillies no, i m sorry. is it frillies, governor? i saw that on the cover of the post . the post has to look at its demographics. at least half the people in new york are rooting for the philly, all the mets fans, because they hate the yanks. espn said 65% of the nation, in a poll they took, is rooting for the phillies. the post ought to check those demographics. i ve never seen your leg. i have very good legs. it s a general rule, it s okay for politicians to make fools of themselves, but not complete fools of themselves. you re not going to you re not going to take the challenge? what are you willing to do if the yankees win? what am i going to do? when the patriots play the eagles in the super bowl in 05, i bet with mitt romney that the losing governor would go to a basketball game at the winning governor s state, sing the national anthem. now, if you ve ever heard me sing, that was a gutsy bet. but i, like governor paterson, i didn t think the eagles were going to lose. i would suggest to the governor that he think again, because the eagles did lose. i had to go up to a boston garden packed with the celtics fans and 76ers were up there and i had to sing the national anthem. i later found out that governor romney was trained in opera and he could really sing. i sing like a horribly deep-throated duck with a cold. i got up there. boston fans were actually pretty nice. but i had a secret weapon. i brought my wife out with me and she went out to mid court and we had it planned after the first two verses, on the verse that begins and the rockets red glare, she started to sing and she was so good the place gave her a standing ovation. i was there in a patriots jersey. i didn t care about my voice being terrible. i was deathly afraid that i would forget the words. that would have been death to a politician. for weeks before, i had a card with the words to the anthem. and every time in between meetings, i would take the card out and study it. and i didn t blow any of the words. this really had an affect on you. you learned your lesson and you will not agree to do even if the yankees win, you re not going to wear a skirt? no. it s interesting. there s a parallel here. i have since we got locked in our budget negotiations, we were the last state to have a budget, 101 days late. i decided to i would start a diet and lost about 50 pounds and a few of the press in pennsylvania has asked me if like some of the stars who did their diets and then, you know, kirstie ally went on in a bikini. would i wear a spandex bathing suit to show my new body? i said the people in pennsylvania are ready for a lot of things, a hardy people with a strong tradition, but they re not ready to see me in a spandex bathing suit, nor are they ready to see me in a yankees skirt, even though i believe the phillies will win in six. it will be a great series. phillies in six. giuliani in drag. wait. if he had done well in the early primaries, that picture was coming out all over the south, that picture was coming out. i think you re right and i think you re smart about this. i ll tell you what. you think of something. we ll still hold paterson to if he loses, he s wearing the skirt. understand, dave has an advantage. first, dave paterson is a great guy, great sense of humor. he came to philly to help me once doing a fund-raiser when i was running for re-election. he told the crowd he wasn t much for the vision thing. so, dave doesn t even have to really get a good look at himself in that skirt. there s a big difference. i have to look at myself for years in that skirt. i hear you. you ve got a good point. i would ask you some business questions. i could do asset management. yeah, you can do asset management. i could be governor. hey, if you want it, come on down. three hours away by car, harrisburg is. it will be great. i hope it stops raining, governor. i do, toochlt actually, the weather for the three games in philly is supposed to be pretty nice. in the low 50s and pretty dry. but i do think with the stars the yankee have and the stars the phillies have, it will be a great series. the phillies pound sabathia. they do? yeah. he pitch for the record milwaukee in the playoffs against us last year. we chased him out in the third or fourth inning. pounded. they said he was worn out for that game. he was, but you used him on three days in the playoffs against the ainngels. you guys? don t throw me in there. most of new york should be buying phillies hats, because they hate the yanks. this is a fact. i grew up in new york city, west side of new york. i with his a new york baseball giants fan, my father and i. the year that my dad died, the giants moved after he died, the giants moved to san francisco and we were left without any n.l. teams and we hated the yanks. if you were a giants or dodgers fan, you hated the yanks. i became a chicago white sox fan because i wanted a team that could beat the yanks. they won pennant in 1959, my first year rooting for them. i had to wait 46 more years before they won again. i m mad at the phillies for stealing pete rose. right. and, remember then you won a series. the only phillies/yankees series, yankees swept in four. we swept the yankees in four in 76, which is what i m still living on. absolutely. thanks, governor. asset management. have a good morning. by the way, governor rendell will be here at cnbc next tuesday, election day. look at these guest hosts, governor pawlenty, governor rendell, duelling hosts on election day. and it s big in new jersey. i m trying to get booker out here, too, the mayor of newark, to see if he can come. it s a huge deal as almost a proxy for for what the nation thinks about which direction we re headed. yeah. all right. we