Transcripts For CNBC Squawk Box 20151030

Markets and the feds and beyond. Lets get to andrew with breaking news on valeant. Another turn, the drug maker says its ending its relationship due to the Specialty Pharmacy business practices. The company saying it has lost confidence in the ability to operate in a manner acceptable to valeant. In response it said it would shutdown operations as soon as possible. Cvs health care also dropped them. Cvs saying it will no longer use services after an audit found evidence of noncompliance. Now valeant has been facing a lot of pressure and is facing federal scrutiny as well on the drug pricing and distribution policies so this is a big issue. Also activist investor and one of the largest shareholders expected to hold a Conference Call discussing his firms investment in valeant. Philidor represented somewhere between 5 and 10 depending on whose math you were doing for valeant. This will be a direct hit on the company but does seem to be suggesting they take some steps. Another story, one of valeants largest shareholders, two of the Board Members just left the board saying we dont believe that valeant should have been such a large holding of our company. Which is interesting too. So they have been selling the stock. Trying to get out of it. Even more surprising, i believe the Board Members left last weekend and it wasnt pointed out until calls were made by the wall street journal just this week. Isnt that something that youre supposed to make sure that investors know about when independent Board Members stepped down. You would think. They havent changed it on their website. Ibm released an sec you were not here. You guys were off to boulder i think that day. Ibm announced the investigation. That was a revenue recognition issue in the u. S. , u. K. And ireland. They found out about that in august. Clearly they think sec reviews. How do you not tell information like this, Material Information that investors need to know about. This was the debate that day about whether Something Like this is material. Clearly ibms lawyers and somebody told them that they dont believe its material in terms of whatever the revenue recognition issue is and of course we dont know enough because they havent told us enough. Whats your understanding of the relationship between val naervaleant and philidor at this point. That they could buy how much of the company the big issue is they were just using philidor to sell most of their products. 10 . But philidor is now going to be done. Theyre cut on both ends. Customers and suppliers. Peter parker. I would use halloween names. Timing wise. Its mischief night, is it really . On a friday, that scares me. Yeah. Have two dogs. Im not sure. Sat in the shotgun. Carl icahn speaking up on Corporate Tax reform after pfizer concerned its in talks about a possible merger. We talked about that transaction yesterday morning. Icahn tweeted out his warning of more companies leaving the u. S. Is now coming true. He set up a 150 super pack to push for tax changes. So we will see if that does anything. Another icahn holdings, aig, the wall street journal reports the directors at the Financial Insurance giant are discussing a spin off for sale of the companys small mortgage Insurance Business and discussions are said to be going on for awhile but no final decision has been made about the unit. It represented 5 of the pretax operating profit. Icahn and john paulson, he walked by all the time. Hey, paulson, or were going to station someone out there. I want a speaker anyway. We see people walking by. He has been calling on aig, if you have a first floor studio get off my yard. Get off my yard. Get off my lawn i think he says. Thats from monster house. Monster house. Remember bones. Anyway, trying to get them to break up into pieces. Starbuck with profits of 45 cents a share. Revenue and Comp Store Sales increase. Both beat the forecasts on wall street but investors were disappointed by the profit forecast for the Current Quarter as well as its results in china. Thats interesting in what it says about the china situation overall. The chairman and ceo will discuss later on squawk on the street. Shares of linkedin soaring this morning. Results beating expectations and reversing a loss from a year ago. Revenue jumped 37 to 779 million. The ceo spoke exclusively about growth in china. Chinas a perfect example where we not only localized our growing platform. They shifted to north of 13 million today but we also created a stand alone mobile First Chinese only application and were seeing good traction with that application. We want to take a similar approach to a market like india. India is our second largest market in the world today in term of membership. Shares jumped 13 on that news. In washington the Senate Passing the budget in a vote. That measure which will prevent a default will go to the president s desk for approval. Thank you. Markets continuing to, i guess its uncertain. When is it not uncertain . But maybe even more uncertainty because the fed now hinting at a possible rate hike in december. Now they hinted before and it didnt come to pass. Still the fed is just plain timid. In fact, the most timid fed ever and that bernanke should be proud its so timid. I dont know what he means by that. I like it though. Chief economist at bank of tokyo mitsubishi. Covering the market angle is the chief strategist at t. D t. D. Ameritrade. They call you j. D. Derivative calculations. Your daughter does. Thats a fake daughter. My youngest daughter is 18. You have a fake daughter. I have a fake daughter. I watched and i said i thought she was so cute. Did they mean granddaughter . Thats what i thought. Yeah, my daughter did tweet out replaced. Chris, i agree, these guys, and thats what makes me think, weve seen in the past that its, you know, they chickened out obviously in september and who knows, are they going to do it in december or chicken out again . Theres always something that comes out, right . There was cold weather in the first quarter. They wanted to see the economy rebounded. It did and they didnt pull the trigger in june. It was china and the flash crash 100 point drop in the dow that kept them from going in september but the market doesnt want them to go either, right . Bond traders traditionally like a rally. They like seeing signs of deflation in the world. Deflation means lower yields. They make money being long bonds. So theres really not a whole lot of people arguing for a rate hike but i mean theres two real reasons they need to go. I was just out in california. You know, home prices went up 12 last year. Forecasting 12 this year. Housing is unaffordable. Mortgages should be one percentage point higher. You have fat cats. They dont want the dollar any stronger. And expense low. Who was the third group . Assets. People that have assets. Anyone that has stocks or housing or any of that. Love the asset inflation. So there are powerful people and people who want to get elected next year also dont want the fed to raise. So there are a lot of people ganged up on one side of that issue. Theres no one there for the savers. But were close. I think they can only postpone the day i mean, my biggest story now is that the Unemployment Rate needs to come down another couple. We have two more reports. What was the first goal post. 6. 5 . 51. It was a threshold and not a trigger. Theyre going to talk about it. We meant 4. 9. They could move it again. Maybe 3. 9. Might get down to 4. 0 at some point. It gets a little ridiculous. How about you . I didnt have a 4. 0. You didnt have a 4. 