Transcripts For CNBC Squawk Box 20130103 : vimarsana.com

Over a year. The s p closing at a 3 1 2 month high. Thats, by the way, just three points away from ending the day at a fiveyear high that came in at 1462. U. S. Equity futures this morning are indicated slightly lower. Slightly because of the Massive Gains that we saw yesterday. You might have expected to see a bigger pullback. The s p is off by just over three points. So the nasdaq futures are down about five. In europe, the markets there are coming off some of their gains, as well. The ftse is off by just ov over. 1 . In germany, the dax is down by about. 3 . In asia overnight, markets in japan and china remain closed. They will reopen tomorrow. The other major asian indexes, as you can see, are slightly higher. The one that really stands out there, though, is the korean kospi. That up by 4. 7 . So a major gain in the korean market. Among the headlines that have been driving action there, growth in China Services sector accelerating in december at a fastest pace in four months. Two other surveys suggest chinas manufacturing growth was picking up in 2012. No question, the bulls had it as we got out to the start of the new year. Thanks, becky. The fiscal deal, of course, a big part of yesterdays market story. Now, it is officially law. The white house saying that president obama has signed the legislation passed by congress. As weve been discussing, another series of fiscal fights are just around the corner. S p says the budget deal wont change its perspective on the outlook for the u. S. The state late yesterday, the agency says the budget compromise, quote, doesnt affect our view of the countrys credit outlook, given that we believe yesterdays agreement does little to place the u. S. s mediumterm public finances on a more sustainable foot. It cut the u. S. Sovereign rating to double outlook in 2011. Rival Credit Agency moodys warning that the u. S. Must do more than the recently passed fiscal cliff measures if the country is to deal with its ratings outlook. The new congress will be sworn in today at noon eastern time. The 113th Congress Takes its oath with 56 new democrats and 38 new republicans. In the house, john boehner is expected to be reelected speaker today. A lot of intrigue around that. Speaker boehner has already announced one of the first pieces of business for the new congress. He set a timetable to approve a 60 billion package for Superstorm Sandy relief. The house will vote on friday for a 9 billion down payment for stormrelated support to the National Flood insurance program. There will be then a second vote on january 15th on the 51 billion remainder of the sandy disaster aid package that was approved last week in the senate. Boehners announcement coming after fellow republicans loudly criticized the cancellation of an earlier vote. This is 66 days and the wait continues. There is only one group to blame for the continued suffering of these innocent victims. The House Majority and their speaker, john boehner. New york deserves better than the selfishness we saw on display last night. New jersey deserves better than the duplicity we saw on display last night. America deserves better than just another example of a government that has forgotten who they are there to serve and why. 66 days and counting. Shame on you. Shame on congress. Angry new York New Jersey lawmakers say the house delay marks a stark contrast to congressional reaction to Hurricane Katrina in 2005. A Republicancontrolled Congress swiftly approved 62 billion in aid just days after the gulf coast hit the coast. Why did the senate not have a bill until they looked at it for a long time. By the time we saw them, they had an hour to look at it. If it had been done earlier so why wasnt that done earlier . Why didnt the house do something early earlier . I dont know. I guess because everybody was dealing with the fiscal cliff. People are so concerned about that, but they have been so long in digging their heels in and not doing anything about that. The senate received a 181 page bill three minutes, right . But that was because everybody was adding earmarks in it. Everybody wants to help the sandy victims and no one is going to say you shouldnt. And the knee jerk reaction is so obvious to say, yeah, they shoo done this long ago. But nobody wants to see a bunch of pork in there where people go crazy. To have three minutes to actually look at the bill this is an example of a dysfunctional government. 66 days later . The idea that youve had three minutes to look at a bill, this is a dysfunctional government. You have to blame both houses of congress. And huh come the other one was 12 days . 10 days. As a partisan, theyre so busy trying to get that 39. 6 back on the high earnerses, thats all we were focused on for 55 days. Thats all weve been focused on for two years, latbasically. Whats interesting about that is thats what i was going to say. Timgs. Horrible images of what happens after sandy. But i think i just i always sort of steered in my memory as those images of all those people at the stadium in new orleans. You think that that just galvanized. There wasnt the fiscal cliff, there werent these other issues. This is not to take the responsibility off of anybody, but if youre trying to understand how we got here, that isnt it is outrageous. But i also think its outrageous that anybody would put pork in there. What i tried to look at with the Hurricane Katrina bill, was there pork in there . I watched it on the National News last night. Not sanl report even referenced why there was any delay whatsoever. You wouldnt just throw in that some people were concerned that they werent looking at what was in the bill. They wanted to know exactly you know, it was right after were looking at this huge budget issues and youre talking about another 60 billion. Everybody wants to help what needs to be helped, but no one was looking tek alaska what was it alaska ya fishery. You know these politicians and what theyre going to put into these things and had no time but i dont know why they had no time. Judd gregg is coming on. Hes a governor and a senator. Yesterday i said all the governs ought to take the place of the senator sometimes. They had howard dean on today, too. Howard dean. So is government hard . Here we have one vote per individual. Were lucky we can get thats the way we do it. You have 50 50, off split. But were a representative democracy. But how do you if you have diametrically opposed opinions on the way the country should go forward, when we see rise above, does that mean president obama gets to do whatever he wants . Does that mean only the conservative republicans in deficit talks, they have to get their way . Its just weird. Its complicated. But when its all said and done, didnt we get something done . We did, but moodys looks at it and says, this is not nearly enough. Its a slow process that well be involved with any further. Are you positive on no, i want to add judd gregg, has it actually formed because he willingly went into the senate knowing how difficult it would be to do these things. And it was a 60 minutes piece. A month or two ago, looked at sort of congress over the years and i think it puts reason and in the same room together. I think thats what it was. And they talked about how frankly unbipartisan anything is and how it used to be. I think theres a New York Times piece that laid out some of the look at what harry reed is able to he controlled whats goes on at the senate more than anything else. Maybe it is the individual players that were there. How about filibusters and but theres no tip oneal on Ronald Reagans left. They say brings up things that that. Is this the individual permits . I dont know. Id like to say that the senate started using some things that they hadnt done before. Bob dole laid out some things where it used to be called hanging the trees or something. Something about hanging stuff on the trees why you put all the different legislation in and you would fill up all the possible additions that could be done auto a became. I like to say its broken, but then i just think it was hard work. The legacy is there. Drones, there. Interrogati interrogation, its there. All these things, its getting solidified by your guy, isnt it . Its hard work, andrew. Its hard. Isnt it hard . This democracy is hard. Democracy is hard. Being a decider. When youre a decider, you have to make these decisions, which makes it hard. I like your new view of things. But seriously, look at this legacy. Its intact. Its scary. Really scary for your side on this. Anyway, a busy day on the economic calendar. They got you. At 8 15 eastern, adp employment reports and 15 minutes later, a weekly jobless claim. Tomorrow well get the governments december jobs report and important to watch today, auto sales which now in the journal, 15 million were supposed to do. Mike jackson is somewhere rubbing that all over himself, sitting in a hot tub. Its huge, but the question is, how much of because of sandy. Mike jackson is on tomorrow. Not me. Who is jack thorton . Now hes dating some model or something. A big, swinging twitter person now. He dates models mow. And the private market is valuing like 11 she doesnt think of him as a nerd or geek or anything. She thinks hes the cats mimi yao. As is normal, costco, one of the first retailers to talk about these things, the warehouse giant posting a better than expected 9 rise in samestore sales. Lets check on the markets. Were back to 13. 4 on the dow. Okay. But we are at 13,5, 13. 6. Because of the same Reason Congress can only move one leg at a time. Were only back at 134. We got to resolution, but now we know we have another two months. It cant go up every day, i guess. But the s p is actually closer to the high end of the terrain than the dollar is right now. What is it, three points away from a fiveyear high . This is not going to last. Although it was pointed out that hes not an equities guy. Hes a bond guy. And he pointed out that people who get into bonds are people who are obviously more of something. But i was thinking about his point and what he was actually saying. And i get it because those bush tax cuts if possible should be around the rif knew and 98 bel below. You say were never going to have that. How are we going to replace that . How are we going to replace all that revenue that you used to get from the i think it was disingenious. It was supposed to sunset. But we have always said they always in future budget considerations, they always assumed it would be sun setting. Right. But that are a lot of elected officials that didnt assume that. Okay. I think youre going to hear how thats going to happen because i think one of the conversations that is going to come up in the context of all these cuts is additional ways to raise revenue. I think you might have nobody knows what it is if you say that tax. If you say vet, no one knows what youre talking about. In the uk they dont. But here they do. Yes. And by the way, its possible, and i want to talk to peter about this, that maybe this doesnt last. Theyre permanent until we change it. Maybe later this year if there is a real push on entitlements, maybe theres other tax regimes that we havent been discussing. Okay. Oil did what was expected of it sunday if were not intog into any keep of slowdown. Its sharply higher, closed above 90. What it was expected to do, even though the aurchlt continues on whether theres any actual supply and demand, normal dynamics going into where that is. The yen is the biggest story, right . 86. 96. And gold is down about 7 to 1681. It is now time for the Global Markets report. Ross westgate is standing by in london. Ross. Youve got a good to see you this morning. Sorry . Youve got a nice mix there of red and green. Its colorful for the screen, but all that red doesnt help, i dont think so. Well, yeah, but if we pan out a little bit, andrew, youll see its pretty even stevens, andrew, decliners marginally in the lead. Theres five roes of red here, 4775 row eggs of green. You would spec that the pause we got off the the big gains yesterday, not that dramatic. The stoxx 6 let you know is up. 25 to the moment. Smi, lux for the release tonight. The laggard, the ftse pretty flat, really. We had some good update today. Some of these guys with down r down 4. R5 . The dax here only some 4 away from the record high that weve hit. 8,105. 7,755. Not that far away. A lot closer to the alltime highs than other markets here in europe. So the losses were seeing this morning, not that big. Mining stocks are down today. They can look at profit taking after big gains yesterday, despite the fact that we saw official services pmi, manufacturing in china picking up to 56. 1 and 55. 6 last year. And weve got here autos down really depressing auto sales coming out late last night in europe and italy. They are the worst auto sales for 2012 weve seen in over 130 years. Thats in terms of new car registration. Back to you guys. All right, ross. Thanks. Well see you soon, hopeful hopefully. Do you feel room . Do you have room there for piers morgan . Do you want him back . You were talking about the poll. Theres a lobby group to get him out of the United States. I think its only exceeded, joe, by the machine of people here saying we dwoent want him back. Keep it, yeah. As i understand it, yeah. What was that, elba . Elbow . The island . It was an island somewhere thing, probably. I dont know. Yeah, i thought so. You see, over there, theres a petition, i think. Coming up, the biggest obstacles facing National Companies in the coming months. Tdd 18003452550 when im trading, im totally focused. Tdd 18003452550 tdd 18003452550 and the streetsmart edge Trading Platform from charles schwab. Tdd 18003452550 gives me tools that help me find opportunities more easily. Tdd 18003452550 i can even access it from the cloud and trade on any computer. Tdd 18003452550 and with schwab mobile, tdd 18003452550 i can focus on trading anyplace, anytime. Tdd 18003452550 until i choose to focus on Something Else. Tdd 18003452550 all this with no trade minimums. Tdd 18003452550 and only 8. 