Transcripts For CNBC Squawk Box 20091216 : vimarsana.com

other words. right. and the government would much rather get out from under it. exactly. like i say, in the piece yesterday, it was there in the journal and it s not in the journal today, or at least there s not a headline. but the washington post ran with it, the huffington post obviously is going to run with it. we have a few e-mails. gets getting a populist spin to it. exactly. it look like geithner is giving these big breaks to the banks once again. that is how it s going to be spun. but the first place i looked at it, the washington post, the huffington post, they re going to make a big deal out of it. i ve got some e-mails that are coming in. it is pick up a bit on steam. either you keep it and the government keeps its stake, which nobody wants, or they do it this way. so i m not sure if they i m not sure of how much emphasis to give this statement. bottom line, it s a point of view for citi, right? as if that s a good thing. what? don t give into the banks. i know the casino cut temperature is popular right now oh, you want this group to survive? and make money and pay taxes? you want corporate america? and then you can pressure them to lend to americans later on. you want corporate america to succeed, too? yep. i think it s a good thing as opposed to the government america, which is as we know the answer. now to everything. let s talk more about the t.a.r.p. wells fargo has raised more than $12 billll to. repay its $25 billion in t.a.r.p. loans. that offer will result in a fourth quarter charge of about $2 billion. wells will make up the rest of it, of what it owes by selling assets and with cash that it has on the books. washington mutual is asking the fed, treasurer and other parts to turn over documents rmted to its collapse. wamu wants to know if it was undermined by eventual buyer jp morgan chase. it maintains its price, jpmorgan paid for washington mutual was too low. all right. the federal deposit insurance corporate saying its 2010 budget will just from $4 billion to $2.6 billion last year. the budget includes $2.5 billion for resolving failed banks taken over by the agency. it announced plans to hire more than 1, 00 mostly temporary employees. there you go. it s 1,600 people getting hired as it continues to grapple with a rising number of banks. it says plans will bring number of fdic employees to more than 8,600. this is the job creation, part of the stimulus. a federal grand jury has indicted gilleon group founder raj rajaratnam and danielle chiesi, anyway? raj rajaratnam i know. but danielle chiesi? is anyone going to correct you out in tv land? no, probably not. there you go. those two people have been brought in on charges of security fraud and conspiracy and major insider trading. they and 18 others have been accused of passing on information of ten companies including ibm, google, amd and sun microsystems. six traders and employers have already pleaded guilty. oil inventories and of course the fed statement later on this afternoon. just a couple hours away now from the inflation data. futures here not looking too bad, considering that asia was quite in the red, i should say. japan was up a little bit. europe is in a pretty good morning. oil is finally halted that nine-day losing streak that it had. some of the inventory data yesterday, distillates was fairly bullish. the 10-year note, we are looking closely at the bond market to see if the 10-year is going to break out of its range. it goes up to 360, which is about the high since august. we ll see if yields there affect equities down the road. the dollar, awfully close to that 2 1/2 month high compared to the euro. and then gold, which is down six of the past eight sessions, no gold. i thought i saw gold. actually, most commodities are trading higher this morning. about $11. let s check a check on the asian markets. chloe cho is in singapore. hey, chloe. good morning, carl. it was a waeshg session, just as you had mentioned. japan was the overperformer today and the big mega banks went gang busters here. it was all about the rofts so that folks at basul were considering offering this 10-year grace period. smfg enjoying a pop of 14%, as well. and mufg, they plan to sell about $11 billion of common stock this year and banks have been heavily sold in the past month or so, so not surprised by these healthy gains. in all trail ya, up about 0.25% or so. the interesting thing to note is that the third quarter gdp performance disappointing as opposed to the market expectations of 0.4%. and i have to tell you about rba xhentsdz coming out saying that at the current cash rate, if you take in more than all these other rates that affect consumers, the current rate of 3.75% after three rate hikes since october were actually closer to 4.75% and that seemed to give a lot of speculation that perhaps the rba may stand pat when they meet again in february. also, another day of sell-offs happening in the greater china region. the concern is that perhaps these deep markets are too overbought. the hang seng has picked up about 10 thois points in the past month or so without a real correction happening. there you see the hang seng under pressure. down 0.9%. and there is a flood of ipos in the market. we ve got billions of dollars before the era is down. today, one ipo which is very much in focus, they are china s top ship equipmentmaker and all the expectations were looking for a pop of 30%, and that disappointed, as well, picking up only 12.5%. and another day of sell-off happening for property plays in mainland listed both in shanghai and hong kong along with banks, a lot of concerns about policy tools and as to weather bank lending will continue going into the new year and whether beijing authorities are going to tame housing price bubbles. so that was the theme over here in asia. a lot of caution ahead of the fomc meeting. let me send it back to you. chloe, thank you very much. let s get an early check on the markets here in the united states. we re talking with steven whiting. steven, thanks for coming in. thank you. we ve been paying a lot of attention to what is happening in europe. it seems like every day we either decide this is not something to worry about, that we are re assuassured and the n day it rears back up again. how much of a concern is this for you when you start looking into 2010? we re thinking that fiscal policy across the continent are going to get larnlger and that fiscal consolidation are among the longer term issues and that they re fairly big, fairly substantial. when you say there s some disparity, there are some countries that will be dragged down. but the difference in euro is they re all kind of combined with the euro and the euro zone. well, monetary policy in different countries with different outlooks. is this going to put a real strain on the euro zone? it s one of the reasons why we think in the developed world the euro area is one of the areas that you see a slower recovery among other issues. and more die vergence across those countries. what kind of effects will it have on the motorcycles in the united states? it s something we ll focus in on from time to time. if you ve ever owned policy in the united states, stocks associated with health care in the long run, those are an amazingly large problem and not associated at all with the financial crisis. so it s something that i think we re going to have to focus in on. i think that it doesn t unfold on a cyclical time frame, necessarily. and particularly u.s. issues it s going to be year after year after year it will get more difficult for us. are the talks in washington right now, do you think that will help this long-term problem or do you think it will exacerbate it? it s a starting point. but the issue is demographics. and right now we have fairly stable healthy demographics over the next several years. but the population is going to grow larger and larger and larger. maybe the more immediate issue is what about inflation? yesterday we saw cpi. how soon are they going to have to start worrying about inflation? well, we don t think they have to wait for the unemployment rate to get low. there will be tightening at some point when we have a clear green light on just the direction of employment. and financial conditions really permit. but we have good prices rebounding, particularly energy. if you looked at the ppi data, we were up 5 cents on the core. services were 68% of total prices in the united states. this is something that is going to be slower than i think people think. although right now, we re looking at the 10-year note on the screen, 3.58%. 3.59% is the highest level we ve seen since august. is this a one hauf or are we headed in this direction now? well, i think bond yields are low, treasury yields, and they re going to go higher in a credit situation. we re in a period where private credit demand is exceptionally weak. and when we re fully back, when there s normal growth in demand, credit for investment and consumption, then we ll be looking at substantially higher yield. we hear that demand is low, but then we hear that small businesses looking for loans can t get it. what s the real story? you know, i think it s a bit of a combination of things. but by and large, i think we should understand that in these early parts of the cycle, that specifically commercial and industrial loans, that demand really isn t there. companies are cutting inventories, not building them, cutting them at a slower pace. you know, there is this big improvement, $185 billion capital surplus in the corporate sector and now there s a positive personal savings rate and that the ability to grow at this low level can be done without credit. and i think it s a larger part of this recent period that people have understood. what is your expectations for growth in the first half of 2010? well, it is in the neighborhood of three, which i guess is that s higher than a lot of people are expecting. yes. it should be easy when we ve had a drop this severe. and it builds back very little of what the economy has dropped. so i think solid growth statistics are not terribly impressive, but i think the stand expansion, we re not going to repeat all the policy stimulus, but we re not going to repeat 8 million job losses taimts sflp so you re slightly optimistic. on a cyclical basis, short. steven, thank you for coming in today. when we come back this morning, ventures for the new year. and the man with all the toys pays us a visit. santa is not here. he s coming later. but for now, we ll deal the toys r us ceo jerry storch. an update with nine shopping days left. what is on the shelves and how are the dealing coming along? welcome back, everybody. the futures are indicating a positive open. right now you re talk about the do i futures up by about 56 points above fair value. inflation worries about rattle the markets a little bit yesterday. in this morning, comcast now watching several cable tv shows and moves over the internet. this is a move that managed the flight of viewers to online video. comcast is hoping that by making the video available exclusively to survivors kb it can keep them from deflecting to rivals. games for the nintendo wii and the handheld nintendo ds occupy six of the ten top slots in a list of the year s best games. national venture capital association is out with its 2010 predictions and the tone is pretty optimistic. joining us this morning, marquise and the president of the national venture association, good to have you back. thank you. good to be with you. what s to be happy about in 2010? we re seeing our venture capitalists being extraordinarily realistic about 2010. i think they see a better acquisitions market. and we see extremely good entrepreneurs right now. the phoenixs are rising out of the ashes and those entrepreneurs that are out there today have real fire in their belly and are realistic about their company s potential. give us that said, as we like to say, ipos, really the window is sort of shut, at least for now. is that the view? absolutely. we ve had an abysmal 2008. we ve not had a great 2009. and the number of companies we see in registration right now are still very low compared to where they should be from historical norms. so we see still a very slow first and second quarter of 2010. and the ipo market hopefully will see more companies registering over the next couple of months here so that we have seen a much stronger second half of 2010. we re looking at some of the sectors, at least the money is going into. clean tech we always talk about. internet is the long story. but media, wireless, biotech, as well, what are the surprise owes that? i think that life sign category in general has been very strong for the last few years, interesting to note with health care reform going on, you still see a strong interest in the entire life signs arena. and i think media and entertainment, once again, you have consumers out there who are very willing to purchase and we re looking at the end consumer right now and if they re willing to buy, you re going to be looking at those kinds of opportunities. if i have a firm and i m trying to draw capital, what part of the country do i wish i lived in or the world? well, i think california continues to be a very strong area. and it s no longer just northern california. southern california, san diego, l.a., orange county, it s a very strong area. but we have pockets all across the united states. i think seattle continues to be a good market. utah, the salt lake market is very strong. it is a good market. so you re seeing pockets all across the country, but you also see a strong interest continuing and israel, china and india. yeah. we looked at some of those india numbers. obviously, they re hoping that the ipo picture changes, right? that is the whole point of the whole thing. absolutely. you know, you can do, from a baseball analogy, a triple or maybe even a home run off an acquisition, but a grand slam only comes from an ipo. and the nation needs to know that, as well. we see that 9 on% of job growth from our venture back companies comes only after a venture goes public. that is an important element for the country as a whole. for those players who were in life sciences or health care, do we want this reform to happen on the hill, or not? i think most of them understand that something needs to be done and that there is the opportunity to make money for their investors, as well as help the ultimate patient at the end of the day. of course, this is a huge bill with many provisions. we re concerned with some of the tax issues in this tax bill, particularly for medical devices on small companies. but by and large, i think that many venture capitalists view something needs to be done in the health care arena and we re happy to help move that process forward. do you see thing on the horizon that could be a fly in the ointment that makes vc firms stingy once again? absolutely. one of them is simply tax policy on the venture capitalists themselves. taxing venture capitalists at ordinary income tax rates will have a major impact on how many republican temperature capitalists are out there over the long-term. and i think the concern of having companies that are so long-term oriented, it s hard to invest in a very early stage company. you have to invest at the later stages, which means that some of those early stage companies are not going to get funded and that s a problem for not only the venture capitalists and the entrepreneur, but once again for the country as a whole because it s these small companies that are for the economy. we have a lot of smaller firms come on and say, it s much harder to go public today than it was 20 or 30 years ago. absolutely. even ten years ago. i think it s not only tough going public, but i think you see a entrepreneur that s more ambivalent about going public. if they don t