0 either. In terms of trading its interesting what chris says because one of the things were seeing is we have exxon and chevron out today with earnings and to your point about it being very difficult to save for retirement, stocks like that are a favorite because of the yields right now and even though we did see the probability of fed fund raise in december jump from 33, i believe it was, to 46 right after the news the other day and its held there, overall still less than 50 50, stocks with yields still remain attractive. Especially blue chip stocks. I dont see that changing. Were coming off barring a disaster today well have the best month in four years. So there has been a lot of positives overall and if you look at some of the earnings the china consumer has been stronger than people thought we would be. Look at a nike and gm et cetera. Youre seeing china still performing pretty well so i think the pressure continues to build for a rate hike. That was a pretty good direction and correction and had enough people not convinced that it was overment so many people keep saying it has to retest the lows that it got back up. Now were back up 10 . People said no, no, got to retest the lows. Thats way it does it. Now everybody is kicking themselves. Yeah. And on wednesday it seemed to me was almost Short Covering because that was all about panic to the upside. You know, you saw the s p sell off basically unchanged after the news came out and they rallied so significantly you could almost feel like it was a little bit of panic buying near the end of the day which we really havent seen. Almost every month in october wed start out in the morning a little bit lower and a lot of gains by the end of the day that snuck up on people by the end of the day. Exactly. No one believes. Is it 14 or something. Just under 15. So thats the place to buy . I think that overall, you know, im of the opinion as long as the fed is still kind of unsure, so to speak, that it should trade up near more traditional means. Wouldnt surprise me to see it go near 20 and if march is the time frame at least hold through that time. This is interesting. Peter pointing out the dow and s p are on pace for the biggest monthly points gains ever. So youre looking back at what just happened over the last four weeks. Caught a lot of people by surprise. So chris, there will be numbers. There will be numbers and they might not be they may go into the feds ability to keep them at zero again. What did we see durable goods number wasnt great but there were claims that numbers are good. Do you expect the unemployment theyre the lowest since the 1970s. Why is that not a proper statistic that they should put the labor market is at normal. Gdp 1. 5 but it was just a trick of inventories so yeah, the economy is looking good. The interesting thing to me is how some of the policy makers have changed. Some of the doves have said now hah the labor markets at full employment and, you know, theres so much focus on the jobs report but were looking for 200 plus to be a good number that the fed could go and now the policy makers have come out and said 140,000 jobs per month is fast and strong enough. So i mean, the i think this is means theyre getting very very close. They have run out of reasons. Inflation wont stop them, low wages wont stop them. December is probably it. Okay. All right. Madison avenue, they expect us to buy their products. Do you remember do you remember stephanie and andre and theyre like oh look. Theres their kid. Its a cute little kid that looks just like andre. That wasnt their kid . No. I dont know if they have a kid that age but they make us all think of it and you let them do that just so you could sell more of your products. I understand if you dont necessarily want your kids thats not what it is. This kid is how old . 5. Very cute. Theyre misleading us. If your daughter was five you would have used her for the commercial. She looked like my daughter at 5. Madison avenue. Wonder why we have problems. I dont believe anything anymore. Coming up, the leaders are still on the trees. The calendar says its still october. But for target and walmart its beginning to look a lot like christmas. Thank you for the music. The retail giant rolling out big holiday plans. We have the details next but first take a look at this date in history. Macys will be open for business on thanksgiving. They have a lot of things like that. I still say that like a big new york parade would be something that would get everybodys attention. They didnt think about that. I dont know if they have taken me up on that. It would be everyone in the city. Great branding opportunity. Dont you think . Sure would be. Working on it. Really rushing now. Andrew. It may be just a day away from halloween but never too early to Start Talking about christmas. Were now just 55 days away from the very big day and target and walmart have their game plans. Courtney is here with the details. Andrew. I got microphone on. You need that for tv. While many schools are holding their halloween parades today its the biggest time to roll out the holiday strategies but there are stark difference wes noticed early on. Target again offering Free Shipping for online orders with no minimum purchase starting november 1st until christmas but walmart is keeping its 50 minimum for Free Shipping. They are rolling back what they say thousands of prices for the whole season beginning november 1st while targets focus is more on exclusive products in decor, apparel and gifting categories. Walmart hinges on making shopping easier during the Holiday Season and walmart will not be beat on price. They will react if necessary during the season. Target leaves out its strategy through a story telling Multimedia Marketing campaign with the heaviest investment on Digital Advertising in the companys history. Target is partnering with a company to allow consumers in 200 countries to shop its website this season. Both walmart and target enhanced their holiday wish list apps and both are forecasting star wars merchandise and drones to be among the hottest sellers. Stay here. A lot more to talk about this. Joining tous to talk about the Holiday Shopping season, lets get more on what to expect from jan rogers. And he is also a cnbc contributor. Thanks for being here. Its a pleasure and yes were right into the season almost already. No, no. Were already thinking about the season. Cant say its right around the corner. We think about november 1st on as the season and were there. The season is starting now. Youre really i bought my first holiday gift. Are you kidding . No. What do you think is shaping up for the Holiday Season . Im more optimistic than most. The average optimism is 3. 7 growth for the Holiday Season. Im at 4. 5 . Theres a few people at 5 or 5. 5 and the reason they are is most people are forecasting gift giving up to be up about 4 but selfgifting is going to be up more than that to lift it to the 4. 5 range. Why do you think people are going to spend . Because to this point weve seen consumers saving a lot more and spending on other things like experiences or dining. What changes it to the point where they actually get back and start doing what people have been expecting for about a year. The bad news is experiences in dining are in the 4. 5 and i think restaurants are going to be up about 7. 5 this Holiday Season. I think apparel is going to be up about 2 . But thats because deflation in apparel is 3 . So you get about 5 growth in units which would be a goodyear if you werent deflating at 3 on the price. So i describe that kind of jokingly as the effect even though theres only one at the moment. But its really the h m, the zara, low end old navy gap christmas. They push the prices down so were not going to see the lift we would see in sales otherwise but the units will be fine. The bad news is you dont make your living on units. You make it on growth and sales. It takes a while to put pressure on prices even though we have seen a stronger dollar. A lot of the contracts are so far in advance theyre not getting the benefit of lower costs. Is that the case across the board . I watched terry saying that and i can guarentee you the folks at macys are renegotiating as fast as they can. Most of the deals can be renegotiated every time theres a new delivery coming up and when you see that big strange, the big strong retailers, walmarts, targets, macys, et cetera renegotiate the numbers. Youll see some benefit there t. Bad news is its all getting past the consumer. Who is going to lose. I think that the mallbased retailers. People inside the mall, the gaps, the ann taylors, the chicos, those people trapped inside the mall where traffic is going down, 4. 