Transcripts For CNBC Squawk Box 20121228

Thrilled to have ed aboard for i think youll be here for longer than an hour. Youll be here for the whole broadcast. As long as you need me. Youre like how long were you at you were at prudential. Its owned by prudential, so ive been at peru dontal for almost 15 years now. Widely quoted. You know who has made a comeback is ralph akampora. Ive seen him around. Do you remember his nickname . I dont. Whatever you think of him, hes a great guy. Hes a good guy. Ed is going to try to make us slightly be a little sensitive. Lets get you some some of the morning headlines. The biggest one being president obama planning to meet with congressional leaders at 3 00 p. M. Eastern time today in a last ditch effort to avoid the fiscal cliff. The House Majority leader eric cantor is now telling members to be prepared to work through january 2nd. Both sides still far apart, however, on taxes and spending cuts. Senate majority leader harry reid says prospects for a deal by monday are still unlikely. There was a lot of movement, motion for not a lot of action. Where were you yesterday . I was here. We were together. Were we ever with our no. But there were duelling Senate Leaders just first mcconnell came on. And he said did you see either one of those . I did. Did you see harry reid . Theres no chance of but if you think i want to rise above. There was so little of anything close to that yesterday other than just the i mean, people at home must be like, its the endless blaming and finger pointing and, you know, when one side says its all the other sides fault and all the other side comes on and says people at home arent going, wow, i believe you, harry. Or i believe i, mitch. Theyre saying youre both losers, right . Right. My real concern is this is what the current version of america actually voted for. The house is different. All politics is local. Harry reid, you know which interest he satisfies. Theyre not that far apart. If you look at the negotiating positions, theyre not theyre emotionally far apart. For that bigger deal. So, really, the numbers arent that different. You would think with even a small amount of good will they could find ill tell you, listening to harry reid, it was once again the only people in the country that dont want to raise taxes on rich people are the republicans that are in the house. But i didnt hear anything about Corporate Tax reform, i didnt hear anything about reforming the overall tax code, i didnt hear anything about entitlements. I didnt hear anything about spending. Were at 25 of spending as a percentage of gdp and they hold the debate on raising taxes on the top 2 . Theyre gotten it to where were going, yeah, its taxes and we dont expect them, we dont demand that they talk about a bigger deal to avoid our longterm problems. Harry is selfrighteous about not doing the taxes, but where is he on what we need to do to if it fix of structural bargaining. I think were looking at a grand bargaining in february now. Its going to be one grand omnibus plan. You have to include the debt ceiling in the overall deal. And any baby deal they do now is not going to stop that. And then youve got the republicans. All the norquist guys will be able to go home after january 1st and say, i voted to cut taxes on the 98 . And thats just you know, thats semantics. Thats what weve been waiting around for. So its not you know, its just which side of the cliff youre on. I dont mind grover. Hes not even an elected official. I like grover. I think hes an interesting guy. Thats like i respect theres always a but coming after that. I think theres a little bit too much ideology and hes too rigid. But require respective of that, i would like to have a Congress Person on who signed the pledge who said i cant sign it today, but im happy to sign it on january 2nd. Will they admit that . Weve gotten ahead of ourselves on our spending, okay . And i understand maybe you need somehow to just concede that weve spent it so we need to pay for it. But if you take norquist at face value, at the turn of the 20th century where Government Spending was 9 of gdp, were now at 25 . There are some that say, take what we give you and retrofit government to the size of 19 or 20 . Do that first. He just wants to shrink what its grown to, this unwielding federal government that dont you think 25 needs to come down . Well, part of that is cyclical. Okay. So at 3 . 21, 22. I would say 22. So we have to get it down to 20. 5. The three big beasts in the budget remain medicare medicaid, Social Security and defense. You have to cut almost Everything Else to zero to get close to balance or to make a big difference. So i think in todays world, given that those entitlements, even if you reform them and cut back back will increase as People Like Us eventually retire. It seems to me that sizing the government for something around 22 or so is probably doable. But not easy to get to. Because you still have to have major cuts and major long titlement reform to get there. You see one of the major ceo guys, and im not going to quote which one, said yesterday looking for premiums on insurance to double because of obama care. And he said he made it very clear. He said were going to cover 30 Million People that arent covered right now and it has to be paid for. Irchblss premiums are going to double. That they didnt tell us. That the costs would be up slightly. Also, thats 30 million, 10 of the population. And that he they gave numbers to the cbo that said we were going to cut the deficit. And, in fact, it was a new entitlement that now is going to cost 12 trillion. Were not that far apart on that issue. Ive always thought it would cost a lot of money. Were going to have your wife call into the show a little later. There is a place of frustration there in any twosome, theres a place for someone who doesnt have to be. Thats true. Youre carson. Can you do that . Well you cant do ed mcmahon . Ill work on that. Who was conan scott . He had a guy, andy richter. No, dont do that. You would have to put on a bunch of weight. Andy was from my hometown in massachusetts. Was he . Yeah. Lets check on the markets. Down 47. We came back, closed down just 18 points yesterday. Thats the first time in history where someone said that the house coming back in the markets went you up. Usually the government comes into session and the markets go down. Were indicated down about 47 points today. Oil has been amazingly strong considering that if we you know, the forecast for going over the cliff and shaving 2 points off of gdp, i would think that oil would start to pull back a little. No more board. It is the day before a holiday. It could be gremlins. And the snow is coming, by the way. Yeah. The snow turned into rain. Yesterday, but tomorrow i think were going to do weather later. Issue not try to i dont want to front run reynolds wolf. Is today the 1st . I do believe its supposed to snow tomorrow. Its winter. 1 to 3 inches is wa im told, but reynolds may have a better estimate. Were going to get to reynolds. It may be eric fisher or someone else. Theyre all good. Go ahead. Me . No, no, time for the Global Markets report. And with that, for the Global Markets report, we are going to go to lon where kelly evans looking splendid in a pant suit. Wow, you look like youre about six feet tall or seven feet tall, kelly. Just over six feet tall, joe. Im pretty well this morning. Cant say the same for european markets which are pretty much all in the red and losses have been picking up in the last hour or so as weve seen renewed concern about the u. S. Fiscal cliff whether a negotiation could be reached. We saw some optimism in the Asian Session overnight. I want to draw your attention to the most important story potentially for 20123 and thats whats happening in japan. You guys may recall yesterday it was up. 9 . This market has been on a tear this year. Its up more than 20 one of the best Asset Classes. The yen continues to weaken. Theres two reasons why were focusing here. We got weak Economic Data out of japan. Industrial production decline. We saw core Consumer Prices decline. We can show you, though, whats happening with the yen. Were seeing the new finance minister coming out and saying to other countries, you know, look, were not trying to materially weaken our yen and you have no place to accuse us of doing so. He says a strong dollar policy would benefit the u. S. Very much so. And, again, might benefit japan, too, because that will make it a lot easier to get that yen lower. Today, the dollar yen is up. 2 because its important at this junction now that weve seen the new government come in, now that weve seen the new cabinet ministers, people who were expecting a lot of fiscal and monetary magic from to look at the data overnight and be reminded that its no guarantee japan will magically be able to rejiger its economy to reach a new inflation target. Weak set of data. Tough talk this morning. The dollar yen is firmer. The euro dollar is weaker by about. 5 . We can consider this the risk off proxy trade for the fiscal cliff at this point which i will say in a quiet news day is pretty much the main activity driving markets. Come monday, weve been hearing our guests across europe telling us they are worried about the way we can see markets trade lower once people come back and realize we havent had any agreement reached on the fiscal cliff. And that essential doesnt look likely at this point. Okay, kelly. I couldnt help detect a little i mean, youre over there now. Youre international. The most important story of 2013 is something with japan . Yes, joe. Though, no, no. Its here. Yes, yes, nope. Thats the third biggest thing. Thats a little tail. That doesnt wag the big st. Bernard that is the United States. Here is one reason. Japan isnt necessarily important because of the size of its economy. So if youre talking about global gpt growth, the u. S. Is still the juggernaut there. Fiscal abyss. Fiscal abyss. Japan is not only the leading gauge of what is happening across europe, but potentially what could happen in the u. S. If these policies arent enough. Its will case of this extremely high debt load, something were discussing in the u. S. And europe right now. If it manages to engineer these more stimulative engineering policies could have a major problem on its hands. Were seeing the share of domestic debt falling, more and more debt being held in japan, joe, by the way could end up being a huge buyer of government securities from other countries. Its a little island, kelly. Tiny island, hugely important. No economy and no one has even noticed. You know what you just remind me of, that little girl in the front row going, oh, oh, and everybody else is going, how much is she going to have to say . Joe, this is not an issue that is just me. If you ask people around the world whether theyre in europe or whether theyre in the u. S. , japan matters. It is a fascinating experiment. Mark my words, you would be talking about this a lot next year. And youre shaking at the sent rick, the u. S. Centric viewpoint we have here. The fiscal cliff. Youre jealous youre in the over here to talk about the fiscal cliff. It is warranted today. You can talk about the fiscal cliff all you want. Today at least it is the only thing that people seem to be talking about around the globe. Congratulations, washington. See you later. Japan, we have to keep all eyes on japan. That guy abe. Whats his name . Abe. Youre talking about abe . That is the guy. Honest abe. By the way, we have to talk about the john carney story. Let me read it first. We can do that, too. Coming up, why investors member willing to take on more risk in 2013. First, as we head to a break, take a look at yesterdays winners and losers. That was wonderful. Bravo. I loved that. It was great. It wasnt bad. There were parts of it that could have been a lot better. It was pretty terrible. It was awful. Boo [ male announcer ] you are a business pro. Omnipotent of opportunity. You know how to mix business. With business. And you. Rent from national. Because only national lets you choose any car in the aisle. And go. You can even take a fullsize or above. And still pay the midsize price. I could get used to this. [ male announcer ] yes, you could business pro. Yes, you could. Go national. Go like a pro. Your doctor will say get smart about your weight. Thats why theres glucerna hunger smart shakes. They have carb steady, with carbs that digest slowly to help minimize blood sugar spikes. [ male announcer ] glucerna hunger smart. A smart way to help manage hunger and diabetes. You can stay in and share something. Or you can get out there and actually share something. The lexus december to remember sales event is on. This is the pursuit of perfection. Welcome back to squawk box this morning. Take a look at the futures this morning. We do have red arrows across the board as the fiscal cliff discussion seems to be going nowhere. Dow looks like it would open down almost 55 points off. Nasdaq would be off about 14 points and the s p 500 would open off at least five points. Well see how that sets up for the rest of the day, joe, but it does look like we are now starting to see the impact of these negotiations on the markets, something we had not seen up until the past, say, 48, 72 hours. Tried to put in a question yesterday, which was stock markets, if youre going to if they know theres a recession coming, they go down. So if you just connect the dots, if the fiscal cliff, we go over it and we stay over it, if it does create gdp growth by two points. Then the stock market would go down. So i was saying maybe either its not a given, but going over crosses the economy to slow or the market still doesnt believe were going over. But during the session, the markets believe were going over and we saw the vix spike about 20. Its difficult to believe the political process is going to kill the economy. I think some people will be work youed out so the biggest impacts of the fiscal cliff would be avoided or at least postponed. But people are nervous and especially its thin markets in a holiday session, any little bit of news can moch the markets a lot. But i dont believe that most Market Participants thinking that the worst is going to hit the u. S. Economy. Most lawmakers are now trying to avoid the fiscal cliff. 