want to see a baby-sitter to regulation, they don t want to be a baby-sitter to the lawyers, they want to create companies, they want to be excited about getting up every day and saying i m growing my company, my company is going inter national. and that is what that is what the fire in the belly is about. it s not sitting in a board room talking to lawyers and accountants all day. mark, there was a story this week in one of the major newspapers, i forget which one, about how the government is becoming the new vc because especially when it comes to things like alternative energy, wind power, that is where the majority of the grants are coming this day. how does that change the vc industry to be competing with the government like that? well, i think the government has always had the most important role in creating basic r&d. and you ve seen that through the national institutes of health. you re starting to see that in a strong way at the department of energy. and that is a critical component of the u.s. government. when they go in to start picking technologies at a later stage, i think that is a concern for the venture capitalist energy. is that what they re doing right now? no, they re not. i think they re understanding that that is a venture capitalist system to pick the winners and the losers. they re saying that the united states has to be in the game. frankly right now, you see asia and europe ahead of us when it comes to technological innovation in the clean tech space and we need to be part of this or we re going on be left when that train goes out of the station. that s a big moneymaker as we go through the day. that s one of the lessons we re getting out of copenhagen, at least this week. i think so. mark, thanks. thank you. coming up, we will visit the chicago trading pit for an early read on today s economic data, which could be important after cpi yesterday. then we talk holiday shopping with the ceo of toys are us with just nine shopping days left until christmas. we found zhuzhu pets. no. yes. i asked them and they said no. who found them? i ve been looking. i ve been growing algae for 35 years. most people try to get rid of algae, and we re trying to grow it. the algae are very beautiful. they come in blue or red, golden, green. algae could be converted into biofuels. that we could someday run our cars on. in using algae to form biofuels, we re not competing with the food supply. and they absorb co2, so they help solve the greenhouse problem, as well. we re making a big commitment to finding out. just how much algae can help to meet. the fuel demands of the world. boss: ah! thank gecko: what s going on, sir? boss: we re slammed. tons of people interested in all the money they could be saving by switching to geico.. gecko: yeah, course. boss: boy, did we miss you last week. that temp wasn t working out at all. exec: took me all morning but i got those quarterly figures for . you. (hissing noise, gulping) gecko: aw, he ate all my mints. anncr: geico. fifteen minutes could save you fifteen percent or more on car insurance. somewhere in america, there s a home by the sea powered by the wind on the plains. there s a hospital where technology has a healing touch. there s a factory giving old industries new life. and there s a train that got a whole city moving again. somewhere in america, the toughest questions are answered every day. because somewhere in america, 69,000 people spend every day answering them. siemens. answers. good morning and welcome back to squawk box here on cnbc. i m joe kernen along with becky quick and carl quintanilla. coming up, time is running out for all us, it says u-holiday travelers, you holiday travelers. many americans are only half done or not at all and maybe not even started yet. yeah, we ll find out how sales are going to go at toys r us, thou they re going at this point wceo jerry storch and we ll find out the most important question, whether the zhuzhu pets are now everywhere. they re not. they re going for 50 bucks or 0 bucks on am ma zone. webkinz are these zhuzhu pets are furry things that in 1965 you could buy a rodent and turn the thing on the side. does it actually have a turnkey on it? and i stopped looking for that few days when it said that there was some sort of amonium or something. why not gerbils? talk about a best seller. fed policymakers will finish a two-day meeting with their latest statement on interest rates and the economy to come in at about 2:15 eastern. no change in interest rates is expected. investors will focus on any information about exit strategy from this secretive body and from the thank you, ron paul, and from the accommodative monetary policies implemented to deal with the financial crisis. we ve got a few e-mails about ron paul. really? yes. what do they say? they all say the same thing. identical. please have him thank you for having him on. if you have him on more, i will watch. they re like dangling this thing in front of us. hundreds all say the same thing. please have him on. we ll watch. please have him on, we will watch. he has a very active here is your first question, what is it like having an army of well, it s good and bad. i mean, he does attract some of the, you know, people down in the hole with the right, right with the cable wired into the bombshell. they ve figured out the squawk e-mail. hundreds and hundreds and hundreds. thanks for watching. i ve never seen your show before but i watched because of ron paul. which is enough for us to have him on tomorrow. he s not on tomorrow? we re efforting that, aren t we? we had some interesting debate yesterday. we appreciate it. we had plenty of economic data ahead of that statement later this afternoon. the government is spec d to report a rise of 0.4% consumer inflation for november. that is where the rise of 0.1% when food and autos are factored out. a lot more attention is being focused today on why citi got a huge tax break as part of the t.a.r.p. repayment deal. citi was allowed to keep billions in tax breaks that it might have had to give up. the irs exempted citi from a rule that was intended for an entirely different situation. that rule, which erases tax loss carry forward in the event of a sale was designed to keep all those corporate raiders from buying companies and uses those losses to offset profits el where. who would have thought that the government would be one buying or selling part of a company and trying to figure out, what do you do with these things? it s not just the principal. it s the size of the benefit. it is. $38 billion. but when you have tax loss carry forward, those are valuable things that you carry on that anyone has that you carry on your balance sheet. and because of a rule intended to stop corporate raiders, the unintended consequence, the government came in to save citigroup, it was on the books. and if the government had kept citigroup, it would have continued to be on the books that kept carry forward, the tax loss carry forward. and you have to ask yourself, as taxpayers, do you want citigroup to keep valuable things as an owner of citigroup? don t you then add it with deficit? here is the playing field and here is the osha half of the playing field. that is the first conclusion is that what is good for the government is not good fout private sector. and i think it raises some questions, though, because anytime you start talking about favorable tax treatments given to one corporation over another, it instantly advising all sorts of questions who do pay their taxes. but it isn t favorable tax exemptions. the law that they put in to get rid of it was there for a reason. but there will be people look at this and say this is unfavorable. and citigroup was complaining about favorable treatment that was given to wells fargo when wells fargo bought ka cove ya. now citigroup is the one getting favorable treatment. you re going to see people and corporations who there will always be the letter of the law versus the spirit of the law and the spirit of the law was designed to keep corporate raiders from buying companies to keep tax benefits from moving forward. this is better, what s happening for citigroup, for us taxpayers. once again, i think the treasury did the right thick here. geithner did the right thing. the obama administration does the right thing here and getting out of it and they re going to get pilloried from the left, from don t do the same when you say the left. not you, but people that you know and identify with. for the left, for the populist, it s right over the plate. for the populist, it s right over the plate. but huffington s biggest article is about benedict arnold himself. joe lieberman. don t ever give monopolies any more money for cancer research because of joe lieberman. we should talk about that. at 7:00, we re going to have more on this. meantime, we talked about the big round of economic data that is on the way. we get cpi, housing starts, but we get the wraps, the final fed meeting of the year. jessica hoversen sets up the trading day from the kme from chicago. jet jessica, we have a lot going on today. what is going to be the most important point that we re watching? good morning, becky. thanks for having me. i think the most important point will be the fomc. we deal with cpi and housing starts. i think that traders are very cautious to see what this will bring. i think they re looking for a couple of things. one, the overall tenor of the statement. i believe that given the improvement in the recent economic data, namely the down 11,000 in nonfarm payrolls, the fed is going to have to pay something for stabilization in the labor market. on top of that, we have seen claims drop substantially and the temporary employment improved in the annual report. so those factors will most definitely give due cause for some sort of revised optimistic outlook in the fed s statement. however, they have to be cautious. housing is still it s still depressed. yes, we are seeing improving numbers, but you look at a chart of those housing starts and it has this l-shaped recovery happening. consumer spending, yes, we did see an improvement on black friday. best buy is a great example. a lot of margin pressure there, heavy discounting on the activity was the main driver of activity. and i think that definitely speaks to the overall consumer environment, that retailers deem it necessary to cut back prices substantially in order to get people in the store. so that being said, i think the dment on housing and consumer spending will likely remain the same. i think traders are looking to see if the fed is going to come out and remove some sort of their emergency stimulus. if you have any sort of outlook on rates, what for the most part i would say the consensus is they re going to keep their extended low rates for an extended period of time. i would say that given the recent servence in credit fears across the world, that it would seem a little too early to pull that controversial phrase from the statement right now. jessica, thank you. that gives us a lot to look forward to today. you bet. we ll talk to you again soon. take care. bye-bye. if you have comments or questions about anything you see here squawk, any future guests that you d like to suggest for us, e-mail us, squawk@cnbc.com. still ahead, jerry storch, the ceo of toys are us will tell us whether it will be a good christmas and a happy new year. that would be good. i bet you re one of those multi-taskers who wishes you could talk on the phone and surf the web at the same time. at&t s 3g network lets you do that. verizon s doesn t. actually, you can talk on the phone and surf the web with verizon. but you just need two phones to do it. can i give you a hand? thank you. hello? yea-i m a-i m still waiting for it to download. 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(announcer) at&t. a better 3g experience. this holiday, get 50% off all blackberry smartphones after mail-in rebate. because with national, i roll past the counter. and choose any car in the aisle. choosing your own car? now, that s a good call. go national. go like a pro. nbc s ann thompson, we were trying to get you in front of the camera, annie, but that appears to be impossible at this point. tell us why. carl, it s because i m out on the street. there is a huge protest that has happened this morning. the protesters gathered about a mile and a half from the center and walked peakfully anywhere from 2,000 to 3,000 of them to the belle center. they got to one entrance. they got to the one entrance which you then walk another 100 yards to actually get to the entrance to the building and there protesters clashed with police and police used tear gas, billy clubs, they used their vans to bush the proteflters back. police threw bicycles to create barriers. and again, in fact, i m right now walking through the police line. we ve seen several people arrested. we haven t seen anyone hurt, but things have certainly gotten tense here. the protest was originally over big government and big business, people chanting it s our planet, not your business. they hope to meet up with people inside the bella center who were supposed to come out and join this protest. it s unclear from where we are if that happened. injuries, if they have happened, appear to be minor. we know, annie, that the mayors will be meeting and that the world leaders will be converging as the week goes on. safe to say, this is as tense as it s gotten so far? yeah. this is certainly outside the bella center, which is as tense as it s gotten. at one point, the protesters tried to push their way in through the police lines and that ignited the confrontation. inside, things are tense, as well. it is you know, they are down to the wire and they are still far apart on is the two main issues are still there. it is financing and emissions and then on the bilateral level between the u.s. and china, the issue is transparency. there are a lot of things that the negotiators have to clear before the heads of state get here and they know they are running out of time out here the message from the protesters is is the planet is running out of time to fix things. and i think the protesters are running out of time, as well, because the police chief pushing them back, pushing them back, and it s not clear how long they will allow them to stay out here. the police have declared this an illegal protest. carl. anne, thanks for that. i appreciate the report. as we look at live pictures, as well, we ll keep an eye on what is happening in copenhagen and see if the situation turns any more tense. protesting against big business and big government. pick! which is it? both? they don t want any goods or services whatsoever, no running water, no infrastructure, no breathing, no water, no power, no transportation, no growthing, no food, no, they don t. as long as you don t have any government or business, that s the way that s the world we simplify. let s go back to a simpler time. i m going to kill my food and live in a lean-to. toys are us. what do they know? they re 20 years old. what could they backpacking across europe for the summer, stopping by copenhagen for a demonstration. toys r us, trying to keep in demand of toys on the shelves trying to lure more shoppers in. jerry, it s good to see you. great to see you. you re not missing anything at toys r us. if you can find the hot toys in stock anywhere, it will be at toys r us. we pride ourselves in being in stock all the way to christmas, whether it s zhuzhu pets, barbie, nerf. is this changing because i literally was running around looking. we ve gotten in some big shipments in the last couple of days. we re selling them right now today in the store. there will be some every day between now and christmas. but they often sell out in the course of the day in the individual store because they sell like mad. so if people really want them, they should show up first