95 a trade. Tdd 18003452550 open an account with a 50,000 deposit, tdd 18003452550 and get 6 months commissionfree trades. Tdd 18003452550 call 18008368799. Welcome back to squawk box. Dow looks like it would open about 31 points, nasdaq would be off about 5 and the nasdaq 300 would be off about 3 points. Making headlines, the American Banking Association Says u. S. Consumers will continue to pay down debt. But the group is now warning that slow job growth and the expiration of tax cuts could mean it would become more dirveth to repay loans. Bank payments fell to an 18year low for the quarter. Becky quick has sports news for us. Theater. Number 22 louisville rolling past fourth ranked florida 4333 in the sugar bowl last night. Makes me feel better the about the whole thing, right . On any given day, you get a couple of its true. Any given saturday, sunday, friday. Did sips sn beat louisville, do you remember . I dont remember. Matt, do you remember that . The bear cats they might have. In the regular season . They ended up beating rutgers did not. We had a good game all the way down to the end. I was sure florida was going to kill them. So were a lot of people. The cardinals took the lead for good when floyd returns the recession from the first play on scrimmage. Eddie bridge water flew for two touchdowns and was 20 for 33 for 366 yards. Ill look that up right now. I just figure, you know, florida, you get that whole state. Youve got a city. I guess thats thinking of it wrong, isnt it . Yes. Because its a big draw from beyond that. Its not a city versus a state. In. And florida used to be the draw for all those things. A pretty good year with the round ball, also. Oh, yeah . Some playing kentucky. I havent seen the end of the day. I dont pay any attention to basketball. I know you dont. Sorry. I like the coach. When do you finally write 2013 on your checks . June. Yeah, probably june july is it, when you start remembering. You have a paperless transaction especially in the bathroom. But you havent had a paper transaction in so long, right . Im getting better. Im troog to do my chick write ing im trying to get better. Its a much easier way to do that. I havent made out a check in a while. By the way, when you deposit checks, how do you do it . That does go automatically. Now just take pictures of it constantly. Oh, yeah . Yeah. It goes automatically. I did notice its half of what it was last year. Anyway, a new year and a new focus on the risks facing multi National Companies. Lets take a look at some of the biggest obstacles and the best opportunities that come with doing business in some of the world eeps most complex environments. Joining us from london is richard fening, global ceo of the independent Business Risk control risk. Richard, should we is it that simple that you go to places where the risk is a little higher and you do expect that the reward is going to be greater, as well . Does that hold true globally . No. It doesnt really hold true globally any longer. That was the paradigm that people were fixed with for quite a long time, that you could invest safely in north america and europe and other parts. If you wanted to take more of your risk and get a higher reward, you would go elsewhere. What weve seen particularly in europe with the eurozone crisis is that that in many ways has been inverted, people looking at socalled emerging markets now as areas of much greater certainty and the socalled safe betts of europe and north america have got a kind of new volatility that, you know, weve been hearing for the last few minutes on your show is born out absolutely by the by the parlor game thats been going on in washington. Yes. And then i thought back to the to when our commercial paper was locking up a couple of years ago. That was, you know, no better than like a ba man na republic at this point. You could feel safer in indonesia compared to what was happening here. You have to make sure you dont get a false sense of security over these markets. China is absolutely fascinating. New leadership coming in in china, the chinese economy going through one of those once in a generation readjustments where it goes from an economy thats been all about an export driven economy, its been about a chooep cheap labor economy. Thats now changing completely. At the same time that the leadership is changing, there are huge opportunities there, butperils, as well. I think what were saying is you cant really look at things with a stereo typical point of view. Between emerging and kwomts good markets, its somehow about label opportunities. Its all about the specifics of where youre investing. Okay. I was going to make one more point. Its almost as if you can if you can get a greater reward in these places where its used to be riskier, it seems like that would cause you to maybe focus on some of the emerging markets. In elerians words, its a multi speed world in terms of economies, you would go where the growth is if you dont have to worry about the downside. And people do and people should. If you look at subsaharan africa, that is radically different this coming year than it ever has been before. We see lots of smart investors looking at places like nigeria, looking at ghana, looking at other markets that historically have been offputting for people, but now right on the agenda. Richard, thank you. Going to keep it shore. Thanks for your time today. Thank you. Coming, a bullish case tore 2013. Stocks getting off to a strong start yesterday. Plus, news about al gore and al jazeera ra. What is that all about . I know. Of buttons on your tablet. Isnt it time the automobile advanced . Introducing cue in the allnew cadillac xts. The simplicity of a tablet has come to your car. The allnew cadillac xts has arrived. And its bringing the future forward. At farmers, we make you smarter about insurance. Because what you dont know can hurt you. What if you didnt know that boxes by the curb. Make you a target for thieves . 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Request a prospectus or summary prospectus with investment information, risks, fees and expenses to read and consider carefully before investing. Good morning and welcome back to squawk box here on cnbc. Im joe kernen along with becky quick and andrew ross sorkin. After yesterdays 300 plus point jump in the dow, u. S. Equity futures are pulling back a little this morning. You saw yesterday they would be up 200, up 190, up 250 and then accelerated into the close. So giving back a little today. Down about 33 points. More on the markets from a trader and a straight gist. First, though, here are some of the morning headlines. Some guy named al is buying als company. Al jazeera. Is announcing that it will buy Current Television with a cable channel founded by al gore and partners. This move is basting qatar. I dont know how you can change it after ten years, you know . Qatar based broadcasters footprint in the United States. Theyve been looking for a long time to find a way to get more air waves. The terms were undisclosed, but the deal could be worth as much as 500 million. Al jazeera says it will start a new u. S. Based news channel with this acquisition. 500 million . How much does big Al Al Jazeera for a long time has been wanting to get more. I think they sunk a lot of money into this. The other thing is, Eliot Spitzer and all the people they put on to that network is a sunset. Thats what it makes it sound like from al jazeera. Googles executive chairman, eric schmidt will reportedly travel to north korea this year. The Associated Press says that schmidt could visit as early as this month. The news comes days after north Korean Leader jim junk un signaled relatiimproved relatio. Brookfield is buying general growth properties. It acquired 18. 4 million shares of the developer. Brookfield is offering ggp management the rights to acquire those warrants for the same price it paid within 30 deals. As part of the deal, purchasing squares has agreed not to acquire enough to exceed 18 . Joining us now, yra harris and wake to both of you. Kevin, well start with you since youre on set. Look at what happened yesterday. Big push higher. Dow up bier month than 300 points. Is this the beginning of more to come in the new year, or is this were excited that we didnt go over the fiscal cliff, but now we have to reassess where we stand . I think its a latter. What we saw was the removal of some of the tail ricks that markets were concerned about as it related to the potential for a full blown fiscal risk outcome. That coming off the table gives you a relief rally. Youre going to have to go through the debt ceiling in a couple of months. There will away whole round of talks about spending cuts in washington. So the government side of this is clearly moving to appoint where were going to run large deficits for a long time to come. What we would really like to see in the new year, do you pick up in business spending. We would like to see some investment spending coming back and i think a lot of what happened in the Fourth Quarter, with the debate about the fiscal cliff, curtails some of that. One of the hopeful things that we see, fundamentals seem to be moving along in a positive direction. Now with this behind us, its a better reaction from private business. You know, yra, yesterday ash cashin was making comments. He said because we saw uniform moves in a lot of these different indices and a lot of different stock prices that he thought this was a lot of new money coming back into the market in the beginning of the new year. Are investors feeling better about this or are Money Managers looking to do what they needed to do at the beginning of the fiscal year and they thought, great, lets jump in . I think what weve talked about for months is that a lot of money is on the sidelines. They missed the first break when we broke down in the s p earlier until 1360. Then we got a powerful rayly. We broke back last week to about 1382 or 1383. They missed that because you were in the throws of a great share. No now everybody has to come back. So wait a second. Are you suggesting that it was dumb money yesterday . Yeah, im suggesting its dumb money. They were going, you know what . I have to worry nat dividend rates are going to jump up to 39 . They didnt get that. I think that point was, hey, ive got to come back in and chase some of this. Maybe it was dumb money for taking money out last year. Who is really dumb money is a lot of these corporations who borrowed money so they could pay these dividends. They made the decision that we were going to to 39 for the high end on dividends. So their Balance Sheets and Financial Statements will look far different because of this. They went up 70 dividend rate. Yep. They didnt triple. They went up 70 . You know what . Its 70 relative to a tenyear yield of, what, 1. 8 . So if im buying verizon or a Quality Company some, not at all. And for some, not at all. For people make under 250,000, it goes up yeah, but were talking to yra. Hes like he made 250 so far today. Stop it, joe. But dont forget, interest, you know, people who pay who clip coupons off of u. S. Treasury also would have gotten hit, too. So when you compare that, everybody would have gotten hit. Now you compare, well, gee, i bypass these dividends. Theyve had to come back and put some money to work. I think we saw a lot of that yesterday, becky, and were going to see that going forward. Even though theyre having to right the spending cuts. And i think that probably points out and yra highlights a lot of things, kevin, that you would talked about in your first point which is that we need some certainty. All of this uncertainty leads to hang ringing, no decisions on the part of business. Yeah, i think so. And i think when you talk about the dinner table economics around the country, i think there are two themes out there that are somewhat contradictory and confusing. The average american is looking at debt instead of looking at deficits. And theyre feeling about sour about their future. Its very difficult to look at trillion dollar deficits year after year after year. The fact that were looking at zero percent Interest Rates than the fed. Were six years into this process. I think what is happening is that people are looking at all of this with a sense of pessimism. So at the same so the response to that needs to be that, well, fix the deficit. To deal with the deficit, to begin to deal with some of those longer term issues. But theres a penalty to growth in the near term which politicians dont like. The focus is shortterm. So it seems to me that but maybe weve started that. You have higher tax rates. If those tax rates are put towards bringing down the debt instead of well, its a start. Most of this is going to happen on the spending side. But if you get the spending side of it, it will go towards bringing down debt versus continuing spending. Yes. I like to look at poll spending. Look at federal, state, fiscal spending with its approaching 50 of gdp. A couple of generations ago, it was 10 of gdp. The trajectory is clearly unsustainab unsustainable. This has clearly longer term consequences. Makes you act differently. Maybe youve saved more because youre concerned about the future. What do you think about stocks for 2013 . We have two months to try and get the other part of this under some control. What do you think we end up with by the end of the year . Our target for the s p is somewhere between 1525 and 1550. We have a barometer that we use to mesh fundamentals. That barometer has been rising for a couple of months now. As long assite supportive of that, you can see final demand rising employment, we continue to focus on a more optimistic scenario. And at 100 of earnings or 110 of earnings, which is the street expectations, we think that markets could easily trade to 1500 and a decent rate of return. Not stellar, but a decent year. And not bad, not as much hang ringing as weve put into this over the last couple of months and probably the next two months as we continue this. I think theres going to be plenty of hand ringing along the way. But if you step back, maybe its not a bad situation . Yeah. You have to look back three to five years in making your investment decision. As we go through this process, you have washington who is full boar in terms of fiscal policy as far as deficits, were going to have deficits that will be significant for a long time, adding to growth. And you have a fed that is essentially full in apg long with many of the other central banks. You have monetary policy, fiscal policy. Moving along and supporting all of this. But ultimately, we have to get our house in order and the deleveraging is has been going on in the private sectors First Step Towards that. Now we have to see what happens with the government over the next several years. Thank you for coming in. Yra, its always good talking to you. Thank you. Thank you. Never too early. Hillary got out of the hospital. Shes better. 2016, were talking about. Usa today within the first couple of pages, Lessons Learned from the fiscal cliff. Lesson number three, the indispensable joe biden. And two pages later, and so the biden presidency begins. Wow. Biden hillary 2016 . One clear winner in all of this. Joe biden. He would do well for himself. Are those two going to have to fight it out in 2016 . Oh, i thought you were suggesting they come together. No. Who is going to be the Vice President on that ticket. That would be the problem. Well, yeah, sort of. 