Transcripts For CNBC Squawk Box 20100413 : vimarsana.com

good morning. dow 11,000. it s back, but are the bulls strong enough to kiept here? earnings season is open for play. alcoa throwing out the first pitch after the bell. and from washington to wall street, treasury secretary tim geithner says the country is at a defining moment for financial reform. as squawk box begins right now. good morning, everybody, and welcome to squawk box here on cnbc. i m becky quick along with joe kernen. carl is on assignment today. he ll be back on friday. we ve been keeping track on the markets and the dow rising above 11,000 once again. this is the first time that blue chips have closed above that psychologically important level. the dow posting six straight weekly advances. this is the longest winning streak in a year. the index has jumped 68% since sitting at the 12-year low that was back in march of last year. it s down about 22% from its october 2007, but it s been quite a rally. it has. and we have fits and starts, but never a 10% correction. and we re hearing it again. is it 9%? i don t think we got that far. 7%, 8%, something like that. but i was watching a guy that was just on the show that perceives this. and i just watched it and just listening, it s like, why would we listen now to that? what did he is? he said, well, now i would fought be surprised by a 5% or 10% pullback at any time. that s a common theme. it s in all the papers today. but it was that the dow has or the markets have now moved to the point where they anticipate a normal recovery and we re not anticipating a normal recovery. we re going to have paulson on. he says that s the last leg when people finally said, all right, first there was going to be no recovery. then it s going to be a different roep recovery. finally, it s, wow, this was pretty similar and that s the end of the lal last leg of the move back up. we ll see where that finally takes us. but it s amazing that people that are in the business that get paid to give advice can say the same and not hear themselves just saying stuff that sets up the other side. it has been very low volume. some people say you shouldn t short a low volume market. because of the sellers, either. there s no sellers. so you have to be careful. i m quoting e.f. browning and what s his name, bud browning? you get no clear from the ef, but he s the guy that has written the markets are tired at 8,000, 9,000, 10,000. now they re a little tired. the markets have been primed for a pullback, according to pros, ever since 4,000 points? yeah. alcoa, the dow component officially kicked off earnings season after the close, reporting a first quarter net of 10 cents a share if you exclude items, it was a narrower loss. it was in line with expectations, revenues short of consensus but above last year it benefited from higher prices. and it suggests that markets are improving. but the company s ceo reveals that alcoa recently lost a major beverage can customer and the possibility of strikes at its u.s. publication, his comments were tepid at best. 2010 should show some slight improvement is about the most you could get for him, giving consumer sentiment. the one thing that has helped is the spot price of aluminum, a closing price of 2,400 because of chindia s demand. be he did at least say that the supply demand dynamics at this point, here is his quote. i m pretty confident that the comply/demand situation is highly bias toward tightness and supplies at this point. do we know who they lost? i don t know who they lost, no. beer? beer or soda. it might have been beer. maybe duff is changing. that could be what happened. i don t know. anyway, it s a quiet morning in earnings central. we did get alcoa last night. there are a few names to watch after the bell today. that could get us started on things, tell us about what is happening in technology also and the transports. thompson reuters says s&p companies are expected to report a 1.3% rise in quarterly results. alcoa is always first and we always say we re going to get some idea about what is happening and we never get any idea about anything other than just alcoa. alcoa. right. it is not something that the broader indicator but it is the beginning. we always say we ll get in an idea about earnings season. it never does. no. a lot of times it s counter. we should put somewhere else first. who is the best indicator you would want to see report first? that s a good question. caterpillar was a nice mover yesterday. general electric is a pretty good seller. that will be friday. jp morningan is tomorrow. intel is not bad. they ve got technology. see how that s going, as well. elsewhere, the nation s big bank is worried about overuse of principal. i would be, too. we lent you $500,000. we re only getting back 350. it s not just that user tacking about bailing out the worst people under water. other people are going to say, why aren t you bailing me out, too? well, why wouldn t they? executives are going to testify at a house fm services committee hearing today. citing prepared testimony, the journal reports that the banks are going to warn of the risks of relying heavily on principal forgiveness as a tool to prevent foreclosures. the executives will say it makes sense for some borrowers, but other mortgage holders lite like becky might demand in the last situation. to. you re not now? no. i m not under water now. but everybody who is under water can demand it. you didn t buy your furniture. you stayed within your means so that people that didn t that s where the tea party rank started. you live within your means and stay responsible. now the people that didn t vsh. i have an easier time understanding people who have lost their jobs because the situation is out of their control, something lapse like that. and adults that have parents that don t have health care. jpmorgan, did you see on the mailing that you have there? i do understand this need to get universal health care, but i don t think it needs to come because there are people who have parents that have health insurance and are having to pay for it. did you see how many doctors we would be short in 50 years? well, i wouldn t say that that is the case just yet, doctors getting shut down. it gets pretty close. where am i, anyway? we were talking about jpmorgan and the rest of the banks. yeah. they estimate it will cost $700 billion to $900 billion to write down the debt on the 1 million u.s. households that are estimated to be under water. that s a lot. that s a lot of money. wow. now, the people in the street will say, hey, this is the big banks got bailed out, why can t we? are we having chairs today, too? did you see this summers piece on unemployment? i don t think we have chairs. larry summers, the contributing to long-term employment is by providing instead of not to work. each unemployed person had the reservation wage. the minimum wage that he insists on before accepting a job. unemployment, insurance and socially disrespectful jobts cause a employment situation to be taken unassemble. i would be shocked if he was saying in that paper that as a result you shouldn t have any of it. we keep extending it. right. but in times of extreme chaos, and we re talking about 10% of the nation officially unemployment and other whisper numbers talking about 14%, 16%, 18% of the nation out of work, those are sten ewe waiting circumstances. if republicans were cynical, they would let the new benefits pass and run against the higher jobless rate that prevails because of people not having a higher reservation. and again, you re talking about people who, through no fault of their own, got into difficult circumstances after their employers laid them off in mass. if it causes unemployment to remain subbornly high drn. but i understand his concern. i d like to see the entire paper where he said this. he whoa these words on his chapter of unemployment. let s pull that out and see exactly what his conclusion was after all of that. well, his conclusion is that if you keep the second wave of government assistance programs not necessarily. joe, you know as well as i do when there s a to be sure paragraphs, there s all of these other things you point to for why we shouldn t do it. we re going to have christy later on today, too. yes, we have. governor christy will be with us. because the union he wants that fired that says my favorite governor died, my favorite union and the teachers keep saying, this will hurt the children. when, in fact, all we re talking about is only, really, talking about a freeze on the but here is another piece in the journal. i wonder if he saw this. people are moving enmass out of the state. where are they going? pennsylvania. i m not going anywhere. you re not going anywhere. how do you know that? oh, come on. i don t know. tim geithner says that the country is a the a defining moment for financial reform. he has a article in the post today where he urges roll to help prevent another economic crisis. he adds, the true cost of this crisis will always be measured by the millions of lost jobs, the trillions in lost savings and the thousands of failed businesses. no future generation should have to pay such a price. the obama administration wants congressional republicans and democrats tomorrow to talk about proposals to overhaul regulation. he ll be live in washington reporting on the latest. global investors are he won t be live in washington. we ll be live in washington. when? tomorrow. you re going to washington tomorrow? no. you re going alone? yes. who are you going there tomorrow? because they had to change. we ve goot a lot more on the show. we have boop pick.stestifying before congress on the energy ledgis lagz. boone from animal house? no. our boone. is carl really back on friday? yeah. no, no, he s not. he changed his schedule, you re right. it s a good idea to say that, though. we ll have a lot of young women on friday watching. investors are once again paying closer attention to greece today. the new treasury bill coming, the company sold 1763 billion of its 52 and 26-week t-bills. the auction was covered, but greece had to pay a high yield. it comes just days after the euro zone finance ministers approved a $40 million emergency aid package for the debt trapped count country. also, a group of lawmakers from japan s ruling party arguing that efforts should be made to maintain appropriate currency levels. the lawmakers put that at around 120 yen for the dollar. if we take a look at what s been happening in the currency markets, the yen is down slightly this morning, but just barely. again, this is something they ve been saying about making sure that they re fighting deflation. okay. chinese president hu says his country will chart its own course in with obama. the president is renewing the call for a new. we re going to turn to our task force right now. joining us from congress asset management company, portfolio manager peter anderson. also from standard & poors, bethan avino. bethann, we have seen earnings season kick off officially at this point. what do you expect to hear from the big companies that report starting this week and where that means we stand in the economy right now? well, i mean, based on what the economy is saying i don t think i cover companies, by the way, but he think be some strelth in those numbers kmg out. well, in manufacturing, we re seeing some of the sentiment indicators likes ism manufacturing index and some of the other ones pumping up to surprisingly new highs relative to what we had expected. we re seeing retail sales. we were expecting some pretty strong numbers tomorrow. and that was a surprise. that certainly gives a boost to gdp for this quarter. so those figures suggest that maybe the retailers aren t doing as bad as what we thought. maybe they re buying some of those products that the manufacturer are selling. does that mean that the economic recovery is maybe stronger than a normal recovery? no, no, we don t think that at all. i questions that goes back to the letter of question. is it a v shape, l? we think it s still a layzy u. on history, we would see a recovery, juan-year recovery after a recession would be about five prints for groekt of gdp. we re looking at not quite even half. we re looking at about 3% for this year. peter, when you start looking around at the markets right now, is this a time to be jumping in and feeling confident about things or does this give you pause? becky, on my side of the fence here, the optimism is almost overwhelming. anytime you have that strong sentiment, you have to make sure that you re seeing both sides of the coin, so to speak. i ve tried hard to see what could disrupt this rally. really, we re coming up we short with any kind of excuses or reasons why we could see the dow turn downward. i think this is a strong rally. i think it will continue. especially if you look at the past six months, for instance, look how far we ve come. we ve had ipos, leveraged buyouts and even some collateralized loan open investigations. so the naturals are point, it s never a straight line recovery, but what we re seeing is a jagd blien, but it s on the upward trend. as bethann pointed out, this is a stronger than expected recovery at this point. the consumer has held in there. has the market factored all of that in at this point, peter? i really don t think so. the data back that up. if you look at any