ll get back to the markets in a moment from stocks to bonds with bill gross. mario gabelli has joined in on the action. squawk box will be right back. tdd#: 1-800-345-2550 tdd#: 1-800-345-2550 i want everything right where i can find it. tdd#: 1-800-345-2550 anything that makes trading easier. tdd#: 1-800-345-2550 i want to be right in the middle of the action tdd#: 1-800-345-2550 you know i have to see what s going on. tdd#: 1-800-345-2550 and when i pull the trigger. tdd#: 1-800-345-2550 .i ve got to get the best price out there. tdd#: 1-800-345-2550 (announcer) try the new schwab.com tdd#: 1-800-345-2550 for yourself. tdd#: 1-800-345-2550 call 1-888-4schwab tdd#: 1-800-345-2550 or visit schwab.com/trader today. tdd#: 1-800-345-2550 course a trade doesn t always work out my way. tdd#: 1-800-345-2550 but when it does. tdd#: 1-800-345-2550 .man. do i love that feeling. 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. you see the rocket sitting right now, the ares rocket. still no launch for the rocket. lightning strikes in the area pushing the launch to between 8:45 and 9:00 eastern. apparently a lot of winds right now in florida. we ll keep you posted on that. there s the rocket, still standing by. we are continuing our mega market round table discussion now with our two heaviyweight guests, mario gabelli and our guest host, pimco founder and co-chief, investment officer bill gross. we don t do things that are just interested that just interest the anchors, obviously. but you re the cable guru of all times. and we are hearing that the biggest cable company, comcast, is thinking about buying the parent company of cnbc. we hear comcast shareholders may or may not be enamored at the deal. are you, if comcast is successful? do you think it s a good deal for comcast? since it s a fairly simple transaction, if they want liquidity, they ll have an option to the degree that he wants to unwind his ownership of nbc universal, joe i said it before, i think it s a very good deal for all the parties. a very good deal for all the parties? except the guys working for comcast. except for the guys that are working for comcast? that was my joke. okay, i got it. i got it. why are we at least hear intimations that comcast stock weakens? you have to pitch the deal and see what the details will be. what are they going to own? how much additional leverage are they going to do? what s the advantage of having a company with distribution, what s the advantage of a company with the broadcasting business? that s what happens in washington. would washington put up any barriers? the mark has to allow companies to move assets around. right now, we have a major shortage in the world in technology, the iphone coming in with spectrum hogs. taking some spectrum from television. you have a major problem with regards to who is going to pay for the maintenance of the infrastructure and this whole concept of neutrality is terrible. comcast has to own and move their assets to where they want. if they want to lose money, they can lose money. if they want to make money, they should be allowed to do that and take risk. if the shareholders don t like the deal, that s fine. i think they should do that deal. eventually, will it come home to roost that the pipes aren t going to be worth what in a digital world that distribution won t be what it is? no. the article over the weekend which said the best company that s performed has been time warner cable. no longer a content company. does a cable company need content? is that a winning bet or a fool s game? in 1975 i wrote a story on the movie industry. and that is give the consumer what they want, when they want it and at a price they can afford and deliver it in a cost effective way and you re going to make a lot of money. that mantra could have existed in 2000, could have existed in 2000 b.c. deliver to the consumer what they want when they want it at a cost effective price and give it to them on demand. why should i have to not be able to timeframe so that tivos of the world are just the beginning of a major and dramatic change in that? content and marrying it, exclusive content is terrific. should they be allowed to have exclusive content? in 197 3, the government took the prime time access root. that es why viacom was created. they said the networks could not own more than x percent of content. the world changes. fcc has to come out, put a policy in the next, i think it is, february 17th. i could be off by a day or two, and we ll understand that. time warner cable is a wonderful asset. comcast is a wonderful asset. cable vision is a wonderful asset. satellite is even a better asset right now in terms of pricing. you didn t get the answer you wanted. no, no, i got it. reporter: like governor rendell wearing a skirt. i like what you said about the government employees. content is not these cameras, desks and these floors, linoleum, wiring. it s the people. that s what makes up the content. if you want me to negotiate for you in your contract am i right or am i right, becky? you re right. it s intellectual property, joe. i don t know where you fit in that subject. intellectual doesn t go a long way. no, it does. it works. in a world in which the united states is leading in technology and international content, how do we deal in a global marketplace where we have to deal with the chinese and protect it? when we export intellect and content, how do we get paid for it? those are a lot of issues that are moving parts. asset management. he wants to merge with us. he needs equity. you re always talking about making love and all this stuff between companies. bill and i have done this for a long time. that would never work, would it? not