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I met him, i dont know dish probably met you about five years ago. Yeah. Maybe six years ago when you were working with brian gray. There had been a big piece on him how he tutors ceos. Youre not like a management guru, actually. You tutor them on culture and life. Teach them hair Care Products . No. I think they knew a lot about that before me. I teach them anything they need to know, they feel they need to know, anything i feel they need to know. Like what . Now, you know, were experiencing a world of intense digital disruption, which i no longer think of as disruption any more. Its now digital opportunity. And corporations have to change in a they have to change in all ways. Theres new generations coming into the workplace. But you talk to people about movies, culture and things that dont have to do with their daytoday business . No. Ill teach them anything they need to learn about, not just for them, but for their customers and their colleagues. They said you would be to grazer what karl rove is to bush. Okay. What is that but i think somebody who was a intellectual adviser who would think about the world and think about culture and think about society and the conversations that people are having in every single vector. I can understand how you wouldnt want to give out what youve told specific clients. But lets not name a client. Why dont you tell me some of the more interesting things, offbeat things you might teach somebody, a ceo or somebody that they may not have known before. Okay, one of the things that i do, as andrew mentioned, i do this thing called the zeitguide which is a cultural almanac. What we do is try to give you a big picture sensibility of whats happening in every field from food, you know, so one thing that could be interesting is that the farmer is going to ew hero. Farmer what does that mean . By 2050 were going to run out of food. Were going to have to figure out how to grow 70 more food. And that can be very much begined with technology, because if you see whats happening in nigeria, people are using mobile phones to basically make sure that all the farmers are getting the right fertilizer, the right number of seeds to create transparency. More people are excited about investing in this community. So joe and becky, everyone will appreciate, is this idea that in the future were not going to use email or email is going to change because were all overwhelmed by email. Right. And theres like a new form of email is going to happen . What people are talking about, especially sales force, which seems to be the leader or has the best Marketing Team behind it is this new thing called the social enterprise. Taking what weve learned on a consumer level, how consumers have been using the internet and social media and taking that mechanism into your business. So that you can basically communicate on a much easier level with your employees and your colleagues, as well as manage relationships with your customers. I dont know what that means. What do you mean . What does that mean . People spend 28 right now i email with joe, cnbc sends out thousands of emails every day were going to do it telepathically. Were going to have the classes where you can search the web with your glasses and im going to send you an email using brain waves. Its going to be almost telepathy. Which we have that already. Then you dont need it. We dont. But you have 300,000 employees that youre managing and customers that are even, you know, multiple of that number, you know, you need it. I mean people spend 28 of their day answering emails. Can you have a zeit guide for 1985 . Can i get that . I need the new stuff to communicate with andrew. Uhhuh. He needs the old stuff to communicate with me. And that is part of my service. Really . Because andrew and i are similar in age. Like Chauncey Gardner. He has no idea what im talking about. You bring up like argo and its like ben affleck is a moron. I dont know anything hes ever done. We have a hard time communicating. You could do a weekly tutoring session for both of us . Absolutely. Thats our service. First of all its not just me. I have an entire team and i hire somebody for each vertical. I have my tech guy, even though im saying that tech will you tell Chauncey Gardner is that not the greatest . Absolutely. As brian grazer taught me, that is a movie bhaners. Its the greatest. And we had a money manager on who had never seen it and he started telling us that i had no idea. The stock market is like a garden. You need to grow i said youre joking, right . This guy. He had never seen it, either. Right. So i need we need somehow but that is part of my hes going to let us talk like were contemporaries instead of father grandfather and son. Again, im trying to say that andrew and i are from similar generations. Maybe you could come on can you read the teleprompter . Ive been trained, yes. Well, there we know how to learn and teach everything. But again, theyre not just ceos who are clients. We call them establishments. Theres people who are at the top of their field and feel like that they need to keep learning and growing and evolving but also emerging leaders. I need the 2012 zeit thing. Its 2013. See what i mean . Zeitguide. Com. You already have a 2013 . Yeah, because i wanted to be the reference book that everybody goes to. Whats new in the first three days of this year . Whats in the zeit guide right now . Well, its published. But what am i thinking about . Whats the new thing in the last three days, of 2013 . Of course the fiscal cliff, were talking about sandy, thinking about all that kind of stuff, optimism which you guys have been talking about. Yolo is out, right . You only live once. They threw that out. Well the first thing we talk about vuka what sit . Vuka. You use that at a party . You can. Or in the board room. Whatever. So again so we help emerging leaders who need to learn about your generation. And established leaders who need to learn about well, thank you. Thank you, brad. Coming up the bulls take charge. Coming up. This is america. We dont let frequent heartburn come between us and what we love. So if youre one of them people who gets heartburn and then treats day after day. Block the acid with prilosec otc and dont get heartburn in the first place [ male announcer ] one pill each morning. 24 hours. Zero heartburn. Storks on a new years tear. But what happens now as a budget bell draws closer . Were rising above the debt threat today, with guest host former New Hampshire senator and governor judd gregg. And our special guest, former white house budget director peter orszag and former dnc chairman howard dean. Theyll join the conversation on how to weather the next fiscal storm. Plus, breaking news on the employment front, and the state of financials. Weve got all the details as the second hour of squawk box starts right now. Good morning, everybody. Welcome back to squawk box here on cnbc, im becky quick along with joe kernen and and drew ross sorkin. In studio with us as guest host this morning we have Goldman Sachs International Adviser, former senator from New Hampshire and former governor judd gregg. Good morning, judd. Becky, great to be here. Happy new year. By the way, judd is also a cnbc contributor. Got a lot to talk with him about today. Take a look at the futures which are dawn, but probably not a real surprising drop after that Massive Gains we saw yesterday. Dow futures down by 40 points after picking up more than 3 pund points in yesterdays action. S p futures are down by about 4. 25 points. And this all comes after that very strong opening session for 2003. It was the markets best day in over a year. Take a look at where things stand, and again, some major moves. I think the s p is only about three points from a fiveyear high. We are just over an hour away from adps december report on private sector employment. That number hits at 8 15 eastern time and economists are looking for growth of 150,000 private sector jobs for the u. S. Economy last month. Ultimate minimum reports say that google and the f. T. Could be announcing a settlement today or tomorrow. In an ongoing antitrust case. Google has been accused of favoring its own products in Search Rankings over those of competit competitors. And that is something that google has denied. Also costco is reporting a 9 increase in samestore sales for december. That is above analyst estimates for 6. 5 gains. We are expecting more december reports for major Retailers Next hour, including target, macys and gap and well bring you all those numbers as they hit. This, by the way, will be the last Monthly Sales report from target which is joining the ranks of retailers that have decided to only report on a quarterly basis. The Global Markets starting 2013 on a bullish note. Dow rose more than 300 points in its best point gain in more than a year. The s p 500 posting and nasdaq posting their best sessions in also more than a year. And the s p closed at a 3 1 2 month high and just three points away from ending at a fiveyear high. Stocks in europe coming off some of their strongest gains in 18 months, as well. In early trading this morning, theyre all giving back just a little bit. And wall street and washington preparing for the bigger budget battle ahead. As the paint dries on tuesdays fiscal cliff deal. Joining us from new york is peter orszag citigroups grown banking vice chairman, also the former director of 9 office of management and budget. Great to see you. Good morning. Before we get into whats happening next i just wanted to get your views on what just happened. Are you happy, are you unhappy . Weve passed the midterm. The final exam is coming up. Its a pass. Lots of good things. A permanent amt fix. Im actually worried this is outside the, you know, political conventional wisdom but im worried that weve now locked into a revenue base by making even the middle class tax cuts permanent that doesnt really work in 2020. But that wasnt ever going to be any different. So its a pass. To the extent that thats true are you thinking whatever the next negotiations ultimately become about that there really is a new discussion about new revenue enhancers, new taxes, whether it be a v. A. T. Or Something Else we havent discussed . I think thats the big question. Which is how large is the next stage . How big a discussion do we have . Is it just over the sequester and the continuing resolution thats expiring in march, and raising the debt limit . Or are we kind of stepping out onto a broader stage and going to be having a bigger discussion about some of the longerterm fiscal problems you know the president. The president said he will not negotiate for example on the debt ceiling. This is a nonstarter. Is that a nonstarter or is that the beginning of a negotiation . I dont know that that statement frankly actually matters that much. Theyre going to have to negotiate over replacing the sequester was only delayed by two months. Theyre going to have to negotiate over that. Youre going to have to negotiate over the appropriations bill for the funding the daily operations of the government. So if youre negotiating over those things, and the debt limits, kind of thrown in, you can say youre not negotiating over the debt limit but there will be negotiations in february and march. Whos got the leverage in all this . I mean when you look back at what just happened over the past three days do you say the democrats won . Do you say the republicans won . I think my own perspective at least is the white house in this second best world won that round, but they, by not insisting that the debt limit be tied that to the package, its entirely possible theyre going to win the week and lose the quarter. And well see, you dont know yet until you see how february and march plays out, and i think theres no doubt that they have somewhat less leverage than they did in the round just completed. So in terms of what happens then in february and march, what do you think they put on the table . The white house, that is . Well have to see. I would suspect that at the very least theyll put on the table what theyve put on the table before, so for example, in the runup to the fiscal cliff deal, the proposals that they had that were with interest, a little bit over a trillion dollars in spending reductions, i would be shocked if they dont put they might as well put those back on the table and thats about how much you need to waive the sequester for the next ten years, which i think should be the goal of that piece of the discussion in february and march. Now the real question is, though, do the discussions go beyond that. Do you go back to some of the entitlement changes, the superlative Consumer Price index, medicare eligibility age, or even something bigger than either of those two things. Judds making a face. What are you thinking . First, i agree with almost everything peter says, which shocked me, which is why im making a face. But, i think the way they come back at this is they come back and hes absolutely right about the revenue side of the ledger. The president s not going to give up on revenue. This was just an opening number for the president. He wanted 1. 6 trillion, he got 600 billion. So hes got to get another trillion in his mind or the people around him think that way. I presume this is all going to come down, if theyre going to do Something Like that, to major tax reform, where you basically take these rates which are extended permanently and basically make them irrelevant because you completely redo the tax laws by hopefully reducing a lot of deductions and exemptions along the simpsonbowles line, and take rates way down. The second thing i think thats going to happen here, which is really critical, and you touched on it, peter, is this issue of the cpi. I thought the president when he put that on the table made a major concession, and i almost think the house managed to snatch defeat from the jaws of victory by ignoring that session. I think thats a multiplier event, significant portions over the first ten years. Probably 250 to 300 billion over 20 years youre talking trillions. So if we can get back to that number, that idea of adjusting the c. O. L. A. And make it accurate, in order to change cpi, that would be a huge step i think in the right direction. Its getting something substantive on entitlements. Peter, are you a chain cpi fan . I am a chain cpi fan, it is a more accurate method of inflation, especially for example when its used to update tax brackets. But, as you know, im in favor of a broader Social Security reform, not just doing that. One of the harms from moving just to a superlative cpi or a chain cpi is you can impose some burden on the 85yearold widow. There should be it should be coupled with other changes that address that problem. And frankly also do a lot more. Weve got, you know, massively growing gaps in Life Expectancy, by education and income. That should be reflected in Social Security. Social security also does some additional revenue. So the point is, yes, im in favor of that one step, but it should be a broader package. I wasnt trying to limit it to one step. I know you werent, senator. That was on the table. That was agreed to, and then it came off the table when it went over to the senate because harry reid wouldnt agree to it. Would be nice if they put it back on the table. A lot of people say the republicans have really stepped on this by not taking the zeal that was first offered back in the summer of 2011. That would have been 800 billion in cuts that was on the table. Its come down ever since then and then on this latest deal they got no cuts. Absolutely right. Basically what you got was a tax increase. What the republican hardcore republican membership of the house wanted was to cut spending and not increase taxes. What they got was an increase in taxes and no spending cuts. You cant look at it as anything other than a fairly significant failure. Where is the white house going to be willing to give on entitlements . Well, theyve put forward a few hundred billion dollars of Health Savings that theyre obviously willing to, you know, willing to go with. Again, i think the question, though, is at this point, look, the House Republicans