of the balance sheets and income statements of some of these companies, they re very, very strong in the friend continues upward. so whenever i get into a qualitative discussion about this, i always try to anchor it back. if you look at the results of companies, they do back that up. conagri, joy global, those are great names for the recovery poster that we re in right now. but that s almost an argument for the major industrial average pushing higher. you re saying you re not comfortable with that right now? yes, with i am. what i m trying to say is when i look at this, i want to look at it and ee that this second orr third quarter will be strong in earnings. so far talk of the past has been, yeah, these rernings results have been positive. now what i think you re seeing is having top line revenue growth which sums up to tremendous participating leverage. the numbers that we re seeing in employment, of course, at 9.7% unemployment for three months, that is actually good news. we expected it to go higher. and it looks like the october 20309 peak looks like it will be the peak for this recession. we don t think it s kwog to come down sharply. we think businesses are holding back. but one of the pieces of good news that i see in this recent report is we re seeing a lot of temporary hires. that s private employment going out and hiring the temporary agencies and the such. that s been up strongly. and that usually is a point where the businesses say well, i can t keep relying on temporary. in the past, how long have those companies held on to temporary workers before that translates into full time employees again? certainly, the last recession there was a question of whether the last recession there was the same thing. businesses were not hiring permanently. so it was a bit of a time before businesses actually did start to put people on their permanent balance sheets or on their permanent payrolls. so i think we probably have a few more months of that. we expect the unemployment to come down a little bit. we re looking at we re looking probably at about 9%, i guess, in a couple of we re saying in a few quarters. but we don t think it s going to get down to 6% for several years. where do you see the strongest areas of growth, at least when it comes to hiring, bethann? is it technology, is it health care? well, of course, health care has been strongest during the recession and after the recession. it seems to be, of course, people were probably depressed and had all this bad news and had to go to the doctor. we think that s going to continue, particularly with the baby boomers going into retirement age. so that s one strength. we also think that leisure and hospitality will get some long-term strength from, again, the baby boomers going out and saying, well, i don t need to work, i get in my rough and taking a trip to disney world. we also think technology will be relatively strong for the next few years. we do think that the booth from some of the infrastructure spending is going to give some boost there near term. and we think one of the things with infrastructure spend sg we re going to see that give a boost for employment in 2010 and twal into early 2011 because a lot of those projects basically haven t taken a shovel to the ground yet and we re going to see that now. bethan, peter, thank you for joining us this morning. thank you. coming up, a live report from athens, next. welcome back, everyone. after the dow pushed above 11,000 closing above that level for the first time in 19 months, you see a slight amount of weakness in those dow futures. right now, down about 19 points below fair value. in our headlines today, the program that guaranteed auto provider payments has been terminated the treasury said it had planned to end the program sometime back in april. now to your national weather forecast. scott williams is with us from the weather channel. hey, scott. all right. well, good morning. certainly, as we take a look at your travel forecast here, we re watching several areas across the country, in particular as we move in and around the northern plains here. minneapolis seeing scattered showers and storms this morning also as we move around detroit and the pittsburgh area we are finding showers and rainfall here. this will sneak into the northeast, but not expecting heavy rainfall totals here. new york city, look for your high temperature today. 61 degrees as we move into the nation s capital. a few light showers, 58 for your high and 58 for pittsburgh, as well. boston, look for sunshine. 54 degrees will be your high. as we look at your expected airport delays, this is what we ll watch. mainly the nation s capital, pittsburgh area, watching for potential delays. but the weather looks fine as we move around the world s busiest airport, and that is atlanta. temperaturewise for today, most of the nation will be at average. now back to you. scott, thank you very much. sounds like we re having a few technical difficulties there. but in the meantime, greece is testing international market s appetite for its debt with a new treasury bill issue. guy johnson joins us live from athens this morning and he has the latest on that. joe, look where he s standing. finally. now, there s no doubt, unless it s one of those green screens we ve put behind me. no. it looks like the sun is hitting him the right way. it does. yeah. i am definitely here, believe you me. this is the kernan site was as we are now calling it, because we are here just for you, joe. let me give you the details quickly before we talk about the architecture of this auction that has gone down this morning. very strong bid to cover. 26-week money and 52-week money. they had to pay up for it, though, the greeks, and this is the real story here. we are seeing a yield of around 4.55% for the 26-week money, 4.85% for the 52-week money. that is way above what the greeks had to pay for this short duration bill back in january. and it highlights just how good the market is. at the u could be lending money on a three-year basis at 5% as the curve has steepened a little bit. we ve seen yields contracting, but not by very much. from what i m hearing, what this is saying, is that most people expect greece to have to exercise this money from the eu to trigger the rescue package. we ll have to wait and see. we ve got the german election coming up. there s all kinds of ifs and buts surrounding this package. but it s short duration. the market made them pay up for it and everybody still remains to see what is going to happen next. joe. all right, guy, thank you. and thank you for that joe shot pup might as well just find a hotel near there if you re going to continue on this story, guy, because we d appreciate i m never going anywhere else. joe says he believes you, guy, fully. and so do the viewers. to extent, showing crumbling buildings is sort of a met for for what is happening in greece right now. and i hope you looked up jeopardy too. are you people still watching benny hill over and over again sdmp do you have anything new over there? we ve moved on a little bit from there, but jeopardy maybe has passed me by. but i m now fully up to speed on what is going on. so every answer from now on is going to come in the form of a question. what is 4.85%. guy, you can deal with all of on our many, many, many issues that we ve thrown to you. you are good. you know how to tap dance. some people just say, i m trying to do my job here. he s a player. we like him. by the way, i take it all back. i looked up what larry summers actually wrote and he does say this with no uncertain this is not a to be sure graph. this is really what it means. like so many things in these idealogical arguments, it s counter intuitive and it gets summed up that the path to hell is paved with good intentions. a lot of times i don t believe what i read in any editorial. but looking at the source on this, this is what he says. the results of three or four studies he talks about one of his own studies that he did. he really meant that. where it can keep unemployment relatively high. it ends up being you know, it s almost like letting someone live at home forever. they may never go out and do what they need to. i think this is probably an incredibly unusual time and that would probably be larry summers answer to it now. this is not something we want to keep on the books. we re almost at two years, 99 weeks of jobless benefits at this point. yeah. just to back it up. what happens? i don t know. is that you? it was me. anyway, i read it and that s exactly what he meant in this whole thing. anyway, coming up, we will have more of this morning s top stories. plus, earnings season is officially open for play. we ll size up the quart ierly lineup when squawk box comes back. good morning. welcome back to squawk box here on cnbc. i m joe kernen along with becky quick. carl quintanilla is on assignment today. making headlines, the u.s. senate panel says that high risk loans brought down wamu, the biggest bank failure in u.s. history, the latest findings argue the bank did nothing to address the problems, despite broad rates of more than 53% and 83% of two of wamu s top loan producing offices in 2005. among the headlines, the senate subcommittee, though, says that loan volume prompted quality. the panel also says that the thrift securityized fraudulent loans and steered borrowers to high risk loans that former wamu executives will testify before the senate permanent subcommittee on investigations today and we ll have a live report from washington in the next hour and the lead story in the times is about lehman in one of these shadow firms, too. so that is the lead story in the new york ciin new york times about a firm set up to move cash in and out to make sure it didn t have so much debt. but what is happening today is earnings season is officially open for play. joining us now, scwanne call. we had alcoa. as we said, we always say it s the first one and we re going to get insight into the entire season. we never really do, but what are we expecting for year over year gains from the s&p? we re looking at 37% earnings growth. extremely strong. off low levels? off low levels, right. but if you look at it from when the earnings peaked in the second quarter of 2007, when the s&p earned $24 a share, right now we re at $22 a share. we re almost getting to those 2007 levels, which is very encouraging. so at the company level, we re doing very well. obviously, there s a lot of macro risks and still some instability in some of the regions that are very alarming. but at the company level, we re doing very well. what about revenue? two very encouraging signs. another encouraging sign is the positive and negative preannouncement ratios. we re almost one to one. so a couple of very encouraging signs. how come that doesn t translate into companies feeling more xvt confident and, really, agreeing to hire more people and bring them back to work? i think there is still that macro risk out there. cost cutting has been has done extremely well, even in this challenging environment. they re seeing top line demand, like i said, was at 10%. but i still think for them to fully get into that deep water, they re still going to have to see some better macroeconomic things come out. so this week, did you clean anything out of alcoa? alcoa was you know, it s never been a stellar earnings performer. you mean you didn t say in recent years. you just said it s never been. no, no. it s never really lived up to expectations? i never really looked at alcoa as a company that, you know, oh, wow, this is going to tell us what s going on with earnings. it so tell us something, though. the ceo said we re seeing better signs coming out of the u.s. market which is extremely encouraging. it still has a lot of issues. it s not a company that translates really to the broader economy. intel is important. i think the financial earnings are extremely important. the financials have passed now for a while. stocks are going to run up. it s going to be a show-me quarter for financials. their nebs are cleaner, loan provisions are a lot lower. financial earnings and jpmorgan kicks it off on wednesday. are there some at 50 and some at 10:00? it s mainly financials materials. there s no negative, i m sorry. we don t have a negative group in the s&p. like i said, we haven t seen that for four years. what s the worst performer? financials. oh, utilities and telecoms. and they re single digits? no. i think telecom is zero and the utility is like 2%. we had someone yesterday, i can t remember who, that was saying that the advances could become tempered because margins will no longer be expanding because of higher commodities. right now, i think for the s&p as a whole, i think we re looking at maybe 22% margins. so we ve still got a way to go in terms of getting back to the margin levels that we saw in 2007. that was more like around 28%, 29%. i think we have a while to go before we get to that. but there are headwinds with material prices and commodities. absolutely. i think we re starting another commodity bubble, to be honest with you. oil prices, have they gotten ahead of themselves? probably. so that commodity risk is always out there. but you know, i think it s going to be, you know, there s going to be an off balance between the higher commodity prices than what companies are seeing. no wage gas prices, i noticed. they