5 to 6 , maybe 7 for the holiday because the biggest drops in traffic have come in the Fourth Quarter every year well see a big drop again this year. If youre inside the mall and youre not a destination, you arent living very well off of the traffic and if thats what it takes youre not going to make it. If youre foot locker and youre a destination inside the mall its probably fine. If youre all the other people in the mall not so good. You started saying gap and old navy and you started to take it back. What was going on there. A lot of the Old Navy Stores werent in malls and i said maybe im talking about something that doesnt exactly apply but the concept is the same. Where does gap land . Gap is going to have problems because gap inside the mall is suffering from the fact theres not as much traffic. Old navy has fierce competition now at all the price points so even though i think theyre doing a good job i just dont think a good job is enough. There is some Pricing Power in certain products. Target was talking about how they bought deep into leather accessories goods. 50 more than last year and theyre marketing up the price. A nice looking tote 99 and they dont think theyll have a problem selling that through. Thats a high price for them. It is but they sold so well last year that they believe they can sell through. The accessories business in general is not as much this year. Were not seeing growth in accessories like we have been seeing. It outgrew for years and its not happening now and high end goods, the michael kors and coaches and all of that are not seeing strength that business. Target may win that game only because they were so bad at it and now theyre going to be better at it. I give them credit. Target has done a good job. They have better product. They have better display. Theyre doing a better job inside the store. Theyre putting in mannequins which lift sales by 30 . It took them from 2006 to now to figure that out. Thats really retailing 101 but their display is better. So both walmart and target are in control of their own fate for holiday because theyre doing things to make the business better. Which stock do you like better . I like walmart better longer term because target is doing things that i think in the shortterm here really work and walmart is doing things that i think makes them a great retailer for the future. Target has to deal with the food business which i dont think they have a solution for and i think the red card Loyalty Program is playing out and its fairly expensive so i think they have those major issues to deal with but in the shortterm i love what theyre doing. I love retailing 101 done well and target was as good at it as anybody in america in 2006 and they havent been since then and theyre just now getting there. If they can also get their stock outs fixed which i think are a big problem that would be another leg up for them. But longer term, its still a tough business. What about targets Online Business . They have work to do especially with the speed of delivery. Walmart is making this Huge Investment so they can do the online, all of the stuff that macys is doing and nordstroms is doing and target is three years behind. Thank you. Thanks for having us. Pleasure. Coming up, someone is watching the shares of starbucks. Apparently somewhere in the control room watching the shares of starbucks tafter the company reporting in line with expectations and valeant is cutting ties with philidor rx. Heres a look at yesterdays s p 500 winners and losers. Its alive its alive when youre not confident your companys data is secure, the possibility of a breach can quickly become the only thing you think about. Thats where at t can help. At at t we monitor our Network Traffic so we can see things others cant. Mitigating risks across your business. Leaving you free to focus on what matters most. They speak louder. We like that. Not just because were doers. Because were changing. Big things. Small things. Spur of the moment things. Changes youll notice. Wherever you are in the world. Sheraton. Among our stocks to watch this morning, are you up to date . No, no dont tell me because i have two that i have to catch up on. Dont tell me. Cant even ask you the important question. Save it for next week. I promise ill be caught up. Expedia earned 2. 07 a share. Beating estimates. The travel site also said that its purchase of rival orbitz will yield more benefits than previously thought. Solarcity lost for the quarter. Wider than the 1. 95 expected. The equipment maker will increase its focus on cutting costs and there by improving cash flow. We do have break news on val aerks eant this morning. Cutting ties with philidor. Coming out this morning saying it is terminating that relationship saying the newest allegations about activities there rasz questions about the Companies Business practices and they have lost confidence in the ability to operate in a manner acceptable to valeant. A lot of people wondering why it took them so long to end this. And then of course yesterday a slew of pharmacy benefit managers from cvs and express scripts and United Health all said they were terminating their relationship. So im sure investors were hoping this would give people some confidence. So real quick meg, help us with this. How big of a piece of valeants business runs through philidor. 6 of their revenue this year. An additional about 1 ran through other specialty pharmacies this year. What some people are wondering is, is there more through some network for pharmacies of what valeant called earlier this week was 6 through philidor specifically. But to the questions you just asked are there other Network Companies like this that we dont know about . Right. They did say 7. 2 total of their revenue ran through specialty pharmacies but in express scripts Statement Last night they were looking into four other pharmacies that valeant had similar relationships with. We had some questions about that and we hope to clarify that today. Just in term of value destroyed in the process here, valeant paid how much for its relationship originally. 100 million for the option to acquire philidor for 0. Okay. Whats your sense of where this goes from here . Its very interesting to consider whether valeant will continue with this Specialty Pharmacy model and use different partners that maybe it doesnt its not the only customer around. So its not socalled captive pharmacy. This has been a very Good Business model to push higher price strokes through its system where pharmacy benefits managers and insurers try not to pay for them or put high copays on patients. Valeant says any prescriptions in process through philidor right now it will just pay for it. It will take the hit on it even though theyre not going to get reimbursed. Well have to see what that amounts to. Whether its significant at all. And then well have to see whether they use it going forward. Thank you for joining us this morning. Appreciate it. Thank you. Coming up, what is brewing at starbucks . The coffee house chain has hot sales but forecasts putting a chill on the stock. Well talk to an analyst about whats ahead for the company right after this. As we head to a break, take a quick check at whats happening in the early trading markets. Youll see red arrows across the board. Declines of onethird of a percent. Squawk box will be right back. I built my business with passion. But i keep it growing by making every dollar count. Thats why i have the spark cash card from capital one. I earn unlimited 2 cash back on everything i buy for my studio. And that unlimited 2 cash back from spark means thousands of dollars each year going back into my business. Thats huge for my bottom line. Whats in your wallet . Advisor and team who understand where you come from. We didnt really have anything, you know. But, we made do. Vo know you can craft an Investment Plan as strong as your values. Al, how you doing. Hey, mr. Hamilton. Vo know that together you can establish a meaningful legacy. With the guidance and support of your dedicated pnc Wealth Management team. Dow futures up about 20 points. Last trading day of the month. It has been a good one for the bulls. Up 9 just for the case of this month. S p has been up about 8. 5 . The nasdaq up by close to 10 . A Regional Bank deal breaking. Keycorp is buying first niagra. The deal is valued at 11. 40 a share. Niagra closed at 10. 