14i7ers meanwhile are trying to vied a strike at more than a dozen ports. Were talking about 14,000 longshoremen would walk off their job when the contract expires on december 0th. Sunday, i think, isnt it . The Biggest Issue is on container royalties which are paid to union workers. They get part of it based on the weight of the cargo. A strike could hurt exports, factories, also it would affect retailers who are awaiting shipments of spring merchandise. Now its important. Were going to go to todays National Weather forecast. Last year, reynolds, you would come on, you would try and make it interesting. But it wasnt. This year, its every day we need to, you know, dvr you because theres a lot going on. Oh, thats certainly the case. Its been really like an assembly line. One storm system after another rolling across the continent that has been affecting millions of americans. What were seeing is that last storm that we call euclid now leaving the u. S. And bringing residual snow showers behind the east. Right behind it now, we have at another system making its way towards the coast this weekend. For much of the eastern seaboard, we expect fairly tranquil positions. Much of south texas could see rainfall. Dallas, texas, rain early. And improving through the rest of the day. And then the west coast is getting a little bit of a respite this weekend. But still from Half Moon Bay northward to portland, expect showers out there and possibility snow in the mountains of the pacific northwest. Lets talk about the flight delays chances for today and through the weekend. A lot of people will be traveling today. You can expect some delays in places like syracuse. Tomorrow, the travel situation actually gets worse. Back ups are possibly in region regional airports, washington, d. C. , philly and into pittsburgh. Things will improve sunday. Snow showers are a possibility, but all Things Considered should not hamper travel too badly. What is this next thing going, euclid is going . I am embarrassed to say i do not know the next one. I have your hurricane names down pat. God in my ear just told me the next one. Whats it called again . Frair . Yes, i believe its friar or frair. There you go. Now you know. Now watch, reynolds is going to go on all these other hits and hes going to go oh, the next one is called hes going to take it and its going to be his, right . I know how you operate. Im into it now. I thought it was hokie at first. But we should call these things something so we know what its talking about the. We can get so many things from your show. I always listen to you guys trying to give financial advice. Now were going to get metrological advice from you guys. Got to love it. When can you name a storm kernan . How big would that storm have to be . Its going to have to affect millions of people. A lot of wind. A lot of wind. Breaking a lot of wind. A lot of hot air. Reynolds, thank you. A summer storm. Time for a squawk sports update. Were right in the middle of bowl season. I knew this was on last night, but it was on too late. Cincinnati bear cats managed to outgun the blue devils from duke. But then the Basketball Team of cincinnati lost. Brendan kay through four touchdown passes. The bearcats won without the head coach butch jones who left at the end of the season to take a job at the university of tennessee. And baylor destroyed ucla, 4926 in the holiday bowl. Baylor quarterback Nick Florence became the schools single season leading passer taking out rg3 for the recorder. A big game coming up this weekend. It will be huge. I cant wait. Sunday night football on nbc. On nbc. On nbc. Romo versus rg3. And you might be there live. Im going to be there live. And then were going to do the show with harwood, with john harwood from d. C. Would it hurt you terribly if we were to do those all with john . I guess it was. That might hurt me. Okay. No lionel richie. Theres still a tremendous amount of cash sitting on the sidelines. One of the Big Questions is whether its going to get put to work if the fiscal cliff dust settles in washington. Joining us now from ft. Lauderdale, rich steinberg of Steinberg Asset Management and our guest host for not just the hour, but for the program. What do you think down there in ft. Lauderdale . First of all, do you think that the dust is going to settle at all over the next three days . Well, if it does settle, it will be a mini deal because i think the republicans will hold the debt ceiling talks over the democrats heads going into the end of february. And, you know, its kind of like halloween where your kids come home and theyre trying to trade candy like, oh, i dont like this snickers kb whiff this. I think today theyre going to start that process. Theyre going to have to try to come to a quick deal at least to get some solution for the amt issue, for the sequester and for unemployment. But even if we go off the cliff to markets, markets react to the unexpected, not the expected. Knot nobody loves to market climb, but assuming you do have cash on the sidelines, people profit trying to get out of the market ahead of whatever mess were in right now, when do you go back in . Do you go back in . And how do you do it . I think its hard to be all in or all out. In the portfolio that i run at the firm, i have like a 20 hedge on my phone so i can take money on and off. And just cds sitting on the sidelines. Weve had a lot of new cash come in. What you do is you put half your money to work. You look at the next 25 of increments on the way down. If theres jumpiness in the market. And ed, how much more jumpiness do you think we have to go here . Probably a while. Theres still going to be at leefrt just mechanically a few weeks so if youre sitting on the sidelines, you should say on the sidelines right somehow . We have very little cash in the portfolios that we manage. We are overweight by assettes. Were also believing that in the long run, the u. S. Economy is doing a little bit better and is going to gain some traction this year. Even though theres ups and downs, we think a deal will eventually but i know a number of people who have been sort of building a little kiddy, waiting for a day that looks Something Like 2008 in the fall where they think theres going to be some massive opportunity that if they just, you know, have the courage to do it, is that day ever going to come . I think its best you test the 1350 level on the s p which is the low end of the range after the election. That cash will be like a tightened spring that when things come to fruition and we get a resolution, youre going to get a bump in this. The s p is going to earn 1. 05 next year at 13 1 2 or 14 times earnings, you could get 1550 on the s p. But more importantly, the ten years at the 1. 77 yield right now. Consensus is at 2. 17. If it gets there, the tenyear note will lose 1. 7 next year and youre going to continue to see endowments and pension money shifting to riskier assets like the others just said. And republicans missed a lot of this market this year. Markets overseas are up high, 17 , 15 and i think theyre going to want to be back in and living will be back on. Were going to leave it there. Thank you and thank you to ed. Were going to have more from you, will, of course, throughout the show. Thanks, guys. Still to come on squawk, you cant afford to wait until 9 30 to see how stocks are going to open. Plus, the flight to safety. Nervous investors are not parking money where you would traditionally expect. And speaking of the nations capital, were going to turn to two political strategists for help in our increasingly sort of frustrating quest to rise above what needs to be done to get a fiscal cliff deal signed, sealed and delivered. But first, an American Military hero has died. Norman schwarzkopf passed away in florida yesterday. Popularly known an stormin norm norman. He liberated kuwait from saddam hussein. General schwarzkopf was 78. We can see you carl. We can totally see you. Come on youre better than this. All that prowling around. Yeah, youre the king of the jungle. Have you thought about going vegan carl . Hahaha you know folks who save hundreds of dollars by switching to geico sure are happy. How happy are they jimmy . Happier than antelope with nightvision goggles. Nice get happy. Get geico. Fifteen minutes could save you fifteen percent or more. [ male announcer ] how do you trade . With scottrader streaming quotes, any way you want. Fully customize it for your trading process from thought to trade, on every screen. And all in real time. Which makes it just like having your own trading floor, right at your fingertips. [ rodger ] at scottrade, seven dollar trades are just the start. Try our easytouse scottrader streaming quotes. Its another reason more investors are saying. [ all ] im with scottrade. Good morning and welcome back to squawk box here on cnbc. Im joe kernen along with Andrew Ross Sorkin. Becky quick enjoying some more time off today. In the headlines this morning, the Justice Department is investigating Hewlett Packard. Allegations that britains autonomy engaged in accounting fraud before its acquisition by Hewlett Packard last year. Hue let, you might recall paid more than 11 billion for autonomy. Hard to read that without laughing almost. Isnt it . Yeah. Where is beezus right now . Exactly. They recently took a 9 billion writedown claiming accounting issues. They could eventually take two more billion probably. Which would make it a zero if the Justice Department wasnt investigating this after they came out and made this big statement, that would be news. Like the opposite. Opposite day. They have to look. Do you remember object sit . Of course i remember opposite day. Do you remember the seinfeld . Yeah, i do. Yes. This is something that we can meet on maybe. Seinfeld. Seinfeld. All right. President obama meets with top congressional leaders this afternoon with time running out to avoid the cliff. The house will be back in session on sunday to try to deal with the issue. We havent had enough time, you know, two years. When is the last time we had a budget . Harry reid was just wasnt he great yesterday talking about Mitch Mcconnell and the republicans . No budget. And more than 14,000 longshoremen could go on strike this weekend because of a contract dispute. A walkout would close cargo ports. Some estimates say a strike could cost the economy 1 billion a day. Which would add up. It would kind of counteract the 85 billion. But bernanke is doing 2 billion a day, right . More. 2. 5, yeah. So that would take away we could easily rachet it up. Unless the Printing Presses overheat at that point. Lets check on the markets this morning. The futures were indicated lower based on angst. There it is worse. It was down 40 earlier, not out 62. They were down 150 at one point. Came back down to 18. Were somewhere. Between there. Lets check out some of these other boards that maybe we missed in the last hour. Europe, europe is even moving on angst about the fiscal cliff or that stuff in japan. I dont know. Very close. Its one or the other. Lets check out asia. Asia is actually up this morning. And then lets check out the oil board. Oil is still strong, which makes me i dont know which market you look at to decide on whether we get something settled or not, but i think oil is pretty telling that it hasnt cracked at all. The tenyear has been under 1. 8 recently. Its hold on. You think oil traders are smarter than bond traders and well, bond trade ers have be for years massed by fedex and central bank action. The stock market, these guys main line bernankes stimulus and they you know the oil guys are no, i dont think theyre the straightest. I just think that you would really if you thought the u. S. Was going to go into a recession imminently, i dont think oil would save us. Do you . No. Lets check out the dollar. Maybe the dollar thats a big you know, foreign currencies, you can learn a lot from. 1. 31 and back 86 now on the yen. And then, gold, this might tell you something eventually, too. Theres so many Different Things that affect gold can affect a it seems like positive and negative things can happen at the same time with goal, right . How would the fiscal cliff, if we went over, affect gold, do you think . I think in the long run, gold will do worse if people start to think that Interest Rates rise. If dwrur going to park your safe money somewhere else, gold is a negative cash flow asset. And why wouldnt gold go up if we were going over the cliff . It would. In other words, if we do go over the cliff, you would expect gold to do better. And the stock market is. And the stock market hasnt done that badly at all. Were at 15 total return on the year. So if you just listen to the news, you would think we might be down but really, we had a very good year. Are you going to be able to introduce this guy, andrew . He has more vowels in his last name than consonants. Lets go to the futures pits where bob iaccino is standing together. Would you say cheeno, bob . Would you like it in english or italian . Iaccino. With that singing. Wa part of italy, do you know . Cosanza is the town. Its the foot of the boot. Not a bad part of italy. No, theres really not. Bob, help us here. I dont know if i can. Youve got to. Rise above, bob. Just explain the volatility issue at a minimum. Where do we go over the next two days of trading . We have today, we have monday and obviously we dont have tuesday. Well, i dont know that we do a whole lot. I believe markets are just on the sidelines since before the start of the holidays for the most part. I believe there were some People Holding out waiting for a fiscal cliff solution. I think were going over the cliff, but were grabbing one of those cartoon roots sticking out as we go over it. I think it will be a matter of days before just the political pressure of going over the cliff causes them to do about a 12month deal. Its just i dont know. I hesitate to say the word ridiculous, but its just ridiculous to watch. So Market Participants, the shortterm Market Participants are on the sidelines. I think were looking at about a 12month deal and nothing more. I think we do go over the cliff, but its a matter of days. The charts are telling me that, too. Have you found anyone on the floor who decide, you know what . This may be a great opportunity. To the extent we get a deal, the market is going to rally . Do we believe that . Yes, we believe its going to be a great shortterm opportunity. Theres cascading support in the s p. Theres 1396. Theres 1374. Seems like big dips to go down 25 from where were at now. But i think people arent necessarily that long, the shortterm traders arent that long the s p right now. Thats why youre not seeing as big of a selloff as we go towards the cliff. It should be more dramatic. I dont think anybody believes were going to be over the cliff for that long. So prevailing view, when you say not that long, ive made the case that we could be talking about this exact same having the same conversations end of january, even early february. I dont i dont think it will go into february. I really dont. I think it will be the new congress, you know, coming in with all kind of bluster. This is the first thing they want to go done. Ambition from the new congress. Theres really not a whole lot i believe president obama thinks he can blame the republicans and history will be kind to him if he does. I dont know about a recession. I think we get about a 12month deal. But theres still a lot of headwinds. That longshoremans strike knot a small mnw34 welcome back pop squawk box. Dow looks like it would open down. Its gotten worse this morning. Up about 67 points. S p would be off over 6 points. The fass dak would be off over 14 points. And we werent in the that down a few minutes ago. Right. What did bob iaccino say . It might not have been him. Is ed doing it . Who is doing it . Anybody who had any real money to trade would have traded it before the holidays. Very, very thin markets right now. And i dont know if were going to have a chance to talk about your yeah, we will have a chance to talk about that. Think about it. If you were the estate tax deal. Theres so many facets to the cliff, but it used to be the first 5 million you could give and then it was 35 tax. After the fiscal cliff, its only a million. A million. And then 55 . Thats unbelievable. A big change. Were going to talk about it. John will be here to talk about it in a little bit. The yields on the tenyear note Holding Steady for most of 2012. Which is surprising. The bond markets could be getting a boost from heightening fiscal cliff fears. Joining us, kevin keegan. How do we know whats what versus bernanke . He gets to decide where things are, doesnt he . Well, joe, its a little bit like this. Let me set it up for you. Its like a crazy family reup. Youve got to equity guys who well call those like the kids because theyre always excited about something thats going to happen. Youve got to bond guys sitting on the couch and youve got to oil guys. Theyre looking out the window taking a look at whats going on happen. And then youve got your crazy uncle. Well call him sam. Uncle sam is out there, he has the lamp shade on his head. Were waiting to see whether uncle sam is going to step up on the balcony and tried to make it to the pool. The market is going to trade 170, 180 in the ten years until that happens. But whats going the happen in all likelihood is were going to go over the cliff and not that much is going to change in the bond market because theres a number of things that could happen that can correct this. You can retroactive tax and things like that. Its going to take a while to play out, but right now, were going to wait and see what happens. Well react to it. But the fed who is going to be in the market is going to take is in the market. Thats what i mean. Isnt it as simple as anything that makes the economy less certain and slower gives cover to bernanke and the fed to continue to extraordinary easing cycle that theyre in. So anything that isnt stimulative gives them reason to continue with what theyre doing in keeping rates low. And the oldest rule in the book is dont fight the fed. Why isnt it that simple . It is exactly that simple. Theyve already said, look, as long as unemployment is above 6. 