re up. up a lot. no wage pressure in any of the margin? no. like i said, the numbers look pretty good. if you re looking from an earnings quality perspective, as well, the numbers look a lot cleaner. like i said, does it translate into equity market performance? we ll ee. people might sell on this earnings season. i don t think it s at all out of the ordinary to see people sell on the earning he season and see what happens. companies and their outlook have to show a lot more confidence. right. ashwani, quickly, the higher oil prices and this potential commodity bubble that you re seeing, does that net net if you re looking at the entire s&p 500 average out because the oil companies and all the commodities companies do better? absolutely. so you re not necessarily going to see it in the broad scope? you re not going to see it in the broad scope. consumer companies will get hurt? absolutely. trpgz transportation companies. like i said, it will be offset by the exxon mobils of the world. they re going to post the largest profits. it s changing your portfolio to match up the sectors? absolutely. ashwani, thank you. see you next quarter or sooner. absolutely. still coming up this morning, consumer reports are out with a shocking new warning on toyota lexus. you ll want to hear this. so still around. kevin ferry has the story from the futures pits. stay right here. welcome back, wieveryone. it s being reported that toyota s lexus gx 460 suv is a safety risk. consumer reports says they re urging consumers not to buy this suv until rollover risks have been resolved. you to toy is responding that it s concerned with the reports and that its engineers condition duct similar tests. it promises to try and duply indicate the tests to see if steps should be taken. you didn t say anything about accelerators sticking, did you? no. this is a completely different problem. do they typically buy a car? no. it s a rare thing. there have been other suvs that have had problems. rollover risks? yes. that s what people worry about. they re so top heavy. anyway, we ll have more from phil coming up at the top of the hour. right now, let s talk about the trading day ahead. kevin ferry is standing by at the cme group. kevin, we ve pushed above 11,000, just barely, but what s happening in the pits right now? good morning, becky. so there s a ton going on and i think it s going to be an interesting day and an interesting week, too. the main thing, driver, in people s equity markets has been improvement in the credit markets, obviously, over the past nine months. but going into earnings season, i think you ll see that start to mirror imagine and credit market trader res going to be watching the oscillations of the stock market for their cues. so keep an eye on that. even a little bit of a giggle yesterday and quite a bit of quality came into the treasury markets. so you re going to see money go back and forth quite quickly. and it s not just greece. i think that you have a situation that your other guest was just pointing to, that there s massive amounts of deflationary risk in the system, but people s investment theme has been inflation. so i think it s going to be a choppy and very exciting rest of the week. what are the most important things that you think you re watching there week? is it what s happening in washington? because there are a lot of meetings that are there. is it the earnings reports themselves that are capturing your attention? or is it something of these economic numbers? great question. it would be excellent if we could keep the focus directly on earnings and what companies are talking about going forward. but i think these other things are going to see big, big plays. and put in context what they re doing with wamu and what you re hearing about lehman brothers still in these investigations with what greenspan said last week. he said, we were under enormous pressure to lend to housing. now, he didn t say who was applying that pressure, but it did show that the fed was he still feels that the fed was under a lot of pressure to do these things or find ways for the street to do them. and i think that s going to continue to be an overhang in the market. the other thing will be the john lawsuit of fed speakers that start the rest of the week. the market would like to see some speculation, especially in the short end of the market. especially statements from the fed about where they want to go and how they want to wind down things from an execution standpoint instead of an academic standpoint. kevin, thanks very much. have a great day. okay. coming up, don t mess with texas. from hats to oil rigs, it s a state known for going big, bigger and biggest. and now a steakhouse bearing its name has something new up its sleep. the ceo of texas roadhouse, next. take care of your engine and it ll go far. one way i can take care of my engine? one a day men s a complete multivitamin for my overall health. plus now it supports my heart health and helps maintain healthy blood pressure. [ engine revs ] whoa. [ man ] kinda makes your heart race, huh? tough economic times not slowing down the expansion of restaurant chain texas roadhouse. the company s ceo joins us now. good morning. good morning, sir. you re going international? we are working on that, yes, sir. that s the idea today for coming on to talk about that. it s been something that we ve been looking at as the next stage of our development. where we are in the united states right now, we have a lot of runway to go but felt like it will take us a few years to really understand the international markets as the next phase for us. i haven t been to one. your market cap is about a billion dollars. $15 stock up from $9. that s near a high. how many in the united states, 300 plus? 337 restaurants in 46 states. not like mortens. you wouldn t find one in manhattan? you won t find one in manhattan. we re different from mortens. you can come to texas roadhouse and our average check is $14.75. is it like some of the old po po pondrosas of old? not at all. we do everything in house. we cut our meat daily. we have a meat display case. i like to tell people in manhattan that you can come to texas roadhouse and get all of the bread and peanuts and six ounce aged steak with caesar salad and baked potato and a budweiser beer for 14 bucks. where are the peanuts? they are on the tables. where is your most concentration in the united states right now is? texas. we have 50 restaurants in texas. do you think you ll have one maybe not in manhattan but near large urban areas and is that a place where you want more expansion in the snunited states? yes. we ll come around places like manhattan or chicago or urban markets. our closest one in manhattan is on long island. we ll expand on long island because we re having good success there. to expand internationally, everybody knows texas i guess. why does this makes sense versus just penetrating domestically all of the places you would like to be? we ll continue to penetrate the united states. we ll get up to 800 restaurants in the u.s. we ve said that since we have gone public. international is really the next phase. we have to look out five years and say at that point we re going to be more mature as an organization and we could take this brand internationally is the next phase. where internationally? not paris, right? we ve done a lot of homework in terms of where would we be accepted and we ve come down to asia, the middle east and mexico. maybe not india. no. actually, the indian market eventually could be good. even with all of the beef? uh-huh. is it mostly steaks. ribs? about half of our entrees are rib meat. all right. we appreciate your time today. interesting. txrh is the symbol. you have one down near skyline. thanks for coming in today. when we return, we ll have more of this morning s top story and calming midwestern voice of reason stopping by. more with jim paulson. good morning. the dow breaking through 11,000. the s&p just shy of 1,200. the vix at a nearly three-year low. we break down the market moves with guest host jim paulson. breaking news on the state of small business. the nfib releasing the latest read on small business sentiment. we have numbers and instant reaction from a special panel coming your way. carrying the next economic boom. are the rails on track for profits? why the nation s rail companies can carry your foportfolio as t second hour of squawk begins right now. break on through to the other side good morning. good morning. good morning. welcome back to squawk box here on cnbc i m joe kernen along with becky quick. carl is on assignment. we had texas roadhouse on. willie nelson is a big texas roadhouse supporter. you put these in front of us and we re going to try them on. we do have some important guests coming up so we will take them off. now i sort of understand willie we know what willie likes to do. you eat a lot more food at texas roadhouse if you are wasted, right, jim? dessert definitely. it s more fun since i was here last. what s happening is sweeping the country. they call themselves care givers. the futurers this morning indicate lower after we went over 11,000 yesterday. down about 24, 25 points. the s&p did not hit 1,200. the dow was the first finish above 11,000 since september of 08. alcoa kicked off earnings season. the s&p just short of 1,200. more on the markets in just a minute. we have paulson talking about 11,000 for a while. first, becky has a look at this morning s headlines. tim geithner says that the country is at a defining moment for financial reform. he has an op-ed piece where he urge lawmakers to toughen bank rules to avoid another economic crisis. the treasury secretary says reforms would protect against too big to fail and it would bring derivatives market out of the dark. the american people have suffered through too much to enact reform that does too little. the president will hold meetings tomorrow. we ll be live in washington reporting on the latest. and alcoa as joe mentioned kicking off earnings season after the close last night. the aluminum producer reporting first quarter earnings of ten cents a share when you strip out items. that was in line with analysts expectations. revenue fell short of consensus. you see the stock pulling back. the bid/ask is below where it closed yesterday at 14.57. starbucks sees potential for thousand of stores in china. the store has 700 locations there and looking to expand in india and vietnam and getting ready to launch ice versions in america. you can see the restaurant has sharply outperformed. consumer reports issued a rollover risk warnings on toyota s 2010 lexus gx 460 and urging buyers to stop buying that vehicle. phil lebeau will join us on the phone with more. how significant is this and how often does consumer reports put out a don t buy warning? this is highly, highly unusual. consumer reports has not put out a don t buy warning since 2001. back then it was the mitsubishi montero. what s involved with this warning is consumer reports looking at the results of potential side rollover crash tests at the consumer reports facility in connecticut. after having four auto engineers look at those results, they have come to the conclusion that in real world conditions there s a potential for the gx-460 to flip over before the electronic stability control kicks in. toyota is quick to point out, we meet all federal safety guidelines. we want to look at the result from the reports and then based on that we ll see if we need to make any modifications to the gx 460. it is worth pointing out this is a low volume vehicle. only 5,000 have been sold. we re not talking about a warning not to buy the camry or the corolla. we are, however, talking about a huge pr hit when you have consumer reports issuing a don t buy warning on any vehicle at all. this really goes against what toyota is trying to do right now which is to say to consumers our vehicles are as safe as possible. they said out of 95 suvs they tested, this particular lexus suv came at the very worst case scenario. that again is maybe not something by itself. somebody has to come in last place. they haven t done this since 2001 with the mitsubishi car? with the montero. what happened after that? it wasn t a huge volume vehicle. shortly after that back in 2001 is when the automakers took addition of electronic stability control to a level where they realized this has to be in every vehicle. it is in the gx 460 and that s what makes this so unusual, becky. they have it in there and they believe that the vehicle is safe. they stress that it passes all federal safety guidelines and yet you have consumer reports coming out saying we ve tested this. according to our tests, it doesn t hold up and won t hold up in real world conditions. the last time this happened with the montero, didn t it get canceled after consumer reports came out with that? it wasn t immediately afterwards but it wasn t long before it was. it wasn t like the next day where they said we ll stop building the montero. this is a huge hit for any vehicle when you have consumer reports coming out saying stay clear of this car or truck or suv. look at that picture of phil. do you have a monitor there, phil. i don t. man. he s a good looking man. we have to update these things a little bit, right? you re not dying your hair are you, jet black? is that my high school graduation picture