38. Starbucks reporting fiscal 4th quarter earnings. Results in china, asia pacific units fell short of expectations. Also upping their dividend to 20 cents a share. The stock is down in large part because of expectations for next quarter. Also a currency headwind. Joining us with more on all of this is morning star senior restaurant analyst. What was your big takeaway this morning . Yeah. Really i thought it was a solid quarter all around and i thought the 2016 guidance was in line with what i was expecting. This is one of the more Dynamic Growth stories today and people looking at the guidance, really the disappointment that it was more accounting related, youre grapsing at straws and looking for things. For an excuse. This still remains one of the more solid growth stories in the consu consumer space today. The dollar, how big of an impact will that have on starbucks. Not a significant one or hugely material one. If you look beyond 2016 that begins to normalize but that could be a modest head wind. And in terms of overall margins they obviously talked about raising prices. How high can they raise them . How much elasticity do they have on the price . This is one of the brands with the strongest Pricing Power in the restaurant space today and probably Broader Consumer space today and what youre seeing, the creativity theyre seeing with the brand whether bit from the digital platform to Food Products and the products theyre introducing in the Grocery Store shelves, it gives them significant Pricing Power and will help to offset the digital and labor investments that theyre making. The important thing here is theyre really paying off. Theyre seeing lower employee turnover helping to improve the Customer Experience and theyre well ahead of the Technology Curve right now. Youre starting to see other players start to replicate that and youll see the margin out performance shine through. How big of a business do they have outside of whats behind the counter these days . 10 of the overall business in terms of revenue but thats a higher margin business than at the retail level. So that in a normalized environment is a 35 to 40 operating margin business compared to 20 for the retail business. So as that grows to 15 or 20 that gives you a nice margin tail wind and one of the more compelling longterm components to the story here. And is there anything that you can take away from whats going on at starbucks to the other restaurant chains that you cover . Or is it really just an operational story at starbucks . It comes down to an operational story and i think the 9 comps in the u. S. Was one of the most important takeaways. Thats coming at a time when were starting to see traffic slow down. Right now starbucks transcending all macro and Consumer Spending pressures in the market today reinforcing that pricing point we discussed there. One of the more dynamic stories in the market right now. Rj, appreciate it. I need to get a starbucks coffee. Well see you soon. A quick programming note. You dont want to miss this. Starbucks ceo is going to join the crew later this morning. That will happen at 9 30 a. M. Eastern time. Coming up the latest james bond movie spectre will open next week but behind the scenes drama for the franchise. But before we head to break, check out the price of crude. 46. 2 this morning. Battle worthy of james bond. The film franchises deal with Sony Pictures expires in a number of movie studios plans to bid for the rights. According to wall street journal theres been 26 james bond films in total starting with dr. No in 1962. The biggest grossing film was 2012 skyfall. Do you know who sings the song for skyfall. Adele, right . Yeah. Theres a good piece in the paper about how classy she is. She doesnt like the media. I dont either. Its a low bar with some of the singers nowadays. But she is. I always respected her. Thats good. Do you like lady gaga. No. Whos the one licking the donuts and then hated america. What was her name. Licking the donuts. Ariana grande. Read the papers once in awhile. On track for stocks our record guest is still on the hunt for bargains. Remember when she said i hate america, she was at a doughnut place and they went up and were licking the donuts and said i hate america. I remember when miley cyrus licked something nevermind. Joining us with her global strategy and picks wow see they put all together did yo . Anyway. Portfolio manager of the five star four star, overseeing a total of 4. 6 billion. Thats a big responsibility. You look but you look like you are handling it well. Yes. Do you have any cash now . Are you fully invested . Well, we have about 6 cash, i think, that this recent rally again from the lows in september, september quarter, allowed us to take profits as well. Is 6 high, low, or average for you . Its high. It is . Its high. Okay. Fully invested is 34 cash. Were a shade above. When you go when we went through what we went through in august and subsequent to that, do you change anything at all . Do you use it as a buying opportunity . Do you sell under strength . Where are you in terms of the market . Well, we are long term investors at aerial, but short term volatility creates long term opportunity. There was dislocation in the markets in the last quarter, and so you can get an opportunity to rotate. One example of that is a stock like that missed earnings in the last quarter, interestingly, just reported last night and beat on earnings. You have that volatility. Stock down 35 in the last couple of months, and this is a company thats like a onestop shop Silicon Valley of china. Not just google of china, what people know it to be, but its open table, ticketmaster, expedia, groupon, all, emerging Market Companies learn from the western world and kind of do it in their own markets, very early in the innings of that. We are negative on china in the macro basis, but a story like this where Internet Penetration is so low sfrn the macro situation is not great, you can have growth in this particular company. So why . Is that a big holding . It is. Largest holding, top three in the global and in the international were independent bankers, one the most contraryian picks in the market, few stocks in the world with a 6 dividend yield, and thats what this company has. Typically, with that yield, you know, chances are its cut, right . Nobody buys into it. Obviously, we have done the homework and research to know that at least our assertion is its not cut. While the company is facing a patent expiration, as you know, many pharmaceutical companies go through the valley and then before the success of drugs come on stream, thats where they are. They are in the valley period. Theres couple years of earnings declines, but just like all good things end, all bad things end too. So if you can see the turn, the inflection appointment, which we think is around the corner, its a great bargain opportunity. 15 times earnings, 6 yield, a company thats three businesses two of which grow earnings tremendously, but everybody focuses on the vaccine business and businesses are high value to entry business, and the consumer business, they have a double operating margins. Rare to find these opportunities that are also undervalued. 100 billion market cap company, local shares, liquid, and we think theres still so many ball games out in the world if you know how to look. We dont know how to look, really. I dont think. We need thats why, right on. On your behalf. As far as so you are supposed to do mostly international. And global. And global. If you see something domestic, in the United States, is that okay . Can you absolutely. You buy things here too . Well, in the global strategy. Okay. Buy international michelon is a security. People think its hard to find well manage d companies or companies with good returns of Investment Capital from france. Yeah. French companies are not known to be particularly efficient. A big capitalist, right . Yeah. Actually, look at the Success Stories out of france, loreal, and they say they are a worthy competitor. You talk to an insurance company, and they say worthy competitors, and a tire company, and bridgestone, and michelin is a competitor. World Class Companies exist, even in france, and they are an interesting opportunity where everyone is concerned about the slow down in the auto market. Theres a resurgence, cyclical as we know, and people forget that tires are something that are crucial for fuel sisht si and safety, two big themes important