Transcripts For CNBC Squawk Box 20100122 : vimarsana.com

wrong, there s an implied put. there s something wrong here. michigan take is regardless that the market was down yesterday and the day before, the first week of january was good, up 2%. the second week we finally ended up down just a little bit. i think we re now down. you re talking about more than 300 points in losses over the last couple of days. yeah. so the month is supposed to go like that and the year is exposed to go like that. it will be interesting what happens between now and january 31st. i think the month ends on january 29th, which is a friday. so we have today and next week to see whether we get a positive start to the year or negative start to the year. i m just confused by these potential rules, what it s going to mean. how would you actually break up a bank of america and a merrill lynch that they just put together. how would you make sure that these banks aren t bigger than 10% of deposits, especially when you start including some of the other assets? the banks that were investment banks that took the charter i guess you throw off your charter, right? can you do that? sure. but they also have questions about what it means if goldman sachs was still a charter bank. it put some of its own funds into the private equity funds where it s making betts for its client which it will have to figure out a way to spin that off. thls thooefr they re buying first and then putting all the clients money in. the other thing that will be interesting, everything has a political backdrop to it, as well. initially, some republicans are maybe not embracing this. you can see someone saying, well, we want to take a closer look. although mccain says this looks closer to what i ve been talking about. he s always been a moderate. so we ll see. but you wouldn t need to pick off many moderate republicans to get back above 60. this isn t like health care where you know there is going to be no republican support. and we are joined by a guest this morning who says this is a very good idea. we ll ask him how it s like glass steagall and how it s not like glass steele steagall. treasury secretary tim geithner is reportedly on board with president obama s new rules, but cnbc has learned and larry summers expressed skepticism behind closed doors. geithner was reportedly concerned that limiting the size of big banks could impact competitiveness, that caps on proprietary trading don t get at the root of the problem that caused the financial crisis. the basic principle is that banks that have the privilege of taking advantage of the safety net should not use that to subsidize risky activity. i think it s a simple principle. i think people can understand that. and we re going to do it in a careful, well designed way. and we re still going to go to our chief correspondent john harwood even though he said an adverse vote in massachusetts would not derail health care one iota, but we re still going to go to this one. well, i think it is, joe, actually. what are we going to do? health care? i think at the end of the day, the democrats will swallow hard and pass the senate bill. they re not even consider doing that any more, are they, john? yes, they are. are you kidding me? you know what i figured harry reid would do after massachusetts? public the public option back in and i m going to write it here and we re going to do this. they do a lot of stuff that s never going to happen just for posturing. i guess we re going to have to agree to disagree again on whether they do that. look, we re going to find they don t have the votes in the house to pass the senate bill. i understand. but you had to listen carefully to what she said. i don t like listening carefully to what she said. i know you don t. joe, bhash said was you can t you don t have the votes to pass the senate bill without changes. the mechanism for doing that and by the way, i m not this is not a shaquille o neal hands up, right? it may not happen and i could be wrong. what i m telling you, they re trying to figure out whether they can do and i think there s a decent chance, a good chance. not a shaquille o neal slam dunk. it s not even a half-court with the guy facing the other way, john. anyway, we ll have to agree to do i think it s unbelievable that it would have gone through and they would have definitely jammed it through. it s this weird serendipitous seat hadn t opened up and if there hadn t been a special election. 17% of the economy, based on what they wanted to do, based on what these elected officials wanted to do against what the public wants, they would have rammed it through either way. against what the public wants? yeah. 32% want it. if you can t figure out at this point that the public didn t want this, john, come on. joe, don t you think the public knows about what is in this health bill? don t start talking down that the public doesn t know what s in there again, john. if they don t, it s because it wasn t done in an open setting and nobody what s in it because it was all done behind closed doors. joe, that is ridiculous. do you have any coffee brewing there? take a smell and wake up. is there anyone brewing coffee in washington for you? joe, here is what the public knows about health care. what the public knows about health care is we ve got a big deficit, 10% unemployment, they re talking about this health care plan and they ve heard some stuff on television that maybe their taxes are going to go up and maybe they can t pick their own doctor and maybe their quality of care is going to erode. as to what is actually in the bill, nobody has a clue. no one wants that much government involvement in that sector, john. hold on. listen to me. do americans want health care costs to be controlled? well, that is not in the bill, anyway. we don t know what will control health care costs. you and i have talked about this before. but the ideas that people who understand health policy think might work are, in fact, in this bill, okay? secondly, do americans want people who don t have insurance to have it? it s minimum funding. yes, they do. yes, they do, but they don t want to pay for it. guys, we re talking about what makes this difficult, okay? it s not easy to make change in american policy. we go back in a bipartisan land, make sure that you can t deny a person because of a pre-existing condition, cover a few more people, try and get costs under control, maybe get rit rid of anti-trust provision for insurance. that s the best you re going to get. if you go back to a bipartisan first of all, in the main, bipartisanship at this moment in american politics is a fantasy. it is. it obviously is. you see what happens when you try and do it in a partisan way. you end up with nothing. no well, precisely. that s the point, joe. the problem in american politics right now is getting action of any kind, right? any large piece of legislation is very difficult to do. this is and on health care, it s more difficult than almost anything else. that s why it s never been done for 70 years. democrats got very close to getting it done. they still have a chance to get it done. and the fact that it hasn t been done for 70 years is why i think they re still, in the end, going to do it. i think that s more likely than not. but you re talking about a systemic problem with our government. why do you think, for example, on energy presidents have been talking for 30 years about kick our addiction to foreign oil and developing a new energy policy. you can t do it because it s hard. politics is hard. big change in america is hard. the media makes it more difficult. partisan polarization makes it difficult. that s the situation we find ourselves in. but also, it s a broad, overreaching plan. whoa, whoa, who says it s a broad, overreaching plan? john, you re talking about something that people don t understand. you said it yourself, congress doesn t know what is in this bill. i don t know what s in this bill and i ve spent a lot of time trying to dig through the details. but you said it s overreaching. we can t spread out what happens and what doesn t. i can tell you about 15 different things that really bother me about the bill. would i like to see more people cover and costs controlled? yes. but how you get there, it s impossible to bring both sides together to try and figure out. look, that is a totally legitimate editorial point of view to say this is an overreaching bill, okay? i m not saying it s a good bill. but i am saying that people who are deeply involved in health policy from the center left point of view in this country, that is democrats, they re the governing party right now, believe that this is a way to both expand coverage and control costs. those are president obama s objectives. whether thol those will work in the end or not, we don t know. we re never going to know. we don t know. but this is a very this is a the best stab the political process has made at coming up with a comprehensive answer. you keep saying that. it may be that we have no comprehensive answer. you got this far. it s over, john. no. they know they re walking the plank. that was the bluest state you guys had, the bluest state you had and it wasn t wait a second. not me pb no, not you guys. it s the democratic party. oh, yeah, you guys. now, the plank, they have already walked the plank. they have passed this thing in the house. they have passed it in the senate. they are on the hook for a very bad economy. they re in charge right now. so they re way, way out on the plank. let s talk banks because that may be something that the republicans are going to have trouble coming up against or, you know, publicly going against with the populous mood in the country. do you have geithner and summers on board now? this is an idea that was not geithner and summers s idea. it was paul volcker s idea. the economic team has some reservations about it. this is what steve liesman has been reporting on over the next 24 hours. i talked to larry summers on the special we had and asked him directly whether or not he and geithner had opposed this and he said, in fact, this has been percolating for some time. he puts some distance between himself and that idea. i believe there was skepticism. but listen to him about the process that was involved in coming up with this policy. here is larry summers. it was a process that went on over some months, all a substantial discussion with paul volcker, all a very substantial discussion with the president and the president acted on the basis of a recommendation that was contained in our memo. so you hear him say very substantial discussion with paul volcker. i think that s code for the fact that volcker was pushing this idea, there was some resistance or skepticism or whatever you want to call it from other members of the economic team. and in the end they went along. what tips the balance in a moment like this is when people in the white house look at what is happening in massachusetts. and this has been building for some time. it wasn t just tuesday. it s been happening for some weeks now. they know they re getting into a very tough election year and they need to ramp up their focus on jobs, on the economy, and ramp up the level of populism so average people, the kind who voted for the republican in that special election, see them as fighting for average people against large forces, big government, also big corporations and big wall street. you know, even the i ve seen you in the financial services forum talking positively about some of this stuff. in the wall street journal, john, this morning saying that this is a good step, a good first step. we want to see the details, but we like the way it s going. so there will be strange bed fellows in this, too. it s not like paul volcker is some canble what wants to be i know, but he used to be the crazy uncle in the attic. people weren t listening to anything he said. well, you re right. and that s what i was saying. you know, you have an administration is like a kaleidoscope. sometimes things line up well and other times not so well. this is a moment when they re looking in their policy toolbox. at any given point, administrations can go left, they can go center, they can have a more feisty tone or a more calm tone. this is a moment where they know they have to react to what s going on in the country and be seen as reacting. they may be seen as picking out one that can work for them. they need one in the win column. you re not signing a health care bill before the state of the union. hey, you and i agree on that, buddy. all right. i m still coming to your dance party and we re still dancing. when? are you going down there next week? no. but if he has one, i m coming. i may not do the slow dance, but i ll do the mumba or something like that. i am having one, and you guys are both invited. becky, when she can she shake it? she can. when inhikzs go down, the lamp shades come out. thanks, john. let s talk about google. those shares under pressure after reporting revenue that came in at the low end of the whisper numbers that the street was expecting for the company. the world s number one search engine earning $6.13 a share on revenue of nearly $7 billion, but that wasn t enough to keep the street happy. that stock down better than 4%. let s talk to citigroup s mark mahaney. he s the institution investor s top analyst. mark, what happened here? what s the big disappointment? there was an expectations correction. people were extrapolating from selectively data on search. the retail vertical in search group about 17%. so people assumed the rest of the country was growing that way. but that s not the case. you ve got verticals like travel and auto still trying to catch up. that was the expectations construction. how much of a setback is this, in your view? i don t think actually it s that significant. i mean, what i find very interesting here is the setup of the stook. this stock now is trading at a market multi.many. if you take out the cash, it s tradeling at around 17 times earnings. you have yet to see the full cyclical recovery in search. you ll have an acceleration in growth. you ll have about 25% plus operating income growth this year and you still have the smart phone, the display and the youtube kickers that will be coming into google. so you would be telling people to buy this stock right now? yeah. and i think you ve got a chance here, again, to buy google at a market multiple. you haven t had that since the beginning of the recession when i think fundamentals are going to inflect up this year. one other thing, margins were up this quarter, so there was one positive surprise. people have been concerned about the new investment talk by google, but you didn t have it. there are overhang issues we can talk about. there s china, the apple relationship. but we think that s priced in here. does this mean google is not immune to what s going on in the rest of the economy, that it will feel the pain just like everybody else? yeah, absolutely. i think a year and a half ago, the ceo of google was saying that they had seen no impact from the recession. they clearly saw it, but the question is just how quickly has it come out? they didn t come out as quickly as people wanted last night, but you re going to see an improvement in google s fundamentals going forward. mark, thank you very much for joining us. we appreciate your time. we ve got a quick break now. dynamic duo of market players coming up next. some people try to call ate task force. i don t know what that means. we re not in iraq or something you you need i don t know what that means. but we ll be right back. this morning, we wrap up another week of trading this morning. joining us this morning is david wrestler and chris johnson of the johnson group. david, that number yesterday was supposedly seasonal. but it has everybody s attention. is the job picture, are we back to saying it s not improving at all? i think it s improved, but it hasn t improved quite as much as we thought. and it makes the december employment numbers look a little more understandable. we thought there would be an increase in nonfarm payroll. now we understand that that improvement wasn t quite as great as it appeared. liesman had a chart yesterday. everything december, there seemed to be a spike like that. we always get worried around holidays that they don t get the seasonals right on measuring stuff. this time, it was more than just that. it was inadequate staffing to process the claims. all right. so the things are getting less bad. but do we continue in the rest of this year to hit 3.5%, 4%, or is that now a problem. 