really need to decide what do they want. What is it that is going to be their demand in february and march . And theyve got to figure that out and theyve got to stick to it. Because what we just saw was sort of all over the place, toing and froing, theyve got to decide what they want and then i think the question will be is that something the white house can live with . Right now the white house has put forward a few hundred billion dollars that are helpful, not massively structural changes but they are helpful. Peter real quick, you wrote a fees a couple months ago, maybe longer than that, talking about the polarization in washington, and actually, almost suggesting that we have a series of these sort of fiscal cliffs and cascades, sort of forcing things to happen as opposed to voting in favor of things. Given what just happened this past week, did you still argue that point . Yeah. And since then, actually, things have just gotten worse. In the election that was just held more than half of americans, 52 of americans, live in a county that land slided by 20 Percentage Points or more for one candidate or the other. We are rapidly becoming two different countries, united by a single congress and were going to have these fights for as long as thats the case. Well, thats certainly one of the big problems. Which is the stratification of the house based on party. Thats not the issue in the senate. Shouldnt be the issue of the presidency. We ought to be able to get along and its very discouraging that we arent. Peter, were going to leave it there. We thank you very much for your perspective this morning. Great to see you. Thanks for having me. All right. If you have any comments or questions about anything youve seen here on squawk this morning, email us at squawk cnbc. Com. You can follow us on twitter squawkcnbc is our handle. Well have much more from our guest host judd gregg as we continue through this morning. Take a look at the futures. You do see a little bit of a giveback. Dow futures down by about 40 points. S p futures off by just over 4. Investors look like they could be taking some profits this morning, but again this is just a minor drop given yesterdays big gain. We do have two key data points on the jobs front that are coming up this morning. First up the challenger jobs report and then we get the private pay roll numbers from adp. Those numbers could move markets at the open and we will have reaction to both of those numbers that are due out shortly. Look past the fiscal cliff. Markets ringing in the new year with a bang. So, can the bulls stay in control . Or will the bears battle back . We find out when squawk box continues. Take a rook at the futures everybody. Right now those dow futures down by about 41 points. We have a dow component cisco that was upgraded by rbc. The price target increased to 24 there and rbc says many of the negative issues related to the company have subsided. It also says ciscos market share has rebounded. A deal between the white house and Congress Setting the tone. He was uniquely qualified to speak because he was a governor and a senator so he actually chose to leave the state house and actually go to this other place in d. C. That we all view maybe not the senate but congress is so dysfunctional right now. We will be with us for the next two hours. We had a prelude to what i wanted to talk to you about at the top of the show. That. I was thinking about having you on. Yesterday we had rendell and keating on. They were so reasonable. On the same Debt Commission. I just wonder if we could replace the senate with a bunch of governors, number one, i think wed get a lot more done. Because governors know how to do things. Do they not . Well, yeah, when youre governor for every action theres a reaction. The president was never a governor. Can we send him back to be a governor for four years and then come back to be president . That would have been extremely useful. It would have been extremely useful. And then you put him together with the senate and then the house, and heres where we are right now. The problem is, weve got so many house members that come over to the senate that the senate is now functioning like the house. But then i saw its messy, judd. And its dysfunctional. But it got done. In this country we just nailed it. Weve got split in the population. Two diametrically opposed viewpoints about how to go forward as a country. How do you expect how do we come together when were 180 degrees apart, split down the middle . Its difficult. Were up to 180 million plus people which each have a vote. We have a fundamental shift in this country which is at the core of all the issues, i think. In the post world war ii period, the baby boom generation, largest generation in history, productive engine for this country. And it was a huge productive engine. Now that entire generation, which increases our number of retirees to 35 million to 70 million is moving into the wagon rather than pulling the wagon. And the wagon wasnt designed for them. And the folks who are pulling the wagon cant afford to pull it. So this fundamental shift is affecting everything. Were in a position where as a nation we do not have the resources we had in the 60s and the 70s and the 80s and at 90s of people to produce the wealth necessary to support the retired. So were going to have to adjust. Were going to have to adjust fundamentally this Entitlement Society in a way that doesnt draconianally affect the folks that are tired but gives them time to adjust and be able to live well in retirement. Supportable by the people who are working. The process is messy. We just got step one done but we did get it done and no one is dissatisfied, obviously. My next question was have things changed with filibuster, with harry reid, with boehner, are the individual people that are causing the problem, or has procedures changed so theres no longer reagan, oneill, tip oneill . We cant do that kind of stuff anymore . Three things have happened. First is this issue of the fact that were dealing with much more difficult and harder to solve problem which is we simply cant afford the government we have. Thats just the way it is. To change that in a society where people vote i have an ax up that says in a Political Society where you elect your le leadership when you have a massive demographic shift and an entitlement benefit strukt your, what do you get . Unsustainable debt because nobody wants to make the duff decisions. You think [ inaudible ] no, not at all. I think theyre well i actually think were on the cusp of an explosion of economic wellbeing in this nation and growth if we can get our government under control. If we can straighten out our fiscal house. What peter orszag was referring to is essentially how you do that. A comprehensive agreement that adjusts the entitlements. It doesnt have to be done tomorrow. That would be draconian and counterproductive. It has to be in place where you have a five, ten year lead time. In a democracy we dont tend to act until theres a gun at our head because of this idea that you were just talking about, these are unpopular decisions. Very unpopular. But the difference today is that weve gone through all these exercises in getting to a conclusion, none of which have reached a conclusion, but all which have moved the ball further down the road, and Winston Churchill said so well about the american political system. He said america will try all the wrong things and then it will do the right thing. Were just going through checking off the wrong things right now. But were getting towards the right thing. Do it before the gun we were talking in the 6 00 hour, have things fuddly changed in washington . Meaning we talk about this polarization with the players. Its the players, its the people, are people actually using the filibuster and other things that they didnt use before . What how do you, what do you see . Two big changes in washington. First is stratification of the house, by political districts. So that thats a function of the people or is that a function of jerry manlderring . Thats a function of legislators wanting to be reelected. And so they go to their state legislator where they got friends and get their district protected. So youve got 60 65 you dont think that happened 20, 30, 40 years ago . It happened before. But its never gotten to this point where it so dominates the house. The house is 60 , 65 now stratified so its actually impossible for a member from those districts to cross the aisle . Why . Because the one thing the base woengs tolerate in the district that they come from is compromise. So by governing they lose their seat. So they have to have political cover from either the president or people like boehner who let them cross the aisle. The second big change, and the senate which you referred to earlier is in flux. Its changing. Its adjusting. Its becoming more like the house which is unfortunate. Why is that happen . They dont want to be forced on the floor to vote on amendments the way we used to vote and theyre not protected in the same way . No. Theres no protections. It used to be when a bill came to the floor of the senate, anybody could throw any amendment at it they wanted on any subject and you had to vote it or you had to retire the person out until they pulled the amendment. I used to manage a bill called justice and that was appropriation bill when i come to the floor i knew that Paul Wellstone was going to show up with ten amendments i hated. But i had to take them. I had to listen to the debate, then we have to vote them down. They were tough votes because paul had Creative Ideas on the left to say the least. They dont do that anymore. Because the Majority Party in the senate dont want to take the vote. So they fill the tree. Filling the tree . And they make it impossible to bring up an amendment. And the filibuster fight isnt about stopping the legislation, its about retaining the right of the minority to throw amendments at any bill is this democracy at work . Thats the discussion, right . Is this democracy at work . Im concerned that our democracy is starting not to work. Look around the rest of the world. They got new governments every couple of years. They have six different, you know, six different parties, ridiculous coalitions between the far left, they get nothing done. Theyre out in you know, eight months. Theyre voting again for another you dont want under no circumstances do you want us to go to a multiparty system. You know you hear all these people say well im an independent, and therefore 50i78 not with either party. Thats a problem. Becaused ways our system works, reaches consensus is the first step the party system where you got two parties and theyre very broad umbrellas and people gather and start to reach consensus. And that works its way up until you get candidates from those parties, and then those candidates either get elected or dont. Already almost two parties and like mcconnell now is probably going to be assaulted from the right. Hell be whatever didnt. And thats the right of the electorate to make that decision. But, the simple fact is that if you throw three or four parties in the system youre never going to get consensus on any of them. To get back to your problem were going to get back to it. We have time. We just dont have time we have you for two hours. We just dont have time right now. We love commercials. We love money, money, money. Coming up we are focused on jobs this morning. Coming up tomorrow morning. The challenger jobs report is just a few minutes away. And we have the adp report coming up in the next hour to give us a little bit of a hint of what to expect. Also later it became a hot button issue last year. Bold predictions on the Financial Sector and tell you if it will repeat its bullish performance from 2012. Also tomorrow on squawk box we have a big jobs friday lineup including our guest host Arthur Brooks of the American Enterprise institute, auto nation ceo mike jackson, senator lamar alexander, and ed lazier. Of warning lights and sounds vying for your attention. So we invented a warning you can feel. Introducing the allnew cadillac xts. Available with a patented safety alert seat. When theres danger you might not see, youre warned by a pulse in the seat. Its technology you wont find in a mercedes eclass. The allnew cadillac xts has arrived, and its bringing the future forward. 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. 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Get smarter about your insurance. We are farmers bum pa dum, bum bum bum bum [ indistinct shouting ] [ male announcer ] time and sales data. Splitsecond stats. [ indistinct shouting ] its so close to the options floor. [ indistinct shouting, bell dinging ]. Youll bust your brain box. All on thinkorswim from td ameritrade. The challenger jobs report is out. John challenger, ceo of challenger, Gray Christmas joins us with the results. When it was all said and done as far as layoffs, it was, i would call it the best year since 1997. The fewest layoffs . Yeah, very strong numbers coming out of the downsizing. Just 32,000 this month and the lowest weve seen in over 13 years. So, what it suggested, and it went along with, in fact, the labor markets, job creation was strong. Averaging over 157,000 in the last 11 months. Downsizing conversely was very weak. That thats not what we saw as we got into the middle, and latter part of the year, was it, john . There was some concern. So things really did pick up in the last quarter. Well, youre right. No question the downsizing was heavier for the last three months. So it seemed like the labor market, which was relatively strong for the first six months, plus, of the year started to slow down. We have seen the layoff increasing. But it seemed to fall back this december, kind of averting to a pattern we used to see, which is that layoffs for the last couple weeks of december, when the Holiday Season was upon us, really slowed down. Now sometimes theyll get deferred into january, but over the last several years, because the pressure to cut jobs, to keep costs down were so great, Companies Just kept piling their layoffs into december, even into the holiday period. All right. So if you were to segment out things for us, what were the highlights of the different segments you follow . Well, computer industry led the way. 46,000 for the year, actually. Second came transportation, which saw over 42,000 cuts. One of the big surprises was the government, which had been over the last few years far and away the heaviest sector cutting jobs, didnt seem to do much of that in 2012. Now we dont expect that to continue with the fiscal cliff talks, and the spending cuts looming. Inevitably were going to see, especially at the federal level, job cuts pick up 2013. All right, john, well keep it short. Thank you. Weve got, i cant believe it, tomorrows jobs friday already. Anyway, thanks, john, we appreciate it. At 8 15 eastern we get adp, mark zandi is going to join us via the squawk newsline. The Global Markets started 2013 on a bullish note. The dow rising more than 300 points yesterday. Its best point gain in more than a year. The s p 500 and nasdaq posting their best sessions in more than a year. The s p closing at 3 1 2 month high. I didnt realize that. Just three points away from ending the day at a fiveyear high. Stocks in europe coming off some of their strongest gains in 18 months yesterday. Also in early trading this morning, you can see whats going on there. Take a look. We do have some red arrows. Dow looks like it will open down about 37 points. Nasdaq will be off about 5, and the s p 500 will be off around three points. The fiscal cliff may have been avoided. But that does not mean that the nations fiscal problems have disappeared. Howard dean is a former vermont governor and former Democratic National committee chairman. He joins us right now. By the way, hes also a cnbc contributor. Judd gregg, the former senator and the former governor from the state of New Hampshire is here for the remainder of the show, as well. And governor dean, welcome. Its great to see you this morning. Thank you. And judd, we wish you were up here. Its minus 3 today outside the studio. Perfect vermont weather. Perfect. New hampshire, right . Thats right. You know, howard, we were talking earlier, you were somebody who was saying before that the democrats very best deal they could get would be if we actually went over the cliff. So what do you think about the deal that we got . Well, i think the problem is that were 4 trillion short of where we need to be. And the cliff gave us a 4 trillion about a 7. 