to any consumer, important for the car ratings, et cetera, and the car park in the world has gone up dramatically. You dont need new car sales, but you need install base, and, you know, i done have to worry about Driverless Cars or driver cars because you need tires. Thats a serious issue. It is. You have to know whats going to happen around the corner. Auto companies have the challenge because theres more and more electronics in the car, safety aspects, and not every car maker or component maker makes it. When you go from the transition from antilock to digital, as it happened in the computer industry, winners and losers. You have to be careful positioning yourself. They are interesting because they have tremendous amount of research and development investments. Car market is interesting. As oil prices are down, the consumer in taking that benefit and sort of saving on their gasoline bills decided to buy bigger cars, bigger cars mean bigger tires so the mixed shift of the tire market is very beneficial. The tire industrys one of the razor blade. Oem sales where not where you make money. We know that. Because the oemc is about to decline, thats greet news so the aftermarket picks up. Thats great on margins, trading on three and a half times minimum yield. The markets have gone up since the 2009 lows all over the world theres opportunities. Well, thank you. Thank you. Thank you, see you soon, hopefully. Thank you for your time. Youre welcome. Thanks. Next up, the future of health care with three of the top players in the industry, and a special interview at 8 00 p. M. Eastern time. Well be right back. Opportunities arent always obvious. Sometimes they just drop in. Cme group can help you navigate risks and capture opportunities. We enable you to reach Global Markets and drive forward with broader possibilities. Cme group how the world advances. Embattled Company Making another controversial move, the stock dropping sharply this morning. October not spooky for the markets. The dow up over 9 as we head into the final trading day of the month, but will it be a merry hall oliday season for investors . Stick around to find out. Future of health care and doctor visits, three top medical centers in the country are on set to talk the business of health. The second hour of squawk box begins right now. Live from the beating heart of business, new york city, this is squawk box. Welcome back here first on business worldwide, cnbc, we have a lot of things to talk about at this hour, a number of headlines in the news. Big one, Valeant Pharmaceuticals terminating the relationship with philidor. They are shutting down operation as soon as practical amid controversy, of course, of the relationship between the two. We have more on that story at the bottom of the hour. We have to tell you oil giants exxon and chevron reporting this morning. They are watching to see both dealing with low Energy Prices and for changes in Capital Spending plans. The Senate Passed a twoyear budget deal that raises the nations debt limits, so the long awaited moment is over. The legislation goes to the white house for the president s signature. Joe . Checking on markets this morning. Futures have no indication this morning what to expect by the end of the day. Wow, by the end of the day . I dont mean by the end of the day. I mean actually at end of the trading session. I should say that. At the end of the day, that makes all the difference. Going forward, im not going to use that anymore. Ill use the exact opposite. Im doing everything all at once. I cant take it. Anyway, there is the futures of the dow jones up 28, s p up just under 3, and nasdaq up 5, and west texas back over 46. Look for a while like the john three handle was on the way with invenn stories rising and 1. 5 gdp growth on china, everything else, and now 4550, and thats the assumed rate for a lot of the people saying 45. When it was at 45, we assume 45, which is what analysts usually do. Funny, used to be a 10 range, but once oil prices cut in half, it was a 5 million notice that . They are smart how they do that. The yes been taking up a little bit after being under two for awhile. Highest level since september 21. Also, i saw the dollar versus the euro at 110, and it is. Just 2. 17 was the highest level. Yeah. 110 is thats still, you know, in terms of exporting for manufacturing company, thats troublesome at 110. For a while, now the hawkish tone that we heard on wednesday l has the currencies weaker against the dollar. Over the next dollar, we tackle the big challenges facing the Health Care System. Hospitals in america and future of medical research, a little small task we have here. Joined by three special guests today. Dr. Toby cosgrove, presides over a 6 billion Health Care System, joining the clinic in 1975. Under his leadership, the Heart Program ranked number one in america for ten years in a row. With us on set is dr. Joan noseworthy, he oversees 9 billion for the Health Care System. Dr. Noseworthy joined the may owe clinic in 1990 serving as the chair of the clinics chair of neurorole, authored 150 research papers, editorials, and Research Books as well. Our final guest, dr. Robert grossman, dean of nyu medical school, school of medicine, as well as the nyu hospital center, joining in 2001, and under his leadership, ranked number one in Patient Safety and, gentlemen, thank you, all, for being here today. We want to dig into the big problems facing hospitals and big promises in the future, but we do know this landscape has been changing incredibly rapidly since the passage of the Affordable Care act thats shaken things up. We e are now looking at the major Health Insurance companies in the nation consolidating from 5 to three, and i just want to go down the line and ask you what the Biggest Issue you think facing things right now in your business. Dr. Cosgrove . Clearly, there is a new financial pressure on health care, and were all trying to deliver high quality care at a much more affordable price, and we need to realize that we need to be more efficient as we go forward. So were working on driving quality up and taking the costs out of the system to make it more efficient. Dr. Noseworthy . Well, the mayo clinic excels in complex care, they come here with complex surgeries and problems and so on, and the next stepernize and change the system to recognize Better Outcomes and care, and that was not addressed in the Affordable Care act, so we are working with the secretary to dd how thats best done and guide the government. When you say Better Outcomes, it was not addressed in the Affordable Care act, it was mentioned at the time they try to do that, but years later, nothing . It focused on Preventative Services in primary care, but we need parties with complex conditions, its difficult to measure, understand, and reward Better Outcomes in complex patients. Thats the next step. Were optimistic about it. Its a big deal, but well get there. Dr. Grossman . Were a highly drip institution trying to create value for the consumers and the Insurance Companies, so patients feel that when they come to our institution, they get excellent care as well as value for what they are paying. In terms of that relationship with the health care Insurance Companies, the Insurance Companies, how controversial is it, how much a push is it, and youre in specialized hospitals. Do you have trouble dealing with the Health Insurance in terms of trying to get coverage . Sure. We always deal with trouble dealing with Insurance Companies because they have one perspecti perspective, we have another. The question is to be able to prove to them we offer value to their particular cohort of parties, and that requires sitting down to noeshegotiate, thats difficult. To suggest theres a power play, between the Drug Companies, providers, you guys, theres consolidation across the board, right, virtually in every space. We just had riteaid merge with walgreens, thats another piece of it. In new york, hospitals merge recently. You have not pursued mergers. Whats that shift mean . I think the financial pressures there on all of us driven us to be efficient, and you see the same thing going on in insurance. You see the same thing going on in drugs. You see the same thing in hospitals. You see doctors coming together. Its the