making love. talking. what would you call it? asset management business is changing, correct? we have a new normal. if asset prices go up less, then economies are scale, companies that are large and can produce for their customers are going to benefit, whether that s leg mason, pimco oro any other company is debatable. to the extent you can go global, to the extent you can move across asset categories, which pimco plans to do commercial, then i think that s a benefit for their customers and a benefit for the i agree. to the degree they can clone you is even a better benefit. bill, when you look at the notion of, in quotes, the new normal, if i took the dow in 1900 to 2010, went from 60 to 10,000, that was 4.5%. if i took it from 2010 to 2100 at 4.5%, your new normal, we get 525,000. and that is without dividends. if you add dividends in, which will be respectable, the number is staggering. you ve done the math. so if you take 25 years you re telling me you re doubling every 14 years, which is okay. which is fine. what s wrng with the new normal under your terminology? what s wrong with it is that the world, the public, those who have invested for education, for retirement, have anticipated something higher than that, something between five and ten. and to the extent that they don t get five, then they re in trouble. that s the market. you and i will do better. we ll add alpha to that. that s why they love us. i would agree with that. alpha has to be substantial to get you up to 10% in a 4% to 5% world. i don t think either one of us can do that. bill gates did it. gates had some technology and buffett, what did he have? brain power. is that what did it? that s what the united states has. all we need to do is protect it. i disagree with the protection, to the extent you protect brain power ultimately it becomes very ineffectual, weak. we all agree on that. to the degree that hollywood needs intellectual protection on their copyright and content and you live in hollywood i m going to let you go out and fight for yourself in hollywood and vine. are we disagreeing or arguing? same thing, we agree. is there a difference between protectionism and talking about intellectual property, right? well, we re talking about should government put a ring or fence in, or should the free market allow things to have okay corrale every day? we re beginning to see some protection with steel, rubber. face it, a lower dollar, in effect, is a protectionist barrier. it basically says our goods are cheaper than yours and ours is better than yours. you agree the government is talking a lot of lip flap when it comes to a strong dollar policy? maybe they like this for now? they have many, many years. at this point they re on board in terms of a weaker dollar, but a lower currency that can promote a rebalancing of the u.s. economy in terms of production versus services and consumption and rebalancing of the global economy. steel was the marginal line of the current thinking about protectionist. it s really been currency. protectionism can we have you back? we ll have you back. we have durable goods. i m durable. mario, thank you very much for joining us. we appreciate it. we ll see you soon. bill will be with us the next of the hour. we do have that durable goods report up next. stick around. 22 seconds before the september durable goods report comes out, and i think s santelli s not around here today. you can see who is going to do the number and he has gotten good at this. i m going to jinx you and steve liesman is in the studio to respond. we ll get what was expected and what the actual was. what was it, kevin? 1% right in the middle of the expectation range. whisper of 1 1/2 here. transportation up nine-tenths. that s okay. let s see what steve says about capital goods ex-transportation. we can t see it. kevin is good. but throwing to me too quickly. set the bar low and achieve it. don t you want to rant about something, the dollar, the government intrusion? come on, kevin. this is rick s time right here. i m on the other side of all this dollar hype. there s less going on than meets the eye here, folks. i want to say if i had if we had been running policy to strengthen the dollar, where would we be right now, kevin, positive 2% or 3%, funds rate, a balance sheet, where would we be right now, kevin? i don t know. half the people love it. it s going down. the other people think it s terrible because it s going down. i m exiting the debate. wasn t there an outlyer durable goods? huge shocker, last one. the question was what was happening to business investment. i don t have that number because i m having a few computer problems here, joe, as i have over the last seven years. but just on face value, this doesn t look like last month. no. huge volatile number. i think this number under shoots. i would be interested to know where it under shoots. it has to be a huge boeing number. you wonder if it s ex-transportation data on this and see what s happened. a little surge, by the way, in auto production, part of the cash for clunkers, clear out the inventory, get a little production going. we ll have to wait and take a look. there it is. little change after they say it s within the forecast. that s what the wires are saying. if i could turn to bill gross, bill, a lot of talk about next week and the fed. right. exceptionally low for an extended period. do you expect that language to change next week? i think there s a chance that the word smithing will produce a period of time that doesn t change exceptionally low. that s something i don t think they should do. but we re beginning to see some hints. we ve seen central banks on the move, australia, perhaps norway and so interest rates