3.5%, 4% growth? gdp, yeah. i don t think we re going to hit that. i think we re going to be in the 2.5% to 3% range. really? yeah. we re going to get 4.5%, maybe, in the fourth quarter. but if we look beyond that, two-thirds of it are coming in income investment. that s not very good. you need to have growth and final sales in 2% to 2.5% to sustain the kind of growth that we all would hope to say. chris, with that economic back drop, markets moved a lot. is it miscalculating, expecting more or was it oversold down at 6.66%? we re hearing the term here over the last few days of overbought, expectations being too high as we head into earnings. by our research, whenever you look at that over the last few years, you ve got a market that typically responds by jumping back another 3% to 4% higher over the next five trading days. so i think we re going to see a little bit of a relief rally over the selling we ve seen over the last couple of days. when you re looking at the bottoms, i think we ll see a huge psychological for inesters right below us right now. the s&p 500 is a little above that at 1112. those are the levels that everybody needs to be watching right now. if we hold these, it s off to the races and back to the upside. january is important, chris, and we had that good first week. usually the month goes as the week. but i always think about that year where we ended on a high and then we start and is went straight down. so i m watching every day, in january you saw the vix yesterday, too. that you know, risk reasserted itself or at least volatility reasserted itself. anyone who is not looking at the chart of last year s earnings, even, and comparing it to this where we saw a decent start to the earnings season and then stocks just fell off the table, you know, those who don t remember history are doomed to repeat it. i think that s why you re seeing a lot of people who are getting cautious and there s a knee jerk reaction in the stock market right now of pulling things out. even though earnings are looking halfway decent. so right now, i think the message has to be that everybody was amped up as we went into earnings season, expecting a great season. expecting better fundamentals and even though they re getting it, it s a sell the news type of situation. we ve got earnings coming at 6:30 from a dow component that we know pretty well around here, general electric. david, thank you. chris, thanks for your time. thanks, joe. coming up, we will have more of this morning s top stories and the picture from the futures pits, as well. as joe mentioned within we ve got dow component general electric about to post quarterly results. we ll get to the numbers and the instant analysis, straight ahead. what are you doing.? calling chase sapphire, seeing if we have enough points to stay longer. now? you don t have enough time. and you have to push all those buttons. no buttons, someone answers every time. yeah, right. bet you a massage. yeah, ok. hi, julie. i have a question about my points. hi, what button do i press for a massage? hello? new chase sapphire. you call. we answer. no waiting. just press right here. go to chase.com/sapphire. chase what matters. hi, ellen! hi, ellen! hi, ellen! hi, ellen! we re going on a field trip to china! wow. [ chuckles ] when i was a kid, we we would just go to the the farm. [ cow moos ] [ laughter ] no, seriously, where are you guys going? ni hao! ni hao! ni hao! ni hao! ni hao! ni hao! ni hao! ni hao! ni hao! ni hao! ni hao! ni hao! [ female announcer ] the new classroom. see it. live it. share it. on the human network. cisco. i switched to a complete multivitamin with more. only one a day men s 50+ advantage. has gingko for memory and concentration. plus support for heart health. ( crowd roars ) that s a great call. one a day men s. good morning. welcome back to squawk box here on cnbc. yeah, right on to him here. i guess that s six sigma. ge is out. 28 cents a share is two cents ahead of expectations of 26 cents and there is a two cent net negative restructuring in there. and whether analysts knew about it or not is the question. you could possibly see this at 30 cents a share. that would be 4 cents ahead. maybe more important is the revenue number of $41.4 billion, which is above consensus. it s $1.4 billion above consensus and it totaled $157 billion for the year. cash generated from operating activities. it s $5.1 billion for the quarter, $16.6 billion for the year and that is above the high end of the company s own estimates and bag logs increased to another record of $175 billion. infrastructure orders have been the bright point recently at $22.1 billion up 3.7 billion from the prior one and equipment orders rose 25% for the fourth quarter. the company said ge s fourth quarter 2009 performance better exceeded expectations that were provided in the annual strategic outlook. if you re trying to read broader signs into what this may mean for the company, general electric, a big dow component. chairman of the jeff immelt, ge s environment has improved and we saw encouraging assignments at year end. we talked about structural signs, they increased $3.7 billion. that s a sign maybe things are across a broader economy. that is certainly what we ve heard from many companies reporting earnings. everybody looked at ge. capital finance had its fourth full profitable quarter of the year. it s not like it was the company was unaffected by the what we ve been through here. as a global economy. revenues were down 15% from the same quarter a year ago. energy infrastructure continues to be sort of shy and it grew 9% at $2.2 billion in net on the revenue did decrease to 10.4 billion. technology infrastructure declined on a revenue decline and nbc universal earnings decreased 30% to 2002 million on revenue that was 4% lower year over year. earnings did triple. they got the stock, which was down yesterday with the market indicated off a little bit, 1588 to 15 the 99. let s bring in our next investment. what do you think, jam jack? joe, i m pleased. the revenue number, especially, i had sent notes down to you folks that said i was a little concerned that could disappoint on that line as they did last quarter. they didn t. they had a pretty good number. of the three concerns, one was that the industrial headwinds were still facing a weak economy and we could be in risk of a weak revenue line there. they came in above our expectations. that s pretty encouraging. the capital number, just like last quarter, every segment beat their expectations except real estate and the commercial real estate segment still has impairments and write-downs to take. that will be a drag on earnings probably until 2012. yeah. i guess the question is, now that capital, ge capital has been paired down a little bit and obviously, that was a focus of the company and what the bright spot has been, infrastructure and industrial, and i just can t help but look at china and just wonder if that is something to start getting concerned about in the future a lot of people think it s overbuilt, maybe a bubble, and even the chinese are taking steps this week because they noticed it, too. is that something to be concerned with on the horizon? it sure is, joe. it sure is, joe. the enormous build up in china in the first part of 09 led to building and there s a lot of concern and we re among the group that believes china is going to have to it looks like real estate was up over 60% last year and their stock market up dramatically. they re facing a liquidity driven bubble. and they want to get that under control. ge has benefited from the global stimulus from governments around the world. and, you know, we had an election this week. i just wonder as governments become involved in these operations, maybe that s something to be concerned with, too. we think so, too, joe. we re concerned about the economy this year as we start to run out of stimulus. and especially on the residential real estate side. when that stimulus runs out in the spring, we re going to be faced with whether or not residential real estate has bottomed. and if it hasn t, that is going to be difficult for all the financials to deal with and ge capital included. and you, you know, benedict arnold that you are, we re glad that they were selling nbc. we thought that was a good move without any thought for us at all. but is that are you still glad that s happening and is that proceeding as planned? joe, i still think it s a good idea. yeah, i know, i know, that s fine. it s all right. listen, i m going to get great cable service from here on out. so i m looking at the bright side. i love comcast. it s comcastic. you guys are a bright spot in that part of the business. but the idea that ge needs to pair down and be more focused and focus more on their industrial base and use ge capital as a way to bolster that business. and be leaner and more focused. that remains. and i think the further ge goes down that trail, the more the valuation of the shares is going to appreciate it. are you a leno fan? i am. jae, we re old. we don t get the leno is still, you know, sort of not that i ve ever seen in anything that starts at 11:00. what are you talking about? you re in bed at 9:00. it s a dvr world, which is why 12:05 really didn t make any difference, did it? anyway, jack, it s a big varied company. we try and touch on all of it in the time we have. so do you like it at 16 or not? i don t think so, joe. last quarter we you wouldn t buy it here. joe, i think it s fully valued here. i think it s fully valued. here is our expectation, though, joe. when they get by pulling through the impairments and write-downs of ge capital, and is we re talking about 2012, they have $1.50 plus in earnings power. you put a normalized pe on that and you re in the low 20s. once we get past what we expect to be a correction here, you can buy the stock in the probably in the low 15s just as you had a chance in the last quarter to do that. and there, if you were to be able to buy it 5% or 10% lower, then you ve got a 20% total return looking out two to three years. so are you talking early 2012 or late 2012? that is a ways down the road. well, it is, but the stock will start to discount those earnings 6 to 12 months before they become visible. so i think if we re going to have normalized earnings in late 2012, 2013, the stock will start respond to go that in early 2012. so i think you could see the stock in the low 20s, early to mid 2012. and when you add the dividend in, that s pretty close to a 20% annualized return. jack, thanks. see you later. let s get a check on the markets this morning after yesterday s big sell-off which comes on the heels of another big sell-off. you re talking about the futures being in line with fair value. that s what we ve been seeing so far this morning. after that news from ge, which came out with better than expected earnings, you can see right now the dow futures are down by about 18 points below fair value. again, a lot of concern about these new proposed regulations coming from president obama that would limit how much risk taking the banks can actually take. and that had im my occasir impl across all of the markets today. oil, gold, commodities under major pressure yesterday because, again, concerns that there wouldn t be as much speculation in some of these commodities. right now, you can see that crude oil prices up by about three cents to $76.11. the ten-year is yielding 3.596%. if you want to take a look at the dollar, it s come under pressure, pulling back from the six-month highs it was sitting at against the euro. the dollar was down against the euro, down against the yen the, up against the pound. gold prices down another $10.90. you re talking about $1,092. that s sitting near a three-week low from where it was yesterday. all of these concerns about what the banks will be able to do, how much money will be out there floating around in the markets and what it s going to mean for all these prices. let s get reaction to the ge numbers from the futures pits right now. matt zeman is standing by at the cme. matt, you saw ge come in with better than expected earnings and revenue. is this just broader concerns about what is coming out of washington? i think definitely. you just made some greatpoints. yesterday, the comments from president obama, a lot of uncertainty right now about what s going to happen with the banks. we saw that very negative reaction from the market. add to that what is going on in china, you know, we re facing a situation of, you know, oncoming global tightening and, you know, as you said, commodities under a great deal of pressure. we got kind of a change in sentiment going on, actually. a lot of risk aversion, the euro, u.s. dollar trading under a two-day moving average. we have gold, silver, oil, all have broken key technical levels in the last few sessions. a