same dynamic thats happened in every other industry in the United States whether its supermarkets or books, sellers, or consultants or accounting firms, bigger to drive efficiency. So much of what they do requires support in the back end whether its i. T. Or hr that by coming together we get additional efficiencies. John, youre going the other direction, or at least stated so far you dont want to pursr mergers. Why . We felt we couldnt scale the culture of mayo clinic, and putting our name on other hospitals diminishes what it means to be mayo, and we took our knowledge and over 10,000 different topics and digitized those sharing with others, and now we have 35 large hospital organizations around north america that subscribe to the services to provide better care locally, and if they wish, they can send us their cases from that pool. About 8 o stay locally. We did that, provides better care to the patients. All of us are streamlining our business procedures to reduce our costs. The Insurance Companies doing that, well see whether its good for consumers or not. Its a tight rope. May well be prices go up, and negotiation will be more difficult. I know well talk about drug pricing, but just the big overriding question for me right now is we hear the drug makers say that if you could pick either taking a pill or croppic care in the hospital or in some type of patient setting that its the biggest value in town. When we can develop pills that prevent or manage a situation, no one should be complaining because what it costs is so much better than a hospital stay that they sort of feel like they should get a pass on whatever it costs. Is that basically still true . I mean, that it is the best deal in town . Why i think theres no question the pharmaceutical industry brought us tremendous drugs, i think what people are objecting to, currently, is things like valeant who have taken drugs thats been around for 50 years and increased price of the drugs 600 in the course of a year. We took 10 million out of the costs of running our pharmaceutical supplies and that was offset by 11 million of increase in valeant drugs. By the way, valeant, common theme, we have to raise prices to put that in research and development. They spend 3 at this point. They really need to charge more to get more. John, you know all about ms, and youve seen the strides that its made, and thats been all drugrelated, hasnt it . But they are kpeeexpensive. The concern is the price of the drugs, even on the market for 20 years, continues to go up year after year after year. Its extraordinary. I think what we would say as physicians is that if the medication changes a persons life, cures the person, keeps them out of hospital, if theres value in that, you can see spending money for that. The problem we deal with is a lot of medications have rather minimal effect on the patient and prices through the roof yet. Well see what the congress and administration does about this, but its a balance between investment in research and development and creating cures, which were seeing some, versus simply charging as much as they can. You know, the Providence Center works well, especially with innovation and Drug Companies too, but then when they get really big and, you know, they are looking at a patent expiration on a best selling drug, them you find all money is spent on the next extended release version that extepe extends patent protection on marketing, commercials, rolling this and that out, and it doesnt go into innovation. Do they get too big . Is all the innovation in biotech now more than in the Big Companies . Well, you know, i think one of the things we have to think about is the u. S. Drug industry is really been the innovators for the world, and in the United States, we are paying the premium, and for this development, and if you look at the cost of drugs for example, hepatitis c drugs, 89,000 for a cure, and it is a cure for hepatitis c, no doubt about that, great drug, but its 900 in egypt. Tremendous difference. Egypts not developing new hepatitis c drugs soon. Exactly. But the United States is paying the premium why . What can the u. S. Company do about that . How does it capped in egypt at 900, so they send it there on humanitarian grounds to be sold for 900 . No. I think the appointment is how does that work . You know, i cant tell you how the pricing works. Youre not able to tell me, or no, i dont know. You know, thats bad. The point is that the u. S. Has really been the developer of drugs, no question about it, and prices are higher in the United States than they are around we should be careful about getting, you know, Hillary Clinton care type rhetoric, probably not productive if we keep developing great innovations. Is that true or not . I think we need to continue to develop innovation, no question about it. Going to the langone guy, are you less you work for ken, maybe you wont laugh if i Say Something about Hillary Clinton. Is it helpful to hear things like that . Well, i go back to what you said earlier, that the United States is developer of technologies. Treading lightly on this. Exactly. Look at the great advances in the past, ct, mr, United States, and u. K. , United States, and ace inhibitors, extractions, coronary bypass, and that contributes to the economy and is great for patients. Theres one case of a hedge fund guy, he buys a company, and he right. You want the other side. Go ahead. Have at it. I think hes a terrible bad actor. I know. But you cant use that and throw the whole industry under the bus and decide the question is whether so hes a bad actor in the absolute extreme. The question is whether theres other bad actors less extreming and then what do you do about that . Right. You do something about dont cut off innovation then. Treading lightly. Dpl that thats the question. Theres a find line of crazy pricing and cutting off innovation. They should earn a profit, right, is that okay . Should they absolutely should. Not too big a profit. Part is regulation it costs ten times to get a new drug. If theres a problem, involvement causing on the edge of the problem, right . At least you admit that . Cleveland is just a the nights conservative joe, one thing. Because we have to put it on table to have the conversation. Uhhuh . Which is the u. S. Government is still the largest buyer of drugs and unlike a normal consumer, does not the whole system you cant negotiate that. Its the fakest, most ridiculous system that exists. A good or bad thing . No, no, they speak about innovation of the market, and youre climbing free market, and theres no free market. Brought about by the Affordable Care act. Thats true too. You didnt need to bring that up. Understand the full dynamic. Guys, its not a free market. You cant charge. You know, lets take it back, you know, you talk about insurance, but you have to remember that the biggest payer for health care in the United States is the government. Right. And theres no they set the price on what they pay us, and they are reducing that, and we have to deal with that, paying over 50 of the hospital billing right now. Thats pretty much true across the entire country. If there was true pricing pressure in a free market system, would the 89,000 hepatitis c medication be less, or is it because you can put anything past medicare people they can charge whatever . Thats part of the problem then. What do you think . Well, i think were going to see increasing pressure with other people coming into the hepatitis c and prices of that particular drug will come down over time. Not by the government, we heard theres i i think the question really is one about how we can afford to manage all of these very expensive drugs for the population. Were talking about 300 billion. We treat every in the United States who has hepatitis c, which is an enormous cost, and there is significant pressure on costs, the lever of health care to everybody across the United States. If medicare had the ability to bargain, would prices come down . Yes. All right. That didnt seem like a good idea at the time for obamacare . I wasnt involved in that. Oh. If you had been, then thered be bar beginning . Id hope so, yes. It would be good for government to bargain on prices. You know, one thing were not talking about, really, the federal governments