thing in the morning? that s probably the best way. if santa wants them, santa can come and buy them? he ll have to get them very early in the morning. someone may be watching. icsnay on the antasa. it doesn t mean if you get there at midnight they re going to be there at that time of the day. > you give me your idea of what comp sales will be for the season? what s it running? you know, that is a number we can t talk about. we re pleased with the traffic that we re seeing. is it bigger than a bread basket? are you cautiously optimistic? we ve seen that customers are willing to pay for the products that they want. hot toys are hot. and we re giving you one example, but i often use lego as an example because lego is anything but cheap. they re selling very well. they continue to be very hot. did you see the best buy news yesterday? stock had the biggest drop in several years. on a very strong report. because of margins. well, they re a fine company. i know them very well. is that dynamic going to play out across retail? it will be based on segment. electronics are notoriously difficult. we know what walmart has done, promoting low cost toys. we have more toys than anyone across the board. we have tens of thousands of toys. we manage margins carefully. that s what we do for a living. we think we do a pretty good job. jerry, can i pars the statement that you made before? you re happy with the traffic you re seeing. are you happy with the buying? we are. there s all kinds of talk about customers looking for the cheap products or the but that is not what we see. we see quality sales, the toy tell us toys sell. people are getting what they want. now, they like a deal. certainly we have a big sale today, half off a lot of toys. half off? half off. is that planned or is that because you ve got extra inventory? these are planned almost a year ago. we call this the real season. the rest of the year for us in the toy business is the preseason. we knew it was going to be an aggressive season. we ve been working on it for almost a year. when does free shipping stop? i think it s the 17th, be don t hold me to it. and that s for orders over $49? because i guess retailers negotiate postage deals earlier in the season. we want to make sure that you get it in time. that makes sense all the way around. do you see or hear from your owners whether eventually things are getting good enough to come back out? there are a lot of rumors about that. obviously, it s something that i obviously, it s something that i don t comment on. doing a great job there and we re excited about that. do you think down the road that even though walmart and target just seem to be the big elephants in the room, you think that toys r us will be a public company again and it will be profitable for bing and for we ve had three good christmases in a row. we did well in bad times, did well in good times. we re pleased with what we re seeing now. we re hearing from the vendors, we re gaining market share in the toy business. you are? we buy in addition to our performance in our toys r us stores, we own babies r us. we bought fao schwarz this year, boy e-toys this year, kbtoys, baby universe. we ve been consolidating in the industry. tough times are a great time to consolidate your position, so, we ve been doing very well. all right. that s a lot of toy companies. yes, that is a lot of toy you re focusing on toys it appears. well for a long time now. the toy is the core choice. that was the thread running through, yeah. for my entire business career, i ve always seen and known that the smartest thing to do is do what you know well, be if you make an acquisition, don t go off in some unrelated juncture or something. toys r us is the toy authority, the baby authority. it says on every badge in our company we love kids. that s what we re all about. remember robert in big ? that s him. we have the piano that you can step on? we have a version you can take home. and we know now the big labowski turned down that role. fao schwarz, dancing we have the very same one. we should do that. thank you, toys r us ceo gerald story. next, the stories catching our eye from the papers. (announcer) some people just know how to build things well. give you and your loved ones an expertly engineered mercedes benz at the winter event going on now. but hurry - the offer ends january 4th. let s give them something to talk about oh somebody jump oh, yeah, we re all talking about we ve all read things about jeff bridges recently, and this movie that is getting a lot of acclaim and no one s even seen it yet, really i guess the people that are talking about it have, but bridges is, i think, 60 years old, been acting for 50 years famous father. famous father. he s 57. no his brother the character s 57. he s 60. oh, bad. yeah, blake is 57, yeah. and he s been doing this 50 years, never won an oscar. been nominated many times. nobody says the big labowski is a bad movie. he s the dude. and when you interview him, he s not drinking a white russian, but he says cool and he talks almost like the dude. believe it or not, he was being interviewed at a small little malibu house that his father bought when he hit it big on sea hunt. wow. sea hunt, yes. but he s getting a lot of acclaim. crazy heart is the name of the movie, and they re saying this is a movie that almost never made it out of the stud s studios. there was a deal cut to bring it out golden globe nomination yesterday. and he plays a guitar. i think he s a washed up guy and gyllenhaal is in it, too, girl from dark knight playing at bowling alleys and and the mentor, it s huge. sounds like the wrestler, but country-western style. we ll see how it does. when we come back, top stories and a deal maker, a risk taker, an executive with the pulse of the consumer. our guest host is fred malek of thayer lodging. announcer: in today s markets how can you get your investments heading in the right direction? at oppenheimerfunds, our fund managers perspective on the numbers helps uncover opportunities no matter which way the markets are moving. ask your advisor about oppenheimerfunds. call your advisor for a prospectus with complete fund information. read it carefully and carefully consider fund investment objectives, risks, charges and expenses before investing. mutual funds are subject to market risk and volatility. shares may lose or gain value. oppenheimerfunds. the right way to invest. an eye on inflation. traders focused on this morning s data as the fed wraps up its two-day meeting. outlook 2010. we break out the squawk box crystal ball and tell you whether you should be putting money in technology. plus, barclays releasing its u.s. equities outlook, first on cnbc. and the person of the year revealed! time s managing editor joins us to tell us the reason behind their choice as the second hour of squawk begins right now. good wednesday morning. welcome back to squawk here on cnbc. i m carl quintanilla along with becky quick and joe kernen. got a busy wednesday ahead. look at the rundown. the fed finishing up its two-day meeting. concerns over inflation after the ppi number yesterday, of course. investors wondering when the fed will end stimulus efforts. we re going to tackle that and more in a couple minutes. and we focus on tech with an outlook for the new year. plus, barclays call on the markets. it s a squawk box exclusive with the head of their u.s. portfolio strategy. and time s person of the year going to be revealed this morning. managing editor of the magazine, richard stingel, will join us with that. i believe the short list is bernanke, steve jobs, the chinese worker, pelosi, mcchrystal, usain bolt and president obama. so, we ll find out who that is in about well, in this half hour. we will. we will. okay, our other top stories this morning, wells fargo has raised more than $12 billion in the stock offering to help pay back its $25 billion in t.a.r.p. loans. the bank sold those shares at $25 apiece. that was about 2% below their closing price. and on tuesday, that offering will result in a fourth-quarter charge of about $2 billion. wells is going to make up the rest of what it owes by selling assets and giving it cash that it already has. also, vice president joe biden will meet with ceos of manufacturing companies today, including proctor & gamble, honeywell and international paper, talking about the vital importance of this sector to the u.s. economy and the rebuilding of the middle class. and a federal grand jury has indicted galan group s founder raj rajaratnam and chiesi for insider trading. they and others are accused in connection with ten companies including ibm, google, sun microsystems and more. six traders have already traded in this case. quietly agreed not to collect billions of dollars in potential taxes from citigroup. our senior economics reporter is with us. let me set it up a little bit, steve. because in the journal piece yesterday, it was mayo s comments were there right, right. it was a little bit quiet. here s the new york times today, which is, this is b-3. i don t know, where s the camera? b-3, a tax break for citigroup. it s covered in b-3. yeah. not in the where are we? not in the journal today, or at least not prominently. but the washington post has a huge piece on this. big. and so, we re going to talk about it now, because it has the potential to sort of, like a snowball, a populist snowball, when the washington post puts it as prominently, now it s going to get picked up, and it s probably going to garner a lot of attention and a lot of controversy. this is one of those things where you can lay it out and everybody s going to have to take the same set of facts and spin them their own way. ideologically. and we ll talk about that in a second, but let s talk about the two ways you can spin this. this is about an exemption citigroup got from a rule that says when you transfer a big part of your company, your tax losses go away. one take is the agreement that led to citi paying back the t.a.r.p. money was a secret tax break worth billions. another take the irs gave citi an exemption for a rule designed for an entirely different purpose that should never have applied in this case but technically did, and that s what a treasury spokesman told cnbc last night, saying this rule was designed to stop corporate raiders from using shell losses to evade taxes and was never intended to address the unprecedented situation where the government owned shares in banks. the spokesman went on to say paulson turned it off on the way in, in other words, they exempted it when we acquired the stake we just turned it off on the way out. but other experts are quoted with a different spin, saying the government is consciously forfeiting future tax revenues. it s nopth form of assistance, maybe in other news at obvious, but it s a different form. i ve been doing taxes for almost 40 years and i ve never seen anything like this. mayo also says it s out to citi significantly, the ruling has no bearing on whether citi can use these tax breaks or has to write it down because of what everybody else has to worry about, which is the profit outlook and the discussion with their accountants. bank analyst mike mayo suggested that might have to happen. you remember that story a couple months ago when mayo said the $38 billion tax loss carry-forwards might have to be written down because of the profit outlook. this ruling has sdmoemsion on that. so, you spin it anyway you like and you ll take it i think the way it almost becomes a fundsable thing, because the taxpayers who put all the money into citigroup to rescue it are benefiting from this, but it s the same government shooting itself in the foot for future tax revenues. it s almost would the government have been better off with the $38 billion down the road in taxes or would it have been better off getting out from under citigroup with the taxpayer getting their money back? which is more money? what is better for the deficit? which is better for the government? i think it would be a wash, wouldn t it? that s what i would think. either way, because wait a second, did the government thought they could leave the t.a.r.p. money in there for a while, continue to get the big dividends they were getting paid as the preferred shareholder, eventually make citigroup lose that and pay back the t.a.r.p. at a later date. i guess that s the question. if you think this is another handout to citigroup they would have kept the tax they would have kept the tax but you think eventually you re going to have to pay it back, and when you do, you re going to lose it at that point because of the exemption what does the government want to happen? we want to see more loans coming out the other side. some of this t.a.r.p. money is going to the banks to restore their balance sheet. that s well and good, but how did getting loans out? seems to me this might be good for that. fred makes an excellent point and it s the exact point that the treasury came to, which is that since the executive compensation rules were applied and every bank wanted to get out of the t.a.r.p., they were not on lending the t.a.r.p. money because they considered the t.a.r.p. money something to be paid back, which is different from regular capital although you also hear from the other side that, okay, we gave them this t.a.r.p. money to make loans to begin with and it s not happening. so, you know, keep doing all these things hoping to bolster their balance sheet. i don t know. the argument you hear from small businesses is i can t get a loan. you hear from consumers, my credit card limits have gotten yanked back. so you can look at it a bunch of different ways. even good businesses can t get loans. even good loans aren t being made. but the government is counter productive. on the one hand, they say make these loans. on the other hand, they say we re going to punish your compensation and force your good people to leave and tell you how to pay your people and give you all the incentive in the world to pay back your t.a.r.p. instead of making loans. right. one-third of t.a.r.p. applications were withdrawn when the executive compensation rules were passed. they said we don t want the money. the treasury could not give the money away. i was thinking about the political comments you were making in the 6:00 hour and thought we could play a board game here, okay? put george bush, president obama, bernie sanders and ron paul in a room. how would they divide themselves on the politics of bank bailouts? hmm. ron paul hates it. ron paul and bernie sanders, your libertarian and socialist on one side of the room and president obama and george bush would be on the other side of the room. that s how this thing two of them are in charge of the economy. right. as commanders in chief. right. leading executive of the country. the other two can hide in congress. hide in congress and operate from the fray. i m saying that s the way it would separate and i think it s a fringe element versus this is another example, and we had david gregory on looking at, you know, a preview of his show. we made the point that obama at this point, just about every issue, he s getting it from the far right and from the far left. i mean, afghanistan. right. the far left hates what it is, far on this, he s going to get this. people hate what treasury did from the far right, and the outrage on the far left is growing against geithner and treasury and obama every day. i see it on the far left joe, i think you re genuine in everything you say, but i have to question whether or not you re really angling here to get squawk box to broadcast from the white house, and that s what your angle is here. there s always a motive. somewhere deep down there s always a motive. that s what we did the treasury, we did the treasury i honestly try not to i think you make a good point. i mean, i definitely think that in a lot of the stuff that