are beginning to move up in economies. the fed may want to word smith their extended period to some extent. i think it s the wrong move. i think it s dangerous. ought to stay with the language they ve had. given comments and other things going on about the economic recovery, maybe the fed takes responsibility for itself. perhaps. what the fed has to do in my opinion and our opinion at pimco. they have to stay low because of the embedded cost of debt in the economy is 67%. you need to grow an economy nominally with inflation by 4% to 5% in order to prevent continued debt deflation and destruction. we haven t seen that yet. we need a period of time, perhaps six to 18 months in which the u.s. economy stabilizes around this 4% to 5% around this nominal number. that s why this extended period of time really is out there and probably should stay out there for the next statement and other statements. let me ask you about fed purchases of treasuries and mortgages. about to run off this month, but mortgages are supposed to run off first quarter of 2010. is it your expectation to stop buying in that quarter? that s our expectation. that s what we ve been told. huge subsidy, steve. $1.5 trillion of purchasing power come into the treasury market, agency market, mortgage market to the extent that that disappears and we ve been told that it will, then there could be some problems in terms of longer dated, five, ten, 30-year treasury in agency bonds because that buying power disappears. is this an asset class that you re steering clear of because the fed purchases are going away? well, there s a continuing debate at pimco and there s this push and pull in terms of the economy to the extent that the bid is unsuccessful in reflating this economy, then bond yields will stay low. and the purchasing power exercised by the treasury probably won t make much of a difference because bonds become attractive in a low-growth environment. kevin, you ve been following you think the markets, as does bill, has been following this too big to fail discussion that s been going on in washington. why is it important to markets, kevin? because we ve just come out of 25 years where, steve, basically where that was the d modus operandi. people liked to talk about but we were living in a swamp. the kiwi see is a path that gets them up, get them running, recapitalized. this time there will be structural changes behind it. that s the path we re on. it should not be news to anyone involved in the process. you ve been following this also. yeah. i think it s big news potentially, evolving the congress is still working on it, then the treasury supposedly in coordination. to the extent that some powers are taken from the fed and attributed to and given to the treasury and other costly makers, then you have a body that becomes more political as opposed to market oriented. that s the danger. we could have situations like general motors where labor is favored over stake holders and there s risks being embedded into the marketplace as we make this transition. right, right. you think it s more a dangerous world we live in where the fed needs treasury approval to use its powers? i think so the. fed is independent. the treasury is a political body. to the extent you shift power from the fed to a coo nsortium, including a political body, yes, it becomes dangerous to capital markets. right. i would clarify, that s we think exactly the same way. when it shouldn t be news, i m saying you should pay attention to this space. they re very open and very direct about this is the direction they are heading. and i think that mr. gross comments should be heeded there. kevin, steve, gentlemen, thank you very much. bill will be sticking with us for the rest of the show. in fact, we ve been getting a lot of viewer e-mails. we ll be taking some of those e-mail questions for bill in about 15 minutes time. last-minute questions, send them in. we ll have those questions towards the end of the hour. next it says that the land of milk and honey is the land of business innovation. now i know where we re leading. we have dan on, dan senor co-author of start-up nation, the story of israel s economic miracle, adviser to the white house and pentagon. he will tell us about this miracle in the middle east. squawk box is coming right back. still no launch for the ares rocket. the weather in florida is pushing that launch time back, now between 9:30 and 10:00 am eastern they re saying. we ll keep you updated on that. futures at this hour, under some pressure this morning, have been all morning long. in fact, right now you ll see dow futures are down 28 points below fair value. co conoco philips, six cents better than had been expected. you can see that that stock, bid ask is higher, 5107 to 51.37. average 30-year mortgage rate slipped to 5.04%. and the los angeles city council voting to outsource its e-mail system to google. 