lot of fear coming back through the market. you see it in that spike in the vix and you see it also in people flocking the treasuries and currencies like the yen. is this something that you think will be a long-term impact on the market? is this something that you feel is just we re not sure wa is in the rules so we need to stop and figure it out? what is the sense you get from talking to people in the pits? i think that this could be something long-term. the devil is always in the details. i think until people see the details, people are going to need more ad to get out into the market to know what s going on. unless we see, really, how this is going to work and everything, i think people will have more of an itchy finger until they have all the details. maybe it s a good thing if you don t have banks that can go and get the money at a low cost. clearly, it would have a disruptive immediate impact, right? yeah, with i would agree with that, definitely. on paper, it looks good. certainly, nobody wants banks out taking lots of risk with taxpayer dollars. you know, that is not right, that shouldn t be occurring. i found the timing interesting. right now, the financials, the banks, a lot of these institutions are trying to get back on their feet right now. this is kind of like getting hit in the forehead with a sledgehammer right here. we ll see in the next couple of sessions if that fear reaction continues or if things start to stabilize a little bit. matt, wa are you watching today as we head into the weekend? we re moving on the s&p. i would expect we ll see a little bit of a dead cat bounce today. i m looking for a bounce in the commodities, as well. overall, i think the selling pressure is probably going to continue in the coming weeks. matt, thanks a lot and have a great weekend. you, too. if you have any comments or questions about anything you see here on squawk, e-mail us, squawk@cnbc.com. when we come back, we ll have the news making headlines both inside and outside the world of business. some people like to pretend. a flood could never happen to them. and that their homeowners insurance. protects them. it doesn t. stop pretending. it can happen to you. protect your home with flood insurance. call the number on your screen. for your free brochure. welcome back, everybody. it s time for a check on the news outside the world open business. monica novotny is here with a roundup of the headlines. we ll start with the supreme court. they ve given the green light for corporations and labor unions to though their muscle into the nation s landscape. the justices reversed limits imposed on organizations to sway campaigns. now they can pump cash from their own kaufers. john edwards now admits he did father the child of a woman with whom he had an affair. the admission came on the eve of a book release by a former campaign aid. and the plane that landed on the hudson river is up for auction. the plane landed without engines and they mentioned that it is severely water damaged. it is destroyed. you can see that in the second line there. i don t know if the wings come with it. ere are no engines, but the wings have been detached. you ve got until march 27th the you re interested. any opening bids? what would that go for? i can t even imagine. if you got it, you d pay someone to take it off your hands, wouldn t you? i guess everything is for sale, right? it s kind of a downer, though. people donate things to museums, spushl, don t they? yeah. it s better than keeping it in the backyard, that s for sure. so the book was coming out before he finally came clean, too, huh, monica? yeah. i like the story that he was trying to get the guy to steal a diaper to get the dna. it s so convoluted. people can do the photo shop. it s almost like someone took his head and put it on the baby s body. so thanks. i know. remember those shots when she was a walking, those first shots when she was walking in? it was like a little john edwards. but what a fall from supposedly the most unpopular person in the history of the world. isn t that incredible? i don t know if he s gotten there or not, but now he wants to go to haiti. there is redemption for everybody, i guess, monica. i hope so. at the top of the hour, man of the morning, dr. love, mario gabellik. he is a he looks like phil donahue a little bit. but he had handsome and smart and his opinions are unstoppable. our guest host, still ahead. ah, auto! sir? finding everything okay? i work for a different insurance company. my auto policy s just getting a little too expensive. with progressive, you get the name your price option, so we build a policy to fit your budget. wow! the price gun. ah! wish we had this. we d just tell people what to pay. yeah, we re the only ones that do. i love your insurance! bill? tom? hey! it s an office party! the freedom to name your price. only from progressive. call or click today. is that s probably where they get all their revenue. yes. we re in the chairs. did you see it s cool. we went to the white house correspondents dinner. there was like 2,000 people there. and you saw who the host was like year. it was want wanda sykes. did you see who the host is next time? leno. really? yeah. the deal is done now and all the papers have it. but conan is not allowed to say anything disparaging under the items of the contract. so he s been singing things. and the question st, whether you re allowed to sing things or say the things in spanish. they might want to wait until he cashes that paycheck before he but are there still shots being taken on both sides? because they went to an attorney who has represented nbc in the past. and he said i d say it would be good if he were a little cautious and if he does decide to tell jokes about nbc, i hope they re better than the ones they re telling on the tonight show. apparently he wanted nbc to stop saying bad things about him, too, which applies to everybody except jay leno. we ve placed our betts. our horse is leno at this point. it will be fun to watch. all right. we got it. notes morons. incompetent morons i want to watch to see whether he overtakes letterman. can you imagine how bitter letterman is going to be if he gets beaten again? and then i want to see whether fox comes up with the dough and the the brass? the brass to not to seinfeld, to stake their affiliate s future on whether it will fit in. some people say maybe comedy center is the place for conan at this point. that s possible. and even though we re already asleep at that hour, we still like watching it in the morning. i want to say quickly about b barbad barbados, we watched the bailouts here. now the four seasons is getting a bailout of its own. they re going to guarantee a $60 million loan so they can start construction again on villas that they ve been building there. you consider that the entire revenue for the whole nation last year was $549 million. you re talking about better than 10% of the nation s revenue bedding down to back up this loan to hope that it re-ignites tourism. there is a four seasons in nevis. i don t know what percentage is nevis is derived from the four seasons, but i d say it s 90%. i don t know how much of bar badeo, but i ll bet bar badeo depends on tourism. but a four seasons there would probably be the most important tourist spot in barbados. it s probably more important to barbados than the auto companies are here. interesting thing to keep an eye on. when we come back, we ll have more on this morning s top stories. we ll get reaction to quarterly results from ge. mcdonald s is coming up right after this. k a little closer. their story begins to fall apart. see, at&t let s you talk on the phone while you surf the web. 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[ male announcer ] at&t. a better 3g experience. get an exclusive pantech messaging phone free after mail-in rebate, only from at&t. what are you doing.? calling chase sapphire, seeing if we have enough points to stay longer. now? you don t have enough time. and you have to push all those buttons. no buttons, someone answers every time. yeah, right. bet you a massage. yeah, ok. hi, julie. i have a question about my points. hi, what button do i press for a massage? hello? new chase sapphire. you call. we answer. no waiting. just press right here. go to chase.com/sapphire. chase what matters. alright, so this tylenol 8-hour lasts 8 hours. but aleve can last 12 hours. and aleve was proven to work better on pain than tylenol 8-hour. so why am i still thinking about this? - how are you? - good, how are you? aleve. proven better on pain. the doctor is in the house. mario gabelli gives us his latest insight on the kraft/cadbury deal, what is next for nbc universal and what he s looking to buy right now. breaking the banks. if these folks want a fight, it s a fight we can have. what will happen if it proprosal becomes law. and we take flight with continental s new chief pilot, ceo jeff smizik stops by and gives us his outlook for the global economy as the second hour of squawk box begins rights now. welcome back, everybody. i m becky quick along with joe kernen. carl is out today. let s take a look at the morning rundown. 15 minutes from now, we have senator ted kauffman. he s going to weigh in on the president s plan to break up the banks. he introduced legislation to try and bring bag glass steagall. coming at 7:30 eastern time, continental s new chief is joining us on the set to talk about quarterly results in the airline industry overall. joining us for the remainder of the show, the man, the myth, the legend, mario gabelli. we re going to talk to him about kraft/cadbury. he owns both these stocks. comcast, nbc, many other names that he owns. but before we get to that, let s take a look at this morning s headlines. this morning, general electric reporting earn eggs better than two cents above expectations. general electric s ceo, jeff immelt, says that the company has completed its 2010 funding for ge capital and that ge is set up for solid growth in 2011 and beyond. also, google beating estimates with quarterly earnings, but the stock was hit after hours to meet some of the more bullish whisper estimates that were out there. google earned $6.79 a share for the fourth quarter. american sxret express also beat expectations, but that stock got hit, as well, by concerns over its credit card poll fellow. tim geithner is reportedly on board with president obama s proposal. but he did express skepticism behind closed doors. larry summers and secretary geithner this is a volcker deal. this is definitely not those guys. right. do you want to play famous coats for 100, joe? who said this publicly, most of the losses that were material for the weak institutions and the strong relative to capital did not come from those activities as in proprietary trading. who is tim geithner. who is tim geithner, yes! in the form of a question, right? exactly, $100. you answered that correctly. september 10th, 2010, he says basically the losses came from credit. top members as joe said now, do you have to move in with your mother now that i said that and live at home. alex trebec. that s right. top members of the president s economic team had reservations about the proposal yesterday to for further restrictions. the official went on to say geithner and summers were asked by the president to develop a proposal, that they work closely with volcker, that they worked out a plan over had holidays, that the plan was submitted to the president with a unanimous recommendation from the economic team. i guess that means they got on board eventually. last night, larry summers said he and geithner were behind the idea. secretary geithner and i cowrote a memo to the president on behalf of the economic team unanimously recommended the three steps that the president proposed today. but think about the actions here. geithner had until now been running the administration s efforts to revise financial reform. those focused on solving the too big to fail problem. solving proprietary banks was not at the heart of what he had proposed. yesterday s speech by the president is a sign president obama now will be much more at the forefront of the issue. the official says that cnbc, that a little noticed amendment will be the vehicle for adopting the president s far reaching proposal to restrict the activities of banks. known as the kanjorski amendment would empower federal regulators to reign in and dismantle financial firms that are so large, interconnected or risky that their collapse would put at risk the entire american economic system, even if those firms currently appear to be well capitalized and healthy. the result would leave it up to regulators to restrict activities. our guest host joe. mario. joe, i have to tell you, just to hitch hike on those comments, if you look at who sent us the team ba ram has put volcker as their center. on january 14th at the xhm economics club in new york, volcker gave his presentation and the feeling of glenn hubbard was that he was not in the circle. right. by putting him in the circle, it also says that barack says that ben is back and the head of the regulatory reform and not treasury. that is an important statement as far as i m concerned. interesting. wait, how does that work? well, if you re going to put a former chairman of the fed as the head and take his premise as to how to start regulatory reform, you re suddenly saying that maybe the fed, not the treasury, should be in control of the reform process. and isn t this a big vote of affirmation for the policies of bernanke? that is an intriguing sidebar of all of this. and it s intriguing, also, because if you look at the past financial icons, the guys on the cover of time magazine who saved the world, remember who that was? greenspan, rubin and summers. go back one before that. go back before that. ite was volcker. it was the point is, volcker is the only one whose legacy hasn t been called into question by what s happened recently. greenspan, god knows what we think of those years at this point. bob rubin, after the citigroup debacle, you wouldn t hold him up as a poster child for what we should do at this point. summers, i guess it s mixed on him. volcker is the man. he s 81 years old. he s the rookie. right. but he was the crazy uncle in the attic in the obama administration until now. and i think it s interesting. how can wall street or even republicans say volcker is not i mean, this was the guy that saved the world the last time, in 1981. right. so it s hard to go against this. and even the wall street journal today, steve, positive comments on the op-ed page about this proposal. i don t understand oh, no, don t tell me you re on the other side. i don t get this. what? i don t get sdmript