the obama administration did with the banks, they did the correct i think this is the correct move the treasury s making here and they re going to get pilloried. mike taibbi is going to write some everybody says we didn t need it now. it s like getting a quintuple by pass surgery, feeling fine and saying, doc, maybe i didn t need it. this is going to be another alien squid on the face of the u.s. taxpayer. i honestly don t think the white house is worried about what rolling stone is going to write. i think this white house is more worried this is what they should be worried about, the day-to-day politics, but the long-term impact. if they really want to create jobs, get some loans out there, if they want to get these banks functioning the way they re supposed to, they ve got to have t.a.r.p. they ve got to leave this money in. they shouldn t be paying it back. they shouldn t be discouraging loans, they should be doing everything possible to encourage these loans to be made loans to who, to people who are going to lose their job as the jobless listen, qualified business loans aren t getting made. you can go in with a very good piece of property, with a good cash flow, a good company with why is that, fred? and you re still not getting it. the standards are so low that you can t make a return on the investment, so you don t make the investment. that s why aren t banks giving their very low cost of funds, giving loans to qualified borrowers, why is that? because they are making so much money on the spread without any risk. so, what s the answer to that? the answer is to encourage them to make more loans to businesses by what about raising rates? well, rates are going to go up by themselves, becky, i think. but are the banks healthy enough at this point where they don t need the spread, they can deal with the narrower spread? look, they can make more money on the loans with less risk, though. and i think if you make responsible loans you don t want to get to the egregious levels we got to in the past couple years, but if you re making loans at three and four times cash flow to responsible businesses with the promise of good ongoing cash flows, that s a good loan and that s a healthy loan and it s a profitable loan. that s what they ought to be doing more of. do you think the president, who s gone, moved center-right on afghanistan, he didn t nationalize the banks, public option s off the table, early buy-in on medicare might now be off the table is he moving in the right direction? on having the banks in and urging them to lend more, yes, he is. on the other hand, the regulators are kind of in a counterproductive way saying, oh, don t take too much risk. we re going to watch you carefully. i think they ve got to get their message straight and speak with a single voice on what they want to happen. government is terribly conflicted here on this. they are. terribly conflicted. they re going to have the right the right, obviously, we know what the right thinks about the president. one of the reasons the approval rating has been going down is the loss of independents, a lot of people say, that thehe independents are now, you know, not as enthralled. i mean, if you lose the left, what do you have left? where s the left the left is leaving going to go? they re not going to go anywhere, but you ll certainly hear from them. you re hearing from weiner now. i can t say that with a straight face, but you re hearing from weiner, from burress. you re hearing them say if there s no public option there might be a revolt on the left, if there s no medicare pay-in, and now this with the handling of the treasury. our cnbc poll last week showed everybody hates everybody when it comes to the economy, okay? republicans don t give republicans any props at all on the economy. only 30% of their handling, they only give 30% to democrats. the investor class doesn t approve of republicans and the wealthy don t approve of republicans. so nobody has anywhere to go. 22%, about one in four americans said we hate both parties when it comes to handling of the economy. the protestors in copenhagen are right we should get rid of all government and all business and all business. and go back to the lean-tos and kill your own food. kill what you eat. steve, we ll continue this conversation later. by the way, we never got to introduce fred, who is going to be with us for the next two hours. our guest host is fred malek. he is a man who knows corporate deals, he knows washington inside out. he s the chairman and co-founder of the thayer lodging group, and most notably, he is the man behind marriott s acquisition of the ritz carlton. also former deputy director of the omb, with us for the next two hours. fred, thank you very much. thank you, becky. if you have questions or comments about anything you see on squawk this morning, e-mail squawk@cnbc.com. up next, it s been a banner year for names in the technology area. the nasdaq up more than 40% year-to-date. so, will tech take charge in 2010? we ve got an outlook and stock picks after this. also later, we continue our outlook 2010 theme with barry knapp of barclays. he s got a first look at the investment outlook for next year and will share it with us. (sneezing): ah-choo! hope i don t miss work this christmas. yeah, how will you pay for things like food.electricity? dental bills. gazooks. you need a back-up plan ho, ho, ho. that s why we have aflac! so i ll have cash to help pay bills! great.but what if you re still not better by christmas? hmm. afllaaccccccccc!!!!!!! (santa): aflac. we ve got you under our wing. rudolph s better. but now blitzen s sick! if toyota gets credit for being the most fuel efficient car company in america, well, then how do you explain all this? chevy malibu, cobalt, silverado, and the all-new equinox. compare them to anyone. may the best car win. in what year was tennis officially introduced as an olympic sport? the answer 1896. tennis was removed from competition after the 1924 games and was not officially reintroduced until 1988. welcome back to squawk box, everybody. we ve been keeping an eye on the futures, and this morning those futures have been well above fair value. in fact, right now you re talking about those dow futures being higher by about 44 points above fair value. we do have some data coming out in about an hour and 15 minutes time, looking primarily at what s happening with inflation when we get the cpi numbers after yesterday s hot ppi numbers. microsoft has settled its antitrust issues with the european union. the eu ending its case over the internet explorer. no fine was imposed with microsoft agreeing to give windows users equal access to other web browsers. also, consumers appear to be holding out until the very last minute this holiday season. the national retail federation says that most americans have only finished about 47% of their holiday shopping. that s a five-year low. about 42 million people that s 19% of shoppers they haven t even started. there s a big game of chicken taking place, where shoppers are waiting out to see if they can get better discounts by waiting until the last minute. you know, the nasdaq is now up over 20% year-to-date and our next guest says that the tech sector will continue to lead that charge in 2010. joining us is bob turner, the chairman and chief investment officer of turner investment partners. bob, what do you see in technology that makes you think that it will continue to lead the way next year? well, there are several drivers. first of all, we have this concept of mobile internet where people have handheld devices, where they have internet access. and that s going to drive a lot of technology spending. secondly, enterprises haven t really spent money for a long, long time. they ll start spending as well. thirdly, we have this emerging market consumer, where you have literally hundreds of thousands of people in emerging markets buying automobiles, telephones, tvs for the first time in their life. wow. you know, bob, we want to get more on your picks in just one moment, but as you re seeing across the bottom of your screen, time magazine is out with its person of the year, and ben bernanke, the fed chairman, is the person of the year. we re going to be hearing more about that tiger. with the editor of time a little later today. but bob, you were talking about all the reasons that you like technology. and specifically, some of your picks, when it comes down to smartphones, what are those picks? well, the one that jumps out, of course, is apple. right. is the first mover in that. eve though they ve done quite well, their share is still small. the number of carriers can expand. and next year they ll likely introduce another version of the smartphone. they ll introduce a netbook, which, of course, is kind of the intermediate step in between a cell phone and a laptop. so, those will be drivers to allow apple s earnings to continue to really advance rapidly as they have the last several years. what about when it comes down to chip demand? you say you like qualcomm the best? yeah. it plays right into that whole smartphone area. they really have a dominant share in the space. and where they don t have the chips, they actually collect royalties. so, they re going to be a prime beneficiary as well. when you look across the board from broadband demand, there are a series of names you like in this arena? yes. i mean, beyond the handsets and the chips, there s the companies that actually have to make sure that this information is transferred from home station to the cell phone. and companies that stand out there, of course, are cisco as a primary player, but a smaller company like f-5 networks or an old company like alcatel-lucent will all benefit from the spending that has to take place to allow the transmission of internet traffic that literally is doubling every year. you say corporate buying is something that we could expect to see much more of next year, and that s one of the reasons you like cisco, but you don t think necessarily that this is going to float all boats. you don t think that hewlett-packard or dell will be as big a beneficiaries? well, we are going through a transformation. i had mentioned the cloud computing, and what that does, it takes a lot of servers off companies premises and moves them out into the cloud, and then with virtualization, you actually need fewer of them. so, hewlett is a great company, dell s solid, but they re facing lots of headwinds in this move away from devices on premises to devices outside of premises. when it comes to the emerging markets, you do think that they ll be spending some more, and there are maybe some names that aren t as common to the rest of us that could be beneficiaries? well, yes. i mean, certainly, a lot of u.s.-based companies benefit from what s going on there just by virtue of selling their products or the chips that are in the products to those markets. but when you look at those markets, there are certain companies that could potentially do well. there s a software company called long top financial. it services the four major banks and china s beginning to move into the insurance companies as well and some of the enterprises. just basic stuff check processing, payment processing. but it s just in the infancy in those markets and has substantial growth ahead of it as well. okay. bob, thank you very much for joining us today. we appreciate your time and hope to see you again soon. thank you. thanks. becky just mentioned the time magazine just in the past few minutes has named fed chairman ben bernanke as their person of the year. we re going to talk to rick stengel, editor of time, in just a few moments, but the editor s letter, which is now online, says history is composed not only of what happened, but what didn t happen. we all know what happened to the economy this is me speaking now in the past year. what they write is what we don t know is what the economy and our lives would have looked like if a few individuals had not acted on our behalf and had simply sat on their hands. we don t know what didn t happen, but i m convinced, stengel speaking, that the economy would look much, much worse. bravo to time. this is out of character. this is something that maybe wasn t an easy decision for them or something to jump along with, but bravo for them bringing that up, because it s a great point, that what you don t know i think it s a great point what didn t happen. we know what happened, but if we hadn t done the things that bernanke promised, that he worked for, what would the result be? you re convinced, like he is, that it would not have been like this? i m not convinced, but i m concerned. right, right. theoretically, you could have thrown paulson and geithner in there, too. they did the men to save the world, the committee to save the world so it was reuben, greenspan in the 90s. do you remember this? wow. that s a good one, isn t it, in hindsight? that causes a belly laugh. it was somers, reuben and greenspan, if i m not mistaken. yikes! hopefully, this is a better let s give paulson a nod for the t.a.r.p., the t.a.r.p., which is a fundamental underlying program, that was started by paulson. people say time s too far left, but i guarantee rolling stone will not have bernanke as person of the year. i wanted i think tiger should have been, just because he s had more take the tabloids. he s been on our lips more than any other somebody told me this morning. i don t know if it s true it s true, on the post. one more cover, he goes ahead of the covers on 9/11 if he does one more. you pick tiger. what about the american soldier? we wake up every morning and think about that? you could pick that every year. well, pretty much this year with afghanistan. the war in iraq, what s going on over the last couple years you could have picked the soldiers, going on four, five, sixth terms, extended tours of duty. anyway, we ll talk to rick stengel coming up here on squawk. still to come, our outlook 2010 continues. we ll talk to barry knapp when squawk continues. to a well-equipped buick lacrosse. get inside each. and see what you find. if perfection is what you pursue, this just might change your course. meet the new class of world class. the twenty-ten lacrosse, from buick. may the best car win. all right, welcome back to squawk box, everybody. again, let s look at the markets this morning. and we are watching these futures indicating a sharper open this morning. you are talking right now about those dow futures being 47 points above fair value. again, we have data coming out in just about a half hour s time. we ll be watching very closely for any signs of inflation in the consumer price index. meantime, the mortgage bankers association says that mortgage applications rose by 0.3% last week, pushed higher primarily by refinancing activity. the average 30-year mortgage rate ended higher or edged higher to 4.92%. ben bernanke and company finishing up a two-day fed policy meeting. the latest statement on interest rates and the economy expected around 2:15 eastern time. by the way, bernanke just named time s man of the year, if you didn t tune in earlier. we ll have more in 30 minutes when we talk to the editor of time. microsoft and the european union settled the remaining antitrust issues, microsoft agreeing to provide equal access for rival web browsers in addition to its internet explorer browser. no fine will be imposed. and it s not always a bad thing to work at a company in a financially strapped industry. southwest airlines tops a new list of the 50 best places to work as compiled by jobs website. last year s number one was foodmaker general mills, this year slipping to number two. barclays capital is out with its top u.s. stock picks and outlook for 2010. joining us now from new york, barry knapp, barclays u.s. head of portfolio strategy. hey, barry, in a word, is it going to be a stock-picker s market or is it going to be how does that go, a market of stocks or a stock market next year? i mean, do you like both individual stocks and the overall market? well, i think that the overall market probably winds up the year roughly flat, but well, that s a big statement right there, barry. so, you re looking for what on the s&p then? at the end of the year, we think it will wind up at 1,10 and in essence look like 2004, where we spent the first half of the year adjusting to fed policy normalization. we have roughly a 10% pullback. it won t be a high-velocity, sharp sell-off, but a pullback nonetheless, and in the second half of the year, we ll go higher as the macro economy improves and earnings go higher. ultimate pales contracting through that entire time period would be our expectation. in that environment, yeah, it probably looks like a stock picker s environment. that sounds horrible to try and cover for what, 17 hours a day. what are we going to so, what stocks should an investor even bother? well, absolutely. i would draw one difference between previous rate cycles when the fed was normalizing policy, say in 1988, 1994 and 2004, and that key difference was, in the old days, they really only had, you know, one thing to do to normalize policy, which was to start raising rates. so, if you look at 1994, the vix was below 11% just prior to that first surprise rate hike. you know, vol was low, the market was totally unprepared for the rate hikes. when we got the rate hikes, we had a high velocity, highly correlated sell-off. you marked everything down. on the other side, the secular trend started to re-emerge, but during that correction it was highly correlated. 