3 trillion reduction of the deficit over a tenyear period, what they did was they guaranteed this is where i have my biggest disagreement with the bill. They guaranteed the current tax rates for people under 400,000 a year. And made them permanent. So i dont know where youre going to go get the money for reducing the deficit. I dont think you can cut additional 4 trillion out of the federal budget. There were some good things in the bill. The biggest positive thing i think is the permanent fix of the alternative minimum tax. Thats been kicked down the road for years. But on the other hand, just to counter that because they couldnt get it right, they had a oneyear fix for the doctors, and thats, of course, going to put that big problem right back on the table for the next time around. So all in all, they really did just do what we all thought they were going to do, kick the whole thing down the road for a couple of months. Now were going to get it all wrapped into the debt ceiling. Now this was not a real tragedy. The fiscal cliff was not the big deal everybody made it to be. The debt ceiling is. That really could send the markets into trouble, and so forth and so on. So, we basically just moved this whole thing down the road two months. You think it gets uglier from here . We talked to bob corker yesterday and he thinks that this next battle over the next couple of months, because the republicans didnt get any spending cuts this time around, is going to get quite a bit uglier. There are some spending cuts. Thats another thing they did right. If theyre going to postpone the spending cuts, which they did, at least they only postponed them and didnt make didnt get rid of them as they did the tax increases. So, yeah, i think its going to get really ugly because the debt ceiling is a real fiscal cliff. That is if you go over that, then you attack the Credit Rating of the United States in a serious way. So that, here we had some maneuvering if they let the bill go for awhile and they hadnt gone over the cliff it wouldnt have made much difference. The one in february is going to make a lot of difference. Im just glad your party finally, and you, finally realized how really effective and how positive those bush tax cuts were for 98 of the country, and finally youve done the right thing and youve made them permanent. And i dont know whether you i dont know whether you influenced your party to finally embrace those to the extent that you have. And guantanamo, and a lot of the interrogation techniques and the drones and all that stuff. That was a pretty good presidency in hindsight i guess, wasnt it . Ah, going to be a hell of a lot more hindsight than we got now. The truth of the matter was, that that was political cowardice. On the part of both the democrats and the republicans. Everybodys going to be terrified of reagan taxes on middleclass americans. This is something joe and i, oddly enough, agree on. Im kind of needling you on that, howard. Youre right. How that base is gone now . Suddenly thats gone. Well never now thats off the table now forever . Yeah. Thats really scary. Its a big mistake. Because you cant get enough money out of rich people in order to balance the budget. As much as youd like to. As much as you and your friends would like to, you cant. A lot of people wish that were true. I think this is a big mistake. You cannot deal with the deficit look, one thing i think all we all agree on is the deficit does matter. Yeah. Unlike what dick cheney said or whatever it was, deficits dont matter. Deficits have always mattered. And they matter whether theyre under democratic or republican administration. They matter. And were going to deal with it. But you may have agreements on that, how order, but i heard an interview this morning with nancy pelosi, on npr, and she said out this idea that if youre going to deal with these things, you do it by making sure were looking at things like defense to cuts and things and that youre looking to rein she used some language, look at making sure that every federal dollar spent is worthwhile. Which to me is kind of code for saying were going to be looking at making sure we get waste out of Government Spending in terms of fraud and things like that. Is there enough money by getting rid of the fraud to actually deal with the deficit . Theres not enough money by getting rid of the fraud. Thats, you know, the current thing that everybody has been saying for years. Oh, we can balance the budget. How do you do that . Waste, fraud and abuse. Thats nonsense. There is enough money, spending money that we can take out. The biggest thing that nobodys really talking about is, which astonishes me, is to fix medicare you do not have to cut benefits. What you do have to do is pay by the patient instead of by the procedure. If you only did that youd have control over the medical budget. The medicare budget. Which is the single largest item thats leading us into fiscal disaster. If you can fix that you dont have to cut benefits. Howard you must have been crossing over into New Hampshire and drinking New Hampshire water. You said a number of things which make a lot of sense this morning. I always have, judd. Youve just been drinking too much New Hampshire maple syrup which we know is really secretly motor oil. Oh. At least it doesnt come from quebec. Oh. And it was stolen out of a warehouse. Listen, the point is that this is all about health care. I mean the only way youre going to get the deficits under control is to address the issue of health care. You can have all you know, i dont support the tax proposals but i do support your point, that this is a health care debate. And were really not having a very Good Health Care debate right now. Because unless you change the way we reimburse health care, and theres a lot of great work being done up at dartmouth by both vermont and New Hampshire both, on this issue of getting reimbursed and tied to value and outcomes versus repetition and utilization, youre not going to fix this. So i was interested in your saying doctor payment is the way to patient payment is the way to do this. Are you talking about empowering the patient along the lines of, for example, premium support . No. That simply transfers thats why paul ryans plan in my view was such a disaster. What he did was transfer the risk of a system which is out of control spendingwise from the government to the patient. That accomplishes nothing except for impoverishing patients. What you need to do is fundamentally change the Payment System to essentially what would have been called managed care. Now its not going to be exactly the same as managed care for a variety of reasons, we dont have time to go into this morning. But, basically you need to pay doctor by the number of patients they see, not by the number of visits, not by how many times they get tubes shofred into various places. But by the number of patients they take care of. Once you start doing that, and youve got to pay the whole system, not just doctors that way, its basically what im suggesting is kaiser of the cleveland clinic. Thats the model. I wish we had more time to dig into this, because thats a fascinating idea. And with your background as a doctor, too, id love to hear more from you on this. Maybe we can pair you two up again sometime soon dig a little deeper. You two know numbers, you know exactly how to dig through these things, and like i said, i wish we had more time now. But if we can, if youll indulge us, we can dig a little deeper into this conversation that would be great. Sure. Thanks a lot. Howard, thanks a lot. We appreciate it. See you, governor. Shares coming under pressure this morning. The Company Announcing a phase three trial of an als trial failed to reach its end point. Down almost 7 . Disappointing. Not just for biogen idec but als, other than just treating some of the symptoms, not much progress has been made to date on in that horrific disease. Coming up, financials were 2012. Should you be adding names back into your portfolio . Were going to try to answer that question when we return. [ male announcer ] its lightweight construction makes it nimble. Its road gripping performance makes it a cadillac. Introducing the allnew cadillac xts. Available with advanced allwheel drive. [ engine revving ] its bringing the future forward. Take a look at the futures. Dow futures down by 38 points. S p off by 3. 5. This comes after some big gains yesterday when the dow was up by over 300 points. Blockfield Asset Management is acquiring stock warrants to buy shares of general growth properties. Bill ackmans persian square is selling those warrants which carry the right to acquire about 18. 4 million shares of the mall developer. Brookfield, which owns more than 40 of general growth already is offering gdp management the right to acquire those warrants for the same price it paid within 30 days. As part of the deal, Pershing Square has agreed not to acquire shares of general growth that would cause its stake to exside 9. 9 . Ackman had been pushing for a share of the company. Will low Interest Rates and tough regulations put pressure on the big bauns or will they power through in 2013 . Joining us now with her take on all of this, Morgan Stanley bank analyst betsy, great to see you this morning. Thank you. So what are you thinking . Are you buying financials even though weve had this nice little run last year . We had a nice run, definitely. But we are still overweight, large cap banks. We are overweight large cap banks for three reasons. One, we think the consumer is pretty close to being done deleveraged. Secondly we do expect that with the fiscal cliff largely behind us, we have more certainty on tax policy and thats likely to spur more Corporate Investment as we go through the year. Even with all the conversation weve been having, even for the past two days . I know weve done past the cliff. But and we didnt jump, you know, we didnt jump over it. But here we are. And it feels like theres going to be a lot more negotiations to come. Absolutely. Youre right. But, you know, a couple of weeks ago we didnt know what tax rate to put in our irr calculations. Now we have a much better understanding. So it change from here for corporate . Absolutely. But, we know more than we did two days ago with certainty. And i think that helps investment spend decisions that companies are going to be making. And as you know, we really came pretty close to a standstill in new investment as we ground through the end of 4q. So looking forward we do think were going to have better investments. You might not see it in First Quarter but as you go through the year, second, third, Fourth Quarter, we think well get it. Whats your sense in terms of the Regulatory Environment and the pieces of laws and provisions of doddfrank for example that havent yet been implemented but i imagine will probably hit sometime this year in 2013 . Youre absolutely right. And thats the third reason that were actually overweight large cap banks. Regulatory certainty should be largely known, as we go through the year. The top three things, volcker, derivative legislation, and then the third one is the Resolution Authority and how your debt structure needs to be set up. Give us some names that you like. City, j. P. , capital one. Those are our top three picks in large cap banks. Because . Because mainly you benefit from the three things i mentioned, in particular consumer. Consumer willingness to borrow. Thats obviously going to be helping names like city, j. P. And capital one large credit card businesses. Two, we think that in citi in particular well have more restructuring announcements. We know theyve put out their rotc eagle 10 weve got that baked in for our models thats part of the reason for them. And then on j. P. We think theyre taking share in capital markets. Right. Just essentially the growth. Okay. Betsy real quick, is there one that you dont like . Is there one i dont like . I would say in our group we have overweights, underweights and equal weights. And the underweights that we have, pretty much the trust banks and its essentially i function of the rate outlook at the short end of the curve not being positive for those names. I would tell you that, you know, we still have a little bit of upside to our price targets there but not much. Betsy, thank you so much this morning. Appreciate it very much. Thanks. When we come back, he voted against the fiscal cliff deal. We have senator richard shelby. He will talk to us about why he voted against it. And what comes next when it comes to fixing americas miss cal issues. That interview just ahead. Up in next kwk kwk, dont start your day without knowing the names that will make you money. Joe has your list of stocks to watch right after the break. At a dry cleaner, we replaced people with a machine. What . Customers didnt like it. So why do banks do it . Hello . 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Revenues were in line, they called the Holiday Season challenging. Costco reported a 9 increase in december. Above the 6. 5 increase and analysts have been forecasting and the limited reported december samestore sales increased 3 , below expectations, 4. 