there? honestly, i think it is. wow. that s network ready right there. no doubt about it. any way, you are too sexy for your clothes, phil. thank you for your report, my friend, and putting it in perspective. this went on sale three months ago. it s a very unusual step from consumer reports. all right. we have two other really handsome people to turn to now. dow 11,000, earnings season is in full swing. i called you scruffy last time. are you all right? we have jim paulson who will be with us for two hours from wells capital management and we have ed here as well. we re going to talk to paulson who most of our viewers know where you have stood in 11,000 not a huge surprise to you. i would venture to say you don t think we re on the precipice of i ll get to you in a second. where do you stand on where we are? we ve come a long way? we re getting less nervous. some may say more complacent. we re higher but you re less nervous? we could be on the beginning of a powerful economic cycle which will carry profits to higher levels and i think the stock market with it. that s something the last leg of what you said is when the disbelief about the economic recovery becomes less prevalent. are we entering that? i don t think we re quite to the point where that s what this is about. this is more about we re debunking that double dip. it s sustainable but we re not to the point yet broadly where people go this is not only sustainable but it s far better than normal. we re not there. it s perfect because the group of academics are still not ready to say that we re coming out of anything yet. that could extend the rally. the fed just two weeks ago said they thought the recovery was fragile. we still have a ways to go. that was bernanke himself that said that. just last week you had the front page of the new york times and larry kudlow on the same day the economy is much better than people think and that we just haven t quite gotten used to the reality from the data that we re seeing on retail sales and unemployment from household survey, on ism and they are starting to show a v-shaped recovery. you are trying to show that there are times when larry and the new york times can say something similar. that may be the first time that happened. i m not sure what that implies. that s a major event in and of itself. your stages. it went from thinking the possibility of a double dip to won t be a double dip but it will be a new normal and tepid for years and years to where you think this is going to be a garden variety recovery? a strong i think it will end up being normal. maybe even a little better than normal when we re done. could be better than normal? i think we could have a better if normal is the last two recoveries, i think it will turn out better than normal. why would that be considering how bad it was? a couple things. it s not necessarily the composition of growth going forward will be what it was in the past we may have less consumer and more trade this time. different composition but the net result may be just as good or better as in the past and i also think that we ve just developed such a culture here of worrying more about the downside and when you do that all players behave in a way that promote upside opposed to the other way around. think of the beginning of 2008. very few people saw how bad it would get and the worst recession since the 30s. now we re on the other side. and you have a lot of idle resources that can be put back to work cheaply. cycles can be much more powerful than you think they are both on the downside and on the upside and it looks to me like this is starting to show concrete evidence that we ll have more powerful cycle than we ve been thinking. consensus is 3% growth this year after a recession we ve had, you would ordinarily expect growth more like 7% or 8%. we won t necessarily get there because we re going through a financial crisis or tail end of it but i think you could see what s more likely 6% double consensus or double dip, 6% is more likely. do you think that as we see rates back up, i always make the point that in the 80s and 90s if we got down to 6% on a long bond, it would be so friendly for business that we were going to ignite a huge rally. so can we move back up through 4, 4.5, 5 and that won t be enough? you think of the old fed model. i would say pe should be 25 right now and they re only about 15. because of where rates are. that s right. you can take a higher rate. if you look it at the work we did over the years, it says that if the fed starts to tighten, conventional wisdom is that s bad for the market. our work suggests it s only bad in the fed fails to stop inflation. as we take a higher rate here over the next year or two, as long as we can keep inflation contained, with unit labor cost plunging and idle resources, it s hard to see inflation over 2% or so. do you think the current administration and the government component of this because we know taxes will get higher and the certain people on the far right would say we re moving toward a euro style socialism, will the market and the economy respond to that or will things be okay in spite of that? i think the next couple years will turn out to be pretty good. i think also an opportunity for the country to deal with some of its longer term problems of debt and entitlements. we are looking at bigger problems in the second half of this decade. but over the next couple years, i think we ll have surprisingly good growth and i hope we use that opportunity to deal with some of the big problems. ed is leaving. you ll be here to impress some of this stuff. if you have comments out there, questions about anything you see here on squawk, see whether i missed my hair up with that willie nelson thing. you did a little. up here. that s nice. thank you, sis. e-mail us at squawk@cnbc.com. how small business is faring in the economic recovery. we re calling it a recovery. the national federation of independent businesses out with its latest sentiment survey. the numbers and reaction at 7:30 eastern. stay with us. announcer: coming up, building trust in confidence in the financial system. securities industry and financial markets association chair-elect and rbc capital market ceo john taft joins us to discuss. that s next on squawk box. aflac is not more benefits at greater cost to your company insurance. aflac is not how do i fit it in my company s budget insurance. aflac is help protect and care for your employees at no cost to your company insurance. with aflac, your employees pay only for the coverage they want or need. and, the cost to you - nothing at all. if all you know about us is. duck: aflac! .then you don t know quack. to find out why more businesses provide aflac, visit getquack.com. so, at national, i go right past the counter. and you get to choose any car in the aisle. choose any car? you cannot be serious! okay. seriously, you choose. go national. go like a pro. welcome back, everybody. let s get wall street perspective on the proposed reform in washington. we have john taft. he s the chairman-elect of the securities industry and financial markets association for the year 2010. mr. taft, thank you very much for joining us this morning. you re welcome. calming midwestern voice of reason i was hoping you were talking about me. we have two of them here today. our guest host jim paulsen is from minneapolis joining us on set it this morning, too. john, there s a lot of talk about what s been going on with financial regulation. i know you say you are in favor of financial regulation but where do you differ from what the administration is proposing and what you have seen in congress? well, we ve been working for at least a year now with the administration with both chambers of congress fully supportive of regulatory reform. we don t want to go through the kind of crisis we experienced in 2008 and 2009 again and we recognize that reform is important to restoring public trust and confidence. the issue is that you have to strike a balance between on one hand updating rules and laws that were written in some cases at the beginning of the last century and tightening the rules under which financial institutions are operating and on the other hand not impeding the efficient operations of the financial market which is important to economic growth. it s a balancing act. we ve been working hard striking that balancing act is a very difficult task. what i m trying to figure out is very specifically where you think is going a step too far? do you think the volcker rule is acceptable? we ve had a couple successes and we ve got a couple challenges. the volcker rule falls into the challenge category. the trading was not a cause or even a contributor to the financial crisis. other governments have announced that they don t support the kind of splitting apart of financial institutions that the volcker rule would impose on u.s. institutions. so if the volcker rule passes and we oppose it, what will end up happening is you ll disadvantage the competitiveness of u.s. institutions to solve a problem that doesn t exist. obviously you re right. this was not part of the problem from the last financial crisis. you can understand this idea that bank shouldn t be allowed to get subsidized or free money that they borrow from the u.s. government and then turn around and use that to make a profit and there needs to be separation of these pools of money that you are give been to make sure have a strong business and avoiding risky wagers. on the other hand, it s walled off in most financial institutions from client facing businesses and again it s not a problem that we need to address. not a problem that we need to address. you can say money is walled off and i understand that argument. the argument in favor of the volcker rule is money moves around and it goes forever. can you say without a doubt there s a wall that comes down and there s a separation. i understand that s difficult to put this back now that it s been put in play. i understand your argument from the competitive side. the argument you get back from the administration and from main street is that it is unfair situation. yeah. again, i think that the volcker rule is a solution looking for a problem. the thing that you need to recognize is that investigators already have going into the financial crisis the tools to deal with things like proprietary training and risks they present and that s number one to require levels of capital underneath the different activities of financial institutions appropriate to the risk being taken. that s one thing that they could have done and didn t do going into the crisis but can in the future. the second is to impose leverage limitations. could have done. can do in the future. both of those would address the kind of systemic issues we have more effectively than a volcker rule without compromising the competitiveness of u.s. institutions in my opinion in the opinion of the industry. let s talk about areas where you may agree with the administration and what it s proposing. you do agree that too big to fail is a problem and something needs to be done about that. we do actually. that s one area where there s been a constructive dialogue with the industry trade association, both houses of congress and the administration. there were serious concerns. agreement in principle with what the outcome was which we never again want to have situations where institutions are too big to fail but real concern that the mechanics and the proposed solution were going to really create problems with the ability of financial institutions to enter into and honor contracts. over the course of the last year there s been a lot of dialogue and i think we re now in a place where resolution authority in the house and as proposed in the senate would work. another example where there s been a good deal of good dialogue and where the outcome is going to be pretty exciting for consumers is in the whole area of establishing a standard of care for investment professionals who provide personalized investment advice. those were two areas where a lot of work has been done to make sure that the result of regulatory reform helps rather than hurts the economy and the financial system. john we would love to have you on if you are out in new york and we would love to have you out here to talk more about this. this issue will continue to come out. thank you for joining us. you re the great grandson of president taft. i am. from ohio? from ohio. never lived there. my father was a nuclear physicist. i dodged the political legacy and perils thereof. wow. out of the frying pan into the fire with everything that we re dealing with right now. john, we would love to have you on set. thank you for joining us today. big name in ohio. taft high school. a lot of tafts all over the place. like paulsen. coming up, senate committee says that washington mutual infected the secondary mortgage market with billions in bad loans and other things maybe. now executives of the defunct company are set to testify on the hill today. a preview of the hearings and the findings of a year and a half long investigation by the senate next. more squawk after this. (announcer) we re in the energy business. but we re also in the showing-kids- new-worlds business. and the startup-capital- for-barbers business. and the this-won t- hurt-a-bit business. because we don t just work here. we