2004, the market was prepared for it. the fed had to change their communication language. and so, during that correction period had some sectors going up, some going down. defenses out-performing more cyclical sectors, and it set you up for the euphemistic stock picker s market, so to speak. barry, why do you see contraction in multiples? that s the most interesting thing i thought you said. if multiples do contract, your predictions come true. well, there s a number of different metrics we looked at. first, cpi in an environment where we have deflation or significant disinflation. there s a very strong relationship between cpi and the earnings yield, you know, over the last 40 years or so. cpi s going to rise, not rapidly, but rise nonetheless. there s also a strong relationship between earnings yields, the inverse of pe and growth. growth is going to rise throughout the course of the year. and rates, finally. so, if you look at something like an equity risk premium model where you look at the earnings yield less, the real treasury rate, that is, interest rates less inflation, again, you ve come to the same conclusion. also during those periods of adjustment to normalize fed policy, multiples contract. so, just about every different metric we looked at, we wind up with contracting, you know, multiples. all right. so, we decide we re going to do some of these things. so, are you going to name actual names for us, barry? i am, as unusual as that is for me. but these are our analysts top picks, which did quite well last year. our favorite sectors remain tech and industrials. on the tech side and again, the big global themes we have coming out of this would be the rebalancing of global growth away from the developed world towards the developing world and u.s. growth away from consumption towards investments. so, within that construct, our tech analysts liked autodesk, who s a cad cam designer. they liked juniper networks, which is sort of a more leveraged cisco-type play, building off internet infrastructure. on the industrial side, danafer, and failurleur. the analysts think orders will pick up next year. on the defensive side, we like health care quite a bit for a couple of reasons. one is the cycle and two is policy, as you ve been following, obviously, is not going to turn out to be quite as bad as we thought a couple months ago. and there we like a tester type of company beckman coulter and merck. then finally, energy we do think will be a long-term global theme, and there exxon has their production looks like production will increase for the next several years for them. that s a good thing for exxon and the stock is inexpensive. okay. barry, appreciate your time today. thank you very much for having me. you know, you told us what you thought, and that is a good thing for one of our market guests, anyway. thanks. appreciate it. i would have also voted for bernanke, by the way. you would have? i would have. fred s right, the american soldier should be every year the guy we think about, but then i thought brian roberts, hands down, probably. the comcast comcast. it must have been in the i mean, i m sure it was mentioned. probably came down [ kissing sounds ] to bernanke and brian roberts the media visionary. able to see around corners, find out where content is going. i ve heard he doesn t like but that s business only. bernanke affected the entire of the economy. boy, you re in trouble. all right. got any comments or questions this morning, drop us a note. our address is squawk@cnbc.com. when we come back today, barclays making its predictions for the markets in 2010. we ve got the numbers and what they re expecting. i think we might have already done that, but maybe we ll do it again after a short break. at&t covers 97% of all americans, that s over 300 million people. i ve collected a few postcards of all the places that at&t has coverage. spokane, washington; boston, mass. san francisco, tulsa, oklahoma. dated a girl from there. warren, michigan. didn t work out. bozeman, montana; daytona beach, florida; madison, wisconsin. good college town. i think we get the picture. (announcer) if you want coverage, we ve got it. at&t. this holiday, get a touchscreen samsung solstice free after mail-in rebate. steve liesman joins us now with more on time s person of the year, ben bernanke. and i would say, honestly, steve, i mean, this, by extension, some of this would spread to the secretary geithner and to paulson. it s the guys who kind of that s interesting. i hadn t thought about that. you think that that it wasn t just remember, it s not a positive thing, they re saying, it s just a thing. it s just, he is the person of the year. no, no, no, if you read his letter, it is a positive thing. it is positive. we don t know what would have happened if these guys didn t step up. we did a poll last week where we asked the american public what they thought of bernanke, and what you ll see is it s very, very mixed. first thing, approval rate of bernanke, just 22%, about half of that of obama, okay? disapproval, 25%. statistically insignificant, given the margin of error of the poll, but look at the huge unsure there. so, he s still relatively not sure who he is or we didn t ask that. i don t know what he is or i don t know what to think about him. that s about the number you d get you d get i don t know who he is. for geithner, you ll see it s quite a bit lower there, 18% wow. and a much more significant disapproval rating and a big unsure. and now we have a chart that shows everybody who we asked about president obama, the democratic party, the republican party, how much they approve of their handling of the economy, and you can see there, obama s number one and then you move down to bernanke and geithner on the right. i don t know, joe, about your theory that this ends up helping geithner, paulson no, but either you hate them all, which a lot of people do for whatever reason you know that angle of things now. you hear it. we hear it every day. yeah. are you saying we should have a committee? no, but i m saying if you acknowledge bernanke, that s good. the statement you just read, if you extend it to policy maker, the policy maker. i lot of the bernanke vote i think is because of the execution he s managed for the past nine months. i think because he was there right. saved us, the fed moves the fed moves. as your education increases, your approval of bernanke increases, okay? duh. high school or less, you have only a 15% approval rating, okay? if you have income greater than $100,000 now, if you have money in the market, you like bernanke in greater percentages. you re not gang busters. you re like 33%, whereas if you have no money in the market, you re 15%. but bernanke is the face of this. he went on 60 minutes to explain what was happening on a lot of these things. he was in the same job the whole time. geithner moved on to the fed he s the one continuous person to be in office and be involved here. why should the average person like bernanke right now? the economy is still louzing. 20% of the economy is either out of a job or underemployed for the same reason you said last hour, that he s potentially saved them from something we have no idea about. but that s not what they say. time is potentially right on the mark, it s what would have been if he hadn t acted, but the average person looks at it it s a hard argument, the counterfactual argument the fed has suffered from the entire time. if not for our actions, this would be the great depression. but that s why this is such a bold move from time, who you can imagine has ticked off half of their readership by making a decision more than half it s a mainstream you re talking 10 or 12 people. it s a mainstream media organization coming out to make a statement like this. another question, does his being person of the year change the politics of the fed in washington right now? i don t know how much impact it has, but the fed s been taking it on the chin in congress from the guy who sat in this chair yesterday i doubt ron paul changes his mind based on this decision. but it s not ron paul. it s all the other congressmen who have joined in with ron paul that made ron paul a mainstream kind of guy when it came to the congress and the fed. nope, i think you re overemphasizing the impact of time. it s not going to have that big of an impact in washington. all right, we are going to talk to rick stengel, managing editor of time well, we were. in a few moments. we ll talk to him about how he came to the decision, why not paulson, why not bernanke and paulson, a bunch of other things. that s coming up in about seven minutes. when we come back, key figures in an alleged trading ring. indicted. scott cohn is on the case. details are next. [ male announcer ] 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. a federal grand jury has indicted galleon group founder raj rajaratnam and hedge fund consultant danielle chiesi or chiesi. you ve been working on it. i ve been working on it, but we ve got four different prudenceations. i can pronounce the charges conspiracy fraud, conspiracy. it s a major insider trading case. cnbc senior correspondent scott cohn? cohn, last i checked. is it coh snnk you ve been here 20 years, right? senior correspondent. you know, if bernanke is going to be man of the year, hang on a second, because who are all these people at the fed and everyone else reacting to? it was all the scoundrels on wall street, so i m voting for white collar criminals. composite white collar criminal. madoff? well, that was 2008, but the fallout was 2009. allen stanford. allen stanford, my buddy. anyway, let s get to this latest thing. this is all just allegations. we broke these allegations yesterday on cnbc. the federal crackdown on insider trading and hedge funds rising to a new level. raj rajaratnam late yesterday indicted by a federal grand jury. he insists through his attorney that he s innocent, looks forward to his day in court, but in court, he s likely to be confronted by some of the people he was allegedly trading information with. 6 of the 21 people caught in the government s dragnet have already pleaded guilty and are cooperating. cnbc has learned former ibm executive robert moffett is in discussions with the government about possibly resolving his case, this according to his attorney. moffett has previously said he did nothing wrong. one of moffett s major contacts, allegedly, another hedge fund player indicted yesterday, danielle chiesi, a consultant to a unit of bear stearns asset management. she allegedly shared information with rajaratnam on a number of tech stocks, including advanced micro devices in 2008. she also allegedly traded on inside information on sun microsystems and the aforementioned ibm, and she also maintains her innocence. the indictment claims this is an even bigger scheme than the fed s first laid out in october, at least in terms of the time line, now alleging rajaratnam was involved in insider trading as far back as 2003. he faces 11 counts, including conspiracy and securities fraud, a potential 145 years in prison, and chiesi faces ten counts and 155 years in prison. both are due in court for arraignments on monday. so, this is ratcheting up, this whole hedge fund insider trading. yeah, getting some traction. thanks, scott. scott cohn. when we come back on squawk, blackrock s bob doll, vanguard founder john bogle, abby joseph cohen. we ll get their outlook on the economy, the markets and a lot more coming your way at the top of the hour. time magazine unveiling its 2009 person of the year earlier this morning. it is fed chairman ben bernanke. the highly anticipated issue hits the stands this friday, and joining us from new york is rick stengel, managing editor of time. rick, good to see you this morning. good to have you with us. good to be with you. good reviews on your pick, at least from this desk. the criteria, as you know, is the person or persons who most affected the news in our lives for good or ill right. and embodied what was important about the year for better or for worse. i guess the first question we have is, bernanke didn t do this in a vacuum. why not couple him with a geithner, with a paulson? why not do another committee to save the world ? no, i really seriously thought about that and thought about the idea of getting geithner and sommers together. we actually have a great picture in the issue of geithner and ben having lunch together, but i do think people want us to choose one person. i mean, it is person of the year, and again, that s part of what we do as writers and editors is make a choice. and to me, bernanke, more than the others, really stood for what happened this year. i mean, the fed is the most powerful and secretive and least understood force affecting our economy and i wanted to explain that to people. i wanted people to realize, this affects you in very real ways. it affects your pocketbook, your wallet, car loans, student loans. so, bernanke was the vehicle to tell that story. you say in your letter, as we, i think, mostly agree, hard for people to appreciate what might have been had he not done the moves he did. yeah. how do you get the american people to comprehend that idea? you know, it s very hard, and our story explains it. we had a two-hour exclusive interview with him that nobody else had, and michael grin wald who wrote the story really explains the fed and its history and his role. and i do think it s important for americans to understand i mean, one of the things that bernanke and others hint at is that we re, you know, we re economically illiterate. you know, congress is probably economically illiterate. it would behoove us to understand some of this stuff and realize that, again, what our credit card interest rates, what our mortgage rates are, what our, you know, car rates are all have to do with decisions that the fed makes, not only about interest rates, but the money supply. and of course, as you know, you know, in the 1940s, congress put as another part of the fed s mandate that they should seek a full employment society. i mean, they haven t done that. i mean, in terms of bernanke s responsibilities i mean, he s much more errant on the first side of saving the