5 , theyre going to come in and continue to buy into the market. Here we are at 7. 7 with little chance of making our way to 6. 5 in the next six months to a year. So the fed is in the market knows that and theyre playing that. The problem is with any little increase, what the fed is trying to do, obviously, is force investors out of riskfree assets into riskier ones like equities, like corporate bonds. So theres a bit of a tug of war going back and forth, even know that the fed is in. Right now, Consumer Confidence was abysmal yesterday. All those are likely to give fuel to the markets to keep staying in the safe haven trades. I dont see it going to 1. 5 unless we actually go off the cliff and head towards a recession. We are still going to be under 2 for quite a while. All right, kevin. Anyone ever think about calling you j. J. . Is that your nickname . I think you did about seven years ago and continue to do so, but im the only one . I look anything like nicholson. I appreciate it, though. Its good to be remembered for something. I think it is, too. I like the second one, too. The second chinatown was pretty good. J. J. , thank you. Good to see you. All right, joe. Thanks. Harvey, amazing in the second did you see the second one . I did. You did . I did. Im not like a total well one kind of are. Okay. Coming up, death and taxes. A chat on the mornings most off beat comments. 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So for a great vacation this year, come to the gulf. Its all fabulous but i give florida the edge. Right after mississippi. You mean alabama. Say louisiana or theres no dessert. This invitation is brought to you by bp and all of us who call the gulf home. You wont just find us online, youll also find us in person, with dedicated support teams at over 500 branches nationwide. So when you call or visit, you can ask for a name you know. Because personal Service Starts with a real person. [ rodger ] at scottrade, seven dollar trades are just the start. Our support teams are nearby, ready to help. Its no wonder so many investors are saying. [ all ] im with scottrade. You can stay in and like something. Or you can get out there and actually like something. The lexus december to remember sales event is on. This is the pursuit of perfection. Squawk is back. And will the fiscal cliff accelerate millionaire debt . Thats the topic of a piece by john carney here at cnbc. Running on the front page across the banner of the drudge report this morning. Its a fascinating piece. Whats so fascinating about it is the suggestion that because the estate tax is going to change, its going to go currently from 55 im sorry, 35 at 5 million limit up to 55 and a 1 million limit, that basically grandmothers and grandfathers need to worry . People who are on ventilators are going to basically start families are going to start pulling the plug in the next three days. Thats the implication of the piece, sort of a right. Whether that could actually happen. I dont know if that will happen. Also the suggestion, though, that people just psychologically who are sort of at the end decide yeah . Can just decide. He cites the opposite statistics, which is that people like to make holidays, they try to outlive the millennium, for example. 50 more people died the first week of january 2000 than normal. In part because there was people wanted to see the new millennium. The question is whether that happens for tax reasons over the next three days. A provocative idea, at least. A little more than a little morbid, i should say. In red sox nation they always said people waited until 2004 when they finally won and they could die in peace. Statistics support that. But studies suggest that sometimes people can move their death a little bit one way or the other. People have a lot to live for in chicago. No ones died there. The cubs i mean, never, actually happened. But the implication is that there could be some nefarious actions taken by relatives well that was one of the suggestions in the piece. The other suggestion was that people may just decide. And thats the question you need to decide. Not really you can do the feeding tube. My mother didnt want a feeding but i dont think such a horrible conversation to be having. You couldnt wait to have this conversation. Youve had it before about health care. Youve had it before. Right, thats true. What was that piece . Pull the plug on granny or something . You had there was some piece that you read, someone wrote it, you said it makes sense, some of our health care. Throw momma from the train, you dont remember that . We had Health Care People on where you talked, someone had written that piece. My grandmother watches this program. Well, wasnt it in wasnt it in the New York Times magazine, you really dont remember . Oh, michael wolfs piece. What was it called . Cover of new York Magazine the best piece ever. I love my mother, now i wish shed die. It was one of the best pieces ever. Sounds all sick. You are sick. No, no. But it was one of the most fascinating pieces about the sort of emotional family and the economics we got to go. Coming up, president obama calling a meeting with leaders from the house and senate today. Can the fiscal cliff deal be reached . Were going to astrategists fro both sides of the aisle. Plus, were going to welcome a man who knows the world of washington and wall street very well. The great grandson of the 27th president and leading financial ceo in his own right, john taft is going to be our guest host. N] you are a business pro. Omnipotent of opportunity. You know how to mix business. With business. And you. Rent from national. Because only national lets you choose any car in the aisle. And go. You can even take a fullsize or above. And still pay the midsize price. I could get used to this. [ male announcer ] yes, you could business pro. Yes, you could. Go national. Go like a pro. Its getting down to the wire. Republicans have bent over backwards. Were in the name situation weve been in for a long time. America heads closer to the edge of the fiscal cliff. How businesses are bracing for the worst, and what it means for your money. And could the looming trouble at the capitol be the right time to buy . I love gold why gold could be the hottest investment trend in the new year. Second hour of squawk box starts right now. Welcome back to squawk box here on cnbc, im Andrew Ross Sorkin along with joe kernen. Becky quick continues off today. Our guest host, weve got two of them rbc ceo of management john taft, and ed did i mispronounce it . Keyon. Keyon. Its going to be a tough, long morning from quantitative management associates, hes a portfolio manager. I apologize for that. Ed, the futures right now, take a look. We have some red arrows across the board. Perfect. Whats that . You did a perfect. Dow jones looks like it will open off about 60 points, nasdaq off about 14 points and the s p 500 looks like it will open down about 6 points or more. Here are your morning headlines. President obama will meet with top congressional leaders at the white house this afternoon. 3 00 p. M. Eastern in hopes of making progress on the fiscal cliff talks. In addition the house will be back in session on sunday. Weve got more on all of this in a moment. While lawmakers have been preoccupied with the fiscal cliff, theyve not dealt with passing a new farm bill. The Washington Post now reporting that unless one is passed by january 1st, the formula for establishing minimum milk prices would revert to the one that was in place back in 1949. The paper says that could boost milk prices more than 3 a gallon. Were going to get another read on the Housing Market recovery this morning. The National Association of realtors is out with its pending home sales report for november. Thats coming at 10 00 a. M. Eastern time. Looking for an increase of 1. 5 . That follows a 5. 2 rise in october. Pending home sales, of course, a measure of home sales on home sale contracts signed but not yet out. A big deal. The milk. The milk thing could be huge. You think it would be 6 . Yeah, it could go up 3, to six bucks. Two trading days left before we go across the fiscal cliff. Joining us now from d. C. Is jimmy williams, msnbc contributor and joe watkins, republican strategist and former george h. W. Bush white house aide. He was also a romney surrogate. Jimmy, do you know how much msnbc pays versus cnbc . I mean is there a reason that you feel more aligned with what do we got to do to get you here, anyway . Pay me more, baby. Its called capitalism. Oh. Now the democrat speaking. Now you like capitalism, when it applies to you. Okay. We got it. Jimmy, can they do anything to between tonight or they can meet with the president today, and then the house gets back on sunday. Do you think they can do some stripped down bill . I think that i know they can. But they wont. And the reason they wont is because Speaker Boehner, who i like and you and i have talked about, cannot get listen, if he cant get a million bucks threshold on a tax cut through his chamber, whats he going to do get 500,000 . Its not going to happen. What i think is going to happen at the white house this afternoon, though, is these folks are going to come in, sit down with the president , theyre going to say, okay, were all jumping over the cliff. So what do we do after the cliff . And thats probably a very good conversation for our nations political leaders to have. Jimmy, i grant you what you said is true, because all were talking about is taxes. Which is weird. Were talking about a hell of a lot more than taxes, joe. No, but jimmy, boehner couldnt get his guys to do the taxes. But if we were focusing on entitlement reform or spending or any of the big issues, joe, then obama couldnt get his base to so its awoway street we got going. Takes two to tango. If he could have gotten inside together we might have had a shot of getting this done. Sadly this is kind of like watching a lastplace Football Team in a twominute hurry up offense inside the red zone. You know theyre going to blow it. All they do is kick a field goal and they cant get that done. This is so unfortunate but its not going to get done. I agree with jimmy, its not looking good at all. Id like to be hopeful. Id like to be optimistic. It looks like theyre going to blow it. Jimmy, did you watch harry reid yesterday . I mean, did i guess mcconnell was bad, too. Is there something about harry, is that a song or something . Mary. Something about mary. Your hair. Sadly, joe, i did watch it, bee ihate ink. But, yes, i watched the tennis match between the two Senate Leaders and that is that is par normal for the senate these days. When i worked there, they would do exactly the same thing and when the cameras were off theyd go and make a deal. Unfortunately that doesnt seem to be the de rigueur way of going about it today and thats sad. But listen, theres one person and heres what makes me mad is everyones running around saying john boehner cant get it through his caucus. I get it, fine, whatever. Its not like the house that is ever in the drivers seat of tax bills. The house is supposed to write them and the senates supposed to decide them. And guess what jimmy you got a democrat u. S. President , Democratic Chamber with the u. S. Senate, why cant the president get this done . I mean, this isish. Its that simple. There are two words, theyre called, i object. If youve ever worked raise your hand on the panel if youve ever worked in the United States senate. I dont see any hands. In the senate you got 100 egotistical men and women, which im fine with that. But if one of them is pissed off about something, they say i object and you cant get it through. The bottom line is, youve got one person objecting, Mitch Mcconnell. I like Mitch Mcconnell. Hes not a terrible guy. But he keeps objecting and thats going to be the problem. Hes going to be the decider on this. If he can get his caucus to coalesce and get 60 votes or no objections, somethings going to come out of the senate. Its too late to get it done by january 1st. Were going off the cliff, boys. All right. How far i want to try out my idea. Okay. Because i still think were talking about end of january, early february. Thats where this goes. When do you think this happens . Is it a massive grand bargain . Ultimately has to happen, that deals with the debt ceiling, as well . Are we talking about a baby deal middle of january . What does it look like . I think middle of january, theyll have it all wrapped up by the time listen, they get all sworn in on january 3rd, believe me they dont want to stick around. But theyre going to have to. So the longer they sit around here the more upset theyre going to be. And at that point everything is expired. So let it expire and we get to write a new book. Lets write a new book. By the way, those are now going to be called the obama tax cuts. Im calling it first. The obama tax cuts. Hes going to write a tax cut bill, send it up to the hill, and theyre going to pass it. Expires on january 2nd. Do we make them permanent, jimmy . 98 of them will be made permanent . I hope not. That is not the job of the government. The governments job is to raise taxes and to lower taxes when our economy needs it. Thats what the senate does. John breaux, former senator john breaux from louisiana sat on the floor during the 2001 tax bill and said our job is to raise taxes when they need to be raised and lower them when they need to be lowered. Thats the senate and the houses job. But, one mans is another mans if you look at the laugher curve you dont know when to raise and when to lower at this point. President obama kept bushs taxes in for two years. I know. But suddenly, you know, democrats like you love the 98 , and you hate the 2 . Its very weird. Tell him, joe. Dont hate the 2 . Im not a selfloathing hater. I dont hate the 2 . Hey, joe, before we go, you mentioned you heard jimmy talking about the decider. That made me think of 43. But my heart and mind are with 41 and you worked for him. Do you know anything . Nothing new. Were just keeping him in our prayers. We just hope that he has a speedy recovery. We hope that he has a speedy recovery from this and were not encouraged so far, but were hoping that he has a speedy recovery. Some of his people, though, say that this is not that he probably will were all hopeful, im hoping that were hoping. Were hoping. I mean, thats all you can do at this point is hope. Yeah. Hes a great guy. And hes a resilient guy. So i mean, i wouldnt be surprised to see him bounce back. Hes a resilient man. Are you in washington . Where are you right now . Right now im in new york right now. Im in new york. Jimmy, where are you . Im in washington, d. C. We may need you on monday. Because thats you know thats the 31st . Thats the day before we go over. Did you guys realize that . You guys can work a calendar, right . Its my mothers birthday. Its the fiscal cliff every year, believe me. It is, oh, yeah. All right. Happy birthday. She a mrs. Williams . She used to be. Shes mrs. Bond. So happy birthday. All right, gentlemen. You know, you solved nothing, neither one of you. But thank you for coming on. We appreciate it. Thanks, guys. Happy new year. Coming up, gold prices coming under a lot of pressure in the final trading sessions 2012. But will the yellow metal once again become a precious investment, a priceless call when we return . Comments, questions . Send them to squawkcnbc on twitter. Follow the show and look for updates from andrew, becky, joe and the squawk staff. Squawk box on cnbc, and on twitter. Ee, geicos Customer Satisfaction is at 97 . Mmmm tasty. And cut very good. People are always asking me how we make these geico adverts. So were taking you behind the scenes. This coffee cup, for example, is computer animated. Its not real. Geicos Customer Satisfaction is quite real though. This computeranimated coffee tastes dreadful. Geico. 