live here. these are our families. and our neighbors. and by changing lives we re in more than the energy business we re in the human energy business. chevron. a year and a half investigation says the road to washington mutual s failure was paved by top executives who did little to stop fraudulent practices at the thrift. mary thompson joins us. if you want to get a client s loan approved quickly, makeup documents. feed the appetite for subprime loans, buy bad ones and resell them under a management team that does little about these shoddy practices. these are findings from the senate s subcommittee on investigations about washington mutual s mortgage lending. the failed thrift built a con vary belt that dumped toxic assets into the financial system like a polluter dumping poison into a river. the subcommittee said they generated poison through subprime lender long beach. a 2004 memo from fdic found 70% of the mortgages it bought and resold were either unsaleable or lacked information about the buyer. employees cut in pays bank statements from current arguments to create new files for borrowers as employees were paid on loan volume rather than quality. in one california office, loans were so defective they alerted the california insurance regulators of the problems. wamu started growing in 2003 and did so in pursuit of big profits generated by selling subprime loans to wall street firms which they repackaged and sold to yield hungry investors. wamu is only being used as a case study and there were other big subprime lenders. any questions of the criminality will be left to the justice department. the subcommittee will hold the first of four hearings on subprime securitization s role in the financial crisis that start today. wamu s former ceo will testify this afternoon. the architect of wamu s subprime spree, killinger earned millions. the banking operations sold to jpmorgan for 1.9 million in one many consider the steal of the financial crisis. interesting. he was classic. that hundred million and then one year his pay was based on some type of formula and he wanted to exclude the write-downse write-downs. that was in 2008. the board made a change to executive compensation and said we re going to take down they won t be exposed to subprime losses considering their compensation. because it wouldn t have been in there. shareholders voted to remove him from the role of chairman that april. they were so angry about this. this followed a couple wamu could do no wrong. such a high flier. this is only a case study again. i love that aig went in and said, whoa, we have problems with some of your business practices here. we think there may be too much risk here. aig thought there was too much risk at wamu. that s incredible. 500 some odd documents will republic lea be released today. can i say if they want more go, to cnbc.com. not that i m trying to promote anything here. okay. there are e-mails and things from the subcommittees findings they may want to look at. are you tweeting? i m not tweeting yet. breaking news, nfib index of small business optimism losing 1.2 points falling to 86.8. let s get to steve liesman who has a little more on the survey. we have the chief economists for nfib. this was a bad report all around. we re not seeing any improvement in the small business sector of the economy as judged by the national federation of independent business whose small business optimism survey has no optimism in it at all. let s bring in the chief economists of the nfib. bill, what s going on here? a lot of economists are scratching their head over this survey. it seems at odds with other data. what s your take? it does indeed, steve. we see that retail sales are supposed to go up. a lot of that is coming in the manufacturer sector. that s not a small business sector for the most part. the inventory build dominates the good news on gdp. we re making cars instead of selling out of inventory and so on. it s clear that they should at least be somewhat encouraged by the news on the economy. we ve had growth now for three quarters and of course interest rates are low and inflation is low and so there are a lot of reasons why they ought to be more optimistic so something is scaring them about the future. hiriing is about the future. they re not willing to commit yet. there wasn t much of it with optimism in the survey. the first thing as we reported friday, just everybody knows, we get to report the nfib employment component on the friday of employment friday so that went to zero. there s no net changes. not negative anymore. there was optimism about the future. other than that what was it? eight of nine or nine of ten components were negative. nine of the ten were either unchanged or negative. only one gained a point or so. you know, you are talking about is now a good time to expand? no. do you expect the economy to be better six months from now than it is today? no. none of those things are looking good. no capital spending plans. they went down a bit. they re sitting tight waiting for some good news from somewhere. what does the survey tell us about what it will take? obviously we don t care if they re optimistic or not. we want them to hire and spend money on capital goods. what s your survey tell us about what it will take to ignite the small business sector of this me economy? it will take customers spending money and that s not happening on main street. we might see it in the big chain stores and some but it s not filtered down to the service sector. that s barely starting to move now. that s a big part of the small business community. construction is in the tank. it s still showing some gain now finally. it s just across the board blah. ing in to be excited about. what about politics? is there an issue of the uncertainty? is health care reform do you feel like that s an issue? do you feel like the economic changes being implemented by the obama administration are weighing on small business? i think there s no question about it. i think since we can kind of eliminate bad news about the economy as the source of their uncertainty and their concern and a lot of it has to be coming from washington and the state level. all they hear about is higher taxes, fines, penalties, they aren t hearing anything that will make them happy about the next 12 months and so they re scared. uncertainty is a big enemy of making commitments to hire or expand your business. uncertainty is still huge. we got rid of some of it by passing the health care bill but we aren t sure even what that means for small businesses yet. bill, this is jim paulsen. i m curious when you look back at the history of this survey, is this typically a bit of a lagger survey compared to others or is this really an outlie? we re finished up three quarters of gdp growth has that ever happened when we haven t had a significant boost in confidence after that much growth? jim, that s a good observation. we usually lead optimism that clues us into declines and improvement. if you look at the bottom in 1982, 47% net of the pessimists thought the economy would get better over the next six months and now we re looking at negative numbers. 50 points worse even though the economy has already started to move. i just want to add quickly. you have to be an optimist to open a small business. the genetic makeup of most small business owners is optimistic saying a lot about the economy on the ground and main street that these guys have not yet turned the corner. i ve been optimistic on the economy but it s hard to keep that going if this survey doesn t turn around. we need our half to help along the economy. no question. i m not going to take this down a partisan road is it because of uncertainty with washington and you did it. you have to ask it, joe. i was shocked. thank you. i m right down the middle. that s the thing we share. we re both we ll have to figure it out some day. right down the middle of the left lane and right lane of the highway. in our own brains. exactly. thanks. thank you. i thought we knew about health care now and we ve resolved health care. that should have helped. i don t get it. is bill still there or is he gone? i think he s gone. we ll have him back. there he is. bill, we know health care. it s done. no uncertainty left. i thought it would help small business owner. it certainly does. we know what the bad thing looks like but implementation is not clear. it s not clear how long firms will be exempted. if you re small, we ll exempt you but they need revenue badly so we know that game. we went through that game in 93. we ll exempt you today but tomorrow you re in. we see the whole thing as being another big tax program that will raise the cost of hiring and hurt my bottom line so i m not moving until i see how this plays out. where are exchanges? how will this work? we just don t know. bill, thanks a lot. steve, thank you. still to come, governor chris christie of new jersey and some consider them the backbone of the economy but should the rails be in your portfolio? we ll ask that question at csx is first of the major rails to report earnings after the closing bell. boss:hey, glad i caught you. i was on my way to present ideas about all the discounts we re offering. i ve got some catchphrases that ll make these savings even more memorable. gecko: all right. gecko: good driver discounts. now that s the stuff.? boss: how bout this? gecko: .they re the bee s knees? boss: or this? gecko: sir, how bout just fifteen minutes could save you fifteen percent or more on car insurance. boss: ha, yeah, good luck with that catching on! anncr: geico. fifteen minutes could save you fifteen percent or more on car insurance. still to come this morning, csx is the first of the big rail companies to report earn things this afternoon. and stocks to watch as we countdown to stock of the day and at the top of the hour, chris christie taking the hard line when it comes to getting rid of huge budget shortfalls. he ll be our guest. stick around. squawk will be right back. announcer: tomorrow on squawk box, becky quick heads to capitol hill to catch up with legendary oil investor p. boone pickens and the latest t.a.r.p. report from oversight panel chair elizabeth ward. earnings from jpmorgan and inflation data that could move markets. that s tomorrow on squawk box starting at 6:00 a.m. eastern. futures down 26 points or so. this has nothing to do with the futures. but talk show host conan o brien has chosen pbs as his new home for late night. kind of an interesting way to phrase it. he chose tbs. i m not sure he had an opportunity at fox. we re not sure how everything went down. the show is expected to debut in november and has yet to be titled. the new program will air monday through thursday at 11:00 p.m. eastern. the show will originate from l.a. and i thought it was george lopez moving back an hour. he s on at 11:00 now moving back to 12:00. i thought he would be miffed but according to reports he called conan and said come to tbs and i can t think of a better lead in for my show at 12:00. i thought that was classy of george. conan not going to comedy central. people thought he might. 10 million a year which is less than obviously he was making for the tonight show. he s only working four days a week. you re up near paulsen. meanwhile, leno, you got to he s way ahead of letterman and maintained it in the demo and in viewers. he appeals to people in your neck of the woods and not just the malibu/manhattan contingent. we have both types. i know. we have you here. we understand that. let s talk about earnings and what s to be expected this earnings season. the major railroad stocks on a rally over the last month as we get set for csx to report quarterly numbers this afternoon. joining us now is jason. you are optimistic about what s happening at the rails. we re seen a rebound whether rail or trucking. it s been picking up. as i talk to contacts in the transportation industry, the word we get is we don t know what it is but something is percolating even with coal being negative which is 20% plus of what they do. is this industry having a better turn, retailers ordering more, maybe more commodities are being shipped as cross the board? i think what you re seeing right now is you re seeing a pickup in the movement of goods between truck and rail as well as chemicals and automotives. you see industrial manufacturing sector pick up on the rails. we re starting from a slow base but we are seeing pickups in individual commodities. does this have anything to do with the fact that this recovery so far trade has been a huge s positive contributor. has that brought in more of that activity into the rails? definitely. you see it whether it is coming from long beach or down through mexico we re seeing strong numbers and that s up 40 plus percent. we re really seeing a nice pickup in the group. we ve had it this running debate about where the economy stands and whether we re likely to head back into a double dip and whether this is for real and maybe stronger than a lot of people expected and based on the universe you follow, where would you put that call? i always tell people, look, if you re going to go in a down turn or head to an upturn, my group is going to see it because we haul pretty much everything. we do a survey of all railroad shippers and we just published it yesterday and one question we ask is what do you think your own