investment in innovation. Basic science. But new treatments and diagnose not ticks come from the work that may ovuate the need for expensive drugs. Its a balance. We defunded the nih. Thats a problem if you are developer of new treatments in medicines. Our position could fall if that does not turn around and may with the new budget. Well see. All right. Well continue the conversation to talk a lot more about some of the advances that hospitals are making at this point. Toby, john, and robert with us for the hour with more in just a little bit. Stocks to watch, a big winner, a bank deal, and feds next move in creating future business leaders. Exclusive interview with david tepper of app ppaloosa magnificent. We return in a moment. Welcome back, futures higher, remember this is the last trading day of the month, and its been aed good one for stocks. U by close to 9 , but the dow over the course of october, this morning, stocks are indicated up by 27 points, and s p futures up by 2, and nasdaq up by 5. Among the stocks that someone is watching this morning, linkedin reported a profit of 78 cents a share, above estimates of 46 cents. Revenue beat forecasts by a wide margin following efforts by the company to attract more corporate kucustomers. Key comp buys first niagara. The marriage of two banks value at 11. 40 a share. First niagara closed at 11. 38 yesterday. A two cents premium. Earning 4 cents a share, doubling street estimates, and len dor gave guidance for the full year. Coming up, fire on the tarmac. Dramatic escape from a burning plane all caught on camera. Well show you some of this in a moment. Coming back in a moment. Time now for todays aflac trivia question. How much will the average person spend celebrating halloween this year . The answer when cnbcs squawk box continues. Opportunities arent always obvious. Sometimes they just drop in. Cme group can help you navigate risks and capture opportunities. We enable you to reach Global Markets and drive forward with broader possibilities. Cme group how the world advances. So wi got a job ews . Ill be programming at ge. Oh i got a job too, at zazzies. friends gasp the app where you put fruit hats on animals . I love that guys, ill be writing code that helps machines communicate. interrupting i just zazzied you. phone vibrates look at it friends giggle i can do dogs, hamsters, guinea pigs. You name it. Im going to transform the way the world works. proudly i programmed that hat. And i can do casaba melons. Ill be helping turbines power cities. I put a turbine on a cat. friends ooh and ahh i can make hospitals run more efficiently. This isnt a competition now the answer to todays aflac trivia question. How much will the average person spend celebrating halloween this year . The answer . 74. 34. Welcome back to squawk box this morning. National Transportation Safety board investigators looking yesterday at an engine fire of a Dynamic Airways jet. Look at this. The engine caught fire before the plane was about to leave for venezuela, 100 Passengers Evacuated using emergency slides as black smoke and flames shot from the flame, 21 injured, one person seriously hurt. Theres really dramatic images this morning. Also coming up, big news from Valeant Pharmaceuticals this morning, and activist invester bill ackman talking about his stake. The latest in a bit. Look at u. S. Equity futures, the market is setting itself up before opening friday, up 35 points in the dow. Back in a moment. vo me . I dont just wait for a moment. I watch for the perfect moment. The one nobody else sees. And when i find it i go for it. announcer at scottrade, we share your passion for trading. Thats why we give you the edge, with innovative charting and trading features, plus, powerful mobile apps so youre always connected, wherever you are. Because at scottrade, our passion is to power yours. Its back tmobiles most popular family plan. Get 4 lines with up to 10 gigs of 4g lte data, each. No sharing just 30 bucks a line need new phones for the family . Get the Samsung Galaxy s6 for zero upfront, and just ten bucks a month. Plus, get a samsung 4g lte tablet on us when you get a new data plan only from tmobile. Welcome back to squawk box, everyone, this is cnbc, first in business word wide. Lets round up earnings reports this morning. Drug maker abbvie has profit of 1. 13 a share for the Third Quarter, five above investments. Too much. Raising the Quarterly Dividend to 51 cents. Another drug maker, mylan better than expectations. That company says they expect full year 2015 earnings to come in at the high end of the prior gieps. Not surprised. Drugstore operator, cvs health had a profit of 1. 28 a share, a penny below what the street expected, although revenue beat street forecasts thanks to processing. Breaking news this morning. Valeant cutting ties officially with philidor, the Pharmaceutical Company theyve been involved with. We have more on the story. Reporter andrew, the news with cutting ties this morning is hours before big valeant shareholder, bill ackman has a call at 9 00 a. M. To presumably support investment in valeant and take questions from investors emailed into the fund persing squarement they do not expect anything new out on the call. There have been allegations of fraud into valeants business, but nobody believes theres anything like that going on here, so they think maybe ackman addresses that, but the questions are around the use of Specialty Pharmacy. In cutting dies this morning, they hope this rests some the uncertainty around the business practice and give confidence in valeant stock. Look at the shares this morning, i believe in premarket trading, they are down 6 . Last night after the news was coming out about managers like cvc care mark and express scripts cutting ties, the stock was down 14 . A recovery this morning although its still down, you guys. Okay, meg, thank you, appreciate it. Back to our guest hosts, ceo of the Cleveland Clinic, dr. John noseworthy, ceo of the mayo c p clinic, and report langone. Talking about future of health care, hospitals, and innovation. I have this thing back here whenever i you three guys are here thats bad. You ought to leave now eat again to the hospital. Yeah, yeah, really, head out for Early Intervention . Yes. Or something. I dont know if you watched the debate the other night, but you heard i didnt. The republican debate. I got it. I didnt. Dr. Huckabee no, mr. Huckabee said we could cure medicare by curing four or five of the chronic diseases. There might be some truth to that that this looming entitlement everybodys worried about. Im funded, i dont know how many trillions of dollars, but something we have to deal with at some point. If we made great process on the scourges of our time, current ones cancer, alzheimers, diabetes, would that cure a lot of health care problems, toby . Eventually, everybodys dying of something. Are we sure . Pretty sure. No singularity coming . We can live to 120, maybe . Death and taxes. I think the you are going to see some sort of a disease, chronic disease going on. I think the real issue is how can we preserve our lives and have them functional, useful lives as a maximum amount, and, you know, the problems we deal with now across the United States are diabetes, brought on by obesity, lack of exercise, and smoking. The two things we can make a major difference in. Who still smokes . Im sorry . About 20 of the people in the United States. In the United States . Still smoke. You. What is it in europe . Its higher. I know. Represents over a less less than 200 billion. Just smoking alone . Yeah. Smoking related illness. Obesity is more than that . 10 of the 3. 