5 . Downton abbey season three is going to start. Its going to be the three loser men are addicted. And becky has no idea. But i andrew says its like as the world turns. Only its so good. If its pathetic that they know that part of masterpiece theater. So it has this high brow sort of pbs thing going on. And then you realize you see the usa today, it is a global phenomenon. It is a Global Worldwide phenomenon. Im interested. Id like to i just dont have time. Judd says, her interplay with maggie smith is going to be phenomenal. I like it because theyre moving theyre reflecting what a Class Society was which is where the president wants to move us. Yeah. And the same plug for nbc for a second. The fellow who does this is going to do a gilded age gatsbiesque thing. A 19th century business carnegie type stuff. I like it. So thats next on the docket here on the u. S. Didnt they already do that with sabrina . Shhh. But all the things that anything can be like the plot lines, theyve all been done before. I dont know how you watch it when you want. I know. On demand. You watch it when you want either with a dvd or on demand. Maybe as the kids get a little older then i can watch more tv. I watched it on an airplane. Both your kids are but now i also show walking dead with my kids and Downton Abbey with you got to get with it. Were going to continue not only this conversation, but much more with our guest host today, senator judd gregg. Plus when we return we have senator richard shelby. He is Ranking Member of the banking committee. Hell join us to give us his solution to the fiscal abyss that is coming up at the top of the hour. And believe me, this has become a much more complicated negotiation from here. Also, at 8 15 eastern time another piece of the jobs puzzle for the markets. The adp jobs report will be released. Coming up at 8 15. The numbers and the reaction from chief economist mark zandi. Hes in new zealand. But we have him on the squawk newsline. [ male announcer ] how could a luminous protein in jellyfish, impact Life Expectancy in the u. S. , real estate in hong kong, and the optics industry in germany . At t. Rowe price, we understand the connections of a complex, global economy. Its just one reason over 75 of our mutual funds beat their 10year lipper average. T. Rowe price. Invest with confidence. Request a prospectus or summary prospectus with investment information, risks, fees and expenses to read and consider carefully before investing. Washingtons fiscal cliff deal taking some tax uncertainty off the table and the markets took notice. But members of congress were far less enthusiastic about a deal that postpones our debt problems for two months. It was like eating a you know what sandwich to vote for us. To me it was the rite of passage. Well talk to republican senator richard shelby. He voted against this deal. Plus, an early read on tomorrows jobs report. Cant believe we drove around all day and theres not a single job in this town. Theres nothing. Nada. Zip. Yeah. Unless you want to work 40 hours a week. We get adp private payrolls at 8 15 a. M. Eastern. Third hour of squawk box starts right now. Welcome back to squawk box here on cnbc. First in business worldwide im joe kernen along with becky quick and andrew ross sorkin. Our guest host this morning, judd gregg, former govern ever and senator from New Hampshire. Currently an International Adviser at Goldman Sachs and more importantly, prestigious, cnbc contributor. Still to come this hour, republican senator richard shelby. He voted against the fiscal cliff deal. Were going to get his take on the debt compromise. I think he voted against t. A. R. P. I think he votes hes not afraid. He votes against a lot of stuff. The budget battle still to come. Well talk to him at 8 15 eastern. Were going to get adps report on private pay rolls. At 8 30 the closely watched weekly jobless claims number. At 8 40 debt and taxes with joe lockhart, former press secretary for president clinton. First, though, andrew has your morning headlines. Okay. Our top story the Global Markets, stocks starting 2013 on a very bullish note. Dow rising more than 300 points yesterday. In its best point gain in more than a year. The s p 500 and nasdaq posting their best sessions in more than a year as well. The s p ending the day at a 3. 5 month high just three points away from closing at a fiveyear high. Take a look at u. S. Equity futures this morning. We do have red arrows across the board. Dow off 38 points, nasdaq off about 7. 5 points and the s p 500 off close to 4 points. Lets flip around to europe, see whats going on there. Things down marginally. But, cant say its an awful day. And the fiscal cliff deal was obviously a very big part of yesterdays market story. But now its officially lull. The white house saying that president obama has signed the legislation passed by congress. By auto pen. By auto pen, is that how they do it . No, they dont usually. But he did it by auto pen . Thats the word. I want to talk to you about that in a second. The new congress will be sworn in today at noon eastern time. The 113th Congress Takes its oath with 56 new democrats and 38 new republicans. In the house, john boehner, is expected to be reelected as the speaker today. There is still plenty of drama unfolding on capitol hill, despite that deal to avoid the fiscal cliff. That is a deal our next guest voted against. Joining us is senator richard shelby, Ranking Member of the banking committee, and one of just eight senators who voted no on this deal. Senator, why did you vote no . Well, for obvious reasons. One, it raised a lot of taxes, over 600 billion. And a lot of other things that were finding out was in that deal. Secondly, it didnt solve anything. We walk away from crisis to crisis. Were going to go from this crisis yesterday, two days ago, to another one in less than, what, eight weeks . So, we are right back at the starting point for some of these negotiations. We spoke with senator corker yesterday who said he thinks this negotiation will be much uglier. You agree with that . I believe its going to be tougher. I hope so. And i hope that the president will get involved. Hes in hawaii now. I know hes on a vacation. But he wasnt involved before. I hope he will be involved in this. He already said he will not negotiate on the debt ceiling. Well, i heard that before. Also somebody said he drew the line in the sand, but thats not concrete, remember that. So, what would you like to see happen with this what i would like to see, becky, id like to see some real efforts to do something about entitlement. Reform entitlement. We could do this. The president s got some capital but he is using it up very fast. He could get involved with us. A lot of us are trying to save Social Security, make medicare more efficient. Do something about health care. Think of all these things we could do. Not counting spending. Were hemorrhaging, were committing financial suicide. Everybody knows it. But theyre not doing anything about it. But, senator, we know that when you say things like wed like to reform entitlement, wed like to make sure that these programs are around and that they are stronger, you can get everybody on it. I heard an interview this morning with nancy pelosi, she said its the same thing its the details that get really complicated. Absolutely. What specifically would you like to see done . Thats where youre going to run into Serious Problems . First of all we need to run the age up. We live longer and we could do this and it would not hurt anybody. People could plan on it. Secondly how how quickly would you run that age up and how high . Well, i would keep running it up to at least 70 years of age. For Social Security . Absolutely. But i would do it in a measured way. Where people could plan for it. Because we are living a heck of a lot longer. Secondly, i would change that the way you compute the cost of living. It makes all the sense in the world. Chain cpi . The president seemed to be on board on that. But weve got to get him to the table. The president was on board. He offered up chain cpi ands ajudd gregg pointed out earlier it was the House Republicans who walked away from that deal. I dont think they just walked away from that particular deal. They would probably be very interested. And i dont believe you can say the republicans walked away from a real deal, they walked away from a bad deal, and they bought in to a bad deal. So, richard, first hey, judd. Great to talk to you. Youre one of the players in the senate and you have a huge influence there. How do you see this coming down, then, as we head into the two months up until the fiscal cliff comes back and youve got the debt ceiling and youve got the continuing resolution . How do you see this, you know, youre a master of the process in the senate. Where do you think the capacity of the senate, and the house, and the president to come together, and what do you see as the mechanism that causes that to happen . Well, thats an overriding question. And youve been there yourself, chairman of our budget committee, and the appropriator, too. I dont know whats going to happen. But i do believe if the president gets involved, and uses some capital with a democrat in the senate, with republicans in the house, and us, too, that we can do something. Whether we get it probably not but thats what we really want. But weve got to do something about spending. Were still hemorrhaging. And if we just give him the debt limit we just say oh, you can have it, go there, and get nothing out of it, were losing. Were losing big. If you if you get the president in the room, lets say, what would you want from the white house in the range of a number on the spending side that would justify moving forward to take all these other issues off the table . Or do you have a sense of that . I have some sense of it. And my sense is, is quit playing around the margins, but get to the real numbers. Youve seen when you were chairman of the budget committee, all these growth and spending. Growth and taxes, too, now. But not curtailing spending at all. Weve got to do both. We havent done it yet. And its going to take the president. He might not get involved. Politics is on the other side of the ledger, and i guess his information is on the other side of the ledger. But, he is the president of the United States. He ought to be involved. But hes not yet. Senator, i wanted to talk briefly about wall street and banking. You do run the banking committee, and what we should be expecting in 2013 coming out of your committee related to so many of the pieces of doddfrank which, for example, havent been implemented. And other pieces that are still up in the air, i think, in terms of what may ultimately happen to the Consumer Protection bureau and some of the moves that you may be pushing for. Well, come noon today, ill be moving over into ranking republican on the Appropriations Committee. I will still be the Senior Member of the banking committee, but senator cray poe is slated to take my slot as the Top Republican on the banking committee. So thats who you ought to talk to. I will be involved. But he will be involved in setting the agenda. Well, whats going to happen on the Appropriations Committee . You going to get any Appropriations Bills on the floor one by one or are we going to continue with these omnibus bills where virtually nothing can be reviewed because they come to the floor and theyre unamendable . Judd, i believe with leadership, Barbara Mikulski as the new chairperson of the committee, iveworked with her for years, you have, too, i believe were going to be involved and were going to bring those bills to the floor. We have to do it. Weve got to go back to the way we used to do business, more transparency, and work harder. Work nights. Work days. And well get something done. And well be a better senate. You expect to see a budget on the floor . Unfortunately democratic leadership hasnt brought a budget to the floor in four years. Thats an area you know a lot about from your past experience. Id have to see it before i believed it. You know, senator shelby, i feel sometimes like were talking to politicians who are in two different worlds. When you talk to democrats about some of these things, they think that with these next negotiations they are going to see new taxes that are brought up once again. Maybe a v. A. T. Tax, maybe closing some loopholes to get rid of some deductions. When you talk to republicans they think that we are now going to tackle spending cuts and spending alone. What does that mean just in terms of how realistic it is to think well get some sort of a deal thats reached in the next two months . Becky, thats a good observation. But we could get a stalemate. We hope we wont get that. But i think all is going to depend on how involved the president is in all of this. And is he willing to be the president of the United States, to bring leadership. You think of his legacy, but think of the people of the United States first. What makes you think the president s going to get involved now, richard, where basically he turned it over to first he turned it over to harry reid and then over to Vice President biden. Im sure he had some direct control over biden but he wasnt actually physically in the debate, in the room. Do you think thats going to happen . I i doubt it. I said he should be involved. But i doubt hes going to get involved. Hes got to get in the weeds, hes got to come to the hill, hes got to be there. He cant be delegating it to somebody else. And thats what hes been doing. So, senator i mean, dont you think dont you think the crimson tide has had a little bit too much success and a little bit too many titles . Wouldnt it be a little bit fairer to the rest of the teams out there if they would share some of these National Championships . Are you hoping for notre dame on monday night . Well, im a crimson tide man and tuscaloosa is my home and thats my school im going to say it will be a good game. I believe alabama is going to win and be the national champion. So you have no problem with thats like the wealth kwl in this country, you dont have any problem with the disparity between alabama and a lot of the other teams . You dont think that we should try to even the playing in a more fair way perhaps . If you look at history, things, you know, level out. It might take awhile. I hope its going to be a few more years. That would be nine that would be your tenth one. Thats too much for any no school needs no school needs that many, senator. Well, you have to win things on the battlefield youve got to earn it, right . Got to earn it. I hope were going to earn it next monday night. Well see. Well thank you. All right. We love you, senator. But joe and i have to take the other side of that one. Stay tuned. In the interest of fairness. Roll tide. Senator shelby, thank you very much. Thank you, becky. Bye. They have so much. Coming up line backers he didnt . He played on the alabama under the famous coach. Bear bryant. All right. Yeah. Coming up were going to get the december jobs report. Up next an early read on private pay rolls, the adp employment report when we return. [ male announcer ] at scottrade, 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. Welcome back, everybody. Lets take a quick check on some of the december sales reports that have been coming up. Target says the december samestore sales were flat. That is below expectations of a 0. 8 increase. By the way, target also giving a current quart irearnings projection that is above wall street estimate. This is the last time youll be getting monthly numbers from them. Macys saw 4. 