financial system than creating full employment, which is a lot harder to do. rick, who else were you thinking of? are you allowed to tell us that? sure. we do the list now. stan mcchrystal was the runner-up. wow. i thought he really was critical this year in terms of shaping afghanistan policy. again, china is always so important. we have the chinese worker as number three, because like a composite thing. did you have sleazy banker? did you have madoff? was anything like that thought of? absolutely. i really i seriously thought about bernie madoff as a representative of the year of a really nasty year in terms of the economy. no way tiger, right? no. i mean, that s just too tabloid, but i mean, he s been on the cover of the post i think he s going to set a new record if it happens again tomorrow, right? no, you know, the way i look at it is if you re interested in tiger woods, there are plenty of other places you can find out about it other than time magazine. hey, rick, i think this is actually a bold call, because bernanke and geithner and paulson, everyone involved with this have really had some divided very divisive issues that have come up around this. yes. there is the rolling stone article that kind of lays this out and says this is all big government fraud. there s a big number of thinkers on the other side. is that part of the reason you did this because it is something where you can maybe convince people one way or the other? but also, as you know and you have said, it s for better or for worse. bernanke has made plenty of mistakes, which he admits. he says he didn t see it coming, he didn t react fast enough. when he figured it out and he decided, you know what, i m a scholar of the depression, i m going to do everything that s possible to avert a second depression from happening. you know, that was the major thing that he did, but there s a lot of problems. i mean, i think, you know, the financial regulatory system in america now looks like a huge, elaborate, you know, rube goldberg contraption, right? i believe there needs to be more regulation. i believe the fed even needs to step up now, according to what some folks think, and i know that is controversial, but he can t now drop down his guard. again, there are a lot of problems. he has $1 trillion now of mortgage-backed securities. how do you unload those? that s really tricky. yeah, and it s going to be interesting to see how we go back and judge this cover 15, 20 years from now. exactly. rick, thank you very much. can i give a shot out to jack bogle, my old boss who i know s going to be on? we ll tell him hi for you coming up. coming up, breaking news on inflation at 8:30 eastern time. first, the exclusive squawk financial summit, abby joseph cohen of goldman sachs, blackrock s bob doll and mutual fund pioneer jack bogle, giving us their strategies and predictions for the new year. with fidelity, you can take your trading around the world, because now you can trade u.s. and foreign stocks online, in 12 markets, 24 hours a day, all from the same account, and settle in u.s. dollars or the local currency. plus, we ll guide you with international research and realtime quotes, so you can diversify your portfolio, wherever whenever. and we ll be on call around the clock, while you trade around the globe. fidelity investments. turn here. say good-bye to 2009. it s the final countdown hello 2010. our exclusive financial summit gathers for a special. goldman s abby joseph cohen, blackrock s bob doll and john bogle all set with forecasts for the new year. hit the breaking news sirens. [ sirens ] the markets get a read on consumer inflation and housing starts. both reports come out at 8:30 eastern time. and back to sin city. why can t we remember a god damn thing from last night? city center ready for its grand opening and we kick it off with the man who rolled the dice on the $8 billion project, dan tishman, chairman and ceo of tishman construction. it looks like the high hog won! place your bets as squawk box begins right now. viva las vegas how i wish there were more than the 24 hours in the day good wednesday morning. welcome back to squawk here on cnbc, first in business worldwide. i m carl quintanilla along with joe kernen and becky quick. with us is chairman of thayer lodging, fred malek. abby joseph cohen of goldman secretaries, bob doll of blackrock and john bogle of the vanguard group are coming up. first, a few reports. relative strength here this morning, good action in europe, although red arrows in asia. we ve got the cpi and housing starts coming up at 8:30. cpi expected to rise 0.4% and by 0.1% when you strip out food and energy. housing starts expected to jump nearly 8% to an annual rate of 573,000. and joe, we ll see if they get any bump from that tax credit extension that came about earlier in the year. yep, and we ll see if this is if it s a hot number, what do we do? we say it doesn t really count? you probably will watch treasury yields climb again but we write it off, don t we? i guess. that s what they re doing you re referring to to our argument yesterday. to rick. to rick and steve. but i ve seen rick write off cool numbers and i ve seen liesman write off i mean, everybody s got a point of view yeah. and they, you know, among the stories that again, say together? figures lie and liars figure. but are we going to have a santelli/liesman rumble in the jungle? they re on again already. they re on today? among the stories we re following this morning, ben bernanke. you know, i just thought of that do you think the guys in chicago will be able to pronounce his name now that he s time person of the year, instead of bernake? there s two ns. i mean, it s simple, bernanke. bernanke. fed policymakers finishing up their two-day policy meeting with their postmeeting statement expected at around 2:15. i don t know whether bernanke s even going to do the statement anymore. he s, you know, focusing on this time person of the year thing. he was named for in the piece there are, where he says we ve got a lot of work left to do. but it is interesting that it s coming out on the day we re going to get a fed statement and see where they stand. you know, he does have to do the other half of this. you go in and then you ve got to come out. if we had time with stengel, that s the other point is he s not done, assuming if we had time with stengel, we would have shown the men who saved the world, which included reuben and greenspan right. i mean, look at what s going on and paulson. and paulson no, the men who saved the world. yeah, their cover that they had a few years ago. i see. but it s the person of the year this year, not, you know, ten years from now. but in hindsight, ruben and greenspan, at this point, their legacies have been, you know, crashed. they looked good at the time. they looked good at the time. we have pete rose way in cincinnati. never name a street after all the evidence you know, until you find out everything. you should wait for the guy to die. all right, the squawk financial summit is back, and this time we are taking a look at 2010 outlooks. joining us exclusively for the next half hour, abby joseph cohen, president of global markets institute at goldman sachs, bob doll, who s vice chairman and global cio of equities at blackrock and jack bogle, founder and former ceo of the vanguard group. folks, thank you all very much for joining us today. i know we have a lot to talk about on many different levels, but right out of the gate, why don t we just focus on your outlooks for 2010 and get that right out? abby, why don t we start with you? i know you re looking for growth slowing in 2010, but you re still talking about north of 2% growth. what s that mean for your outlook for the markets? we think it s a constructive outlook for the u.s. stock market. you know, growth right here in the end of 2009 is exceeding many people s expectations. we re seeing that many consumers are coming back, but very importantly, we re seeing very good growth in exports and also in business investment, especially for equipment and things that enhance worker productivity. the growth this quarter may be as much as 4%, even 4.5%, and we do think that that slows little bit, because inventories have already been rebuilt. when we get into 2010. and we expect less pop, if you will, from stimulus. but that s still a good environment for the stock market. next year, our gdp forecast is below consensus as are our firms profit expectations. even so, we think that the appropriate range for the s&p 500 on a fair value basis will be between 1,250 and 1,500, according to our port nofolio strategy team. that s still a lot of growth. bob, we ve seen the market come back a lot this year. how much more is left this year? more left, and i would agree largely with what abby had to say. we are in an environment where the cyclical positives are edging out the structural concerns, which are very legitimate, and growth is above trend but below normal for a cyclical rebound off a recession low, and i think that s what next year will be about, better than the trend but lower than typical for an expansion. we will have up earnings, and that will be enough, given all the stimulus, for the equity market to go higher. we think it will be more grudging in 2010 than it was in the last nine months of this year. it won t be a straight line. and breadth won t be as good but still an up year. are you willing to lay out a number at this point? i mean, abby s saying somewhere between 1,250 and 1,300. i ve been using a 1,250 number. i ll stick with that, becky. okay. jack, i know you don t look specifically at levels for the s&p or any of those things, but when you look at the markets overall, what s your outlook for what s going to happen next year? well, next year is always like a flip of the coin because the stock market can depart radically on the plus side or the minus side from business, and i think business is going to be pretty good. gdp is going to be okay. i m very worried about the deficits, of course, and very worried about the sort of intractability of the unemployment data and the substantially unemployed data. but if you look at where the market is now, the yield is only about 2%, maybe even a little maybe even into the 1s. that s a pretty low dividend yield in terms of creating future returns. the pe, depending whether you use and this is one of the big questions don t mean to make it complicated, but looking at operating earnings, the pes were maybe about 18 times. but when you look at reported earnings after all the write-offs of the last few years, earnings of the pe is much higher than that. and if you look at schiller s ten-year pe, it s not particularly good. it s a little above average. so, are you going to get higher pes or lower pes, which is the rest of the equation? and nobody knows that, but i d say we d be fortunate if we had a flat market in the coming year. but with all the knounknowns an the unknown unknowns out there, i d be very cautious about 2010 and i d be looking for, about a decade, which is what i m comfortable with doing, looking at 7% or 8% returns on stocks over the next decade. jack, you re the only person here on this panel who really spoke to inflation being a problem, and you also spoke to the possibility of less consumer demand. i guess i would ask the other panelists, my biggest concern here is, as an investor, is employment. how can you have sustained consumer demand, and without sustained consumer demand, how can you have growth when unemployment is at 10%? and you know, abby and all of you, we have twice as many people as that who are underemployed and probably another 10% or so who are worried about losing their jobs or supporting people who are underemployed. so, without consumer growth, how are we going to sustain any kind of demand growth? i think your question is right on target. under normal post-recession conditions, we would expect gdp next year of 3% to 3.5%, but we have trimmed that number down to 2% because of the concern about labor markets and also household balance sheets, which continue to delever. so, i think that you re exactly right to say this is an issue. and for policymakers, let s keep in mind, this is not just a cyclical employment problem related to the severity of the recession, but also a structural one. beneath the surface, we were seeing problems in terms of a hollowing out of certain portions of our labor market for the last ten years. let s keep in mind that median household incomes adjusted for inflation haven t risen for ten years, and this, we think, is something that policymakers really need to be paying attention to. there are some elements in the president s proposal on jobs creation that does look at that. some of the short-term fixes have been discussed widely. the longer-term fixes have to do with raising the educational attainment level of the average worker in the united states. hey, bob, real quickly, you see all these structural problems out there, but you think cyclically still the market s going to be strong. why do you think that overweighs all of the negatives that are out there? look, the negatives are keeping us from having a normal recovery. we d be talking about 4, 5, 6 gdp for a few quarters after a recession low. none of us are talking about for the very structural headwinds, that the question was just about and that abby just replied to. but the cyclical positives 0% interest rates, the fact that inventories are at very low levels. there will be some reinvestment in inventories. that will give gdp some boost. exports are strong, as abby pointed out. the government s spending a lot of money. business investment is strong. it s not the consumer that s going to carry us. let s keep in mind one other thing, and that is, while we are all concerned about the balance sheets in the household sector, still too much debt there, and we re concerned about the balance sheets, not just at the federal government, but state and local governments that are having fiscal problems, the average corporation in the united states right now is flush with cash. many of them have been using their reasonably good profits over the last year or so, even as the recession was coming to an end, to rebuild their balance sheets. and those cash positions we think will be used for something in 2010. i suspect that jack would like some of that cash to be used for dividends, and we think it will be. some of it will be used for share repurchases. and we also think that some of the cash can be used to continue to invest in the future through things like equipment, technology and other sort of equipment spending. yeah, maybe a div hike here or there as well. we ll see what happens in 2010. and some m&a activity. yes, exxon can prove that over the last couple days. we ll take a quick break and return to our exclusive financial summit in just a moment. also waiting on some key economic data in about 17 minutes or so, cpi and housing starts. also, this big gamble in vegas. you heard about the city center about to make its grand opening. dan tishman of tishman construction is the man who put this $8 billion project together. he s going to talk to us live from vegas a little later on squawk. all right, welcome back to squawk box, everybody. as you can see, right now the futures are indicated higher. dow futures up about 39 points above fair value. we are counting down to the latest data we re going to be getting on consumer inflation and on housing starts. that comes out in just 15 minutes time. and again, those futures are above fair value right now. online holiday shoppers are spending more this year. comscore reports that online spending of about $21 billion was running up this holiday season so far. that is up about 4% from the corresponding period last year. for the week that ended this last sunday, it marked the heaviest online spending week on record. microsoft