that s so classic. we cannot come down on you support this? i m just saying you don t want guys getting zero percent money with a taxpayer backed hold on. i m people were not that stupid before. they were stupid in ways that had to do with credit. if i held a stock on the it doesn t matter. i have to reserve against it. if it s in an affiliate bank, i only have recourse to 10% of the bank s capital to cover in losses. there s a rule in place for this and that is one of the reasons why prop trading was not this is about moral hazard ripe in the system now and you ve got to get geithner had it right in september. it came from classic banking. hey. stupid loans. i am sorry to disagree. remember peabody joe jet? that s commercial banks. i agree, but it s prop trading. the notion of too smart to fail. it was lee yam niecen. no. liam dalton. so much for that. the reserve requirements and restrictions that commercial banks have on them currently. glass steeglity with the modifications that volcker wants to suggest make a lot of sense. bring it back. and the same thing with flash trading, uptick rule. there will be a problem in the future. why does the white house say that it s not glass steagall-like when so many people say that it is and that s exactly where i think because you can still trade for your client but you can t necessarily trade of your own account. but i thought if you held a stock on your own account you had to reserve at 100%. i read this today. the key issue is that institutions that are getting a backstop from the taxpayer shouldn t be able to make a profit off of their own investing. and, you know, liesman is very close to liesen if you think about it. you ve pointed that out in the past. that s an old joke, joe. some jokes are worth never even some jokes were never funny the first time. exactly. you know about those. here is the deal. is there a way to reign in the moral hazard without doing this? the moral hazard, as far as i can tell, has not come from the proper trading. it s come from the ability to do just what banks do, make stupid loans. that s a different course. and the treasury was on board with this whole too big to fail thing. this may end up derailing whatever progress they ve had so far in financial reform. barney frank, we had shelby on last night saying, hey, if we re going to do proprietary trade, i went back and looked at the tripts and geithner says, not a problem. then they move on. let s have hearings about this. go back and revisit the financial reform bill. proprietary trading, you know the next problem is not going to be the same as the last one. right. and so goo investment in ties. so let s ban that in the future. it s not banning it. it s just saying you can t get zero percent dollars and get taxpayer back support for it. here is what i m going to do. i m going to go back and look at the existing rules. the existing rules, as far as i understood did not allow banks to take major risks with the government s guarantee. it allowed it to make stupid loans, but if they held a stock the implied put on too big to fail allows guys to and when you re buying at zero because you re now a chartered bank, you borrow at zero and you use that money to take big risks that you know are backstopped what a resolution regime which they were working on i can t believe that you are coming down. we finally had something we can hold hands and sing kumbaya about. maybe that s why i don t like it. maybe it s a reaction to you. i m switzerland here. i m switzerland from the two of you. can we give you our money nonly? you know, if you want to learn about tank warfare, you read rmmel s books. volcker laid it out on january 14th, a week before the headline in the new york times. he was out of the game. we still thought he was the crazy uncle saying that stuff. volcker has been saying this for two years. there s no question that the silent voice is now the majority. but beijing, ben and barack are the headlines that we have to focus on. yeah? creating jobs. and creating jobs. three bs that we have to focus on. we call you dr. love because you like it when companies get together. it gets tawdry when there s more than one bitter and they re all loving each other. that s more your thing. but you love it. you like mergers and acquisitions. no. i like the ability of corporations to take capital and move it to what they perceive to be the highest return in a free market system so this they can create jobs. they run risks and obviously the poster child of that was ten years ago in january when jerry lavin and steve case got together. that didn t work. there are many, many that do work and you have to allow companies to spin off divisions, buy assets, move along. are you worried about that ability? the justice department or are regulators going to be tougher on companies doing that now? well, they have to engage in rules of engagement. for example, in the year 1900, the steel industry created a monopoly. carnegie was there and oil and on. you have to have the traffic cop. laissez faire is fine, but it has to have a traffic cop. by the way, just one quick comment about yesterday s market reaction. this is a speech dated april 11th, 1962. the president of the united states at that time said it is a serious hour in our nation s history. we re in a grave crisis in berlin in southeast asia and how does that steel industry raise prices? kennedy and the market went down sharply. and then we got back to basics. jobs, jobs, jobs. earnings, earnings, earnings. and how did the stock market do after that? it was terrific. it did much better. i thought some of those interesting and that was only 48 years ago. 50. becky, if goldman would have had the normal payout that they ve had on their revenues in the past for bonuses, new york city would have gotten an extra $400 million in tax revenue? completely. it would have jumped back up to 48% or something. the tax revenues at goldman s partners are going to pay on this lower payout is going to deplete what the state and federal governments get. if goldman keeps the profit, they do pay tax. to the degree they don t pay out $1 billion, if they paid it to you if they paid it to you, you would pay 40% and it would help the tri state area. would they pay on earnings? no. if they paid it as compensation. if they keep it on compensation they don t have to pay taxes. sure. it s pretax dollars that they ll have to but a lot of it is going to be the deferred compensation. that s a different issue. but they don t get the tax benefit, either. because if they give you an rsa, a restricted stock award, they take the tax deduction. so new york city gets the same is what you re telling me? it basically is the timing difference. and obviously, the tri state area of new york, if you heard intellectual capital in the form of financial engineering and financial dynamics, it hurts. all right. more from mario in just a bit. if you have comments or questions about anything you see here on squawk, e-mail us squawk@cnbc.com. up next, senator ted kaufman on this same issue. later, continental posting a surprising fourth quarter profit. are there clear skies ahead? gas came down today on route 66 today, becky. this is not pay the hospital insurance. this is not pay the doctor insurance. this is not major medical insurance. this is affordable-we-pay-cash -directly-to-you- fast-when-you re-sick -or-hurt-insurance. if all you know about us is. aflac! .then you don t know quack. to find out all the ways aflac s got you covered, visit knowquack.com welcome back, everybody. some strong words from president obama on the new rules to curb wall street. we should no longer allow banks to stray too far from their central mission of serving their customers. in recent years, too many financial firms have put taxpayer money at risk by operating hedge funds and private equity funds and making riskier investments to reap a quick reward. these firms have taken these risks, while benefiting special privileges reversed only for banks. joinsing us now is senator ted kaufman. thank you so much for joining us this morning. hey, becky. thanks for having me. i know this is something you see as a step in the right direction. how far does this go towards bringing back glass steagall? it doesn t go as far as glass steagall, but what i want to see, and i m glad the president is doing it as we start moving away from health care reform and on to financial reform, one of the basic things we re trying to do in this reform is we have to make sure that the next time around banks engaging in speculative activities don t get bailed out by the u.s. taxpayer. we just can t have that. also, it deals with the really olympicic problem is that you can t have financial institutions that are too big to fail. i think this goes a long way to that. i think the president summed up on the ledin on why we have to do it. i think it s a major piece of the whole financial regulatory reform effort. the white house said yesterday this is not glass steagall like, this is not moving that same direction. what s the biggest piece missing to keep it from getting back to that point? well, this would separate a glass steagall separated the brokerage houses from the bank. you didn t have the problem. this is all going to be looked at, becky, as you know. but i think it s great to talk about these things and get them back because we can t go through this system we had before. heads, i win. tails, you bail me out. that is what was going forward. i understand entirely this idea of trying to prevent too big to fail, trying to make sure that there is not this implicit backing from the government and that banks can go play with money they re essentially getting for free at zero percent. but this is certainly having some ramifications on wall street. there is a concern that this will mean there s less money to go around, that markets will not be seeing the same sort of gains they ve seen in the past. and you saw that play out in yesterday s markets. do you have a concern about what this means for our financial markets, for wall street? well, i have two points. i was in wall street last week. i met with paul volcker. i said, look, you guys have to come to the party. this idea that the bad guys are gone, this is populism, there are people in the streets with pitch forks and bib otheralls and nobody cares about this and we can go on as business as usual and there s no problem, that will not work. i want them involved in what the solution is. so far, the approach has been even when they say good things in public, the lobbyist res down here saying, we don t need to do any of this. the second thing i want to make, one of the big problems we have in this country, we are so short-term oriented. this idea that because the stock market is up and down for a week or two that we should not make basic systemic changes we have to make is one of the things that s wrong with the country and wrong with wall street. we have to make these changes. in the long run, it will work out best. i was happy to see many of the bank stocks overseas were on it and i want wall street to be part of the puzzle, not standing, digging their heels in and fighting every single move that s made to try to get out back to a situation where the american taxpayer feels like they re getting a fair deal and the american invest her feels like they re getting a fair deal. senator kaufman, those are excellent comments and i applaud the efforts. when i look around in the world, i look at the banks in china, the banks in germany, the banks in canada. they are getting bigger. how do our institutions compete globally if you constrain certain elements of their size and so on? i just haven t figured that out yet. by the way, i haven t figured it all out, either. but the one thing to keep in mind is we cannot have too big to fail. this went through hundreds of billions of dollars in lost money because we had institutions that were too big to fail. this is going to be complicated. this is not going to be easy. we have fallen into a situation where we had no regulation, where we weren t looking at these things, we had an idea that everything would take care of itself. we pulled all the traffic cops off the street and we let people play. it s going to be very difficult getting back. but we absolutely have to make sure it doesn t happen again. but it is a fine line to walk. the reverse side of it may be in times where you see less leverage, where you see less liquidity, that could mean very well that we re going to see a less vibrant economy, that you re going to be seeing slower growth, that you re not going to see gains in the stock market. are you prepared to see the other side of that? becky, your concerns, the we can do it. we can figure out how to walk and chew gum at the same time. i love it when people talk about stagnation and the rest of this things. the other sides is saying, can we afford? the answer is no. can we continue the practices that we know don t work on the possibility that we may create new problems? no. unintended consequences are always a problem when you re making new proposals and i totally agree with you, becky. i think what the president did was lay down one of the road maps, one of the road markers on the map to get us where we have to go. senator kaufman, we want to thank you very much for joining us. thanks for having me. and we ll see you again very soon. absolutely. coming up, he earned his wings. now the ceo of continental is joining us in his first television interview when squawk comes right back. as we led to the break, here is a look at the widely held stocks. what are you doing.? calling chase sapphire, seeing if we have enough points to stay longer. now? you don t have enough time. and you have to push all those buttons. no buttons, someone answers every time. yeah, right. bet you a massage. yeah, ok. hi, julie. i have a question about my points. hi, what button do i press for a massage? hello? new chase sapphire. you call. we answer. no waiting. just press right here. go to chase.com/sapphire. chase what matters. go back to sleep america. the oil crisis is over. i don t think so. our economy is bleeding billions for foreign oil. importing nearly 70% - much of it from countries that don t like us. that s billions we should use to create american jobs. we have plenty of american natural gas, to power our trucks and bus fleets. it s cheaper, cleaner, abundant, and it s ours. we ve had our wake up call. it s time to act.  welcome back to squawk box, everybody. we have a lot to come this morning, including where you should be putting your money to work. we ve got stock picks and investment tricks from marrow gabelli. mcdonald s is set to serve up earnings. and mohamed el-erian