30,000 employees will shift to google s cloud computing model during the next year. it could pave the way for other cities to abandon microsoft s outlook for google s system as well. new book looks at how israel has managed to become a leader in business innovation. dan senor, co-author of start-up nation, the story of israel s economic miracle, senior fellow for mill eastern studies at the council on foreign relations. dan it s good to see you. joe, good to be with you. congratulations on the book. thank you. and just give us how quickly i used to read cliff notes. can you do a cliff notes on what s in the book? sure. real quick. what s fascinating to us, israel and the middle east get a lot of coverage. one side of the story that gets very little coverage is that israel is the fastest growing, dynamic, entrepreneurial industries on the planet that bearly got hit by the 2008 crisis. in all of india, china, korea, japan combined, more global venture capital each year of going into israel. on a per capitala basis, 2 1/2 times more in the united states, 30 times more in europe. even in 2008 when the global economy was melting down. so this sparked our curiosity. how the israelis pulled it off, in the least likely of places, surrounded by enemies, in a state of war sints its founding. and what can we in the west learn from it at a time when we are trying to reboot our own innovation economy, get real economic gains, and we tried to look at the factors that have driven the iz rsraelis, driven their success and is there anything prescriptive for us. we know about iskar from buffett, one of the greatest managemented companies and innovators he had ever seen. what did you find out? what drives innovation? what is different? what are we not doing here with so much more opportunity and security? look, we go through eight factors in the book. let me quickly focus on two or three of them. israel s immigration and simulation policies. innovative policies in how they bend over backwards to bring people to their country from around the world. israeli prime ministers run for office, talking about how many immigrants they re going to get into the country. they have innovative policies. research and development, spend more of a percentage on r & dpchlt than any country in the world and have innovative ways for how they make that r & d funding matter. it s not just about spending but how you make it matter to the start-up of the companies using it. the role of the military, joe, is amazing. these young 18-year-olds go into the military we they finish high school, males serve for three years, females serve for two years, they get the most entrepreneurial leadership in the battlefield and the entire economy knows how to read a military resume. investors, ceos of companies. when they come out of the military, they know how to integrate them into the economy and the u.s. does not know how to do that. we look at how we could better integrate our soldiers and marines, serving in places like iraq and afghanistan coming back with incredible experience and getting them to work. we don t know how to do that today. dan, real qui quickly, is part of this because of the size? israel is a nation about the size of new jersey. you have that issue, the fact it s such a young country, still looking for immigrants to come in. is there a tipping point where all of that changes? i don t think so. i think what is driving it is the sense of resilience. it s sort of a national ethos more than anything, about survival, about i mean, you know, start-ups, entrepreneurs in israel were taking unbelievable pay cuts, working next to nothing during the global meltdown, and they wouldn t give up, i think, in a way that their peers were giving up around the world. during war time, they stay open. an amazing story. rockets were flying right near the factories of the iskar headquarters as buffett was making his decision about whether or not to go through the deal. ceo called buffett and said i want you to know we interviewed them. it s through their eyes we tell these stories. he called buffett and said warren, for our customers there will be no more. for his customers around the world, we won t be late on one single shipment no matter what we do, no matter what bombs are blowing up. it is the sense at no matter what you throw at us, iz rsrael argue, we will survive. it s that ethos of survivability that we try to explore, dig into and explain and see how some of that could be transferred here that is the key driver. dan, is the israeli government probusiness, pro free market, pro capitalism? do you see us not heading that way, but maybe heading in the opposite direction? it s funny. i feel that the u.s. government and israeli government are moving in opposite directions. israeli government was founded in pseudo neo socialist roots and the government meddled and was in terrible shape and in the last 10, 15 years, when prime minister netanyahu was then finance minister, loosened up the economy and was a big factor. he obviously is committed to moving more and more in that direction. the u.s. is moving in the opposite direction. that s troubling. we re not heading that way, but opposite. that s not good. innovation is really we need it. it s like, you know, on everyone s top five things that companies need to go forward, right? absolutely. if we can cultivate a culture of entrepreneurship and innovation among our young people the way the israelis do. that is one of the big areas of emphasis we talk about in the book. how do they teach young people about taking ownership, about responsibility, about being a manager, about being an entrepreneur, about how to make decisions every day with imperfect information, how to deal with ambiguity. it is amazing the emphasis. we interviewed ceos of google, ebay, cisco, who has bought nine companies in israel and are looking to buy more. we interviewed senior leadership of intel. they all say take the average israeli 25-year-old when they finish their military and university spears, take that 25-year-old and put him or her up against their peers anywhere else in the world every single day of the week, they would hire the israeli because their capacity to manage and lead at a young age and deal with real problems and have real perspective is unlike anything in the world. dan, thank you. we hope to see you again soon. good luck with the book. thanks, guys. good to be with you. up nbc, more with our guest host, bill gross, including your e-mail questions that have been