and the european union have settled the remainder of their antitrust case. the settlement involves no fine with microsoft agreeing to provide equal access to web browsers besides its own, internet explorer. our exclusive squawk financial summit continues with abby joseph cohen, president of the global markets institute at goldman sachs, bob doll, vice chairman and global cio of equities at blackrock and jack bogle, founder and former cio of the vanguard group. abby, we want to pick up where we left off. we re doing this summit this morning, just happens to be the day the fed statement will come out. when are they going to be forced to reckon with the idea of rising inflation expectations and what will that do to equities? one of the things that hasn t gotten very much attention is that the fed is already in motion. and even though they haven t raised interest rates, and we think they will wait as long as possible before they do so, they are already in the process of withdrawing some of that extra liquidity that was pumped into the system during the worst part of the credit crisis, and of course, during the very severest portion of the recession. in terms of raising interest rates, we think that the fed has an important balancing act. one, of course, is to keep an eagle eye on inflation, but the other is to focus in on the other issue raised earlier, and that is the employment situation in the united states. technically, with gdp growing, the recession is most likely over. we ll find out a few months from now whether the official panel a agrees with that, but the employment situation, we think, will take a long time to resolve. and that being the case, i think the fed would like to keep interest rates as low as possible for as long as possible, as long as that is consistent with inflation staying under control. with everyone so focused on the inflation data month by month, even week by week, let s keep in mind that over a longer period of time, one of the most important things that drives inflation is whether there is extra capacity. right. so, for example, capacity in the nation s factories and mines, depending upon industry, is only operating at 70% or 75%. but one of the areas in which we have the most spare capacity, unfortunately, is the labor market, with a 17% unemployment rate when you include those people who are underemployed or discouraged workers. we still have quite a bit of recovery that must occur before i think this fed feels comfortable raising interest rates in any notable way. right. one final point. yep. short-term interest rates under the direct control of the fed, intermediate and longs not. yes. and so, we already see that many investors are pricing in some concern about inflation rising. yeah. bob, whether or not they actually raise in 2010, when they telegraph that they are on the lookout to do so, historically, what has that done to markets? does the stock market go down, does it trough, or does it move sideways after that? what happens in the ensuing months? there is often a bumpy period between the move from incredible fed accommodation and very low interest rates and often associated with the pe move up in equity prices after a recession until the time when we have the environment where the fed is normalizing rates, still below that normal level. so, we will probably, when that happens, have a bumpy period where stocks consolidate, go sideways, maybe pull back a little bit. and the leadership often changes. it will all become all about earnings growth when we can no longer expect help from the fed. let me ask something of jack. let me go back to jack for a minute. jack, you focused on inflation in your opening comments. it seems to me that with the deficits that we re mounting, that you are going to have more inflation. you just have to have more inflation. how could you not have more inflation? and the anticipation of that is going to drive the fed to some action, i think sooner than the other panelists are estimating. that s just my layman s point of view, but as an investor/manager, what do you think? well, i mean, to begin with, if you look at the inflation hedge, the very good measure of expectations for inflation is the relationship between the inflation government bond and the standard treasury bond. and whether you re talking five years or ten years or thirty years, those rates are pretty much expected inflation of around 2.5% a year. that seems frightfully low in any kind of a strong economy, but we may not have a strong economy. i mean, we ve talked about many of the fundamentals here that suggest that the economic recovery is going to be much more muted than we re used to coming out of recessions. but i do want to mention one thing that we talked an awful lot about the fundamentals gdp, unemployment, all that kind of thing, during this session, but we haven t talked about one of the most important things in the market, which is totally speculative, and that is the triumph of speculation over investment. and if speculation is trading pieces of paper back and forth with one another and investment is owning businesses for the long term, speculation is in the driver s seat. for the stock exchange listed companies, turnover s around 200% to 300% a year. and even in 1929 it was only 140%. so, we have this huge amount of investors in the market or stock renters in the market, compared to stock owners. so, i think one of the big cautions for the coming year is lord kaine s warning, and i said that he should be candidate for man of the year, but he has a wonderful sentence, and that is, when investment becomes a mere bubble on a whirlpool of speculation, the market takes on the attributes of a casino and the job of capitalism will be ill done. and so, i really worry about the dominance of speculation making all our talk about fundamentals very difficult to translate in the stock market returns. there are some long-term investors in the market. some investors hold stocks for hours, sometimes days. other times days. yeah, exactly. they re in it for the long term. abby, how does goldman advise people who are worried about inflation in 2010 to batten the hatches? is it about gold, about tips, commodity, currencies, oil, what? for those who are concerned about inflation, i think that most advisers would say identify where you think that inflation may be coming from. and so, for example, we have been advising some investors to become more involved in commodities. i m sure you ve noticed that industrial metals prices have moved notably higher, we think because of demand from china and other emerging nations that are building infrastructure. we think that some of the better opportunities next year may, in fact, come from energy. in addition, as we take a look at a global perspective, while we re talking about subtrend growth in the united states, subpar growth in europe and some concerns in japan, we do see much more vigorous activity from a whole host of other mainly emerging nations. and so, investors are urged and we think this makes sense to invest in companies, including u.s. companies that have good revenue exposure to those areas of the globe that are growing at a faster pace. keep in mind that for the s&p 500 companies, these are u.s. domicile companies. about 40% of their revenues come from outside the united states. yeah, absolutely. i think we re going to wrap up this summit, having gotten a lot of good work done. abby, bob, jack, thank you, guys. we ll see you next time. abby joseph cohen, bob doll and john bogle. up next, the consumer price index and housing starts, numbers coming up with instant reaction. 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 dpow futures hanging onto some gains here as we await important economic data. we ll get cpi, the latest numbers on the housing market as well, and those consumer prices will be important for the deficit. all just moments away. #ñ#ñ#ñ#ññ all right, welcome back, everybody. we have several economic reports on the way. we ve got consumer price index. that s going to be hitting in just a moment. housing starts. all of these numbers hitting on and they re going to be very important. rick santelli is at the cme group in chicago. steve liesman and fred malek are in the studio with us. rick, i guess the big number we ll be watching is cpi. give us those numbers. and the survey says up 0.4% when you include food and energy. when you strip it out, it s a goose egg. of course, that will create huge debates in and of itself. year over year numbers are definitely hotter than our last look, because what we re dropping off on the back end, but not bad with regard to what we were looking for, up let s get this right we re up 1.8%. if you strip out food and energy, we re up 1.7%. housing s interesting. starts are exactly 574,000 seasonally, annualized, adjusted, and that s exactly expectations. permits are a little better than expectations for seasonally adjusted annualized rate of 584,000. both numbers are a bit more than the revisions to last time. now, what s the response in the marketplace? we see that the treasury complex prices are coming up just a bit. but we re splitting hairs, close to 360 on a ten-year. very high yield curve. hooray to banks on the gain. the dow is uptick just a bit, up 40 preopening on the dow. and the debate i m talking about, of course, is whether you look at food or energy, comparing producer to consumer and i do believe consumer s a better gauge and ultimately, the question is going to be how all this impacts interest rates at a time where, you know, we have the shortest you know, think about it like a credit card. if your rate is going to change in a near-term versus long-term, and you have a lot of debt, what s that credit card company going to do to you? the government s debt portfolio is a very short duration, servicing to that down the road in an environment of higher rates is what we talk about a lot on the floors. back to you. big challenge there, rick. thank you for that. let s turn to steve liesman here on set, who s looking more closely at some of the numbers, along with fred malek and joe and beck. steven? the goose egg i think surprised a lot of people. we were looking for 0.1, 0.2. i don t have all the details in front of me, but what i can tell you is that the expectation is that rent what they use as the proxy for housing costs and things has been depressed for several months and it probably will continue to be depressed. on the housing front let me just call the data in front of me here. and what you find is that 8.9% gain, which is pretty healthy. nothing for me to say about that, a reversal of the prior month. so, you discount the number yesterday, but the zero, now you re endorsing the number today because it s a cool number. it s safe. right? um, no. you know, you found all kinds of things wrong with yesterday s number, but today oh, yeah, it s zero! cool, yeah. that s right. is that the way my expectation, joe, is that inflation s going to come down, and i think that there s very little pricing power in there in the economy right now. yep. if you re selling goods excess capacity. excess capacity, low wages out there. i need to look at the details of the number, joe, and i will get back to you. i think it s great news. i think it s great news. 0.4%? i mean, come on, that s great. yeah, it is good. what s less great, though we hear someone yelling. what s that? i thought i heard someone. it s turned off? i ll tell you what, down here, what you re seeing a bit of is, you know, the equity markets, everybody s going to be watching that arena, because you know, let s face it, the average guy who picks up the paper, who looks at tv, you know, what the dow is doing is quite important, but you know what? i love mr. binder s editorial today and i give him kudos for july. the sling shot, we all understand. the sugar buzz is the way they explain it if you talk to anybody from pimco, and all the analogies about hearts and stents, i love it. joe, you re in biology. if you have a sugar buzz and you feel great and the slingshots effect there, when the sugar buzz wears off, if you have too much of it, you re a big, fat, bloated, cumbersome entity, and at some point, you re going to have to exercise to get down to fighting weight. the pain is being pushed forward, and you know what? all the debt we re taking isn t keynesian. it s keynesian on a sugar buzz as well, and i just don t know how anything but higher taxes down the road s going to pay for this. that s another issue. did you see rick, moody s has a new misery index, where they couple unemployment and the defic deficit. yes, i ve got 50 e-mails on that. it s latvia, ireland. u.s. is number eight, i think behind iceland or something like that, number eight. yeah. did a cheer go up down there, rick, led by you, when you heard the time person of the year ? listen, you know, i have no problem with ben bernanke being an interesting person. i think he s interesting, and i m sure my kids and grandkids will think he s super interesting, you know, when they re probably in a 60% tax bracket, because i don t know in past recessions, growing the economy was always the way you got out of deficits, but when i hear cash for clunkers and the words of kudlow s show last night, cash for caulkers, it just underscores the notion that hundreds of billions of dollars is considered chump change until somebody truly has to pay for it. we re already in a 60% tax bracket in new jersey, rick. maybe you d better rephrase that, 80%. yeah, you know, this is the scary part. we never talk about things that i went to a seminar about a month ago that was put on by some british money managers about their underfunded pension liabilities being scary. then i looked at the state of illinois and it was right up there. you know, when you throw these things on that we sweep under the rug, receipts and i owe yous for entitlements for social security listen, i think all politicians at some point are going to be crawling under the carpet. today s journal has this thing about prosecuting people for war crimes. what about prosecuting all leaders in congress in 20 years for deficit crimes? seriously. deficit crimes. maybe we can put them in that new correctional facility in northwestern illinois. oh, yeah, the people are ecstatic about that. boy, what a price for 3,800 jobs that is. a billion dollars in purchasing power. you do have something to say about the data, steve? just quickly. to the extent i look at the data, it looks like it s sort of overstated on the core. used car is up. new vehicles up 0.2%. you re getting your 0.4% rise in medical care. so, when i look at this number here, i guess the one place where it might be a little light is the commodities less food and energy, up just 0.2%. maybe that s going to run higher given some of the commodity price increases. but my initial read is i don t see anything, unlike what i saw in the ppi yesterday. for example, the tobacco prices, the truck prices being higher that cause a lot of economists to say that it wasn t quite an inflation scare that it looked like from the headline. okay. but the data, the analysis stands. okay, thanks, everybody. let s bring on our next guest to talk about what the next move of the fed will be, former fed governor and vice chairman of macroeconomic advisers, laurence meyer. you care about time magazine, larry? no, i haven t seen it. nice for the chairman, but i haven t seen it at all. all right, so, what s going to what s the best way to handle things today in the statement? very little change. there s justifiable, just a little bit more optimism about the economy, particularly the fourth quarter. but the committee s very cautious. it s been very cautious about its forecast. and there is an expectation on the committee that the economy will slow next year relative to the strength in the second half. so, i expect it to be relatively cautious, no