15 minutes could save you 15 or more on Car Insurance. Someone get me a latte will ya, please . We believe the more you know, the better you trade. So we have ongoing webinars and interactive learning, plus, inbranch seminars at over 500 locations, where our dedicated support teams help you know more so your money can do more. [ rodger ] at scottrade, seven dollar trades are just the start. Our teams have the information you want when you need it. Its another reason more investors are saying. [ all ] im with scottrade. Checking futures down just under 70 points premarket. And, you know, with every utterance out of d. C. , the futures are now moving. So i think that, you know, as options, it closer to the Expiration Date the time frame goes to zero, so depending on what happens they just move. Thats whats going to happen now. We were being cushioned by the idea that there was still time left. Now, anything they hear, the vix will go up. The vix is clearly going up. I wonder how far the market will go down. In the meantime, gold. Gold prices up 6 for the year. The precious metal has been rangebound since coming off its high in the fall of 2011. But could failure to get a deal done on the fiscal cliff spark some serious safe haven buying . Thats the question. Joining us now to talk gold is president and ceo of global holdings. So that is the question. Whats the answer . Okay. Well, as you said, gold has been rangebound for a little over a year now. And as far as the fiscal cliff, were not coming close to a deal, maybe going over the cliff, youre seeing gold pulling back a little bit. So its actually that is not an impetus right now to drive gold higher. Now, our feelings are that were not really going to go over the fiscal cliff in the true sense. We might in a temporary for a very brief period of time. But, once we come out of that, and the actual deal we start looking at what the deal is, the details, were going to probably see theres no real significant cut in spending, and that the ongoing spending, and creation of Additional Debt is going to continue unabated, and that will be a real driver for gold. Okay, so my second bet, though, beyond that we might be having this conversation in the end of january, middle of february, is that youre going to see fitch come out and either downgrade us or put out some kind of negative, negative, super negative what does that do for gold . Thats going to be bullish. We believe, and we are pretty sure that gold is in the secular bull market, and again, thats going to be one of the drivers thats going to take it out of its range bound range. So give us a new range. What does that new range look like . Okay i think in 2013 this is the big question. Were going to see gold trade upwards of 19, 19. 50. Its severe resistance at 1800. Its going to take Something Like fitch or a deal that and if it doesnt happen . If it doesnt happen, gold still living in this sort of weird range . I think gold is still going to go into the low 1800s next year. I think its going to break out. The timing is right. Theres also a couple other elements that are really key. I mean if you look at central bank buying, you know, this is something that for the majority of this bull market, Central Banks are net sellers. Starting in 2009, there was an abrupt turnaround, and now theyre buying 120 tons since q1 of 2011. Also you have the bank of International Settlement reclassifying gold as a tier one asset in 2013. I mean thats significant just as far as the perspective of where gold places as money. So, whether commercial banks take advantage of that or not is yet to be seen. You had a question . Yeah, chris, do you think that investors should only gold . If so why . And in what form . Okay, i believe gold is a longterm store of wealth and should be a part of every portfolio. You know, conservative portfolio of 15 , a little more aggressively, would be 20 . Now, since i believe its a longerterm hold, were very we believe that physical holding is is of great value. I mean this is one of the unique assets that an investor can actually own directly and not have a financial ininstrument put then between and the asset. As far as for traders or those looking for shortterm exposure to the metals, the etfs and futures market are optimal vehicle. Chris were going to leave it there. Warren buffett, of course, going along with this. Thats a longer conversation. Still to come on squawk unless youve been living under a rock you know the fiscal cliff is just days away. Whats going to happen . Anybody rock . Everybody. Kind of like i dont know. Will anybody be able to rise above . Partisan politics and come to an agreement in the final days of the year . Were going to ask Vice President bidens former chief economist Jared Bernstein. First, though, the economy held hostage in the words of one ceo. My name is terry, owner, president and ceo of a salon in princeton, new jersey. Ive owned the company for two years, its been here for about 30plus years. Were pretty scared of the fiscal cliff for many reasons. One of which is four of my employees, theres so much uncertainty for them. My other biggest fear is not being able to sustain the business and grow it, and offer Employment Opportunities for others, as well as for us, how were going to plan for the future. We have three weeks for a decision. Lets make that decision. Stop taking sides, and come together, lets have a Strong America that we all know and need again. [ male announcer ] this december, remember what starts with adding a friend. Could end with adding a close friend. The lexus december to remember sales event is on. This is the pursuit of perfection. [ male announcer ] this is karen and jeremiah. They dont know it yet, but theyre gonna fall in love, get married, have a couple of kids, [ children laughing ] move to the country, and live a long, happy life together where they almost never fight about money. [ dog barks ] because right after they get married, theyll find some retirement people who are paid on salary, not commission. Theyll get straightforward guidance and be able to focus on other things, like each other, which isnt rocket science. Its just common sense. From td ameritrade. Facebooks Instagram Service may have lost as many as quarter of its users over change in a terms of its services. The New York Post quoting figures from app data saying the photo sharing service had 16. 4 million users when it announced the change. A number thats now fallen to 12. 4 million. Users had interpreted this change to the privacy issue to mean that instagram could actually sell their photos for use in advertising. But instagram says it was all a big misunderstanding. They came out with a new terms of service. You had to press i agree i dont even know, people said oh, my goodness, they actually own our photos, theyre going to do things with our photos that we dont even know about, and that has not come. Theyve since changed the policy. But i do know a number of people, and clearly the numbers have been demonstrating, jumped off the service. And instagram now owned by facebook. So other questions about Mark Zuckerberg and privacy. Very big. The facebook. Instagram is the facebook for kids and thats what Mark Zuckerberg was hoping for. Lets turn our guest host john taft of rbc u. S. Wealth management. Thats what i want to talk to you. Theoretically, john, the fiscal cliff itself, if youre interested in wealth management, you probably, since youre looking out here and the fiscal cliff is right here, you probably dont need, necessarily, to change anything for me to ask you what your views are longterm on wealth management. Probably doesnt involve the fiscal cliff. Is that fair to some extent . Id say thats absolutely right. But, then would it involve the fiscal abyss and our long you could make, i guess, different decisions based on our entitlement issues, and these longterm fiscal problems that we have, couldnt you . That would be even more flightening. As youve been talking about on the show, the longterm issue for investors, in the United States, is whether we show the moral stewardship resolve, fix the fiscal abyss. The imbalance in the United States of america, which as you talked about, requires a balanced approach. So the fiscal cliff, what happens in the course of the next whether its three days, or one month, or two months, is really a its not a side show but its going to be a source of shortterm volatility. Now the volatility could be extreme, particularly if andrew is right, and we get up to the point where the United States is truly about to default on its public debt. The last time that happened, if you remember, the market traded down almost 20 in two weeks. So that could be scary. But, exactly as youre saying, what you need to counsel investors, and theyre willing to listen to the story, is look across the valley. Youre standing at the cliff. Its scary looking down. But in the other side things look pretty good. Housing is rebounding. The feds accommodative. Energy prices and dependent reducing. Lookterm we get to the right place. But weve got to get a credible solution that has integrity. The more integrity the solution has, the more it addresses the longterm issues. The more cash will move out of investor portfolios and into markets. Because looking at across this, as you say, valley, and abroad, there are people like mark fauber that think that assets will be marked down 50 based on what we already owe in terms of commitments to be made and entitlements in this country. So that what weve seen in other parts of the world is already going to happen here, that we cant really change our future. So you could make a you could make a decision as a wealth manage her to get defensive, not based on the fiscal cliff but based on the fiscal abyss. You could. For individuals, though, you asked the question earlier, andrew, what can you do . Its almost impossible for individual investors to market and be successful. So what do you do in an environment like this . Every individual ought to have a plan. They ought to have a place theyre trying to get to. If theyre not there now then they ought to have a second plan for how long it takes them to get there, and under what conditions. Dont do anything precipitously. Individual investors have a knack for making decisions about investing in Asset Classes at exactly the wrong time. They need to be disciplined. All right. Balance is another word that sort of irritates me, because when i hear Democrats Use balance it means higher taxes, when i hear republicans use balance, it means more spending cuts. When you say we need a balanced approach longterm, what are you talking about . Well, actually, this, i think, is something that investors need to think about. And there are a couple of very smart people writing about the issue. I would say jeremy grantham. But the whole are we coming to the end of an era. In fact i think one of our guests today wrote a piece on this. The end of the era where we could count on 3 average growth in the United States in order to develop the economy. Right. Okay. If we are coming to the end of that era, and we are now in a slow growth world, then there are a whole bunch of decisions that we need to make looking forward, different than the decisions that we made in the past. And i think one of the things youre looking at in washington, d. C. , with this whole fiscal cliff debacle, or spectacle, is politicians are flopping around in denial that they are up finally against the wall where they can no longer count on robust growth to bail them out. Actually have to start making hard decisions. And what youre seeing in d. C. Is really the politics of taking things away. Used to be you could go back to clinton and gingrich. They wanted to come to accommodations, they both got what they want. Now boehner wins, obama loses, obama wins, boehner loses, were not good at these politics. But the zero growth premise will have longterm implications for investors potentially. Usually notthe globalization makes it tough. But with the thing thats scary about globalization, theres also 2 billion consumers that are going to buy cocacola and levis, even though weve got to bring a lot of people into the middle class. You can look at it, theres good and bad. I could argue both sides. We got to go. Comments questions, anything you see on squawk email us squawkcnbc. Com. You can also follow us on twitter. Coming up, beyond the fiscal cliff, 90 new members of congress are on the way to washington and the new year. Were going to what the new makeup of capitol hill will mean for taxes, spending and Everything Else. This is 100,000. We asked total strangers to watch it for us. Thank you so much. I appreciate it. Ill be right back. They didnt take a dime. How much in fees does your bank take to watch your money . If your bank takes more money than a stranger, you need an ally. Ally bank. Your money needs an ally. Time for citi price rewind. Because your daughter really wants that pink castle thing. And you really dont want to pay more than you have to. Only citi price rewind automatically searches for the lowest price. And if it finds one, you get refunded the difference. Just use your citi card and register your purchase online. Have a super sparkly day ok. [ male announcer ] now all you need is a magic carriage. Citi price rewind. Start saving at citi. Com pricerewind. Welcome back to squawk box. In the headlines this morning, as the fiscal cliff approaches congressional leaders are set to meet with president obama at the white house this afternoon. Got that going for us. News of the meeting helped u. S. Stocks come well off their lows yesterday. But major averages are still coming off four consecutive losing sessions. And a threatened strike could idle more than 14,000 long shoremen this weekend. The 15 east coast courts involved in a labor dispute handle about 40 of the nations cargo. The Union Contract prior one expired back in september. A 90day extension ends this sunday. And a judge best known for his involvement in Insider Trading cases is handed down a ruling in a very different type of case. You know this guy . Judge rakoff has reaffirmed that sly stallone did not copy someone elses screenplay for his 2010 movie the expendables. He basically copied his rocky screen play from somebody else no, thats a joke. He didnt do that. I could probably get in trouble for saying that. We should have him on. I dont know, can judges come on tv . I dont think so. Some describe writer maimed marcus webb had claimed the expendables which was definitely an expendable movie was similar to one of his movies. You didnt see that did you . No. Apparently it was so expendable they did expendable 2. They did. But these guys were, i mean they were all sort of, you know, long in the tooth. Yeah. Were they not . It was like all of the actors that went on from being theig deals right. And if the world was coming to an end and had to be saved, you would not you would be worried. Maybe get some of the newer the newer young bucks. Of course theyre all 52. All those other guys were, as well. Congress has been focused on debt negotiations to avoid the fiscal cliff. What else . But whats on the agenda after the first of the year, eamon javers how joins us with investing predictions for congress in 2013. Eamon . Good morning, andrew. Its not exactly