pouring in this morning. first a check on the dollar as we head to the break right now. dollar picking up a little bit of ground when you measure it against a basket of other currencies. (announcer) we call it the american renewal because we believe that ideas are limitless. that s why, everyday at ge, thousands of scientists and researchers at our global research centers and throughout the company are redefining what s possible by creating the advanced technologies that create jobs. the american renewal is happening right now. let s take a look at a couple of stocks to watch. we ve had just recently. you saw conoco indicated higher after beating results. also, apollo group is one of the big losers today. down about 15%. the company announced late yesterday that the enforcement division of the s.e.c. has commenced an informal inquiry into the company s revenue recognition practices. and for a long time, these companies, regulators, you know, kind of look ascant at some of the methods of accounting at these for-profit educational entities. there have been problems in the past. they were probably worried. al lumina, two downgrades after an earnings report yesterday has that stock down about 19%. up next, pimco s bill gross is going to take some of your e-mail questions. we ve been printing them out. he ll get to them in squawk rapid fire session after this. our guest host today is bill gross, founder and chief investment officer of pimco. he has agreed to go through with some of the many questions that have been coming in. let s jump right in. all right? let s go. first question is from john who says, ask dr. gross what a risk adverse portfolio looks like right now. i m concerned about the return of my money as opposed to the return on my mob any. totally risk adverse would be treasury bill of 1.5%. that s the problem. i would say a good collection of high yielding conservative stocks. at&t, verizon, duke power yielding 6%. that s a decent return for an equity type of risk. and then on the corporate and treasury bond side, something high quality. treasuries at 3 1/2%, five-year treasuries at 2 1/2%. put them all together and you ve got a 4% to 5% yielding type of portfolio. that s our return expectation going forward. another question from john brady who has a question about weakness in the dollar. he says, could further weakness in the u.s. dollar in 2010 force the fed to raise interest rates sooner and quicker than they would because they re defending the dollar, and what in turn would that mean for issuance and the slope of the yield curve? it would have to be more than further weakness, i think, becky. it would have to be substantial. it would have to be a decline of 10%, 15%, 20%. basically the fed is out of the business of supporting the dollar. they have other priorities. the priorities being economic growth, inflation, and systemic risk. so the dollar is sort of forth on that particular ladder. s to exteb they went down a lot, they would be forced to recognize it but i don t think any time soon. this question comes from ganesh kumar who says you like others have often sus justed good investment recently as it offers protection. he wants to know if the central banks do start raising interest rates, how would the tips fare in a low growth, high interest rate, low inflation environment? probably not as much. tips who pride that inflation protection that not all bonds don t with a fixed coupon. tips are much like stocks. stocks have a real return. they yield 2%. a tip yields 2% with inflation protection. they re very similar types of vehicles with obviously a much better security on the tips side. you like them? they re not a bad investment if reflation takes hold. that, admittedly, is what the policymakers are trying to do. we re not convinced that they re going to do it, but they re trying to do that, so let s be prepared to some extent. mt. vernon, virginia, he wants to know your estimate of the probability of a systemic collapse, no qualifiers, please. goodness. even throwing out a number to suggest danger, which i suppose there is. i mean, it s more than a thin tail. it s less than a black swan, maybe a gray swan type of probability. i suppose. and it really has to do with continued deflation and asset destruction. that s what policymakers are trying to prevent. that s what they have prevented over the past 12 to 18 months to the extent these policies continue to be successful, then the probabilities are nil let s give them a chance to be successful though. quickly. t.b.t., somebody wants to know what you think about the tbt, double short of the ten-year treasury and bond etfs in general. pimco has climbed onboard, supports them strongly. etfs basically offer an advantage to investors of low fees and indexation types of returns. we ve climbed on board in terms of active etfs, combining the positive features. it s a going and growing trend. basically investors are looking to lower their fees, lower their expenses. if their returns are going to be 4% to 5%. and so that s impressive. bill, we want to thank you very much for joining us today. we appreciate it. thank you, becky. it s been fun. it s been fun. we love having you here. i know the cross-country travel may not be your favorite. but come back. thank you, joe. good luck with your reds next season. and the bengals look strong, too, don t they? i m not so sure about the bengals. 5-2? well, i m looking further down the road. i m sure they have a tough schedule. beat pittsburgh already. what s that, kontina? you re always looking down the road. that s right. bill, we appreciate it. coming in. well see you soon. join us tomorrow. squawk on the street is coming up next. live from the financial