on the proposals to break up the so-called too big to fail banks. what it means for the markets, as well. let s get to what is making headlines this morning. i have to do this? yep. all right. welcome back. let s check on the markets right now. we are indicated lower, down maybe 29 points. we ve had two bad days in a row. dow component and nnz nbc parent general electric is now indicated higher, not bad. 28 cents a share ahead of expectations. revenue beat by $1.4 billion. revenue coming in at 1.4. the ceo says the company is now positioned for solid growth in 2011 and beyond. hershey will not counter bid for cadbury. we re going to talk to mario a about this at some point. the british confectioner agreed to be acquired by kraft. warren buffett doesn t like it. it seems like hershey might have more cost overlaps than kraft. they make cheese, mario. anyway, that follows the unanimous board cheese please. cheese please. that follows a unanimous for me on wednesday. do you like this deal? i think it s good for both parties. i have to commend roger karr as toepdz to some people who are running take two and yahoo! fighting. one more things, a high profile fight between a cable operator and a program provider is over. you must know everything about this. cablevision and scripps struck an agreement that returns the food network. thank god. add hdtv to cablevision subscrib subscribers, terms of the great were not disclosed, but all is right now in the universe now that you can watch that again. if you have any comments or questions about anything you see here on squawk, e-mail us at squawk@cnbc.com. a lot more to come this morning, including the names of guest host marrow gabelli thinks you should be adding to your portfolio right now. attention, passengers, we will begin boarding shortly. those sitting in an aisle seat, please make your way to the squawk set, especially if you re the ceo of continental. .thank you for flying air squawk box. they ve served for decades as a golden, tasty sidekick. to the all-american meal. french fries, and our national passion for them, are legendary. classic. iconic. but times change and people want better foods. so cargill helped a restaurant chain create. a zero trans fat cooking oil for their french fries. canola plants. and innovative processing techniques. while preserving their famous taste. because no one wants to give up a classic. this is how cargill works with customers. continental s airline is ringing in a new captain with better than expected earnings. the airline landed a surprising profit. see all these landed, new pilot. anyway, it was good, but it was a profit. expect ages with a loss. with us for his first tv interview since becoming ceo of continental, jeff smisek, a big friend of squawk, taking over from gordon besume. welcome and it s great to see you. thanks for coming on our show. you have been president of the airline for five years, right? right. and chief operating officer. so you re not going to a bunch of remedial courses on how to do this at this point? i m ready. you ve been at the company for 15 years, as well. have you got the answer for a nice, smooth earnings stream that goes up 10% or 15% every year or every quarter in the airline business? is it ever possible? well, i think there have been a few structural changes that will help us start making money and keep making money. the first is a lot of folks on ancillary revenue, which you re seeing across the industry, and certainly that is not only good for kond mental. for example, let me give you an example. if you and i go on condalacom, and we buy the same ticket and i check two bags and you check none, you have just cross subsidized me. the fuel burn, the ojis, on the job injury from handling the bag or workers, say we misplace a bag, we have to run it out to the hotel, costs about $100 to do that. you re effectively are cross subsidizing me. so it s more fair if i pay for the bags that i check and that s good revenue for us because it s high margin. so you ll see us and the airlines continue to not only fracture the product, but offer additional goods and serviceses. but it looks to the customer like united states a hidden fee. when i m looking around at different shares and different feeds, if you don t know it s in there, then i have to pay 50 bucks or something. i understand. but i think you do understand it s there because bag fees are prevalent across the industry. the other piece that i think is structural changing is technology is permitting us to do what the customer wants to, which is really a lot of customers want self-service. they want to control their travel experience and check in online. they don t want to be in long lines to get their ticket and on the return we now send it to you. if you have a pda device, you use the pda device and put that through the gate agent. and that is good for the customer, self-service for the customer and very good for us in terms of the savings and technology. if the blackberry is not working, that s all you need, right? that would make it even worse. so i would think, jeff, that some type of hedging of fuel costs would be necessary to smooth out results. that is not part of the plan at continental? no, we do. we hedge close and we buy call options. our best hedge is our modern fuel efficient fleet. we are 38% more revenue today than we did ten years ago. that s a permanent hedge. the financial hedges, they burn off, but a modern fleet does not. and that is continental s best hedge. what about meals and i don t you know, when i get nothing, it s hard. it s hard to make it through a three-hour flight, especially if i m sitting on the runway. joe, i suspect you re always up front so i suspect you re always getting good deals. wbl being a mega tv no, you know what i do it? my wife, i ll let her use american express and we save up sky miles. in this case, he think it s one pass, isn t it? yeah. but yeah, i try to. that would be better. it s cramped back there. if i pay more, do i have to not sit in the middle between two very large individuals? well, again, that s something over time we can do. over time, we can actually have the ability for people to pick a specific seat and have a seat where you re guaranteed no one next to you. really? sure. mean you re in a single seat aisle or meaning well, you could be in a seat, for example, and you could be in a seat next to you. again, that s having customer ves more control over the travel experience. who do you need to align with? there has been flux lately. delta has made moves in alliances. it s more alliances right now than outright mergers, right? yeah. was that a different one than the previous yes. we were in sky team. oh, why did you switch? we switch because candidly, we compete heavily with delta and we and delta would like to kill us, candidly. and it s like being married to someone who wants to poison your food. for us, star was a much better alliance and with united in star, since we have complementary networks from a domestic perspective, it s a great alliance. and from the international perspective, we re filing for a joint venture across the pacific with a&a and united. we re a global carrier. jeff, obviously, your success is what we all applaud because you re fundamental to ceding jobs in the united states. you re going to order more planes on boeing. and the vendors to boeing will do quite well. doesn t that increase your capacity? how do you trade that off? anything that we should think about in that regard? well, you know, the dream liner will be a great aircraft for us. but with star alliance, there is room for growth for us in the joint ventures. and we expect those aircraft will permit us to grow and they ll replace only aircraft. argue our current wide body fleet gets older, we will replace them. with the faa and government overview of the return on investment, anything special? sure. the single best things that the faa could do would be to invest in the mod ralt air traffic control system. our current air traffic control system although safe is very slow. it uses the 1950s ground based technology. this nation needs to invest. it needs to invest for safety and throughput. but there are many studies that show that modern atc system could save about 12% on our fuel burn. that s very good for us, very good for the environment. how about the amount of time we have to spend on a tarmac that we can t get off? there you have it. when the apc system puts us on a tarmac for a certain period of time, now they want to fine us $1,2750 per passenger. welcome to the real world. we ve got to go, jeff. any glimmers of hope in business travel that you re seeing? yes, yes, there are. we re seeing the beginning of business travel return. we re seeing some of our comings ease up on the draconian travel policies, let sing some of their folks travel up front. we re seeing a little bit of internal meetings being permitted again. so it s there, but i must say, it s slow and i think it s going to away slow recovery. would you like to take a shot at those stupid commercials? it s preposterous, isn t it? i think i won t go there. you won t even allow travel to las vegass for conferences. and jeff, i don t want to be probed going through the security line. that s not our drill, sorry. or full body you know, actually, i m not embarrassed. i m proud, actually, but you d have more fans if they want show that on tv. at the gym right here. thanks for coming on. it s good to see you again. it s my pleasure. continent s new ceo, jeff smisek. later, mcdonald s quarterly results set to hit the wires, instant reaction and nebs at the top of the hour. stick around. 0 investors got lost in the shuffle. tdd# 1-800-345-2550 investment firms forgot whose money it is. tdd# 1-800-345-2550 enough is enough. tdd# 1-800-345-2550 it s time investors got what they deserve. tdd# 1-800-345-2550 real help that s there when you need it. tdd# 1-800-345-2550 pricing that leaves you with something to actually invest. tdd# 1-800-345-2550 at schwab, we offer a lot more help for a lot less money. tdd# 1-800-345-2550 because at schwab. tdd# 1-800-345-2550 investors rule. tdd# 1-800-345-2550 are you ready to rule? well, look who s here. it s ellen. hey, mayor white. how you doing? great. come on in. would you like to see our new police department? yeah, all right. this way. and here it is. completely networked. so, anything happening, suz? she s all good. oh, my gosh. is that my car? [ whirring ] [ female announcer ] the new community. see it. live it. share it. on the human network. cisco. a check on the markets following yesterday s sell-off and the day before, for that matter, ge, we re looking at down about 41, 42 points or so. same similar situation with the nasdaq. people are watching the s&p and watching 1,100. or 11 yeah, 1100. we re another 1116 right now. people talking about that being a key level to keep an eye on. southern california is weathering its fourth rain storm in a week. nearly 2,000 homes have been evacuated. if it s not brush fire, you know, it s water. incredible. flights have been canceled, beaches have been joeroverrun w waves. hillside homes threatened by mudslides. where did the snow come from? they showed a bunch of snow, but the bigger problem has been the rain, i think. the bigger problem has been their deficit on top of everything else. it is what it is. it is? it is. you can say that definitively? without a doubt. that s the first dij thing you ve ever said without taking both sides. we re go get to get him to take both sides right now. marrow gabelli, these are all stocks that you have my clients own and we own them and is we re buying them. in addition to that, we re trying to manage money for them, sue them, they sue up, a whole bunch of things. essentially, i had ten ideas for 2010 that we talked about in recent round tables. but one that i d like to talk about is a technology play. for me, that s unusual. first, we need to have energy independence. we re tired of depending on the midwest. as a country? as a country. . and one of the areas that we re intrigued about is natural gas, like a lot of individuals it s allocated to heating homes. and a company called national fuel and gas, which is a buffalo-based company, has 727,000 customers that take natural gas from them. and about 70 or 80 years ago, they decided to buy land, a million acres. and about four or five years ago, we started seeing new technology in a way you drill. instead of just going straight down, you do horizontal drilling. and then you fracture. all of a sudden, the marcellus field becomes a very valuable asset. so what we see here is a $50 stock, 80 million shares, about 800 million of debt. over the next three or four years, that division, that segment of their business called seneca, we think because of the high capital expenditures that they have put in place, they ll spin it in off in some fashion. the way smee johnson was spun off by bristol myers. then they have the pipeline business which takes and connects all those arteries that bring natural gas to the northeast. so that is an example. there is one stock. and the stock symbol on that is nfg. you also like a company called federal mobile? that s an intriguing one. basically, the u.s. auto industry we think will enjoy three or four years of rising production. for example, in 2009, we sold 10 odd million cars. we produced a lot less because we dragged down inventory by about 1.4 million vehicles. you re almost out of stock. so over the next two or three years, production will demand will rise, production will rise faster and companies that sell parts, original equipment, they call them, those companies are going to get stronger because of their gaining share in markets. because we ve seen so many of their competitors fall out? yeah. you don t need a tier three or four supplier. federal mobile is in bankruptcy for a variety of reasons. carl ikahn emerges owning 75 millions shares of this company. basically, we think that over the next three or four years, they ll have steadily rising earnings, they ll have a new ceo that i may have met 25 years ago when he was at ford in spain. he basically, i think, can drive this company. so that is an example. there are so many companies, whether it s a tenaco, small company like stratic, those kinds of companies we think will do well. and if you ve survived the downturn over the last year and a half, you re in a position to come out a much stronger player. president obama creates jobs and job creation is priority number one, finally, the auto industry benefits from that. but it s a global marketplace. a simple number. there are 3 250 million cars on the roads in the inside. there s 70 billion in china. so a company that sells parts