the mayan apocalypse but we going to see some manger changes up on capitol hill next year. They asked me to offer up some predictions. So i did my best. Take a look. 2013 is going to be the year that wall street learns to love elizabeth warren. Since shes been appointed to the Senate Banking committee, some of those wall street lobbyists ive been talking to say they think they can work with elizabeth warren. Part of the reason is because shes going to sit all the way down here as one of the least senior members of the Senate Banking committee. And also because they say they think that warren is going to want to take a much broader approach as a United States senator than just focusing on wall street or consumer issues. Immigration reform is coming here to capitol hill, and the battle is going to be whats in the final bill. And particularly, whats the path to citizenship for existing undocumented workers who are already here. And the penalties for the employers who hired them . All of wall streets going to be watching a new relationship between key players here in the House Financial Services committee. Gone is going to be the old chairman, mr. Bacher. Instead were going to have Jeb Hensarling of texas in his place as chairman here on the podium. Over here where barney frank used to sit, instead now were going to have Maxine Waters. Lobbyists ive talked to who follow this committee very carefully say they expect to see Maxine Waters and Jeb Hensarling try to find some area of agreement very early on in the new year. Some project they can work on together to get the relationship started off right. So maybe im a little bit overly optimistic about the new year but i do think people will learn to let along a little bit in washington next year. Maybe once all the dust is settled from this fiscal cliff apocalypse that were dealing with right now. That requires a lot of things to happen. Means weve got to get past it, though. Right. If we ever do. We could do the bungee jump thing where we go into january and then were dealing with debt ceiling fight that goes longer than that potentially. This thing could stretch on for a long time. Eamon, if Jeb Hensarling and Maxine Waters can get together on something, we can get together. Thats right. That is going to be the oddest couple on capitol hill. I was just joking about this, a little bit like one of those diagrams except it doesnt overlap at all. Where are they going to find some way to agree to Work Together on. Theyre perfect. On a seesaw, you dont need a big fat guy you need people that weigh the same. Right. And theyre both i wonder what heavyweights. Yeah, exactly i wonder what jared are you sick . I do have a cold. Im nursing a little hot tea here which is helping but not helping enough. Okay, stick around. Dont go anywhere, eamon. Were going to bring Jared Bernstein into the conversation. Cnbc contributor and former chief economist to Vice President biden. Weve been talking to you for weeks and weeks on end about the same topic, do you have something new, Something Different, to tell us about what could possibly, possibly happen over the weekend . Well i thought it was kind of cool and new that you decided to have me in here to talk about Something Different than the fiscal cliff. The kind of things eamon was just talking about. So im ready to make some of my own calls. Well take that, but i just need you on the cliff for a second. Sure, no i understand. You need me on the cliff. For a long time for a long time ive been saying its really questionable, a real linchpin here is whether john boehner can bring his troops along. I think we have pretty strong evidence of that a real tough one for him. At this point, unless hes willing to say, ill allow a vote to get over the transom with Majority Democrats then it looks to me like were going over the cliff and i dont think hes willing to do that before the end of the year. I do think relative to something you guys were just talking about, that a bungee jump scenario is actually kind of plausible. And i think thats what they may be talking about at the white house today. How can we quickly reverse the damage . Okay. Now that weve ghot. The cliff out of the way, whats are number one biggest, most out rangeious prediction in 2013 . I dont know how outrageous it is, my number one prediction is what i call the three is. Investment, immigration and implementation. Eamon talked about immigration. I think hes 100 right on that. I think the political stars are uniquely aligned. Investment in public goods. This is really important its part of the president s agenda. Anyone who travels around this country knows we have a public goods deficit. Its something wed love to see more in helping to boost the underlying productivity of the economy. And implementation. This doesnt get enough discussion. The Affordable Care act and doddfrank first term agenda items are not yet implemented and theres going to be a lot of that in term two. Other than that i see probably tax and entitlement reform. And dont forget guns. Guns are tax and entitlement reform. When does that happen. How does it happen . Were assuming a baby deal, so i assume that that doesnt happen in that context. Are you talking about a grand bargain . Right. I am. And im saying that these guys actually got pretty far towards some kind of a bargain that involved cutting some entitlement growth, restructuring the tax code in ways that i think are pretty good. When would this happen in your Perfect World . I think this would start to happen, not too long after we resolve the cliff. So, probably late february, march it would begin. But its going to take months. And on immigration, how quickly do you think that will happen . Thats a drum that people have been beating for a very long time to no avail. I think that thats going to sometime midyear, theres going to be a real deep dive into that. I think theyre going to want to get these fiscal issues off the table first. In many ways the immigration fight might depend on how well people are able to kind of come together, in eamons i think pretty optimistic, but hopefully correct, vision where theres a little bit more kumbayah up there. If theyre able to do the tax reform and the entitlement reform, say in february and march, i think they could really turn full bore to immigration after that. How does the gun control debate play out . And when does it play out, given that you just talked about immigration, weve got to get through the cliff, youve got these other taxes, youve maybe grand bargain issues and obviously guns in an odd way are such an emotional hot topic that you could see that overheating in its own way. I think the task force that the Vice President is running is going to take a number of months to come up with a set of recommendations, but it cant take much longer than that. I think conventional wisdom which i subscribe to on this one is that time is kind of your enemy in terms of getting something done. Did the president say he was going to have something in january, though . Yeah, i think hes going to Start Talking about something in january. Any legislation that crosses the transom probably would have to happen in the First Quarter of the year. I know im talking about a very jammed agenda but i kind of think thats the way things look. The conventional wisdom, again, which i think is right, is that that second term president s have a couple of years to get stuff done and thats kind of it. Andrew, the thing that we havent talked about at all which i just learned about this morning in the Washington Post, and im now deeply worried about is the milk cliff. Apparently if they dont pass the farm bill were going to go over the milk cliff and the price of milk could double. Im deeply worried about that because i eat a lot of cereal and drink a lot of milk. Hes got real skin in the game. Six bucks a gallon . Going to be a lot more expensive than gas. Youll be investing in cows. You always say invest in cows over gold. Invest in cows. I still think about that. And you see im getting more righter and righter every day with this milk cliff. Youre not lactose intolerant eamon . No, no. But in my house weve got all the kids like different kind of milk. Weve got like every kind of milk, 2 , 1 , soy milk. We have skim milk. We got everything. Were total milk consumers. Its just what is the plus . Its just this very stark reminder of how this gridlock just bites you in every direction. Yes. I mean, the ag bill used to be pretty much of a slam dunk. And im not saying thats necessarily a great thing, because theres a lot of, you know, theres a lot of fat in there. But still, i mean, the fact that these guys have been so unable, so dysfunctional, unable to get anything across the goal line, you really see it showing up everywhere. Weird stuff on jared on gun control. I see all these weird polls about i guess most people would rather enforce existing laws. Theyre not enforced. But did you see this gallup, a new record for people that oppose handgun bans. 74 . Its never been that high. 24 more people apparently would ban piers morgan from ever appearing on tv again than would ban handguns. Thats much higher consensus on that. Which i think which would be good for everybody, i think. Look, there are a lot of cross currents here, joe. Youre right. I mean i think theres very strong sentiment that Something Big has to change. Background checks, you know what . You definitely got to you should do that. Gun show loopholes theres some simple things. But actually questioning the second amendment, thats counterproductive. Im telling you. For people that do that. Its counter productive. Anyway very special thanks to eamon and to jared. Happy holidays if we dont see you before the new year. But i think given this conversation we might be talking cliff even on monday. Thanks. Coming up, businesses bracing for the fiscal cliff. Well ask chairman and ceo thomas fanning if the deal is possible and how his company is preparing for the cliff. Still ahead, as we approach the fiscal cliff, hopes for a debt deal are fading. Well talk to strategists from both parties about how to prevent disaster, and what happens if we go over the cliff. Judd gregg and Julie Epstein will join us at the top of the hour. You wont take my life. You wont take our future. Aids affects us all. Even babies. Chevron is working to stop mothertochild transmission. Our employees and their families are part of the fight. And were winning. At chevron nigeria, we havent had a reported case in 12 years. Aids is strong. Aids is strong. But we are stronger. And aids. Aids is going to lose. Aids is going to lose. With scottrader streaming quotes, any way you want. Fully customize it for your trading process from thought to trade, on every screen. And all in real time. Which makes it just like having your own trading floor, right at your fingertips. [ rodger ] at scottrade, seven dollar trades are just the start. Try our easytouse scottrader streaming quotes. Its another reason more investors are saying. [ all ] im with scottrade. Its another reason more investors are saying. Progressive direct and other Car Insurance companies . Yes. But youre progressive, and theyre them. Yes. But theyre here. Yes. Are you. . There . Yes. No. Are you them . Im me. But those rates are for. Them. So them are here. Yes you want to run through it again . No, im good. You got it . Yes. Rates for us and them now thats progressive. Call or click today. Welcome back to squawk box. Checking futures right now. The red arrows are still there. Dow jones looks like it will open off 72 points. Nasdaq off 15 points and s p 500 off about 8 points. Businesses are bracing for the cliff. Obviously from d. C. Is tom fanning, chairman and ceo of Southern Company, one of americas largest producers of electricity. Tom youve been on in the past. I think about just today, weve talked about what would happen to the estate tax. That affects certain people immensely. Then we think about, you know, unemployment, then we think theres so many Different Things. With you, though, you have been talking about what happens to seniors that use dividends, they save their entire life, they use dividends to live on, because tenyear notes and bonds are so low, and this is something the amt needs fixing, all these things. But the dividends is your thing because Southern Company obviously pays a pretty nice dividend. Yeah, joe, thats right. Look its become known as the socalled fixed income trend. You think about the kind of choices that people make as the demographics of america move to an elderly population. People living into retirement. Think about it. They want to dial down risk and they want to use stocks like ours in order to supplement their retirement income. Average age of our investors, about 63 years old. Average income somewhere between 70,000, 75,000. They use the dividends to, you know, supplement their retirement income. But you know, i hear a lot of arguments that say, well, look, you know, youre not subject to the 250,000 dollar cap or whatever the cap may be. The truth is, the market has already anticipated some adverse consequence to taxation rates on dividends. And what weve seen is a reduction in asset value. Stock prices have dropped 7 . So these people that have saved their whole lives, built a nest egg, have already seen, in fact, an indirect tax on their retirement savings. Its an enormous consequence. And where else do they go . With Interest Rates as low as they are, tenyear treasury about 1. 8 , its a very tough problem thats developing. Weve got to solve this in the right way. Yeah. So you figure we should do what with dividends . Weve got to give im sure somethings going to happen. So what should it be and what should Capital Gains be . So, what were for is a simple content, number one is what we call parity. That is lets keep the tax rates consistent between dividends, and Capital Gains, so that we dont create an artificial incentive by tax policy to push investors one way or the other. So parity. Keep the rates the same between dividends and Capital Gains. And the second point is lets keep those rates as low as possible. We know that we compete in the Global Economy. When we look at the tax policies of japan, china, brazil, other people were competing for in a Global Economy we need to keep those rates low. Keeping the rates low encourages businesses to commit longterm capital signatures, grow jobs, and grow personal income. I know youre a, you know, i know youre a giver, give, give, give. All youre worried about are your investors. What about Southern Company . Why are you so on the dividends how does it affect Southern Company what happens with dividends and Capital Gains . Well, it impacts southern as it impacts every other company in our industry. You know, when you think about the electric utility industry, we are a low beta kind of industry. We are low risk and typically we have a relatively attractive dividend yield. The general formation of return to investors is about 50 dividend yield and about 50 growth and earnings per share. So its critically important for our industry which interestingly is one of the great contributors to employment growth and variety of other things. We spend about 90 billion a year in capex restoring americas infrastructure. So these are things that are critical not only to southern but the hole utility industry. Ed, where do you think, john, what should we do with dividends . I think rates are going to go up. Because we already have the obama care. So what . I think well probably see 20 for both not counting the obama care. Is that the right answer . Well, id like to keep them as low as possible. But given that theyre going to need to raise some money, my guess is theyre going to go up modestly. I think 20 is probably about right. Its a better answer than ordinary income rates on dividends. But id like to ask tom, you know, people who point to the dividend effect also think it might be overblown