change in the policy guidance. pretty dull. has the dollar s relevant strength against the euro recently, is that reflecting a belief that the fed will move quicker or more of the problems that the eurozone has to deal with? i think that it does reflect to a degree the pushing forward of policy expectations, since high interest rates and the faster move with the fed would result in appreciation. i do think that if our forecast is right and the economy is stronger than consensus next year, then that appreciation would likely continue for some time. larry, there s obviously a heated and spirited debate on inflation. the ppi yesterday was hotter than expected. today if you look at the core, just 0%, the headline 0.4%. what are you telling your clients about inflation and how much concern there is out there? we re telling them not to wor worry. inflation is low and it s going to decline and it s going to stay very low for an extended period. well, what about the gold bugs out there, larry, that are buying gold like it s going out of style? or at least were until the last week or so, and are convinced that not only is there going to be inflation, but there will be the end of the world as we know it? that s gold bugs for you. so, they re divorced from underlying fundamentals to the extent that they re responding to inflation risk. we know that other measures of long-term inflation expectations are very stable and indicate well-anchored inflation expectations. so, i would say ignore the gold market. larry, do you want to give out your e-mail now, because they re going to find it and they re going to be e-mailing you and telling you what they think about gold prices. let me just ask you i just delete it as quickly as i can. let me ask you about the fed and the outlook. one of the things they re doing right now is they re doing these test-reversed repos, and they do these as part of getting ready to tighten policy, but insisting at the same time that they re not doing any tightening at all. when is the earliest possible time that you would expect the fed to take actual actions to reduce the size of its balance sheet? first let me reinforce the fact that the moves that the new york fed is taking are entirely preparatory. they re prudent. it s very complicated to put into place the infrastructure to do the operations that they re going to need to do to withdraw reserves. now, we expect the first increase in the funds rate to be in the middle of 2011. we think the unemployment rate will be about 9.5% at the end of 2010, inflation will be about 1%, and i really doubt that with those numbers that the fed is going to want to tighten as early as that. let me just be clear here. you don t see any tightening, but you don t see any reduction in the size of the balance sheet over that whole period of time? the balance sheet will peak at close to 2.5%. the balance sheet by that time will be down to maybe $2 trillion. and the fed will not have begun to shrink that balance sheet hey, larry, let me ask you this, just in closing here. i m concerned about inflation. you don t seem as concerned about inflation and the rates. how do you justify your views in light of the huge deficits that we re mounting? deficits have zero impact on inflation. that s just there s no theory that ties that. the only way the deficits matter for inflation is if interest rates were to skyrocket and congress were to take away the independence of the fed. that is the only scenario in which there is any connection at all between deficits and inflation. if you think the fed s going to remain independent as i do, if you think that slack is going to drive inflation lower, then i don t know how you could possibly justify higher inflation. comforting. all right. we appreciate your time this morning. we ll all be watching when we finally get to hear. we look for individual words, right, larry? what are the most important ones? i guess extended? what else? sure. extraordinary low and extended and there s zero chance that will be changed. zero chance that they will not be there. zero. can they xerox the last one? they could, but there will be a little tweaking in the first paragraph. i don t expect any change that s how we do our headlines, the stories we read here throughout the day. okay, thanks. pleasure. thank you, steve. pleasure. a vegas style opening. the city center about to make its grand opening. we ll talk to the man behind the $8 billion product, dan tishman, tishman construction, about the gamble on las vegas s recovery. i was just in town for a few days, and i was wondering if i could say hi to the doctor. is he in? he s in copenhagen. oh, well, that s nice. but you can still see him! you just said he was in. copenhagen. come on! that s pretty far. doc, look who s in town. ellen! copenhagen? cool, right? vacation. but still seeing patients. oh. [ whispering ] workaholic. i heard that. she said it. i. [ female announcer ] the new office. see it. live it. share it. on the human network. cisco. soon there will be 1 trillion connected devices. in the world. can you hear them? food is talking to store shelves. cargo containers are talking to supply chains. power lines are talking to the grid. now that s smart. systems that allow carrots to tell truck drivers how fresh they are. roads alert cars about traffic patterns. cars alert mechanics before they break down. when things communicate. systems connect. when systems connect. the world gets smarter. that s what i m working on. i m an ibmer. let s build a smarter planet. futures are hanging in there after that latest check on housing starts and consumer prices. consumer prices not showing a lot of inflation, a concern after yesterday s ppi. right now the dow futures are higher by about 48 points above fair value. the aria hotel that s the name opening at city center, celebrating its grand opening as well today. our next guest was the force behind the $8.5 billion project, ranking as the largest private development in u.s. history. joining us in a special squawk exclusive live in front of the aria hotel is dan tishman, chairman and ceo of tishman construction corporation. dan, have you cashed the checks and do you know, is the money actually hit your account? the money, they ve been very good, very current. our account s just fine. good morning, joe. good morning. there was i mean, it s been a long haul, has it not? did you ever you never really halted construction, did you? but were there times when you were wondering how it was all going to play out? well, listen, about a year ago, we all, you know, not just in las vegas, but everywhere, there was absolutely no transparency in the world of construction. nobody knew who had the staying power to continue, who was going to stop. i must say, mgm and their partners were had the fortitude, the wisdom, and this is a great testament to the fact that we never stopped, they never stopped. they never doubted for a minute that this was going to be a completed project and redefined what las vegas is really all about. not easy to build big things like that. and i guess it always tested everyone involved at this point, but this is was this the toughest in your career? and the biggest probably, right? well, it s certainly the biggest single project we ve ever done, and to my knowledge, i don t know of another project that was this large. i mean, we sat only 60 months ago at the beginning of the design phase. there was a parking lot here, there was a derelict hotel here, and there was an idea of building 18 million square feet all at once. that is more than the size of most cities in the united states. but it transformed from a hole in the ground to a skeleton and on to a remarkable project. i must say, i m here very regularly, and eight weeks ago, twelve weeks ago, walking around the site, it s the point in time where you really wonder if it s all going to come together, but it s done, and i think we re very proud. there were 10,000 construction workers that worked on this site, and that s quite an important investment, because the 10,000 construction workers created a project that are going to put 12,000 permanent mgm employees to work. dan, congratulations. i think it s just mind-boggling what you ve accomplished, and it s a great testament to your firm and the dedication of the investors who put this together. but now the real fun begins. you ve got to fill this place up. and i m in the hotel business. i know our revenues are still down year to year after a very weak 09, and across the industry, our revenues continue to be down a bit. how s that going to work? what can you tell us about the business climate there? well, you know, as the builder, i m not really on the development side on this project, but i can tell you, when i walk around, if you were sitting where i am right now and looking around at this project, you d be in the middle of what i think is the most phenomenal collection of iconic buildings that i ve ever seen. i travel the world a lot, and i see some remarkable architecture, and i do think lots of people are attracted to architecture, are attracted to fresh projects. i believe that the citycenter project is much more than just about gaming. it s really hard when you walk around here not to want to engage in the entire project. i think that mgm is going to be fine. i understand that their bookings are great. i m in the hotel business as well in another side of my world, and yes, our occupancy is pretty good. our rate is not as good as it has been, but coming back. so i think that i think this project is going to do just fine. that s a good point. you create a lot of new demand in las vegas for people want to see just for what it is as opposed to simply gaming. i mean, right now to see this type of architecture you would have to spend one day in france, one day in japan, one day in new york city, and here you have the collection all together. having said that, though, it s a pretty different environment for the consumer. being able to fill a hotel like this, you have to offer cheaper rates at the beginning to get people in? i think you do, but i think as a person who has developed hotels myself, you plan on offering reduced rates to begin with. you get people used to your product. you know, you build over time. you know, i was walking down the street in las vegas yesterday, and las vegas looks very full. you know, i m hearing that there s a lot more positiveness. i know that around the country there s a greater demand this holiday season for travel and tourism than there was last. and i think that s a very positive sign. dan, the fountains behind you are hypnotic. i can t take my eyes off them. if we were going to do squawk from citycenter, where would we go live from? what s your favorite part of the complex? well, i m pretty just about from where i m sitting if you can stand the background noise. there is you re looking behind me at a waterfall on the front area and a remarkable fountain. but as you walk around, there are spectacular features. there s crystals, which is the most remarkable retail complex i ve ever seen in my life. sounded like something else. gentlemen s cabaret? no, you ve got to go to a different county for that, i think. no, no, no. it s a $500,000 square foot retail complex that looks like a remarkable crystal. if you are looking up from where i m sitting you would see the first new monorail that s been built in the united states connecting buildings, which is unbelievable. but from my vantage point you can look out and see all of the towers that the citycenter is made of. we ve got to go. do you have anything else to do or is this it? tishman construction, has anyone gotten a construction loan in the last year? hey, joe, i knew you were going to ask that question. the answer is we ve got plenty. i think certainly the market is slower than it has been. as i ve said before, construction pricing is extremely attractive. we actually are having more and more people talk to us about the future. i don t think there s going to be a lot of new mega projects starting in 2010. we re able to deploy our people to other places. this is the largest project finishing in vegas. there s not a lot on the drawing boards. but some of the architects i was talking to yesterday that designed this thing are starting to have are starting to develop a backlog. that s very good for the construction industry, probably 18 months out. dan, thank you. congratulations. that looks beautiful. and maybe we will some time. i m sure they would love to have you. thanks, sounds good. i m thinking squawk center and make it bigger, right next door. we ll be back right after we ll be back right after this. tdd#: 1-800-345-2550 if i m breathing, i m thinking about trading. gold prices up over $9 today. $1132 an ounce. when we return, what will the game of let s make a deal look like in 2010? we re going to find out right after this. we are back. the ftc is suing intel, the world s leading computer chip maker, charging the company illegally used the dominant market position for a decade to stifle competition and strengthen its monopoly. we wondered whether regulators here were watching nelly krose and the eu and whether something similar might happen here. the complaint sought today, that for a decade it has used its dominant market position to stifle competition and strengthen its monopoly. in the complaint, the ftc said they shut out rivals, competing microchips by cutting off their access to the marketplace. citigroup picked a bad day to add intel to its topic list. intel was trading up over a percentage point before this hit. now we re must be on a website. it s on the ftc website, i believe. european regulators hit intel with a $1.45 billion fine. that was the largest ever assessed for a case that involved monopoly abuse. but they paid it off. remember, the charges. they re still appealing. it says the commission s action today seeks to remedy the damage that intel has done to competition here in the states. who knows what that s going to mean. obviously it s big news for intel. i don t think it s even hit the wires yet. it is just now hitting dow jones. ftc suing intel alleging anti-competitive fred, sorry we ran out of time this morning. we ll see the story continue throughout the course of the day. make sure you join ug tomorrow. squawk on the street is coming up next. live from the financial capital of the world, this is squawk on the street. good morning, everybody, i m mark haines. i m erin burnett. we have front and center some news crossing within the past couple of moments, federal trade commission charging intel with anti-competitive conduct, saying they abused their market leadership to stifle competition. intel shares are down more than 1%. keep in mind intel got an upgrade out of citi that set it higher earlier in the premarket. it s been an actively traded name this morning. plus, two key pieces of data out in the last 1/2 hour. consumer prices moved slightly higher last month. up 0.4%. in line with expectations. but if you take out food and fuel, thafg unch, short for unchanged. and that was actually a little bit less than expected. people thought we would see an increase in prices. maybe a little bit of a less of a concern for inflation. and construction loans rebounding in november. up 8.9%. that was slightly lower than economists had hoped for. so take it all together, not much out of the ordinary or not much unexpected. right now the futures are plus four. five points above fair value. 40 points on the dow. we should note, by the way, traders are telling me on the intel news, amd shares are sharply higher. obviously that s the biggest competitor to intel and it s often in complaining about intel s supposed anti-competitive behavior. p honeywell reiterating the outlook for the current year. saying 2010 will be below forecasts. it opened lower as well, mark. microsoft and the eu have a de