1 increase in samestore sales last month. That was a little better than estimates. However macys fiscal Fourth Quarter Earnings Guidance is somewhat below the street consensus and maybe that is because of what you end up seeing with sales it brings in higher numbers but those are not as profitable sales and that could have been part of the problem. Weve been worried a lot about whats been happening. At the end of the Holiday Season, didnt seem as strong as it did on black friday. A lot of lessons may not have been learned about how to approach and what other people should start. They moved all these hours earlier. The internet affecting it . Weve got to do this real quick. We are just seconds away from adp employment report for december. Steve liesman joins us. Get your hand out, put it on your head, start scratching. 215,000 total private employment growth estimated by adp. November revised up by 30,000 to 148,000. Goods producing up 28. Why is that . Well, because manufacturing declined but construction up 39,000. Maybe an effect of Hurricane Sandy and the rebuilding effort from their services very strong 187,000. Theres the nonfarm payroll estimate of 150. And what you might see is you might see in this kay, this number of 215 is high enough that you might see some revisions. Theres only less than 24 hours until just over 24 hours until the employment report comes out tomorrow. So you might see it upward revision here. Its enough to make people rethink it. And if you just look at a chart, comparing adp and the dls private sector its been pretty good. This chain now weve got someone who knows what theyre doing finally. There it is, guys. So you tell me. Got some idea. I forget what my average is. I thought that the adp was only two months ahead of well, its been doing good on top of this. Not since Austan Goolsbee took over. Doing much better. Averages thats who i meant. I meant zandi. Goolsbee. Thats true. So, but over the last seven twelve months, using the adp live data and their back data its about 35,000 absolute difference. Joining us from port douglas, australia, mark zandi. Wow. Chief economist. Hello, everyone. How are you . You on vacation . Im good. What are you doing there . Isnt it tomorrow there . So who knows it is. Its tomorrow. I got a beat on it. Im right off the Great Barrier reef so having a good time. What is it telling us about the job market . Its solid. The most surprising thing is despite all the brinkmanship over the fiscal cliff and the debate about that, businesses didnt change their hiring patterns. They seem to slow up on their investment spending but not on their hiring. Thats the head scratcher part of this. We have seen the decline in Capital Spending. Capital spending and employment usually run together. A little bit of a delay. But we havent seen it, mark. Why is that . Why are businesses cutting back on Capital Spending and not employment . Well, good question, steve. I mean, in part, just to note that Capital Spending did come back in november. It wasnt straight down. You know, i think its easier for businesses to pull back on their investment spending than on their payrolls. You know, you call up your i. T. Head and say listen lets hold off on the server purchase for a couple, three months, see how this debate in washington goes. Its much harder to do that to your Human Resource person and slow things down. So, thats just my guess. Im not really sure. But, all the labor market, not just adp but the payroll numbers, have held up very, very well. So no sign of any impact from the fiscal cliff on the job market. Lets take a look at some of the sector data. Construction up 39,000. Thats been on a run even before sandy it was on the increase. Its been negative for several months. Tell us whats happening in construction versus manufacturing. Well thats the really good news. I think were just on the leading edge of a lot of construction jobs. And i think things got juiced in december by the reconstruction from sandy. But we are going to see a lot more homes built. A lot of new Office Towers built over the next couple, three, four years. And so i think were going to see a lot of construction and construction related jobs. Thats the most optimistic reason to be optimistic about the job market. Manufacturing has been weaker but even there, i sense a turn. You know the production is picking up, exports seem to be firming. Global growth seems to be better. So i expect the manufacturing job numbers to start turning up as we move into 2013. So i think everything will be moving north by midyear, by certainly by this Time Next Year. Talk about Business Growth sorry, employment growth by size. Small business, just 25,000. Whereas large business, 87,000. And of course, Small Business employing the vast bulk of workers out there is even smaller than it appears. Mark, is it possible weve gotten to a point, lets say, with the Health Care Law, where youre into an economy of scale issue. That the Bigger Companies have the advantage in hiring employees and the Smaller Companies do not. But maybe because its because of administration when it comes to Regulatory Burden . Yes, i think thats in part the case, youre right. Throughout the economic recovery since the job growth resumed about three years ago, the bulk of the job creation has been amid very large companies. Firms that employ over 1,000 employees. And its the small guys that employ less than 20, less than 50 employees that really are lagging behind. Part of that is construction. The construction cycle is very important to Small Companies that they predominate in the construction sector. And so i think in construction terms well see more job growth among Small Businesses. I also think the Health Care Law and other regulatory issues are bothering Smaller Companies more. Theyre having a harder time nag gaving through it. There are scale economies involved with dealing with regulation. So its easier for a big company to kind of spread that across their cost structure. For a Small Business thats tougher to do. Mark, dont want to let you go without your outlook on the economy. We did 3. 1 in the third quarter. But a lot of that was defense spending and inventory building. And then you have the Fourth Quarter here, which ive seen numbers between 1 and 2. 5. Where are you . You know our tracking is about 2. 6 . Wow. 2. 6 . So the quarter, you know, i thought wed be a lot weaker as you pointed out. The inventory gain in q3 was large but at least right now thats not happening. My point estimate for the quarter is closer to two so i do expect numbers to come in a little bit weaker. All the Economic Data are looking better at years end. So the economy is feeling good. You know, in a relative sense. Much better than i would have thought just a few months ago. Is the fiscal cliff deal change your outlook for 2013 . No. You know, the deal came pretty close to what i anticipated. Im expecting more. I do expect that well get some spending cuts as part of the deal to raise the debt ceiling. So i dont think the debate is over. And you know, i think were going to still see some fair amount of brinkmanship thats going to weigh on job growth and general economic activity. But i think were going to get a deal that most of us thought wed get in the first place. You know, i think thats really important. Because a lot of the smart money, and a lot of the economists that ive spoken to, and were talking to throughout this whole thing, were looking for a 1 to 1. 5 fiscal drag in 2013 with the deal to come out. Thats pretty much where we are. Thats exactly right. I mean, with the deal that we got earlier this week, that was shaved three quarters of a percentage point off 2013. Just assuming we get some spending cuts as the next part of the deal well get 1 to 1. 5 . Well make that up with the uncertainty coming out of the market and with housing recovering. We should be able to make that up. Were in a much better position to handle it now, dont you think, mark . I think so. Weve got two joe got 2 growth in 2012. I think we get at least that in 2013 and i think by this Time Next Year were off and running. I think were in pretty good shape. Dont want to keep you from the beach or snorkeling at the reef. Watch out for the sharks. Thats what i was going to say. Thanks, mark. Take care, now. Coming up, weekly jobless claims set to hit the tape at 8 30 a. M. Eastern. Were going to bring you the numbers and the market reaction. First in honor of National Sleep day, here are the top five songs about sleep as rated by the National Sleep foundation. Today is National Sleep day . It is. I got seven hours and eight minutes last night. Hope to get more tonight. Enter sandman earning the foundations top rating. Still ahead on squawk box well ask joe lockhart how to reach a compromise on our longterm debt problems. He served as president clintons press secretary. Keep watching squawk box on cnbc. [ 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. Scroll. Tap. Pinch. And zoom. In your car. Introducing the allnew cadillac xts with cue. Dont worry. We havent forgotten, you still like things to push. [ engine revs ] the allnew cadillac xts has arrived, and its bringing the future forward. 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. Are you flo . Yes. Is this the thing you gave my husband . Well, yeah, yes. The name your price tool. You tell us the price you want to pay, and we give you a range of options to choose from. Careful, though that kind of power can go to your head. That explains a lot. Yo, buddy i got this. Gimme one, gimme one, gimme one the power of the name your price tool. Only from progressive. Welcome back to squawk box, everyone. Today is National Sleep day. And if you are in need of a power nap during the day, get this, theres a Spanish Company that has a product that might just be for you. Now take a look at this. They call it the ostrich pillow. It was designed by a madridbased company, banana studio. It completely covers your eyes and it has a breathing hole for your mouth. Weird looking but it is designed for busy people who want to catch a quick nap on the go, and look like a weird freak in the process. Anyway, when we come back we are just a few minutes away from weekly jobless claims. Economists are expecting firsttime filings to kick up to 363,000 from 350,000 from the prior week. Take a look at the futures, because after that adp report things have improved a little. Youve got a better than expected number out of adp. You can see right now the futures are down only by about 25 points in the dow. This comes after a 300 point gain yesterday. At farmers, we make you smarter about insurance. Because what you dont know can hurt you. What if you didnt know that boxes by the curb. Make you a target for thieves . Or that dog bites account for a third of all home liability claims . What if you didnt know that one in seven drivers is uninsured . And that grease fires have to be smothered . The more you know, the better you can plan for whats ahead. Get smarter about your insurance. We are farmers bum pa dum, bum bum bum bum 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. Welcome back to squawk box, everyone . Just a few seconds away from the jobless claims number . Rick santelli is standing by at the cme. Steve liesman is here. Rick, well send it to you for the numbers. We see a 10,000 jump from a revised last week. Originally 350, moved up to 362, tag on 10,000 you arrive at 372,000. The current read on initial claims. And then, if you adjust the time setting a little bit you end up with an increase on the continuing claims from 3. 2 to 3. 24 1 2 million. Theres going to be a lot of debate on this with the holidays, and all these other seasonalities that affect the jobless claims. But indeed it is a bump up. I still dont know if its going to give you any clues about jobs. People are still digest iing th better than expected adp. But i constantly hear on the floor they cant get a handle on it. Its been changed. They retro fitted it. Will they change it again . Youre supposed to look at it two months forward, two months back currently. I dont know if it gives us clues but people will cheat a little bit, not in a bad kind of illegal way. But you will see, even though its less than 24 hours away, most likely upward calls on tomorrows number. They just cant help themselves. The big news, obviously, europe isnt looking as good on some of the recent data as the u. S. Ill tell you if thats the driving force or not there has been a huge welcome into 2013 and it isnt on the good side of the euro currency. Boy, we went from basically trading a 133, now to trading 131, and today is a big down day. One market that actually is getting a little bit of a breath, but nothing on the scale of what the dollar and some of the other currencies are gaining on the euro, the dollar yen. The yen has improved marginally today. But were still on 87 handle on the dollar versus the yen. You want to Pay Attention to foreign exchange. We still have some other data today. The minutes well get later will be scrutinized, especially considering, you know, Federal Reserve and how it figures into a postcliff presealing debate. Im glad you brought up the euro. Dennis gartman did that earlier this morning and we didnt talk about it at the time. What do you think is happening . Why has the euro turned around here . Well, to me, i think that what the euro represents, or what the relationship between the euro and other currencies represent continues to be exaggerated by shifts in the ultimate dynamics of trying to score the economy. Then you had in the big position growth that weve seen, and then you add in what japan is doing and i just think that youre really altering how the currencies are stocking up relative to each other. But i think theres very little doubt that the euro ended up with a lot more on the long side as the funding issues from europe moderated a little bit. Probably pushing it to a level that was not really sustainable. Rick, whats out there is this notion that japan is purposefully weakening the yen, and so you get a little flight from the yen and it looks like in that flight the euro is catching more of the running money than the dollar is. I think thats one way to think about it. I also think that you dont have clarity here when it comes to the outlook for the u. S. Fiscal policy. Or the u. S. Fed policy that doesnt really enjointer confidence in the greenback. Again, i think most of it looks like relative to whats happening in the yen, than anybodying happening here in the United States. I agree, two comments. First of all you said because of the nation that the japanese may be intentionally weakening their currency. I dont think theres any doubt about that. I think the better thy neighbor dynamics of the 30s are going to be more intense this year than they were back then. But another point i would like to make, you know, there was some easy trades out there, viewers. You know, yesterday i commented twice about how the euro yen started to lose its altitude about mid session yesterday. So, there is indeed some clues. If the euro was starting to lose on the free ride against the weakening yen that really did give us some clues. And then, you know, if you would have shorted it or got long the dollar versus the euro yesterday when that yen cross started to turn, with the euro, boy youd have made boatloads of money. I urge day traders out there, you got to have all the cross trades to really are some good clues, good signals. Quick word about the jobless claims. Labor department is saying it had to estimate claims data for nine states because of the holiday. This comes after the United