because about 70 of dividend paying stocks are owned by investors, either foreigners, or in tax you know, tax exempt plans, retirement accounts, where tax rate doesnt matter. Does that make you feel a little bit better about what might be going on in washington . No. Look, we know that the deal in washington must involve reducing costs. Weve got to be flexible on revenues. But weve got to be for growth. When you think about tax policy with respect to growth capital, why in the world do you want to create artificial incentives for artificial disincentives to create capital information. Why do you want a tax growth . Thats not the right thing for the economy or our industry. I will tell you weve already seen a reduction. This is not theory im talking about. Weve seen a 7 reduction in the asset value of dividend paying stocks. Well thats as a cans what the market believes is going to happen ultimately for markets offset but i agree, if you were to anyone who valued the stock market over time uses that dividend yield just to say when its cheap and when its expensive. Sure. And you use the aftertax deal, even though 70 of it may not be directly taxed. But the stocks seem to be valued partially on what the aftertax dividend yields are. All right, tom, thank you. You know, stay well, happy new year. Yeah, you, too. Protection the grid, would you . Thats what i worry about, solar flares and terrorists and stuff like that. I cant go another i cant go like six months without electricity. All right . Joe, joe, the United States has the best electric network in the world. Okay. So i dont need to worry about solar flare or terrorists or nothing . Probably Better Things to worry about. We got it. Thank you. All right. I feel better. Happy new year, tom. Thanks. Coming up, were going to have more from our guest host john taft and ed keion. Its not that hard. You got eddie. I got eddie. I got ed. You nailed ed every time. Were going to have ed on the show. Also, the latest negotiation. It is the ed show. Former republican senator and governor judd gregg. Awesome. Whoo. Strategist, and we have some others as well. Were coming back with some pronouncers after the break. Welcome back to squawk. Hewlettpackard how confirming that the Justice Department is looking into allegations that autonomy engaged in questionable Accounting Practices before hp acquired it last year. Last month, Ceo Meg Whitman used that as the basis for the bulk of a nearly 9 billion writedown. Autonomys exceo mike lynch continues to defend the companys accounting. He says hp has yet to give a detailed explanation of the allegations against autonomys former management team. Coming up the latest on the debt negotiations. Were going to ask former republican senator judd gregg, democratic strategist Julianne Epstein if a compromise to avoid the fiscal cliff is possible. Plus find out how soon your paycheck will shrink if we go off the fiscal cliff. Were going to talk to the ceo of a Payroll Company. Squawk is back after this short break. m onna have to ask you to power down your little word game. I think your friends will understand. Oh no, its actually my geico app. See . I just uh paid my bill. Did you really . From the plane . Yeah, i can manage my policy, get roadside assistance, pretty much access geico 24 7. Sounds a little too good to be true sir. Ill believe that when pigs fly. Ok, did she seriously just say that . Geico. Just click away with our free mobile app. [ male announcer ] this decr, r you can stay in and share something. 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You wont just find us online, youll also find us in person, with dedicated support teams at over 500 branches nationwide. So when you call or visit, you can ask for a name you know. Because personal Service Starts with a real person. [ rodger ] at scottrade, seven dollar trades are just the start. Our support teams are nearby, ready to help. Its no wonder so many investors are saying. [ all ] im with scottrade. Speaker boehner calling house members back for a sunday evening session. But is it too late to get a debt deal done before we go over the cliff . And if we go over the cliff, how soon will the government take a bigger bite out of your paycheck . I didnt receive my paycheck this week. Youre going to have to talk to payroll about that. Were going to ask the ceo of a Payroll Company about the plan to collect more of your money if tax rates increase. The third hour of squawk box starts right now. Welcome back to squawk box here on cnbc. First in business worldwide. The parties are just starting this friday. Im Andrew Ross Sorkin along with joe kernen. Becky quick has the day off. Our guest host this morning, john taft, ceo of harvey wealth management. And ed keon. Weve got more from john and ed still ahead. Joe has your headlines. Thank you, andrew. President obama is going to meet did you say with a straight face . Weve got to bring people in. Andrew, ask again, whether it was keon or keon. Thats why were youve been nailing the ed. Ed. Nailing it. Nailing ed. And john. Nailed that. Taft. Unbelievable. Here we go again. What happened . There it is. All right. The prompter guy is confused. President obama is going to meet with top congressional leaders at the white house this afternoon, in hopes of making progress. Still, on the fiscal cliff. Well see. In addition the house is coming back in session on sunday. U. S. Equity futures. Lets check them out right now. Gotten worse. They were at 40, 60, now 80. Down 80 and we were i dont know whether 150 was the bottom or where we go this time because we did hit that yesterday. We were down 150. Closed down 18. So this would translate to being down about 100 versus when we really started the markets started taking it in earnest that we will go over. Well see. Theres whats happening in the asian markets. Theyre up, and off. In europe, europe seems to be at the tail of being wagged by us. As i would say right now in europe right now. But not huge losses. And lawmakers have been preoccupied, says here, with the cliff, but they havent done anything but they also havent dealt with passing a new farm bill. The Washington Post reports that unless one is passed by january 1st, the formula thats used to establish minimum milk prices would revert to the one that was in place in 1949. The paper says that that could boost milk prices by more than 3 a gallon. You could be paying six bucks. A gaen . Wow. And shippers are trying to avoid a strike at more than a dozen ports alone the east coast. 14,000 longshoremen are involved. They could walk off their jobs when their contract expires on december 30th. On sunday. The biggest Sticking Point is over royalties for containers which are based on the cargo weight, and theyre paid to union workers. A strike could hurt exports, idle factories and would also affect retailers waiting for shipments of spring merchandise. Okay. There are just two days left before we go over the fiscal cliff, barring an 11th hour deal. Joining us now former senate and governor from New Hampshire judd gregg now an adviser to Goldman Sachs international. And julian epstein, democratic strategist with law media group. Judd, now that youre a Goldman Sachs man, i assume that Goldman Sachs people call you and say whats going to happen . What do we tell our clients who are asking us what to do and how to play this . And you tell them what . Well a few people occasionally call me. Andrew its gregg judd if you want to get the name right. What did i say . You said judd gregg. Hes one of the judds. It is judd gregg. Thank you. Hes totally yanking both of your ive been having such a hard morning i believed you for about a second. Youve got to say its epstein like frankenstein. Im good with whatever youre good with. My view has been all along that these folks are going to reach an agreement. Unfortunately it doesnt look that way right now. They do have this meeting and i think if the president comes to the meeting with a very specific proposal versus opening the meeting up for discussion that they can discuss in the meeting specific proposals that they can debate the merits of and decide whether they can pass. But you might still get an agreement here. The meeting this afternoon is going to be a little different than prior meetings because it will have both Mitch Mcconnell and harry reid in the room. In a very substantive way. Up until now its been the speaker and the president. So i think that changed the dynamic of that room, and you might get a little more movement. Theres an opportunity for the senate to say what they can do and for the speaker to say whether or not he could handle that in the house where it could pass. Theres still a chance for an understanding here. I cant believe that nice five people, who are charged with the responsibility of governing this nation, cant come to some sort of an agreement that would put this really disastrous event off. Julian, are you in the same place . Or are you more pessimistic, i think . I, you know, ive always thought that we would get a deal. Im less optimistic now, but i still think there is a chance. Look, at the end of the day, the only way we get a deal was when the speaker concedes the basic point that you have to have a deal between the speaker and the president. If you dont have that, nothing else matters. And what the republicans did was that they emasculated the speaker, they then decided to go home, and they took a my way or the highway approach that basically didnt reflect any of the realities of what the last election reflected. At the end of the day here the critical issue is going to have to be this question of tax rates on the upper 2 . The president won the election on that question. The polls all show the public is behind him on that. And basically every economist has said if youre going to get real deficit reduction you have to have a combination of revenues and spending cuts. The crs study, the cbo study, have all said that if you raise the rates from 35 to 39 on the upper 2 youll have virtually no impact on economicgrowth. Virtually no impact on the deficit. Well, were talking about a trillion dollars. All right. A trillion dollars and were spending how much, julian, thats what everybodys so frustrated about. We understand the 250. What about all the other stuff we need to do . Thats incorrect. Thats why this fixation on just the top 2 . You could tax them at 100 it doesnt solve our entitlement problem. I disagree with you. The framework we were talking about in august of 2011 was a 4 trillion dollar framework. Were about halfway there with the spending cuts and the drawdown of the war. Were about 2 trillion down since then. Were talking about an additional two. Youre going to get youre going to get it. When they revert back to the old rates, youre going to get it on the youll get the full 39. 6 on the top 2 , then what . Then can we talk after january 1st . Is that why we wanted to go over the fiscal cliff . No, no. That is a totally unfair characterization of whats been going on. The point here is that the president s position has been you have to have a compromise. You have to have a compromise on taxes, democrats have been willing to go to i think 500 billion in terms of the threshold. Theyve also been willing to make major cuts in spending. They talked about chain cpi on entitlements. About half a trillion total in entitlement cuts. Theres been compromise on the democrats part. The point that im making here is that there will not be a deal until the speaker recognizes you have to have a bipartisan package that both republicans and democrats can support, and that it will have to reflect compromise. The position of the House Republicans to this point has been to dig their heels in, and absolutely no compromise. That was the position of the that they take it. Take 39. 6. Im ready. Take it. Then can we just do it and then do something, judd . Please. Im so tired of this. Well, yeah, so am i. And im tired, really, of democratic talking points and republican talking points which you just heard a lot of democratic talking points. The simple fact is that our problem is our debt and our deficits are simply too high. And we have to get them under control. And to get them under control youve got to address the entitlement accounts. And you cant do it entirely on the revenue side. And youre going to have to have a balanced proposal here. And the balanced proposal is going to have to involve medicare. Its going to have to involve medicaid. Its going to have to involve Social Security. And until the president , the leader of the nation, is willing to step up and be very specific on those accounts, were really not going to make very significant progress on anything that will substantively impact our longterm debt. Now the republicans are equally going to have to be willing to give on the revenue side. And i think that boehner, Speaker Boehner has been very aggressive in doing that. Quite honestly i think hes gone much further than i would have expected him to go on the revenue side. Hes essentially said hes willing to give the revenue to the president he wants. He was even willing to give him some rates that he wants. And hes also said, and i think hes right on this, unless you match those revenues with spending reductions he cant pass the house with that. And he shouldnt pass the house with it, because it really is the spending issue that weve got to focus on now. I think everybodys knows where the revenue number is going to. Its going to about 1 trillion. But the spending number is simply not there. And it hasnt been there, and until we get some movement from the other side of the aisle, so to say, on the issue of how you reform the entitlement accounts, youre not going to get that. Now i will give the president credit for this. He did put on the table, as your other commentator there said, the chain cpi. That is a huge give in my opinion by the president. He should be getting credit for that. But it really represents about 250 billion of the 1 trillion that you need to get out of the spending side of the ledger. You cannot, however, as your other commentator just said, account the savings from the war in this process. Thats a joke. Judd thats like saying well this year im not going to go buy a ferrari, therefore i saved the money on my ferrari. Simple fact is that thats gamesmanship lets just back up if we can on each of those. I agree with what the senator is saying fundamentally here which is that you have to balance, you have to are revenues of about 1 trillion, and youve got to have reduction youve got to have reform in entitlement spending. I will point out that the Republican Party has been very, very unspecific about what they want to do on the entitlement side. Has not proposed anything even approaching fundamental systematic entitlement reform. But heres the point. The point is that the president has been willing to compromise. The president has been willing to go from 50 to 500 on the tax question on the chain cpi as you just mentioned. The spending cuts are not really the Sticking Point here. The parties are not too far apart. Yes, they are the Sticking Point. Thats why the house excuse me just a second. The issue that has separated has been this total intransigence on behalf of House Republicans to make any concession whatsoever on this question of the rates on the upper 2 . That is an issue the president campaigned on. Thats an issue the public is behind him on and most economists are behind him on. So it has been the entransjens of House Republicans on this one issue. The unwillingness to compromise along the lines that senator, you, in facts are advocating. No. You know, youre not youre incorrect. How so . Ill be kind. Becauses speaker made it very clear that he could deliver a package, and he said this on numerous occasions, he said it in his last press conference even after he had the problem with his house caucus on the issue of his own proposal, said i can deliver an agreement reached with the president if that agreement matches spending to revenue. And he said very specifically that thats what he can deliver. And i believe he can deliver that. If he has a package which says, okay, were going to give on the revenue side, which hes already agreed to do, and youre talking probably a trillion dollars here, maybe 1. 