globally will also do well. the european car business will be lackluster in 2010. okay. so that is an example. mario will be with us for the rest of the show. we have a lot of other stock picks to get to. we do have a busy morning on squawk box. we re just getting started. and the president s comments sent stocks tumbling yesterday. we re going to talk stock markets and scenarios. let s take a look at some stocks to watch this morning. we ll start with, i guess, general electric which is indicated higher at this point. you can see 1627 and 1633. that is where the marshket is indicated higher. jeff immelt says the company is well positioned for growth in 2001 and beyond. yeah? mario? i think the other part was that he talked about ge capital. which has been ongoing. which is the achilles heel of the story, obviously, or the ken. continuing to buttres and i guess all areas were good except commercial real estate, right? cre. that s a problem and we have a solution to that later. you do? would you tell companies to cut their dividend? we ve got to go. we ll come back and talk to you about that. you don t love dividends? not if they tax it at 80%. we re waiting for mcdonald s to report. we ll get the numbers at any moment. squawk laureate robert engle, he s going to tackle volatility and risks, that is next right here on squawk. calling chase sapphire, seeing if we have enough points to stay longer. now? you don t have enough time. and you have to push all those buttons. no buttons, someone answers every time. yeah, right. bet you a massage. yeah, ok. hi, julie. i have a question about my points. hi, what button do i press for a massage? hello? new chase sapphire. you call. we answer. no waiting. just press right here. go to chase.com/sapphire. chase what matters. sir? finding everything okay? i work for a different insurance company. my auto policy s just getting a little too expensive. with progressive, you get the name your price option, so we build a policy to fit your budget. wow! the price gun. ah! wish we had this. we d just tell people what to pay. yeah, we re the only ones that do. i love your insurance! bill? tom? hey! it s an office party! the freedom to name your price. only from progressive. call or click today. mickey d s, dow components indicated higher already and moving that way. $1.11, was above expect ages which were at $1.02. revenues, $57973 billion versus 5.941. in the quarter comp stores globally, up 2.3%. for 2009, 378%. the company the headline in the pr news release was mcdonald delivers another year of stopping results in 2009. a combined operating margin at 2.3%. a lot of coffee being sold there now. they in previous moves have gone to yogurt and fries have got the transfats out and are pretty close. they generated higher reve e revenues. every sector, given what s happened in 2009 for the rest of the economy. they throw out the numbers and you may forget how ewe quick tuesday mcdonald s is. they serve 60 million customers a day in 2009, up 2 million a day in 2008. it s the old story of share a mouth, you get to share the wallet. we re run ago banner at the bottom that it was $1.03, just a penny ahead if you strip out extraordinary items. but the revenue number was fine. becky, even in europe, they continue to do very well. even in france, where people put on a disguise at the loo. that s the most satisfying is the great numbers at the lu. apparently as you re walking around looking at the fine art. what s the first word? you can smell the fries. and what s in front of that fries, what s it called? oh, freedom? french. french fries. that is not the only news we ve got today. we ve been watching all of these stocks today. nbc universal parent and dow component reporting fourth quarter profits of 28 cents a share. that was two cents better than expectations. so two dow components both beating expectations. revenue for general electric came in above consensus. those shares are indicated higher. we re lower right out of the gate. right now, you see that stock is indicated higher by about 28 cents a share. treasury secretary tim geithner is publicly on board with president obama s proposed bank rules. cnbc has learned that he expressed skepticism behind closed doors. geithner reportedly was concerned that limiting the size of big banks could impact competitiveness. about those caps on proprietary trading, he says that doesn t get at the root of the problem that fueled the financial crisis. however, geithner and larry summers support the plan and worked closely with paul volcker. the proposal is driven by a desire to ensure a stable financial system and this is not something that s being run by politics. make no mistake, no one is suggesting here that there is anything wrong with proprietary trading, that there is anything wrong with hedge funds. what is simply being suggested is that you shouldn t get both the benefits of being a bank and those benefits in the same institution. and if you want to take another look at futures right now, you can see that the dow futures are still about 28 points below fair value. of course, general electric and mcdonald s, two dow components reporting today, both beating expectations. and there s a lot of noise in those mcdonald s results. but i trust we got the number right. there s a couple of gains, tax benefit due to some resolution of something. anyway, let s talk about the kraft/cadbury deal. we talked about it earlier. were you watching buffett the other day when we had him on? i m a buffett fan and warren is terrific and i ve been following him for 30 years. the first subject i visited with him was at pinkertons. he disagrees, he thinks they re overpaying. buffett is right, but so are those that believe this is a good deal. because of the geographical footprint it gives kraft? my own sense it takes the growth rate of kraft to an 11% compounded annual growth rate, we think it ups the growth rate to 15%. then the question is what price do you pay? clearly, when you issue 280 million of your shares and go proform ya, what is the value of those shares? is it the public price? and buffett is saying no, it s the intrinsic value. that s what we value guys have always said. what are the synergies? he does a wonderful analyst yag job and it s 100% right. notwithstanding that, we think it s a good deal for kraft. it transforms the company in a positive way. you know, he also talked about the sale of the pizza business because they had the zero cost basis and they told it for 3.8, but they only got 275. and obviously, necessarily was willing to pay 3.8. then he talked about the cash flow being thrown off of that and he said they didn t get what it was worth at all. i m not here to bury irene nor to praise her. the deal as i see it, the chairman of cadbury, you have to give him he could have done what yang did. he walked away from a $33 deal because he couldn t negotiate over yahoo!. yahoo!. and the same thing with this take two that carl akan is ousting. how big of a stake in cadbury and how big of a stake do you own in kraft? we started buying cadbury years ago when we saw the dynamic of them spinning off dr. pepper. in that context, the kas catalyst for us was wrigley s and mars because it created scale. we thought they would do a deal with hershey s. kraft was a wild card. in the hunt, necessastle decide go the bigger route. but my question is, are you a bigger beneficiary on the cadbury or kraft side? oh, you don t know the cabela yet? let s count the math. cadbury was 35. i m used adrs, not ordinaries. it moved it up to $50. the next level, which is arbitrage 101, deal making 101, irene followed a simple playbook and she put bear hug on, in quotes, and then she gave the kiss. that s not what we re asking. are you a bigger do you have more stakes in cadbury or kraft? my clients she didn t ask you that. you are skillful. she asked you one question and you come out with something totally random. where did you buy cadbury? here, i ll give you my dollar back that you re paying me. where did you first buy cadbury? i don t know that. probably five or six years ago. whatever. it s not relevant. the relevant point is, my clients say what do you do with next? you may be agreeing with buffett because they overpaid and you have a bigger stake in cadbury. no. we make money both ways. we like kraft. we re going to own kraft shares. did you like that answer, though? i understand. i understand from both perspectives. i m trying to figure out. i don t know the number. i don t sit down and count what my clients make. they count it and they fire me or hire me. you count what you make when you take your that is not correct. we re not in the hedge fund business. we don t take the 20% profit. do you want to talk about mcdonald s now? i don t know anything about mcdonald s. i don t follow it. okay. well, this guy does or this person does. mcdonald s reported here we go. matt defrisko, we got the clean number, just a penny above. is that right? yes, it was. kudos to our staff. revenue is not above two, but jot outlandishly above. about $40 million. it looks as though, also, the comp sales are trickling out over the tape. i guess the big commentary is going forward. they signal that their global comp or global same-store sales is positive or remains positive. people will be digging into that regionally. so they re looking at the u.s. and worried about what that implies about the u.s.? well, the qsr category has been very competitive the what? fast food, quick service restaurants. okay. with bugger king doing a dollar double cheeseburger has increased the competition. mcdonald s responded with breakfast as a dollar menu now to respond to rising unemployment concerns and how that impacts their large breakfast business. so it hasn t gotten any easier for winning share here in the domestic market in particular. that might be the the stock is called a little lower now, down it s tough to say, but on first glance, that number looks much better. so the worry is once again domestically and it has to do with some of the old worries about comp store growth in the united states. sure. i would say the dollar three, given the magnitude of prior beats is going to be seen as slightly better, maybe even considered in line. it really is the outlook and what s going to come out on their 11:00 conference call as far as how do they see the world unfolding and burger king being in there with the dollar double cheese berger has been encroaching on their position in this first quarter, i would think. have you changed your outlook for the next three years in terms of growth rate for mcdonald s? and what is it? ex currency, they have some good growth opportunities in europe. they are very early on in china. and what are your numbers? in other words, your estimate now that these numbers are out for the current year and next year? we came in, the full year and a little below $4 in 2009 here. it looks like 3.97 in a recurring basis. so we want to talk to you about a 15 multiple and a 10% grower. what s that worth? that s a good point. the historic has been 15 times and that s why we re on the sidelines here trading at about 15.5 to 16 times going back and forth. i think that s reflected in the stock s reaction today that it is fully valued as far as a multiple and the earnings upside, coming in slightly in line here or a little bit better. probably suggesting numbers don t have that much upside. the consensus for 440 is not that much different than or 430. it doesn t look like there s a lot of optimism to cause people to raise numbers in this quick reporting here. buy of the decade in 2003, no? oh, certainly. i mean, people put it out to pastures thinking it was a dead stock. they certainly reinvented themselves, returned to focusing on the margins and slowed down their growth and got their house in order. obviously, one of the best management teams out there in the restaurant industry, very deep bench, very accomplished as far as expanding globally successfully, taking their time and doing it profitably, too. not just diving into markets and losing money here. how old is skinner? well, i believe he s in his early 60s right now. so don is it s don, right? is it don? don thompson. yes. he s in line? i would think so, president of the u.s. grooms his form that spot and he s been out there in front of the street on several analyst dayses. yeah. he comes pop all right. thank you. appreciate it, matt. see you later. come up, president obama taking aim at the banks. the white house takes the opportunity to take on the nation s financial giant. we ll talk about the moves that has washington and wall street on high alert with meet the press moderator david gregory right after this. stay here. tdd# 1-800-345-2550 investors got lost in the shuffle. tdd# 1-800-345-2550 investment firms forgot whose money it is. tdd# 1-800-345-2550 enough is enough. tdd# 1-800-345-2550 it s time investors got what they deserve. tdd# 1-800-345-2550 real help that s there when you need it. tdd# 1-800-345-2550 pricing that leaves you with something to actually invest. tdd# 1-800-345-2550 at schwab, we offer a lot more help for a lot less money. tdd# 1-800-345-2550 because at schwab. tdd# 1-800-345-2550 investors rule. tdd# 1-800-345-2550 are you ready to rule? you want a financial partner. who is unusually prepared to help. the meeting with northern trust went well, didn t it? yeah, they get it. they really get it. a little more stability would be nice. northern trust offers the strength and expertise. that can only come from a 120-year track record. of thriving even in difficult times. they understand. roller coasters are for kids, not money. northern trust. wealth management. asset management. asset servicing. someday, the driver will get to choose how efficient or powerful their car will be. the first ever hs hybrid. only from lexus. the most fuel-efficient of all luxury vehicles. welcome back, everybody. scott cohen is here and joins us with new details on corporate relations to the relief effort in haiti. scott. and a little positive news that we can break right here. the u.s. chamber of commerce says the total corporate donations who haiti relief passed $106 million surpassing the amount the u.s. government has pledged. we have had over 260 companies respond in. we ve had over 44 companies pledge $1 million or more. this is unbelievably swift. the top donors include tava pharmaceuticals at $7 million and two wall street firms in the top five, jeffreys and deutsche bank at $4 million. a lot of companies are telling us that their employees are motivating them. they re saying, well, what are we doing? and i think that that internal corporate pride is a big motivating factor. that is the good news. the bad news, on day ten