business is going to do over the next 12 months? we got 9% increase on average from this group. this is the highest we ve seen in a long, long time. it s been steadily increasing on a quarterly basis but the highest number we have seen. something interest is this is the first time i asked them an employment question. i said what s your employment going to be? will it be flat, down or up? 53% said flat. 10% said down. 37% said they will hire. i was encouraged by that. among this group you like norfolk southern better than the rest? they re one of my favorites out there probably the best run u.s. railroad right now. best run in general is in canada. they re doing a lot of projects that are multiyear but they have the project that will finish in june allowing them to double stack from the east coast to chicago. immediately we ll have sort of a productivity kicker in 2010. what about csx? we expect those numbers after the bell tonight. you always keep focusing on pricing in the rail industry and they maintained it during the downturn. i think you ll see it in 2010. probably about the 4% range. that s important. also, csx will talk about coal because that s what hit them last time. the focus isn t going to be as much on utility coal which is negative as it is on the export market which will be very positive note for them on earnings call. there could be a surprise? i think so. we look for 72 cents. we re slightly ahead of the street. we picked up rail numbers mid march for most of the u.s. railroads and we re positive on the group right now. any in that group you would stay away from? right now i think if you look at the group, it s on a pretty good run. the ones we have holds on are ksu and canadian pacific but more valuation call. they have run too far. absolutely. thank you, jason, for coming in today tune into squawk box on wednesday morning when we ll have first interview with csx chairman and ceo michael ward. still to come, new jersey governor chris christie in a heated battle with teachers over tax cuts and pay freezes. he ll be our guest at the top of the hour. stay right here. announcer: stick with us on squawk box. we have the premarket info you need before you make your trades. stocks to watch are coming up next. on the road again just can t wait to get on the road again life i love is making music with my friends i can t wait to get on the road again we had these on earlier. willie nelson. it looked like this. i had it on. so that s why we are late with on the road again but better late than never. 7:53 in the morning. paulsen can t wait until after noon. you want to wash it down with a beer chaser. stocks to watch. alcoa reported ten cents in line with revenue below. maybe that s why ubs is cutting its rating to neutral from buy. if you really read closely some of the articles in the journal or the new york times, you could find some positive things that the ceo said. about the economy, too. he said a little bit better in the united states. he said supply/demand dynamic is closer to tight supply. you are talking about missing revenue line at a time when aluminum prices skyrocket. you think about manufacturing and isms are soaring and we heard rails are doing great. what is it that alcoa is not picking up? conoco phillips is upgraded. target price is 70. it is citing valuation and asset sales. he was on cnbc two weeks ago. he hasn t come on this show because of the seinfeld thing. could be. he s a ge board member. any way, harley davidson downgraded hold from buy. means less in the east, too. seems to. valuation side i think brian will back me up. target price 33.50. expedia upgraded. target is 31. maybe not you. priceline downgraded to neutral from buy. how about some cheesecake? i might have that. downgraded, removed from the conviction buy list at goldman sachs. target increased to 31. rating remains buy but they did move it from conviction buy list. big portions. huge portions. cheesecake factory? yes. we have two running dialogues here. you have to pay close attention to get ahold of the second dialogue. we don t necessarily want people to understand the ge/comcast do we? any way, coming up, taxing america. is there a secret plan to try to reduce the deficit? plus, he s making the tough decisions to close the budget gap in the garden state. governor chris christie will tell us about battles and big changes in new jersey. squawk box will be right back. getting back over 11,000. something the dow has not done for 19 months but is dow 12,000 now a realistic target or will the rally stall? state of pain. new jersey governor chris christie on his crusade to get the garden state growing again. keeping crude ahead of green. there s a whole ocean of oil under our feet. no one can get at it except for me. legendary white cater clayton williams will tell us why he s betting big on black gold. squawk box begins right now. welcome back to squawk box. we are squawk box on cnbc which is first in business worldwide. i m becky quick along with joe kernen. carl is on assignment this week. our guest host is jim paulsen from wells capital management. we have been watching futures. after finally closing above 11,000 yesterday for the first time in 19 months as you can see this morning, futures indicating a slightly lower open right now. those dow future down by 24 points below fair value which would mean we ll open back below 11,000 because this close was just barely there. a lot going on with earnings. dow component alcoa kicking off the earnings season as it always does after the close last night. the aluminum producer reported first quarter net of 10 cents a share excludeing items in line with expectations with revenue with short consensus. the company benefited from higher prices of aluminum and did suggest that markets are improving but the company ceo revealed that alcoa lost a major beverage can customer. the price target was cut as well on alcoa. the market also paying attention to what s happening in greece. athens is testing international markets appetite for debt with a new treasury bill being issued today. the results are now in. the country sold $1.63 billion of 52 and 26 t-bills. greece paid a high yield days after the euro zone finance ministers approved an aid package for the debt strapped country. twitter unveiling its ad model today. the so-called promoted tweets are ordinary tweets that businesses and organizations want to highlight to a wider group of users. the first advertisers are best buy, virgin america and starbucks. consumer reports issued a rollover risk warning on toyota s 2010 lexus gx 460. the magazine says that it uncovered the problem during routine tests. they are urging shoppers not to buy the vehicle until the problem has been resolved. it s a very unusual step for consumer reports. the magazine says it is aware of reports of injuries back it up a second. it is not aware of any injuries or deaths caused by the problem. this was an isolated occurrence, it did occur during four different tests. the company tested 95 different vehicles. this one came out at the bottom of the list. toyota saying that it promises to try to duplicate the consumer report test to figure out if appropriate steps need to be taken. the state of new jersey one of many facing a budget crisis and the budget brawls over where to cut just beginning here. with more, new jersey governor chris christie. govern, governor. good morning, joe. good morning, becky. how are you? we re good. any a they are calling you ronald reagan in the wall street journal. it was a good piece. it goes over a lot of the things that you re up against. number one, i guess we shouldn t be surprised when union officials says he wishes you were dead, right? what s going on with that situation? this is just beyond the pale. i met with the head the state teachers union yesterday. i said you want to apologize, that s fine but walk the walk. that person should be fired. if a member of my staff had sent an e-mail like that about the head of the state teachers union, there would have been protest up and down the state house. i expect there not to be a double standard. if they really want to have a constructive dialogue with the governor, then if you have people out there sending out prayers for your death, i think that s not an example to set for kids. remember this, if a child had done that in a school, they would have been suspended at a minimum. there should not be a different standard for the head of these teachers union than for everybody else in civilized society. it shows you what you re up against. total state budget 29 billion and a deficit of 11 billion which you can see the problem there. there is a problem but if you try to cut anything with education, you know you re going to hear you re hurting the children, governor. you re hurting the children. well, listen, that s been an old song that is now just worn out. this is the fact of the matter. the $820 million in cuts to school aid that i proposed in the budget could be completely offset if the teachers union would accept a one-year pay freeze. not a reduction. one-year freeze and would contribute 1.5% of their salary towards their benefits. now, for the average teacher who makes $50,000 a year, that s $750 a year. interesting to note, their union deuce are $730 a year but give the union $130 million a year in revenue. maybe they should forego their dues for a year and get by on what they got last year to help members. how much are health care costs? 1.5% of their salary they re being asked to contribute, how much portion of the health care costs is it? this is full family medical, dental, vision and dental coverage running 18,000 to 22,000 a year. have teachers agreed to come back and work with you to mediate a solution or their stance is this is the sanctity of the contract and you can t take anything away. that s their stance. there has been 11 local teacher unions out of 580 in new jersey who have voluntarily agreed to a freeze but that s only 11 locals out of over 580. do you think part of the problem is the approach that maybe they weren t brought under the wing or just an impossibility and it s the only way to get it done? we ve laid out who to get it done to avoid teacher layoffs and avoid program cuts and they just don t want to hear it. they ve been used to for 20 years getting their way on state street in trenton everything they want. so far just in the last month or so, they spent nearly $2 million on advertising attacking me on tv and radio. this is the way they get their way. they re the bullies of state street. i ll stand up to them because this is a fight that we have to have. the state just keeps getting sicker and sicker as businesses exit and the tax situation makes it almost i m thinking the poconos are nice this time of year. in the last four years, the four years of the corzine administration, $70 billion in wealth left new jersey. now, this is at the same time when over the last eight years, we ve raised taxes and fees 115 times. 70 billion left the state because businesses moved out? $70 billion in wealth left the state of new jersey. because of the broader recession. no. this is not a loss of wealth. this is a departure of wealth. these are businesses and individuals. also in the journal i couldn t help but read this article on colorado springs, which is maybe you need to go run for mayor of colorado springs. i got enough on my hands, joe. four years of this hammering and the money that s going to be spent to make you look like simon will be tough in four years but in colorado springs the people in that city say the proper role of government, paving streets, paying police and firefighters and if there s anything left over, maybe parks. that s all they voted for. when you have so many entilements over the years, you can t pull them away. we re asking a constitutional 2.5% cap on property tax increases in new jersey. if we get that in the voters hands, i believe they ll pass it. then the only way for a municipality or school board to raise taxes above 2.5% would be a referendum from the voters. that s the kind of thing we need to do to get it out of the hands of politicians. you are running a risk, governor. if the 2.5% cap doesn t pass, you could talk about a lot of citizens in the state of new jersey that will pay much higher taxes as a whole when you count property taxes because the local municipalities will raise taxes at that level to cover the shortfall they don t get from the state. if local municipalities do that, they should vote them out of office. that s a real risk. i don t think so. they understand at the school board and local level we will not tolerate new jersey higher taxes. i ll tell you something else, what we ve done at the municipal level is to say there s a 4% statutory cap right now. if you try to raise tax above that cap for every million dollars you raise taxes above that cap, we ll take $1 million in state aid away from you. we won t permit people to put this on the backs of local property taxpayers. we ll try to fix it with a constitutional cap and if we can t, we ll use the tools of the governorship and voters will say we re not going take it. they re in that mood right now. governor, this is like a metaphor for you can go get all of the way down to a little borough in some far away place and go all of the way up to washington to congress with what we re dealing with. do you think that