2, and i get and he has at the same time a spending reduction of one to 1. 2. He has said he could pass that. Senator, lets be honest here. No the issue was the speaker said that we would get a trillion dollars in revenue, including increasing rates above a million dollars. A year. The no. Thats not what he said. The Republican Caucus you cant misrepresent the speakers position that way. That was what the speaker you cant misrepresent his position excuse me, senator, that was what the speaker offered. That was what was widely reported thats what he offered but thats not what he said at the press conference. Senator, give me a break its what he was willing to take to the floor until the republicans said absolutely no they werent going to support him and totally emasculated him on that. Youre wrong. Oh, im wrong about that . Then the rest of the world is wrong about that no the rest of the world isnt wrong about it. The speaker speaks for himself. What was in the press conference he made it very clear he made it very clear at the press conference. Judd that he was willing to take to the floor and would pass an agreement reached with the president i know, senator you keep repeating yourself. Which had revenues and spending at the same wlefl. You keep repeating yourself well, of course, because im trying to get some Accurate Information out there over your talking points from the white house. The idea of getting a trillion dollars through taxes just from closing loopholes you know has been a nonstarter. Thats not what he proposed. The president said is a nonstarter. The speak wanted to take a plan that would generate revenue this is why were not making progress please stop interrupting we are making progress guys, guys guys, this i want to thats why were at an impasse. Were at a real impasse for both. Im going to ask one final question of judd, and just say this, is Speaker Boehner the right guy for the job . Absolutely. In fact, i think hes the only guy for the job. And i dont think theres any issue that his leadership is solid within the house membership. Hes not going to be challenged by anybody. The only person who would possibly challenge him is eric cantor and hes been a strong supporter of his initiative. Weve got to go. Watch what happens on january 1st. It goes to 39. 6. The flowers will bloom, the trees will grow, the sun will come up, all the problems will be gone because 2 will be back at 39. 6. There you go. You got it. Finally, take it. Coming up Payroll Companies have a plan in place to increase your taxes if we go over the cliff. Will the government start taking a larger bite immediately . Well ask martin mucci, president and ceo of Payroll Company paychex. Stick around well be right back. [ male announcer ] at scottrade, we believe the more you know, the better you trade. So we have ongoing webinars and interactive learning, plus, inbranch seminars at over 500 locations, where our dedicated support teams help you know more so your money can do more. [ rodger ] at scottrade, seven dollar trades are just the start. Our teams have the information you want when you need it. Its another reason more investors are saying. [ all ] im with scottrade. Back, fiscal cliff stalemate creating a waiting game for payroll firms just days away from the new year. The irs still hasnt released tax tables for next year. Joining us now, martin mucci, president able ceo of paychex. How about you just ignore going over the cliff, martin and dont change anything. You just solve it for us. Can you do that . Based on the last interview id love to solve it for you. But am i right or am i right . We go to 39 theyll finally get it, 39. 6, finally and then maybe we can talk about something else. Im ready, please, take it. I think, joe, i think everybodys ready. You know, paychex is certainly ready to help. We have over 560,000 small and midsize businesses that are just waiting for this thing to get done and were here to help them through it. Were going to be able to change the rates quickly. Thats not the issue. The issue is really that our clients and so many other small and midsize businesses are facing uncertainty and things are just kind of stagnated until this thing gets decided. So you know, were ready to handle it. The rates can come in from the Treasury Department. Well change them within 24 hours. Thats why you go to a company like us to outsource, and well be able to take care of our clients. Whats irreversible . Nothing, really. You know, what happens is the new rates get in place. We a company of our size we can do it quickly. And were there to support our clients with information. And so forth. When does your deal get done, andrew, february 1st . I think late january or february. So what do you do, you go back so we get a deal in february or something, nothing is irreversible . Nothing has already been done that messes things up for the rest of the year . Right. Well, the new the existing rates stay in effect until the Treasury Department gives us the new tables. Once they give us the tables, theyre in within 24 hours and we start using them. At that point, either its made up on when the individuals file their income taxes for the year, or we can work with the clients to go and heteroactive some of this. But it does get confusing for the clients. Thats the worst thing. Doesnt affect do you print the w2 forms, too . Absolutely. And those is that its not going to affect you for another year. Im starting to think a lot of companies do their w2s for the end of january. Its all happening. But what youre saying is kind of, i dont know, this is almost like it really isnt a cliff. Its just where you go past january 1st you can fix everything whenever you end up fixing it. Weve been told theres some irreversible things that happen but not from your you have to start taking sort of excess taxes out of just change their code. Youre just changing the code but if youre doing it rerow actively for money lets say you get paid every two weeks or every month for the month of january, it means that your rates going to be youre going to take out more in the other months to make up for january. Thats how its going to have to work . You can do that. But most clients will want to just go forward and then deal with it when the individuals file their tax returns at the end of the year. So, you know, they wont want to go back collect more or less. If its less, and they want to give money back, you know we can always work with our clients to do that. Thats going to create some interesting issues for individuals some 2013, those who didnt save, who are actually now then going to have to pay in, who dont either have the money or werent preparing for it the way they should have. Most people get a refund. So whether the rates are a little higher or lower in january were talking about the rates on the highest most people get a refund. But were talking about the people at the high end, who traditionally i think martin may know. Do those guys usually get a refund . Traditionally im not in that category and i dont get a refund i can tell you that. So i do know that. Traditionally they dont. The one thing, the interesting thing were seeing right now are some actions that clients are taking right now. Like were seeing about 10 to 15 more bonus checks being paid in december than january, because of the concern that the rates are going to go up. So were seeing an acceleration of bonus payments in december so it is making clients kind of focused on it. We think paychex certainly we can take care of it. Its not like y2k. Its not problem . Youve got enough people, you just plug in a few new things when you hear from treasury. All good. All right. Im not worried about paychex and what can you do then. Cross that off the list. Okay. Of things because im worried about a lot. Anyway, martin, thank you. Coming up the greek debt crisis taking a toll on employment. Public services, and business, but also damaging the Mental Health of its citizens. Well bring you that story next. And still ahead, congressman Jim Mcdermott with the latest on the fiscal cliff negotiations. First, though, an American Military hero has died, Norman Schwarzkopf passed away in florida yesterday. Remember he was popularly known as Stormin Norman and he was the u. S. General who led the 1991 operation desert storm, which liberated kuwait from iraqi dictator saddam hussein, and you know, the 41 is ill and actually sent out a statement about the general late yesterday, when were all thinking about 41, as well. Schwarzkopf was 78. [ male announcer ] its that time of year again. Time for citi price rewind. Because your daughter really wants that pink castle thing. And you really dont want to pay more than you have to. Only citi price rewind automatically searches for the lowest price. And if it finds one, you get refunded the difference. Just use your citi card and register your purchase online. Have a super sparkly day ok. [ male announcer ] now all you need is a magic carriage. Citi price rewind. Start saving at citi. Com pricerewind. Welcome back to squawk box this morning. The greek economic crisis taking a toll on Mental Health of its citizens in an article today in the f. T. Greek psychologist says she believes that anxiety, sleep disorders and depression have been exacerbated by the crisis of the greek health system, ravaged by the downturn and austerity measures struggling to accommodate a flood of new patients seeking Mental Health care. Waiting time for psychologist appointments have stretched to up to two months. What do you think of that . I feel the problem over there. Its a mess. Its a mess. Think were going to need psychologists over here if we go over the cliff . We might dont you think were therapeutic . We are to some extent for viewers. I dont know if you actually need the payout one of these therapists. You never get cured, you know that . I think we need a therapists like dermatologists, the best job in the world. You never get cured. You need to go constantly. And youre never really fine. I do. Wheres woody allen go to four days a week, five days a week . Whats that called . Analysis. True analysis. Right. Probably never cured. Kaching every time he comes in. Thats business for you. Coming up, get ready for the trading day ahead. Were going to go to chicago. See what traders are watching. And his hopes for a dead promise fade its looking more likely that we do go over the cliff. The latest from the democratic congressman Jim Mcdermott. And take a look the u. S. Equity futures. We are now seriously in the red. Dow looks like it might open off close to 100 points. [ male announcer ] this is joe woods first day of work. And his new boss told him two things cook what you love, and save your money. Joe doesnt know it yet, but hell work his way up from busser to waiter to chef before opening a restaurant specializing in fish and game from the great northwest. Hell start investing early, hell find some good people to help guide him, and hell set money aside from his first day of work to his last, which isnt rocket science. Its just common sense. From td ameritrade. Omnipotent of opportunity. You know how to mix business. With business. And you. Rent from national. Because only national lets you choose any car in the aisle. And go. You can even take a fullsize or above. And still pay the midsize price. I could get used to this. [ male announcer ] yes, you could business pro. Yes, you could. Go national. Go like a pro. Welcome back to squawk box. Futures have continued to slip. Whats the last you saw . Looks like were down about 10 or 11. On net. But some individual stocks to watch, hewlettpackard says the Justice Department is looking into its allegations about britains autonomy, and whether that company had engaged in accounting improprieties prior to the acquisition in 2011, in which hp paid 11 billion for it. And so far, hp has taken a 9 billion writedown citing those accounting issues. And directv will raise prices by an average of 4. 5 citing the increased cost of programming. The new fees will go into effect on february 7th. Andburgen king worldwide has struck a new agreement which will help it expand in central america. Its established a joint venture with one of its longtime franchisees in that region. Okay. Lets get a check on the markets. Rick santelli is standing by at the cme in chicago. Rick, whats interesting to you this morning . Well, i think, the interesting view is, many are debating how much impact a deal, no deal, a deal next year, a retro deal, amt distortions, would have on the fixed income markets. We all pretty much have an opinion on the equity markets and i think that market is easier. But i think after the debate is all said and done, most dont believe that the treasury markets going to have a significant longterm tshhave any type of move that will be tied to the fiscal cliff other than a kneejerk reaction to what happens in equities in some form, muted form, so to speak. Equities have taken a hit this morning the way they seem to be ahead of the market open . Yeah. I mean, a perfect example. You know, yesterday we were between 175 and 178 on the tenyear until we saw the drop to minus 140, 145 in the dow. We traded a wink under 170. Kind of the same scenario today. Youre actually getting close to some of those levels. Here you are at 1. 70. Whats fascinating is after its all said and done, you know, were still right now 17 basis points lower in yield, higher in price, than we were at the end of last year, and the other thing, anthony and i were talking about is, what is a strategist . You know, we have democratic strategists, republican strategists, and we all decided we know what it is. I know who youre talking about. A prop gandist. One guy said a prop gand todayist, the other guy said a burper. He said you put something in front of it and they just keep burping it for a couple months. I know who youre talking about. I just had a revelation, it was kind of exciting. If we go over, rick, and we go to 39. 6 on we revert back to clinton on everything then well put together a deal to lower 98 so they get it. They got it. But then are theres nothing left to talk about with that anymore. A lot of people are going to be out of business. A lot of democratic strategists are going to be out of business. According to some accounting, the ideas that youre discussing right now are even more bankrupt and are you so right. I got in a little early today. And i caught some of what the guys were discussing. Thab then, we got the next thing coming up. The next big thing is the debt ceiling. And then with the 39. 