of this tragedy is it is still a crisis. the authorities are trying to move hundreds of thousands of people out of the immediate quake zone and into relocation camps. they re trying to contain the threat of disease, which is getting worse by the hour. yesterday the port came back into some service. that can t come soon enough. looters have made off with 50 tons of rice, beans, oil and salt. you can keep track of the latest news in haiti and tell us how your company big or small is doing by e-mailing us, haiti crisis, cnbc.com. becky, we ll share some of those e-mails later on today. thank you very much. coming up, pimco now has $ trillion in assets in management. what does the investing giant think about new rules? we re going to get to that with mohamed el-erian. as we head into a break, check out the price of crude oil. crude oil and many of the other commodities coming back, pulling back down after what we ve seen from washington. the concern is these limits on the banks will mean there s less money flowing into the commodities. right now, crude oil down 21 cents. would you like a pony ? yeah. would you like a pony ? yeah ! ( cluck, cluck, cluck ) oh, wowww ! that s fun ! you didn t say i could have a real one. well, you didn t ask. even kids know when it s wrong to hold out on somebody. why don t banks ? we re ally, a new bank that alerts you when your money could be working harder and earning more. it s just the right thing to do. the dollar is weaker this morning and so are stock market futures. you re talking about those dow futures down by about 35 points below fair value right now. this is all coming despite better numbers from dow component reporting better than expected earnings, general electric and mcdonald s. right now, those futures are still under pressure, though. if it s sawn, this man in meet the press, wa a week, david. maybe there is a before tuesday and after tuesday. b team and a team might be we might frame the whole year like that. what a week to be talking about it. absolutely. and i think all of that recall bragz is going on right now in the white house. namely when it comes to health care, trying trying to figure out how to get it done. they don t know what the pathway is to get the votes. but the white house isn t backing away from it. there is a larger role in government and ultimately whether the government is working for people. that is what came out of massachusetts. that is what the white house is focused on. you ll hear a lot about that is in the state of the union because ultimately, if the economy continues on this heading, it s going the be really bad for democrats and could be very bad for the president even though he s got more time to adjust in terms of his electoral calendar. i guess there s a lot of people that would say with a positive rating, at 32% on health care that the government working for the people would be in not passing health care, not in is it ironic or not, david, that ted kennedy s seat is proving to be the pivot point for whether it gets passed? there s some kind of strange irony or semester itry for that, isn t there? the white house knew that even if they were successful, they would have to go out there and win the argument about it after the fact and find a way to campaign on it. the challenge the president has is he has yet to successfully define why health care helps the economy, why health care is good for the economy. we can break it down, but how does health care reform deliver pore people during this great recession, as it s called? that is difficult. they re talking, you know, a paired back bill that could be supported by both sides, that makes insurance companies cover people with pre-existing conditions, gets away with they can do that. yep. maybe that s the way bill clinton, the way he governed in 94 with baby steps, how well that worked, maybe that s the kind of country we live in now because it s so polarized. you do what you can do and you make slow, steady progress. that may be what they ultimately do on health care. i don t think the white house advisers i talked to say they don t want to get into a new realm of small ball, as some people call it. what they want to get into and what they re going to get into might be have you are you booking your show based on all this new stuff we got yesterday, david? well, sure. we ve got valley jared, senior adviser and mitch mcconnell in an exclusive interview sunday. politically, they want this fight. i m listening to you guys talk about what impact they will have. they want this fight over financial regulation with the banks and over bonuses. you know, as to whether they ve thought through all the ramifications of this kind of regulation, that may be a different matter. suddenly i m arguing with liesman, who is usually on opposite sides. you look at the journal today, in their op-ed pages, they said we need to know how you re going to do it, but this is something that needs to be done. with the moral hazard in the system after what we ve been through, mario can t stand it. i think it s 1961 with kennedy and the steel industry. this time around, it s the banking industry. it s pop limp and it s worse. not all pop limp is created equal. the taxpayer doesn t have to backstop some of this stuff, right? and i they didn t have to backstop the steel industry. but i think there s a i always thought there s ban fair question about how do you appropriately regulate? if we know this is a risk business in the banking industry, but how do you appropriately regulate risk when those involved in it don t seem to be able to do that themselves? because ultimately, the taxpayer does have to be looked after here. by the way, this is one of the reasons why government is around. the government is supposed to protect people. they are supposed to regulate the private sector when the private sector gets out of control. and that s what happened here in this financial collapse. so and david, we ve made the point that you can t go back and simple live say this is how we re going to prevent the housing bubble from filling up this time around or the internet stocks, that it s going to be something different. maybe the only way to do it is allow people to fail and make that by making these banks smaller and not allowing the government backstop. right. and look, this is the debate that is going the play out. but i think there is the policy aspects of it. right now in the media in massachusetts, they ll take the politics of it and have what is a substantive debate to get this through. i saw you play switzerland with the leno/conan thing, taking that firm stand of i won t say anything, i like both. leno is our guy now. can i get you to say that? leno is our guy now. can i get you to say that, please. leno has always been nbc s guy and so has conan. i m not going to be strong armed, not via satellite. all right. but i heard you say leno has always been our guy. that s about all we get out of gabelli, too. thank you for joining us. all right. be sure to tune in to meet the press sunday morning. check your local time for listings. we ve got another big half hour on the way. we re counting down to the opening bell on wall street and on the way to the squawk set is a squawk lawyer yet, 2003 nobel prize winner robert engle. that s next on squawk. what is cloud computing? a cloud is a workload optimized, service management platform enabling. .new consumption and delivery models. it s what? my cloud does email. lowers my energy bill. shares pictures. we collaborate on our cloud. i develop software in my cloud. i want a cloud that understands risk. .compares patient histories. .predicts traffic patterns. my cloud is. everywhere. my cloud is secure. simple. powerful. flexible. that s what we re working on. i m an ibmer. let s build a smarter planet. welcome back to squawk box here on cnbc. first in business worldwide. we re one hour away from the opening bell and here is the rundown. we ll get the word from the trading pits in chicago. it s rick santelli in just a few moments. plus, there s still no vote scheduled on bernanke s renomination. steve liesman is going to check out the countdown calendar. then we have mohamed el-erian on. maybe the co-ceo or total ceo of pimco. did they take that away? theco cio. we re going to talk to him about the jets, primarily. but the last few days have been pretty good in terms of his call for a sugar high and the market was out in front of itself. we ll talk about that, too. mostly about the jets. i think so, too. he was planning on bringing his jets jacket with him. we ve been watching the futures this morning. futures have been under pressure despite the fact we have two dow components that have reported earnings this morning and have both beaten expectations. mcdonald s shares are indicated to open slightly above that 4:00 p.m. close yesterday. this comes after the fast food giant beat estimates by a penny. also, nbc universal parent general electric came in with fourth quarter profits at 28 cents a share. that was two cents better than wall street had been looking for. and a comment just out from ge on its conference call, capital allocation options may include a dividend hike and share buyback when earnings grow. as you can see, that is helping the stock out this morning. it s up about 38 cents above the 4:00 p.m. close when you re looking at the bid and the ask. let s get down the rick santelli for the buzz on what s happening in the cme in chicago. rick, we ve been watching the futures under pressure. the dollar is down. what is the buzz? the dollar index is virtually unchanged. i don t see huge moves there. if you look at specific currencies, it s important to see which side of 1.41 even the euro closes against the dollar. right now it s on the upper side of that marker. keep in mind, on a friday, it s reversing the trends of the week, profit taking. the dollar, where it s sitting now, basically down about 1.30. it s 1.40. hardly anything. it s up close to a full penny on the week as far as interest rates. today they re up a bit, but on the week they re down. so i think you have to take a bigger view at some of the larger dynamics and put them in the context of the bigger moves throughout the week. hey, rick, you of all people think banks should fail. that s the flip side of making money in capitalism. is the obama administration approaching this issue in the right way in terms of what you traders see with this new stuff prosupposed yesterday? i think anytime you implement the taxpayer, it s a good thing. i don t know that the political undertones of the presentation and how much this was thought outcome published the mission. i will continue to say two things, that i thought all the bailouts were not necessary and the right to fail would have prevented the moral hazard. i don t think the risks were systemic. but we made a mistake, you know, by doing it. why do we pick the scab now and why wasn t it thought through and presented in a fashion that would, you know, listen, even if let s assume everything they re doing is correct. is it the correct way to do it, to basically go on the air one day two years after the true event occurred and to have no timeline and to throw these behindenburg trial balloons up, i think it was the presentation and the thoroughness of the concepts were just, i thought, very incomplete and quite frankly, i think i respect mr. volcker. i think he s one of the best advisers the president has. but why haven t they kept him in the closet? i think a lot of this has to do with tuesday. thanks, rick. it is that time again. time for the bernanke countdown. steve liesman is here. how many days left, steve? we thought today was going to be the day. becky, we have this idea of today being the closure and the vote. not true. this torturous segment will continue. there are now nine days let me tell. so bernanke is going to be determining that issue we talked about on squawk box a couple of days ago. the succession, is it him or kohn? is it the chairman who will be the chairman pro-tem? dodd said on our air that it was the vice chairman. history has shown that it was the chairman protem. apparently you need to have 30 hours of debate and two days. d-day is more like seven days from now. if they don t get the cloet your two days ahead of time, they can t have it. i think the news might be to a time when bernanke s terms expires. we heard monday there was a story in the journal that reid may not have the votes for bernanke. did prop trading cause losses? let s figure that out before we ban it. we re trying to find out how many in the last ten years banks have had in trading. that s involved in limiting access to the guaranteed funds. back to becky or to joe. steve, thank you very much. we ll see you back here very soon. meantime, our guest host today is mario gabelli. joining us for the next half hour, one of our special squawk laureates. mark engle is a professor at nyu s stern school of business. welcome to the table. thank you. thank you for having me here. thank you for inning us. let s talk about volatility. it s one of your especiallies. i love to talk about volatility. we ve been watching in the market. volatility seems to be coming back down, but maybe not as quickly as you might expect? we ve had a year and a half of absolutely record setting volatilities in all asset classes, all countries. but if you look today, it s especially low. it s surprising, if you look at all the assets that we follow and the volatility laboratory at nyu, this is like 150 assets, lots of different asset classes. you ask what is the volatility today versus, say, the 20-year average. and for 90% of them, they re below their 20-year average. why? volatility has been declining. and so we want to talk about are we re-entering a low volatility state? how do we think about that from anal economic point of view because we re worried about what s coming in the what s coming up next. the vix is more worried about what s coming up next than the actual volatilities. the gap between the vix and the underlying volatility is just about as big a spin. dow do you explain that? i think that the vix was a former looking measure. it includes what options traders think the future is likely to look like, whereas what the volatility is what the traders see. and so i think that the vix does represent either a risk aversion premium, which is especially high right now, which could be true, or news that the options traders are worried about down the line. is it more forward looking? that s right. and these things that we talk been rick was mentioning some of these things from the floor. the concern about budget deficits building down the road, how much we have to raise money to finance some of that debt, is