your efforts do you think this will actually fly on a nationwide basis? i can t worry about a nationwide basis, joe. what i can say this is what the state of the people of new jersey elected me to do. i made it clear last november lower spending small, government and lower taxes. my opponent made the opposite argument and i won in an election that turned out not to be close. so i m going keep faith with the people who voted for me. it doesn t mean it won t be tough and nobody likes these cuts. i don t like these cuts. in the end of the day we have to do it. if we don t do it, we ll be bankrupt as a state. look at it this way, we have seen declining revenues in new jersey every year for the last three years despite the fact that we continue to raise taxes. we know what s going on. people are leaving our state. they can t afford to live here anymore. i think that new jersey because we have that odd off-year election with virginia, we have an opportunity to stand up and be leaders across the country. who can stop you? what can your opponents do to stop you? i have a democratic legislature, joe. i ve got to figure out a way to work with that democratic legislature to get these things passed. i will tell you that especially in the southern part of our state, we have a lot of voters who are fed up. they re conservative democrats. blue collar democrats. they say that we can t afford to pay for this anymore and we don t want to pay for these benefits. most people in new jersey if they have health benefits pay for them. many public employees are paying nothing toward health care and taxpayers are paying the whole tab. those folks are getting upset about it. unhappy about it. rightfully so. i think we ll be able to put together a coalition of folks who know that this is something we need to do know. governor, this is jim paulsen. throwing something out for controversy, what do you worry about when you cut back right now emerging from a recession that you could slow the expansion in your state relative to other states and you may actually enhance flight risk? no. i really don t think that. i think the flight is driven by the high tax rates. we have the highest property tax in america. we have among the highest marginal income tax rate. the second highest sales tax rate. sixth highest corporate tax rate. we are off the page in terms of our taxes in comparison to every other state. our neighbors in pennsylvania have a top income tax rate of 3.07%. our top tax rate is 9%. you cannot compete even in the northeast given what we re doing. new york has a better tax situation now than we do. that never was the case in new jersey. i think the risk of continuing this is much greater than the risk of stopping it and turning it around. that s a lot of money to raise. is it just 90 cents of every dollar seems to fall through the cracks when a government tries to provide services? where is it going? you can t possibly tax enough to cover the it seems like things just don t go to where they re designed to go. there is some of that. there s some fraud, waste and abuse. we re working hard to ferret that out. it s the rate of state spending over the last 20 years that s grown nearly 16% a year. on what? on what? mostly on aid to school districts and municipalities and that s driven by raises like some of the teachers unions are demanding and getting. 4% to 5% a year in an economy with 1% inflation at best and most members of the teachers union paying nothing towards their health benefits. nothing for full medical, dental, and vision coverage from the day they re hired until the day they die. governor, i understand your point entirely and i agree we can t expect to be immune from the economy around us but the sanctity of the contract is also a very strong argument in business. it was one made for the aig employees, too, that the federal government shouldn t be able to come in and slash their contracts. what s the harm in waiting until the contract is up next time around and negotiating for a much tougher bargain? the school districts negotiate one-on-one with the teachers union across the state. so there s not one set point in time when a contract expires. it s not a statewide contract. and we have an $11 billion deficit that we have to deal with with a third of all of our money going to local aid. and so if you don t get at this local problem, becky, you ll never fix the problem. and school spending in new jersey is going up over the last number of years an average of 1$1.2 billion to $1.5 billion a year. 3% student enrollment growth in our public school but 16% increase in the hiring of teachers. we cannot continue on this path. again, i m a product of the public schools of new jersey. i grew up in new jersey. i m a public school graduate from livingston high school. i love the public schools. but the fact of the matter is there s excess there and there s greed there that we simply can t allow to go forward. governor, thank you. we re out of time. we need to check back occasionally because we re moving here toward november. i m just wondering whether there s a lot that needs to be taken care of but the resolve fades and you won here and we had brown in massachusetts but i got paulsen telling me the economy will be so good by november that the left will do just fine in november. well, you know, listen, joe, my resolve will stay the same as it always has been which is i ve got to get my state spending under control so i can lower taxes and attract business back to new jersey. i have a 9.8% unemployment rate above the national average. i need to get people back to work. all right. looking at everything else. i ll let paulsen respond to this. governor, we appreciate your time. thank you very much. i appreciate it. do you care that i outed you on that, you don t care, do you? i just think politically i agree resolve on everything regulatory, at the national level, health care, including tax reductions is going to lessen. what about these looming this is not going to go away. there is a warning about this very problem. coming up, is there a secret plan to reduce the deficit? there s a special look at the taxing of america. steve liesman is going to cover that story for us right after this and we have the economic data point of the day and why a legend of oil drilling is still betting on black gold. squawk box will be right back. while you may pay one rate this year, what s the future look like for taxes? government was out with better numbers at the benefit sit yesterday but does the administration have a plan to keep this nation from becoming greece? senior economic reporter steve liesman joins us with not so secret plan to reduce the deficit. what did i just read? does the administration have a plan for this nation to become greece? to not become greece. okay. i thought maybe they had an actual plan to never mind. to not become greece. good. well, joe, the question is it a secret plan? we call it the not so secret plan because it s out there. we asked the treasury what s your plan for reducing the deficit and it they gave us one. the math is amazingly simple. the politics look to be impossible. the details are really surprising and startling. let s go through and show you what the problem is here. the yellow line debt percentage of gdp will go up and stabilize across here and then debt held by the public is going to surge if we do not stop it and do something now. a huge portion of this debt out there will just be what we re going to pay is just interest on the debt and that comes from where we are right about here right now. and the question is do we go here or can we level it off? here is the goal of the administration in the not so secret plan. cut the deficit to 3% of gdp from 10.6%. you may ask yourself, why 3%? it s the sustainable level. you saw the debt held by public does not grow. where do you find 7.6% of gdp to cut from the deficit? check this out. some amazing plans or forecasts by the government. here s what happens. deficit, 10.6. you will get an economic recovery and you ll end the stimulus spending that gives you 5.5%. bottom line is the economy does the bulk of the heavy lifting according to the administration. then you ll have net spending cuts. you ll do some spending cuts and some tax increases but that s going to be other spending increases that will offset this so net will take 1.2% leaving you 3.9% of gdp. we ll talk about this in just a second. then we ll talk about this down here. where do you get this remaining 1% of gdp from? it s only a trillion dollars? where do you find it. let s go through the administration s plans here. first, you ll do that spending freeze obama talked about. that s 105 billion. you ll let bush tax cuts for couples earning more than $250,000 a year expire. you ll put the responsibility fee on the bank and then you ll reduce war commitments to afghanistan and iraq, that saves you 25$250. there s a trillion dollars if you get the politics right and get that in. it s 60% taxes. and 40% spending cuts. that s how the obama administration envisions this. where do you find that 0.9% we talked about? you appoint a bipartisan commission and come up with recommendations. big wild card. is health care a positive or a negative for the deficit? do you have to put in a vat tax to get that trillion dollars and do have you entitlement cuts? 5.5% from economic recovery. rest from spending cuts. some announced some yet to come. easy math. my take, almost impossible politics. joe? becky? very good point. thank you steve. the data point of the day. squawk box will be right back. they ve served for 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rates are going down in their flight to safety proxies rates going up a bit. we don t have supply for two weeks, at least treasury supply, but keep an eye out. the calendar for corporate supply and other supply around the globe like the likes of china is picking up a bit. don t see a big response to this data. slight rally in treasuries and preopening equities down nine in dow futures. back to you. rick, do you guys when christie is on, did you listen to that interview with him? no, joe, i m too busy trying to look at the markets for you. if you are looking for a de facto head of tea party stuff they don t need a head. they don t need a de facto head or facto head. all they need is a voting booth. i don t know what in the world will figure that out. they need a candidate to vote for in 2012. no. we do need candidates or they need candidates to vote for but we have plenty of candidates they don t want to vote for. you can t vote no. you can t just where not? vote no to everybody? that would be anarchy. you have the party of no and party of don t know. it all sounds fair to me. let s get more reaction. rich, stick around. we want to get reaction to numbers and where the dow is right now. steve liesman is here. scott nations standing by and guest host jim paulsen. one thing rick mentioned was small business optimism numbers. how significant is this? we have never seen anything like this. a really good question was asked and whether or not the small business lead or lags and said typically it leads. you can t explain it away that way. i think there are credit issues out there. the political uncertainty is an issue and bill said the issue of customers coming through the door does raise questions. i have to say that nfib is an outlier. there is manufacturing data and consumer spending data that suggests that the economy is recovering. i look at the trade data this morning and i see that nonpetroleum imports are up as well which suggests there s consumer goods coming in from china and other places that is something you would see with a rebound of the economy. we just have to give it time to understand this and we do hear that it is tough right now for small business. you can t explain it away. it s not the snowstorms of january and february but it is out there and you can t ignore it. let s talk about the market and where things stand. obviously pushing above 11,000. you have s&p moving up toward 1,200. and there are people who say that after this big rise maybe it s time to back off. you watch the options. there s not been a lot of options buying for people to protect against downside risk. what s that tell you? you are right. the vix on this date in history averages about 22. it closed yesterday at 15.5. there s no fear out there. very little fear despite the fact that the market, the relative strength index for s&p is above 65 for the longest stretch since 1986. the market is moving a tiny bit each day. it just happens to be moving up. i think maybe the fly in the ointment is earnings, the heart of the earnings season the last two quarters has not been good for the market. if alcoa is a miss, if that s a theme for companies for this earning cycle, i m not sure the market is ready to swallow that again. i m not certain we ll break a bunch but we may bounce alongside ways. how close are people paying attention to the chinese government and about the yuan. much impact in chicago? it s not having a huge impact. it really is kind of hard to handicapped. not only watching what potentially could be expanding trade for the yauan but mopping up measures taking away liquidity in china. that story is getting watched maybe even more closely. ultimately i think there s a whole issue of are the political forces at work trying to