6 on the 2 , with that gone, then we can actually talk about reforming structural longterm problems. Spending and taxes and Capital Gains and amt, all that other stuff. That might be what we need to remove so that both sides finally can do something. It sounds so easy, doesnt it joe . Why do i have this funny feeling once they get through the total propaganda of equivalent rates under clinton, even if you cant say if anybody had the rates in clinton you have to chop it off. We have the same Mortgage Rates under clinton people would have heart attacks. But having said that, i dont think any of them have the nerve to really tackle the problems. Maybe that little ring they call the extreme right wing. Because theyre right. Rick, thanks. We have one more congressman. Im going to ask him that. We know what happens january 1st. When somebody wins an election, you know, the more i hear well he won the election. Therefore the 2 tax is a fait accompli. Did may not read the exit polls, a . But b, even more importantly, you know, the people that are giving them a hard time were duly elected, as well. Honestly, what a bunch of knuckleheads. I know but you wonder why nothings been done, because all they had to do was wait for january 1st. Im going to play the geithner tape again when he sort of, you know, it kind of slipped where he said oh, yeah, were ready to go. Were so ready to go over, and then they get no, he didnt slip. You know, somebody pulled the string and he said it. All right. Coming up, is it too late to avoid the fiscal cliff or is there still hope for this 11th hour deal . Were going to ask democratic congressman Jim Mcdermott. Are you suffering from market fatigue . Do you feel confused and out of touch with todays markets . You may be suffering from a serious condition known as information deficit disorder. And it may be related to an imbalance of natural chemicals between nerve cells in the brain. But theres a cure. Tune in to squawk box for instant relief. Squawk boxs premiere interviews attack market tat eeg at the source. Flooding your knowledge receptors with the information your body needs. Side effects of squawk box include mental clarity, upward career mobility, abnormal portfolio growth. Take three hours of squawk box and be ready for your morning. ] how do you trade . With scottrader streaming quotes, any way you want. Fully customize it for your trading process from thought to trade, on every screen. And all in real time. Which makes it just like having your own trading floor, right at your fingertips. [ rodger ] at scottrade, seven dollar trades are just the start. Try our easytouse scottrader streaming quotes. Its another reason more investors are saying. [ all ] im with scottrade. Welcome back to squawk box this morning. Red arrows. Its been this way all morning, fluctuated a little bit, got a little better. I dont know, well put this in the slightly better camp than where we were about ten minutes ago but its still not a good situation. Dow looks like it would open up at least off 77 points. Nasdaq off about 16 points, s p 500 would open off about 8. 5 points. Of course all that subject to change. But a lot of this seems to be the result, perhaps, for the first time in the past couple of days, people are starting to think about the fiscal cliff and really going over it. And take a look at currencies this morning. Ed might have a view on what this all means. You were saying that this is sort of suggests something sort of out of balance. The last year or two, assets have moved together. So if you say the dollar was rallying, thats usually a bad thing for risky asset prices. But so far this morning, interestingly, its the squall changes, and its illiquid market. But the euro has actually rallied a little bit even as futures disappear. So its a little bit of a switch in the simple risk on risk offtrade that weve seen for the last year or two. And time is running out for lawmakers to negotiate a debt deal and avoid the fiscal cliff. Congressman Jim Mcdermott, we were just talking off camera about debt panels and weird stuff, congressman. My andrew, im worried already. Im 56. I have a birthday coming up. I hear youre vulnerable today as well. Did you have a birthday today . Today is my birthday. All right. Im not going to ask you if youre over 40 or anything. Just be careful if you see andrew knocking on your door. I dont know how much time you have left. Congressman, we keep talking about this, and im going to be honest with you here, just with the assumption, lets say we go over january 1st, rates go back to 39. 6 on everybody that makes over 250,000. Will that be enough at that point for us to really put that whole argument behind us . Because its been like a false argument, i think, and then can we actually look longterm at what we need to do to address our longterm problems . Well i think that this is really a very Pivotal Point for our country. We have to get beyond people sort of automatically kneejerk response to the pledge of no new taxes. We have to get beyond that if were going to have a settlement thats going to have both sides sitting at the table. So, having this happen will break that. The republicans are going to try not to vote for it so they can say they didnt vote are it, it was forced on them. Right. But the fact is that it has to happen. But it will happen. I know and i keep hearing that. I dont see why were so focused on taxes. We only got two or three days to wait. And thats done. That problem is over. For your side. The taxes going up. They will go up. Then what do we do . Well, at that point, then we have to come back and begin to Start Talking about how we make deductions in the budget in a sensible way. One of the problems with the sequester and why its caused all the anxiety that you hear out there is that a 10 cut across the board, you know, that seems like well thats easy. But what does that mean if youre talking about a place where youve got two people, what does 10 mean . You have to cut one person . And so people are looking, and research laboratories, educational situations, theyre looking all over the country at what a sort of mindless 10 cut means or whatever. So they are really at the point of wanting some spes if ity and having someone look at, should we do this program or that program . And thats really what the congressmans going to have to do. Yeah. I just i wonder how that shifts things now . Because the narrative right now, and maybe the public will buy it right now, is that the republicans have been obstructionist about the tax issue. Once we get past january 1st and you get everything you want, you wont even have to argue about 400,000, 500,000, 1 million. I dont know really if the president has had any reason to negotiate in good faith. He knew we were going over he knew he could get back to 39. 6, and you saw geithner. In fact, congressman, i think we should have learned from this. Check out this quick sound bite. Is the administration prepared to go over the fiscal cliff . Oh, absolutely. Again, theres no prospect to an agreement that doesnt involve those rates going up on the top 2 of the wealthiest americans. Remember its only 2 . Remember all those americans, too, get a tax cut under that framework on the first 250,000 of their income. So in some sense its a tax cut for all americanstsh so what were republicans even thinking trying to negotiate with with that position . But once it happens, and were at 39. 6, then it goes back on the president s sideage the spending and the entitlements and the tax reform and all these big issues that we have, its going to be back in your court and the president s court. Is he ready for that . Well, what i think the public, and perhaps a lot of the analysts are missing is that really the process has totally broken down. The house is supposed to deal with these issues, and make proposals. It isnt the president who makes the proposals. If you read the constitution, article 1, and section 7, says it is the house that begins all revenue measures. Now, if the house is going to do that, that is going to require the speaker to talk to the minority leader and say, look, ive got 190 votes for this, i need 27 democrats, what do i have to give you to get this done . Thats called a compromise. And we havent had compromises for, well, since really 1995. It has been very hard for the people and the leadership on both sides to go across the aisle, and sit and honestly talk because when they do, they wind up with what happened to john boehner the other day, where he goes, puts plan b out there, and gets knifed in the back by his own people. But i wonder what because thats all going to be moot when we go over if we go over on january 1st. And all those discussions will go over, and well revert to the clinton tax rates. But then, like i said, well have the spending issues and then the debt ceilings coming up. And once again, youre going to see i mean i think youll have to the president and democrats will have to come to the table at that point, wont they . Well, were willing to go to the table, but we have to have the ability to have a balanced kind of compromise. But that will be done. Youll have the balance you want on the tax issue then . Youll have all of the tax increases that you want, and republicans, theyll no longer boehner wont have trouble with these guys voting for a tax cut, so that will be off the table. But then weve got, what about entitlements, what do we do . What do we do with spending 25 of gdp . And thats going to be a real negotiation in which no side is going to get exactly what they want, its going to require compromise. It is unfortunately been my way or the highway on all these negotiati negotiations and when you talk about entitlement cuts, right now one of the things that is not being dealt with is the sgr. The fix for doctors fees that will lead to a big drop in their fees if they dont get a fix here. Yeah. Well thats going to be on the table. And thats going to require some compromise between democrats. The same with the farm bill. I mean milk prices are going to double by the end of the month. I know. And the milk bill was passed out of the house or the senate with a huge majority. And the house wouldnt bring it to the floor because they would have to compromise on some of the proposals in it, and you have to be willing to compromise. I have never gotten everything i wanted. Yeah. I mean, its funny, because it is really that simple. Republicans wont raise any taxes, and democrats dont want to really cut any spending. Its kind of and then were all watching it as it happens. But after january now im starting to think january 1st, weve only got a couple of days. You know well the republicans have made they did the taxes. They did the calculations. Right. Theyve made the calculation that nothing is going to happen on january 1st. They cant repair by the time of the next election, two years from now. Both sides may have. But the president gets his 250. You know, to be fair i think both sides had something to gain by, you know, letting it go to that point and then they got to really start making some hard decisions. Congressman, youre 39 again . Yes. Again. Youre a capricorn. Thats right. Which are the best people. Ive found. Throughout my life. By far. The best people. Jesus christ and Richard Nixon and me. Thats right. And me, too. What is your sign . Pis pisces, isnt it . Im a pisces. Congressman, thank you. Aquarius. Good one. Okay. Coming up, the stocks you need to watch as we prepare to close out the week. Plus postchristmas rush for retailers. Jane wells is going to join us to break it all down. Jane . Well, you know, this is the week of giving back. Giving back the gift you dont want. Why do americans do so many returns . Cant we just say thank you . And what is the gift we return more than anything else . You may be surprised. Find out after the break. Power down your little word game. I think your friends will understand. Oh no, its actually my geico app. See . I just uh paid my bill. Did you really . From the plane . Yeah, i can manage my policy, get roadside assistance, pretty much access geico 24 7. Sounds a little too good to be true sir. Ill believe that when pigs fly. Ok, did she seriously just say that . Geico. Just click away with our free mobile app. You can stay in and like something. Or you can get out there and actually like something. The lexus december to remember sales event is on. This is the pursuit of perfection. [ male announcer ] its that time of year again. Time for citi price rewind. Because your daughter really wants that pink castle thing. And you really dont want to pay more than you have to. Only citi price rewind automatically searches for the lowest price. And if it finds one, you get refunded the difference. Just use your citi card and register your purchase online. Have a super sparkly day ok. [ male announcer ] now all you need is a magic carriage. Citi price rewind. Start saving at citi. Com pricerewind. Welcome back. The squawk box, back down to 87 now as far as the dow futures go. And it should be an interesting session to watch, as leaders meet with the president and all the people leak little things. And the meeting is at 3 00 p. M. People will try to read the tea leaves in the last hour before the market closes. Its going to be tough. Christmas is over. We know that. But retailers are staying business with returns and exchanges. Cnbcs jane wells joins us now with more. Jane, theyre making winter coats, they run small now. Ive got to return something today. I want you to know that. Oh, you do . Are you going to exchange . Yes, its a little embarrassing. Im taking back an xl to buy an xxl. I think its italian or something. Thats scary. What are you talking about . Im taking back a winter coat. Joe, someones going to have to tell you what, im fat . Youre fat thank you. Where are you, which mall . Youll be one of the many. Im at the northridge fashion center, which was my mall growing up. I have oh, youre a valley girl . Yes, totally. But they are expecting in retail, record returns this christmas, and a lot of is because of this increase in online shopping, where maybe stuff when you get it doesnt look the same or it doesnt fit quite right. Retailers also make it so easy for you to return. And while they hope you do exchanges and buy more, its also important they just build that relationship. Whats the most returned item this season, its expected to be a consumer electronic. One in five Electronics Gifts will be returned, with tablets being part of it. And total returns should be up 37 to 63 billion worth of goods. In many countries, returns, you just dont return goods. Its somewhat you techniquely american, and i think its really fostered by a number of the very strong retail brands, trying to build this really Strong Customer royalty, and saying, you know, if you make a mistake, thats okay. We value your shopping and we want you to come back. Now, Federal Express says one in three americans will return gifts, but while most retailers would prefer you make the returns in person so you can shop around, fedex says 57 of shoppers prefer to ship them back. And the worst gift givers are the spouse or partner. One in four gifts from this important person in your life is returned. Coming in second is mom, which is why always give cash and gift cards, guys. Yeah. Its okay for you, though . Try giving that to like a wife. You cant give a gift card to a wife. Why not . I dont understand this whole like, oh, a gift card is so cold and impersonal. I dont get that. What if i give her a new vacuum cleaner . Hows that work usually . No, no, no. A blender. A gift card. Hey, honey, love you, heres your gift card. I did get one of those. A gift card is nice. If you got a gift card to tiffany or nordstrom . You know what i mean . I dont its okay. Its okay. And believe me, for your kids, as they get older, joe, thats all theyre going to want. They dont want the thought, they want the cash. Ll right, and can i ask you, have you worn the new jammies yet . I have worn them every night, to prove how much i love them. When was christmas . I guess thats not too bad. Not too bad. All right, jane. Time, time, maybe. I dont know. Wash them. Or not. Jane wells, thank you. I thought she might be in the sherman oaks gallery. I know all those places out there. Theyre all nice. But northridge, perfect. Coming up, our guest host this morning, john taft and ed keon. Well give them the last word when squawk returns. Welcome back to squawk. Lets get to our guest hosts for the last word. And you can give us your most outrageous 2031 prediction. Ill start with you, ed. What have you got . Ting the economy surprises on the upside next year. Consensus is around 2 real growth. I think were going to do 3 or better. I think the recovery in housing even with the cliff and all this other nonsense. I think if the cliff completely falls apart, my prediction will be wrong. But i think if we work out something in january o