States estimates the week before from 19 states. Obviously government doesnt know these holidays are coming so theres no planning at all. They do that every year . Every year theres some problem right around this time. But, i dont think its it seems correct to think of the claims data in the 350 to call it 380 range and that can be consistent with 150,000 of job growth, and then we can and should, at the appropriate time, start the debate over whether or not it made sense to continue Unemployment Benefits into another year, and the effect that that has on jobless claims. And not pay for it. And not pay for it. It seems like from maybe just a social or moral thing to do its a nice thing to do. Whether or not it ends up having an affect on the Unemployment Rate is something well need to think about. You think its a moral hazard to continue absolutely. We know theres a moral hazard. We know for example and i must have said it 100 times, alan krueger chief economic adviser to the president has done the work that job search increases as Unemployment Benefits near an end. And we think that theres anywhere from a one quarter to a one percent impact on the Unemployment Rate from higher benefits. Its a good thing to do to help people who have trouble getting a job, but whether or not it keeps them on the unemployment rolls longer and dragging the economy, because theres mark zandi saying the economy is going to go rather dramatically it appears to me and people arent going to be out searching for a job. Well, at that point they should be drawn in to the economy to look for work, senator. That would be the general economics. Good intentions. Good intentions and negative consequences. As we go to break, russian president Vladimir Putin has granted Gerard Depardieu russian citizenship. I dont youre kidding, right . No, not at all. He didnt want to go. He applied for he applied for russian citizenship and he has been granted that. Dual citizenship . And he was granted on the basis of his influence in the cultural realm and his significant role in films about russian history and historical figures. He played rasputin in 2011. Isnt the tax rate in russia 100 if he didnt like you . Yeah. Which is apparently russias now less socialist than 50 . Less socialist than france. So russia is a a lot of people moving from california oh, wow. A lot of people moving from california. To russia. You could adopt a french actor but not a french baby. And now im only sleeping, the beatles was left off that list. It was probably put together by a bunch of young whippersnappers that had no idea it had it had mr. Sandman from the 1950s. Why would this not be in there . The greatest song not every mind is set up exactly like yours. Well, the my sons will tell you that Twinkle Twinkle Little star should be on this list. That will put you to bed. Coming up the politics of a debt deal. Joe lockhart was press secretary under president clinton. Were going to ask what needs to happen for both Political Parties to come together and get a deal on the debt. Cmon dad im here to unleash my inner cowboy. Instead i got heartburn. [ horse neighs ] hold up partner. Prilosec isnt for fast relief. Try alkaseltzer. Kills heartburn fast. Yeehaw welcome back to squawk box this morning. Take a look at futures. We do have red arrows. The dow looks like it would open off about 35 points. The nasdaq off a little over 5 points, the s p 500 off 2 points. Congress brought some breathing room with the fiscal cliff deal, but budget fights loom large on the horizon. Joining us now from d. C. Is joe lockhart, former White House Press secretary under the republican before george bush, bill clinton. Hes also the former just kidding, joe, former vp but we know what a democrat is now i think a little bit better, and hes head of global communications. What do you make of everything thats happening as far as the cliff goes and what was said and done . I look at what the fix the Debt Commission said that judd gregg is part of. Its hard for me to find anyone who says this is really, even an average deal for the economy. Yeah, well i mean i think that the biggest message of all of this is just how Dysfunctional Congress has become. Youve got a system where compromise, making a deal, there are huge disincentives. You have very conference members of congress who reach across the aisle to try to get a deal, and the next thing you know they have a primary opponent popping up. The system is broken and we have to get to the root of that. Which oddly is not really in washington. My view is its out in the state houses. We have drawn these districts in such a way, democrats and republicans, where ideological extremes are rewarded over people coming here who are pragmatic. I mean the good news on all of this is, you know, 80 republicans in the house stood up and we got a deal. It wasnt a great deal. It was kicking a lot of issues down the road. But were watching, you know, were going to see in the next six months whether that was the new rule, the new reality, or an exception and we go right over the cliff in a few months. Joe, wouldnt you think its safe to posit that ideological extremes are part of the what were dealing with in the country as a whole and the people in the country . You know, i dont think so. I think if you look first off, most people in the country tune in to politics very, very rarely, and only at these moments of crisis or created crisis. I think theres more in the middle than people think. But those who are most passionate about it, both on the left and the right, seem to get, you know, the lions share of attention and are driving the process. You know, what we have to do is create incentives for people in the middle. Democrats and republicans, to, you know, do sensible things. Even if its against the, you know, the dogma of their party and still get reelected because ultimately, what common sense are you talking about . Im talking about not having a primary opponent. Not feeling like youre going to lose your job if you do something that works with the party opposite. And its not that long ago that we used to do this. You know, the idea that the president would get half of his party or would vote with the republicans, and youd have something in the 90s, this is how we got trade deals done. We got a bunch of trade deals done by getting a few democrats and a lot of republicans, because it was, president clinton thought it was the right thing to do for the economy and the country. Whats the difference, joe . Sorry, thats the elephant in the room. What caused bill clinton to become more conciliatory and more centrist . He won the election. Yeah. What caused him to he didnt just immediately, you know, stay on the campaign trail, line himself up with people standing behind him and basica the opposing party every chance he gets in acerbic tones. He didnt do that . We actually did a lot of that i think. Republicans will remind you. In fact, i did it myself. The reality is, heres whats changed. And i dont think its that complicated. Which is, you know, even as recently as the 90s, you could go back to your district saying i worked with the president because it was the right thing for the country, and still get reelected. Right now weve drawn these districts in such a way that they are so conservative or so liberal i think the problem is more now on the republican side but that may just be a cyclical thing. Good members of congress, who had the best interests of the country at heart they go home and cant get reelected. Thats only about half the problem according to nate silver of the New York Times. He ran a bunch of numbers on this and gerrymandering is part of it, but i think it was half or even less than that was because of the redistricting. He thinks theres really just a change in the way that the population is feeling about this. Well, you know, again, i do think we have there are bigger and broader issues where, again, even in the 90s, we didnt have, you know, the very partisan media where you could go to an internet site that you agreed with, or a cable channel that you agreed with. But you know, those are things that, as, you know, as governments we cant really attack. Youre not going to be able to tell people you have to be more moderate. You have to be more fair. What we can attack, though, is we can go to the state houses and a lot of solutions dont come from washington. They come from governors, and i think we really do need to look at the way were putting these districts together. I think because thats something we can do. Joe, you know, i agree with both points. Dont you really think if Hillary Clinton had been president she would have been in that room negotiating these deal . I mean the simple fact is you have to have leadership. You have to have the president being willing to risk his Political Capital or her Political Capital to get it done. And in this instance the president kept turning it over to somebody else, turning it over to somebody else, and as a result, you had drift rather than conclusion. And it takes the president in the room to get conclusion. Well, its been awhile since i stood behind the podium. But i do remember the lesson of not answering hypotheticals like that. I will say, im slightly amused that the it does seem to come from republicans, and this wasnt my experience in the 90s, was if just with clinton era, if clinton was there it would be better. What a wonderful statement. But i remember i remember i dont remember talking like this in the 90s. But boy what a statesman that gentleman was, bill clinton. Boy the first lady. Shes just the greatest. A lot of republicans ive always loved her. I think the point is, and listen, i i just never knew until now. I dont agree with the premise that this was a failure of president ial leadership. I dont. It is very hard to negotiate with people who wont negotiate. And i think thats the problem. But what kind of deal this deal, your guy negotiated . No, no, no. The republicans didnt negotiate . You got all tax increases and no spending cuts you call that no negotiating . I think that we got to the point where we almost went off the cliff, because there was nothing. There was no compromise that the House Republicans we didnt. And that is small piece of good news. Were going to have to face this again. Although the president has said he wont negotiate when it comes to the debt ceiling. Well, listen, i think the debt ceiling is something that i think hopefully weve learned our lesson from last year on that. That thats not a political football. Youre in washington. Do you think weve learned it . Do you think were going to be having this conversation at 11 59, you know, and 59 seconds in a month or two, when tim geithner says were going to go over . You know, i would i would predict that whatever we do, it will be at 11 59. And well both everyone will act responsibly . Probably not. And again, the interesting thing is, if youre a political scientist this is going to this is a really interesting time to watch a political party. The republicans have got to figure out, you know, whether they want to get the best deal they can, or whether they want to try to, you know, obstruct the process. You know, well see what happens. I wouldnt youre killing me, though. Because im thinking about how we all just blindly accept that this got turned in to a tax debate. With all of our problems with entitlement, and all those unfunded liabilities, and the deficit issues and all we have the one thing that the white house focused everybodys attention on is the top 2 and what their tax rate would be. And because you dont see any compromise from republicans on just that issue, theyre the party that caused all the problems. When the white house didnt focus anything on all these huge issues that weve got. I mean, dont you can you hear yourself . You just swallowed hook, line and sinker that it was all about just raising taxes on the rich . Well, listen, thats listen a lot of the campaign was about that and thats what we were facing, you know, on new years eve. If there is any apartment milk here its the idea that weve brought some time that if, you know, very often you got to narrow the issues to get a compromise. In this situation, were going to have to broaden them to get a compromise. Because theres very there was no give, you know, among republicans. Until the end. On taxes. Finally its over with the taxes. You got it. Yeah. Youre the top 2 . Now, is he willing to come to the table and really try and solve some of our problems . Well, listen, i think the president was out there and was pretty strong on looking at entitlements and it makes some democrats nervous and hell take some heat over it. But i think you know, the one thing that we used to always feel at the white house, with president clinton, was if both sides arent a little bit mad at you, youre doing something wrong. So well see mad at you, you ar doing something wrong. The huff post said take your medicine. The left doesnt seem that mad, nobody on the right. You guys won. Just take a bow. Take a victory lap. Just be happy. Will do. Joe, thank you. Appreciate it. Thanks. When we come back, we will give you your morning fix. Cant start your trading day without jim cramers stocks to watch. We will head to the new york stock E Stock Exchange right after this. 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Competing against squawk box, jim, is that what i basically . Just trying to think i can go on somewhere at 9 00 . It was worrisome. Joe, you will be proud of me, i mostly talked about how governor christie stood up to the state of new jersey. He did. He did indeed do that lately, he says he has always said whats on his mind about 80 approval rating, i think . I think one of the highest i have seen of any public official. By the way, notice how he does it now, no long we are a smile, very statesman like, he gets the point across and people like it. A couple good years for watch. I think he would be a good candidate for the party. Runs, he would be a force and a potential nomination. He brings the everyman to the table. He doesnt stereotype, republican, you know, green eyeshade guy like i am. He just communicates with people so comfortably, people feel have an identity with him. He is forthright. People love that people love a forthright person. He knows its a war zone down there, too. I have got guys going down by the way it is still mostly just homes that have been left vacant, people thought the money would be there i dont know why he is the only guy been down there and seen what its like. The National Guard is still making so it is a restricted area. Its just incredible. Like katrina day five. More than two months later. More than two months later. Here we are. Jim, see you in a few minutes for squawk on the street. When we come back, our guest host this morning has been judd gregg, the former senator from New Hampshire. We will give him the word when squawk comes back. She knows you like no one else. And you wouldnt have it any other way. But your erectile dysfunction you know, that could be a question of blood flow. Cialis tadalafil for daily use helps you be Ready Anytime the moments right. You can be more confident in your ability to be ready. 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