alter the landscape of the yuan to the dollar? are they really after what they is it going to accomplish the desired end? i think all of these questions are looming large in trader s minds. steve, what are you hearing? you re in washington. all of that stuff is i want to confirm that it was consumer goods imports. toys and clothing. the so i mean maybe what we saw this is february data. we saw restocking coming into play. there is thinking that the inventory cycle increases hasn t really played itself out the way we saw inventory sales ratio in wholesale trade data remain about the same. that s an issue. i want to get back to what we talked about in the last half hour which is deficit. it s a critical issue. the government doesn t need to bring it down now but it has a credible plan out there. that s why i presented that plan for the bond market and rick s friends to consider. credible or not? right now there s some concern about supply. it doesn t seem to be overwhelming to me. if the plan is viewed as not credible, then there s going to be supply issues. it will show up in interest rates on the exchange floor. i don t know if it shows in data or not, i noticed in the last several months here that we re starting to see improvement at the united states against emerging countries with our trade deficit. what i hear about china the deficit small since march 2009, that s significant that we re not just improving trade. today it was worse. overall we re improving trade for the first time with the emerging world economies. i wonder if you see those same trends. i didn t look at the country by country data. we did see exports tick up just a bit 0.2%. it was a big month for imports, jim. this is not the month that you will see a lot of that. certainly you have to have that balance return. that s a big part of it. i m interested in the other side of this. this is china. we talk about china/u.s. trade deficit. you know china is running a trade deficit with the world which complicates its currency strategy. all right. we re going to have to leave it there, gentlemen. rick, steve, scott, guys, thank you very much. you can catch scott on options action every friday coming up a at 5:30 p.m. eastern time. jim will be with us for the rest of the hour. going against the grain. made his name as a wild cat oil driller. he s still betting big on crude. he s joining us next on squawk box. welcome back to squawk box. the futures now down about 14 points making headlines this morning. the government filing a final order of forfeiture on bernie madoff s manhattan apartment. the closing is expected this month. elsewhere, conan o brien is picking tbs for his new tv home. many predicted the former nbc late-night guy would head to fox but many said fox affiliates were nervous about that. they ve got other things like seinfeld and other reruns. that would have kept him on broadcast rather than cable. we re okay with cable. when you hosted the tonight show you might want to stay on broadcast. the new program will be mondays through thursdays at 11:00 eastern expected to debut in november and george lopez for you george lopez fans will be on at midnight. as the obama administration marches on toward a green and sustainable energy plan, our next guest is banking on oil. joining us right now with more is clayton williams, the ceo of clayton williams energy. that s an independent energy company based in midland, texas. thanks for joining us this morning. very glad to be here. you are a famous wild cater. you have been in the business for over 50 years and still drilling. had a lot of fun, drilled a lot of oil, made a lot of mistakes. drilled 2,000 wells over the year. enough of them were good to keep me going. right now what s driving the drilling situation at least when you are drilling two factors, becky. the shell basins which have not been an ordinary reservoir found over the last seven or eight years so we have natural gas to be drilled. you heard boone pickens talk about it. there s 900 rigs now drilling for natural gas. this was 1,500. so those are in reserves. and if the price went back up, there s more to drill but i think i can say there s lot of natural gas. oil, on the other hand, we probably have 500 drilling ri i for oil because there s less places to drill. natural gas is tied to this country so oil has more profitability and to me oil is more stable for an investor or wild catter. you mentioned boone pickens. we ll be down in washington testifying. his point is that natural gas is domestic resource. cheaper. cleaner. it s something that we don t have to rely on foreigners for. absolutely. you have canadians with the same shell basins so they are bringing in a lot of gas in. we have long-term supply of natural gas. for its heating value it s undervalued but there is so much of it will keep the cost down very affordable. when you start looking around at oil prices and watching them creep up toward $85, is that something that you think is a fair price. we had someone saying oil is getting out of control and ahead of itself. when you asked me the oil price, i can tell you i m going to the bar at 530. if you call me at 7:00 i may answer those questions. not something a sober man would predict. there are so many factors of the growing third world. we re stable. there are new reserves across the world. we independents for example in texas there are two new shell basins and you drill in areas where once would you have ten foot of pay and now we ll drill 4,000 feet and get one decent well so it s taking more money to find less oil but we have a lot of opportunity with this co-mingling in different zones to make one well. what s the price of oil that makes it worth your while to drill? at 70 to 80 we can be very active and produce a lot of oil. when it falls below $60 a barrel? i m shutting down. we ve been there before up and down and float with it. when you got a decent it s all about making a profit. and when it drops too far, we quit. when we think we can make a profit, we go back to drilling. i m basically a driller. when you look out obviously the price of oil is what s going to be factoring what you re doing but you can t turn on a dime and move your operations overnight so what are you doing right now? the main thing i did correctly that frequently when we have a price of oil that cause us to drill and it s profitable, the cost of drilling, service companies, we re at the point where we have no profit so six months ago i locked in my vendors for a price of for example, for $30 and three years ago it was 80 so locking in the cost of drilling and or jebjective is to lock in cost. you lock that in betting you think that they re not going to skyrocket beyond this point. i locked it in knowing that i places to drill. i have 200 wells to drill and i could make a profit if i can lock in these prices so 175 wells and i have my own rigs. i have hedged my oil for two years so i know that that income is all my existing oil production. i have locked in a profit for two years. that s good business and sometimes you have to get all of the circumstances together to be able to make that work. how confident do you feel about the state of the american economy right now because the state of the economy is one of the major drivers for oil prices. i m headed back to the bar. thank you very much for coming in. it s been a pleasure talking to you. fun to be here. thank you. as we mentioned, tomorrow boone pickens on the show. the legendary oil man who is now a natural gas and wind man. he s going to be joining us ahead of his testimony on capitol hill. we ll get his comments on everything from clean fuels to drilling offshore. again, that s coming up at 8:00 eastern time tomorrow. coming up, going beyond dow 11,000. took 19 months to get back to this level. will the bulls keep marching on? art cashin has traders edge next. ange your course. meet the new class of world class. the twenty-ten lacrosse, from buick. may the best car win. counting down to the opening bell on wall street. jointion us is art cashin, director of floor operations at ubs services. i don t know if you saw ed keon earlier today. he said i ve been a really nervous bull all along. and now i m less so. so do you feel the same way, being, you know, skeptical for a lot of this move? are you now feeling like maybe this has some legs? well, i don t know how big the legs are, joe. you know, we got through 11,000, but it brought no follow through. the volume was so anemic yesterday, it was ta waste of cr fare and a clean shirt. i think the interesting thing for market observers is you got 11,000 and you also have 1200 in the s&p. so both indices looking at some critical area, not necessarily high resistance. what i think is working well for the bulls is advances in declines continue to make new highs. you really see a market top when that is happening. on the other side, the new highs themselves have not really participated in the rally. so, you know, it has a good move, a solid base. it probably needs to consolidate here somewhere. art, jim paulson here. isn t the strength, art, of this market in some sense from last year been the fact that it has been low volume and plotting and unexciting and that s just the continued character that is existing even in the last couple of weeks? well, i m not sure it is entirely the strength. it certainly is the frustration. but, yes, that s been the characteristic of it all the way through. and that is what has frustrated the skeptics is that, you know, it is almost like water torture. you come in every day and they inch them a little higher and inch them a little higher. i think also, jim, it is significant of the fact that there hasn t been, and this works to the bulls advantage, hasn t been a rush of money from the sidelines from the public. most of the mutual funds have eaten up their in-house cash to try and stay in line with this. i worry about things like dunkelberg s survey, you know, if small businesses aren t seeing it, they provide 70% of the new jobs. so we ll have to wait and see if that turns around. do you try that, what dunkelberg said, do you think that there is still either uncertainty or dissatisfaction with the way we re headed in washington? well, that s a different it is not mourning in america anymore, that s for sure. but i think what if you look down at those numbers, the small business guys aren t really seeing the kind of business they need. you look at the atlanta fed survey asking them did they think credit was too tight, should they get more credit for smaller or middle sized businesses, they said send us customers. so while the big guys can manipulate or fix their product around alcoa, et cetera, the guys on main street are still having a tough time. arthur, good to see you this morning. we ll see you again soon. okay. our guest host is jim paulson of wells capital management. you ve been with us through a roller coaster ride this morning. what is your takeaway? everything we have talked about from the economy, what is happening with the stock market, what is the most important point? right. well, i kind of think, becky, that the beauty of this marketplace is we re up 75%. still a lot of people that are just negative throughout it and even though we re up that much, they still are. i think that s we just keep climbing a wall of worry and people are keeping dry powder on the sidelines that could still be drawn in. you re feeling good as long as there are still naysayers out there and get real worried if everybody agrees with you? i would like to see some policy official lean into the wind, which we haven t even started yet. meaning? meaning i would like to see the federal reserve start to raise rates, have a couple that tighten up fiscal policy. before you get worried that the momentum is going to shift, and we have not even started that process. secondly, i would like to see a breakout not just of people saying they re bullish and it could go higher, but acting as though bringing some of the retail money funds back into the market. let me talk about some of the head winds that may potentially be starting, but quietly. you have the fed no longer buying mortgage-backed securities. you ve got the end of the tax credit for buying a house, if you re not in by the end of the month or not into contract bit end of the month. a lot of stimulus that was originally rolled out, still some to spend but getting through bulk of the bigger plans out there. is that enough? the dollar is up a little bit, which is tightening, and fiscal policy on a 12-month basis has started to pull in a little bit. a little bit is starting but it is really in its infancy. on the other side, velocity is just starting to turn up. that s going to be another positive force coming into play. corporations are just starting to upsize their organizations for recovery rather than downsize for depression. there are positive forces starting to engage now. which is why you re optimistic, not cautiously optimistic? i m cautiously optimistic. i mean, i like to see the fact that the bond the ten-year yield is back to 383. and if it would have blown through 4, you start thinking, well, we might have a little more tougher assignment. the fact that it is 383 might allow us to get through 1200 here. jim, thanks. up next, will the stock of the day come out of earnings central? we ll find out right after this. stick around.