that what it s saying? the only place it can go is up. we ve sort of seen a couple days of it now. it means that all the forecasts would be for rising volatility. but i think one of the reasons we want to be especially interested in this is in terms of leverage. we talk about the greenspan put as being one of the reasons why the economy took on so much leverage in the 2003/2007 period. but low volatility is another reason why it took on so much leverage. when volatility is low, leverage isn t so risky. what is risky is that if you re in a leveraged position that is pretty inflexible. then when volatility goes up, we ve got these kinds of crises that we ve had. when you take everything you know about volatility and is look at the proposals that are coming out of washington, let s just talk about this proposal from yesterday where you would split the banks. what do you think about that? well, i think we ve had regulatory agenda for the year now. to some extent, this is more extreme, what we heard yet yesterday. the principle we want to keep in mind is systemic banks are the ones we should worry about. banks or nonbanks could be hedge funds or insurance companies that take on risks, that put the system in danger are what we need to were about when we do our regulation. and i think to some extent, that is consistent with what the president has been talking about. he s saying let the small people take risks. but it s the ones that are so big that they would introduce a risk to the system that we need to worry about. and i think with this volatility, if it stays low, then the pressure on banks to make money is going to lead them to increasing their leverage just as they did before. mary, what do you think? does that you know, we re in the same camp. i m an investor that looks at mr. mark, the volatility of specific stocks and mr. market as a concept that s been around for several years. and so you develop the intrensic value of an enterprise. if it goes down and i like it, i buy it when it goes down. going back to the notion of yesterday, yesterday was an appropriate way to contain the risk taking for government insured organizations. high frequently trading, uptick rules, controlling the derivatives, but auto small organization called long-term capital management, a lot of brain power, they were too smart to fail. nobody would have looked at them, except they had too much leverage. how do you contain that? right. so i think it s important that when we think about the regulatory process, we don t just focus on big banks. we focus on some notion of leverage. of leverage. and some notion of systemic risk and how do we do that? basically, we re feeling our way and there are no very detailed and while you re debating it, we have to go back to basics, create jobs. this is a nice academic approach. let s focus on job creation right now. my feeling is if the regulation is done well, the market actually will like it. because the market dislikes disruptions in the future if you think that the financial system is going to have another meltdown in a couple of years. that actually puts a weight on the market today which good regulation would list. so. capitalism will always have meltdowns. that s why we created the fer after all the meltdowns of the 1800s and the 1900s. next, we ll have more reaction to the president s plan to get tough with the nation s financial giants and we re going to talk to mohamed el-erian. he ll tell us if the white house is making the right move for right now. 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. the dow futures have improved a little. both dow component are now indicated a little higher. general electric is up around 1660. that s a pretty big move we re seeing at ge. what are you, cheering for cheering for you, joe. counting your money. revenue was above. jeff immelt said something about if profits start coming in this year and next, you could start looking at dividend improvements. i would focus on pushing that. again, focus on putting that base under that commercial real estate. t in the credit capital. and then mcdonald s was a penny ahead on slightly higher than expected revenue. we had an analyst, i m talking about what the forecast means for domestic same-store sales growth. but that has managed to turn positive. up next, a squawk icon and rebel, a jets fan, too. we re talking about pimco s mow ham el el-erian there in his 1960s jets jacket. he ll be sounding off on president obama s new bank restrictions. squawk box will be right back. in these turbulent times, you want a financial partner who promptly gets you. the information you need. at northern trust, our sophisticated technology. puts the most accurate information at your fingertips. so while you may find yourself waiting now and then, it won t be for the numbers you wanted by 7am. northern trust. wealth management. asset management. asset servicing. president obama s proposed bank tax still causing a still on main street and wall street. it will be interesting to hear what mohamed has to say. he spoke out in the financial times earlier this week saying that the tax we were talking about remember, we forgot about that one already. yep. to address the real issues at hand. we have to first start with mohamed, though, ceo and co-cio at pimco with the jets i m sorry, we have to and then we ll get to more serious things. but the jinx of being on the cover of s.i., do you think you can counter that by wearing your old jacket from 69? i hope so, joe. and i ll tell you, it wasn t an easy decision because i didn t want to confront you with the fact that your cincinnati bengals can never claim a title like that, super bowl champions. but then i died bed, a, we had to overcome the sports hitted jinx, and secondly, i may not have another chance to wear this jacket, so why not? are you wearing green shorts and green socks, too? i wouldn t possibly tell you that, mario. the jets have been acting like a super bowl team. i thank you. and i ll thank the san diego chargers. i was going to say. mohamed, with what has happened last week, first the tax and then what happened yet, can you give us an overview on both and what you think about it? joe, this is not any more about what should ham. we have embarked auto a period of increased derisking taxing and regulating banks. and if you ask why, you know, it s not often that you get a phenomenon that has so many tailwinds. one, politics. if you re sitting at the white house, you know that people are angry about angry about unemployment, about health care, and about the bailout of banks. what s the easiest thing to react to? the bailout of banks. second, the banks are very visible. with the earnings that have been so strong after the recovery, they are very visible. thirdly, there is a regulatory system for reducing risk. fourth, if you can raise revenues, that s great. put all these four things together and we should be looking at a period where the derisking of banks is going to intensify not only in the u.s. but globally. look for other countries to follow what the u.s. did. all right. so what are the laws of unintended consequences telling you about all this? should we be popping champaign or running for cover? no. we should be trying to navigate what you ve heard me say and part of what we ve been talking about in the new normal. we should be trying to navigate what s called a public sector risk factor. right? the public sector now is impacting markets through discreet decisions. there is an issue of content and the content is not clear and there s also as rick said an issue of process. right? so we as investors have to be able to navigate these new factors because that s the reality. this thing is going to intensify. you re going to read about it in other countries. it s just the reality today. wow. so not only are they going to eventually pull back on all this all the tail winds that we have with stimulus and all these facilities but they re also going to tax and regulate on top of that. it doesn t sound good. we talked about it yesterday in pimco s investment committee. there were cracks that were exposed by the crisis. cracks in the foundation. they were hidden by tremendous cyclical response, the stimulus, everything else. but you need a structured response. what s happening now is these cracks are reappearing. it s not just what happened in the u.s. market. look what s happening to greece. if you look around the world, you ll see that there is now a shift from this massive cyclical support to let s try and look at the underlying factors. you see it in china. you see it everywhere. that s the transition now that the markets are navigating. hum. it seems to me one of the things you d like this tax to do would be to take a countercyclical view on charging the banks. do you hear any evidence that that might be done? no. i think they haven t thought it out very well. my sense is this is much more politically driven. that s what s driving this process. i think the countercyclical element, they re going to focus on capital elements, require banks to accumulate more capital during the good times so that they have a better cushion during the bad times. but i don t think they re going to do it through taxation. i think they re going to do it more through capital requirements. and what about the coverage of this? it seems to me another issue, which is quite important, is whether the a bank that doesn t want to be taxed can divest itself of enough assets so it avoids the tax. if this is really to be a systemic tax then it should be not only on banks, it should be on any systemically risky institution and you should be able to avoid it by becoming smaller. i think what you re going to see is institutions that benefit from guarantees, especially deposit guarantees, and therefore benefit from the support of the taxpayer are going to be moved in the spectrum towards becoming utilities, more like utility banks. and the other stuff is going to find itself a way of spinning off and no longer being, cohab tating if you like with the guarantees that are provided through fdic and other. at the end of the world, this may be a less efficient system, but it s a more stable system. well, as the old story, do you want a 12% safe return or a 20% compounded annual return. what s better? what may be better for capital markets to have a 12% safer return with lower volatility. yeah. i think of it as, you know, you ve had a massive crash on the highway. right? the first reaction is going to be, lower the speed limit in order to try and reduce the crashes. now, with time, people are going to find out the speed limit is too low. but it s not going to happen immediately. the immediate reaction when you have massive crashes on a highway is to do the blunt thing which is just lower the speed limit and strengthen enforcement. that s what s happening to the banking system. nothing like someone going 20 on the freeway, mohamed. yes, but also keep them from texting. yeah. and texting at the same time. mohamed, [ speaking in foreign language ] welcome. welcome. oh, my god. there they have me. there i am, now, mohamed. i look good with your hair. it s combed and everything. good luck and we ll talk to you next week. i don t know how many times you can go back to this well. you beat them before. monday morning quarterbacking. joe, we need good luck and somehow i worry that you re not going to be there next week. i m going to be in a depression next week. that s been your m.o. all along. lower expectations. you re like a person that doesn t believe in the stock actually you are a person that doesn t believe in the stock market. and it keeps going up. you re like that with the jets. they re going to keep going up. i m a mets fan, too. what have they done two years in a row? no comment. pushing your luck. see you later. thanks. coming up a final round of risk versus reward with our guest host. 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[ ding ] we got one! that s good. oh! ah, wow. [ dinging continues ] becoming a popular guy. [ rattling ] [ male announcer ] want 3g coverage? we ve got it. 230 million people in 9,400 cities. let s get out of here. ok. [ male announcer ] at&t. get an exclusive pantech messaging phone free after mail-in rebate. only from at&t. welcome back. our guest host today, mario mario? and robert eng l, both here. mario, wrap up your thoughts. there is no question, job number one for the president is creating jobs. what he is doing is populist and probably will work and bringing voelker back center stage is very important. what s the concern here? it is time to get this regulation in place. congress has been messing with it and pushing it. i think that s the reason the president is on tv trying to push it. we re back to normal. volatility is down. people are going to take on risk again and we need to get the regulation done. gentlemen, thank you both for being here. it s been wonderful having you. we ll see you very soon. always. thank you. okay. great. that does it for us today. make sure you join us on monday. have a great weekend, everybody. squawk on the street starts right now. live from the capital of j-e-t-s, jets nation! ugh. we re going to win. this is squawk on the street. i m mark haines. oh, and i m erin burnett. front and center. two dow components. beat the street. go jets. go jets. well, they can win. the best team is no longer in the tournament, so, you know. all right. our parent company, ge and mcdonald s, both stocks bid slightly higher on profits. mark? here s a quick futures check after yesterday s big drop. we re down again. below fair value by, put them together, and you get 6.13. on the dow looking at a drop of about 50 at the open. if things stay this way. and we have new reaction to the president s plan from wall street including a look where all of these, i don t know what you want to call them, these various headlines on what we re going to do with the banks that have been streaming out there are really coming from. steve liesman is with us in just a couple moments. he s been talking to a lot of people no one else has spoken to yet. okay. traders have a lot to think about from the president s plan for wall street to the chances bernanke might not get a second term, to the odds that the jets will win. and a reminder, there are sometimes more crucial life-and-death issues on our collective radar. corporate donations to haiti have topped the $100 million mark. every time we say that you think about what a wonderful thing it is how what it says about the generosity of individual american corporations and individuals who, indeed, are so generous. and then you wonder, can we get it right this time? can the money go where it is needed? and make a difference over a