1 trillion dollars. Do you advocate ecigarettes . No. Does that change the dynamic . No. We stopped hiring smokers and really, because we think Health Care System ought to send a signal about what the importance of smoking is, and smoking incidents amongst employees now is 5 . One of the things that i think is what ewe say, you look at the abcs using antismoking, beta blockers, cholesterol, et cetera, those things would have a profound effect on the population of health, and thats what they say. The population, how to manage populations, how do you use data from come pielati to change behavior in the cost of health care . Do you know zeke . Yes. We know him well here. Thats pretty interesting notion. Im not going to get any Preventative Care or get anymore checkups when im 75 years old. Im the quality of life goes down. Hes not i want to see if he says that at 74, but is that making sense at all that if youre 75, you should sort of pack it in because your quality of life goes down, you are not as sharp, cant run marmarathon although guys do it at 90. Is that how we fix it . Im not here to defend that, but more americans know about health and prevention and extend their life will have a good life. Theres research that exercise of any type protects you from shrinking, keeping you young and healthier, and most of us are not running marathons, but Walking Around the block, eating less is good for us. You know what im saying, though . Bigger issue is are we living too long, and if the quality of life is not there, should we give some of our should we give the resources we spend on people that are younger and that need you know, theres only a limited amount of resources. Is there a time when you should say, you know what . It almost starts trending on, you know, whether you think eugenics, whatever that is if that is suitable for society. I think if you look at the last 50 years, Life Expectancy continues to extend, although were seeing that plateau a bit as we talked about before. The quality of life is also better in older years than it was before, so being an optimist, i just cant see doing that and shifting resources to the younger people. We need to create more resources through vibrant economies and invest appropriately in chronic disease management and treatments for the other diseases like cancer and alzheimers disease. Well find cures, no doubt about it, but we wont if we dont continue to invest. Whats the most exciting thing youre working on right now . Our Major Investments have been in cancer, individualized genome medicine and regenerative medicine, stem cells to repair, regenerate our tissues, reducing the need of organ transplantation. Thats coming into practice as we speak. Again, investing in excellence, developing new treatments, new diagnostics, reduces the cost of health care ultimately. Back to what was said about you do not hire smokers. Right. Ever . Right. Okay. Youre sure theres no smokers on the payroll . No. We test people coming in, and if they are positive for nicotine, we do not hire them. We offer them smoking se sags and retesting and offer everyone in the institution this, and the reason we do this because we think that smoking is the number one preventable cause of cancer, and chronic lung disease, and we think that we, as a Health Care Organization ought to model health care. Whats that say if youre a doctor and smoke, we dont hire you. Doctor and smoke, youre not hired. Whats to say you dont make them wearing, walk a mile a day or 10,000 steps, if they dont, were not hiring you. We offer insentives for people to exercise, and we give them pebble and measures that reducing their insurance costs if they exceed do you think exercise. Youre a health care company, do you think that all companies should operate the way you do . Well, i think if were going to see the changes in health care around prevention, its going to come from the private sector, not driven by government, seeing 5,000 companies in the United States have smokers, and hospitals are following the policy, and i think that were thats where the major changes happen. Ten years from now, rules around diabetes or obesity, meaning you only no. This is a real issue depending on how you do this. That is against the law. We would not go there. Were sure this is not against the law . Anyone challenge this . It is i checked with the lawyers before i did this, and it is perfectly legal. Do you have the same policy . No. Have you thought about it . Yeah, but we basically have smoking policies, and we discard smoking, but we dont we hire people not based on smokers or not. What about you . We do, and we offer care for the patients and preventative treechlt, but we do not discriminate against them. Studies are that doctors have a higher percentage of smokers than other industries. Is that true . I dont think so. Chewing tobacco, thats nicotine . Yes. Thats not. Cigar . Same. Any Tobacco Products . Exactly. Wow. Thats why i asked if people stel smoke. In europe, i knew it was more, but wondered how much more . Theres Secondhand Smoke outside. Its interesting. What we have seen is weve seen over a period of time, weve seen our Health Care Costs going up at 7. 5 a year, move to 2. 5 in the last year, and we are having negative costs so that reduced our cost for the organization and we have a healthier organization. Wow. Okay. Well continue the conversation after the break. Coming up, much more from the panel of healthcare experts, and david tepper talking Higher Education, asking about the timing of a a rate hike potentially, and his take on the markets. Back with that and more in a moment. Want bladder leak underwear that moves like you do . Try always discreet underwear and wiggle, giggle, swerve and curve. With soft dual leak guard barriers and a discreet fit that hugs your curves. So bladder leaks can feel like no big deal. Get your free pair and valuable coupons at always discreet. Com welcome back to squawk box, everybody. Futures are a little higher this morning, and theyve been up by about 34 points right now for dow futures, and s p up by close to 3. Starbucks reports Fourth Quarter earnings coming in above expectations on both the bottom and the top line, but the results in its china Asian Pacific unite was short of expectations. The company upped the dividend by 25 to 20 cents a share, and stock was up by pressure on concerns about the future. Right now, down 50 cents to 62. Shares of linked in soaring this morning, results at the network beating expectations, reversing the loss from year ago, the ceo spoke exclusively with us about the jobs picture in america. There continues to be a skills gap. Theres Economic Opportunities out there, and companies all over the world are looking for the right talent, you know, you see that dynamic in the tech sector where there is supply and demand imbalance with regard to engineers, talent, et cetera, thats a driver. The stock jumped as much as 13 . Halloween came early for drivers and pedestrians in arizona as a 25foot tall inflatable pumpkin blew away and bounced through a busy intersection. This caused damage to street lights. Coming up, more from the panel, Health Care Experts on stagnant funding. Well talk about that, and at the top of the hour, Billionaire Hedge Fund manager, david teppe, joining us from Tepper School of business at carnegie melon. Hes had market moving commentary, right on things, and well get an update seen only on squawk box. Lets continue special conversations this morning. We have dr. Cosgrove here, president and ceo of the Cleveland Clinic, dr. Noseworthy is here, president of the mayo clinic, and dr. Langone. We have not spoken on it yet. We will now. A company thats been in the news a lot, questions about what has actually taken place. We had the ceo on weeks ago before the news broke that potentially maybe some of what they are doing is not what they say they are doing. When you roadway tead the stori did you think . We need verification of the technology. We dont have that, and we have made an agreement that we will begin to test that with her and publish the data. Okay. But you established app alliance with her. Yes. When you established that alliance, had you seen we what she had been able to produce in terms of how she was doing these tests . First of all, the alliance has no money exchanged in this. We agreed that we would try to Work Together and verify what the tests actually showed. We have not done that yet. We do not have our technology on board at the cleveland cleinic. The potential of this is substantial, and i think its something that needs to be verified, and we are planning on doing that with do you feel misled . No. In any way . No. I think this is new technology that is coming along, and we need to figure out how this works. Theres a lot of new technology thats introduced all the time, and it takes a period of time to figure out where it fits and how capable it is, and thats what were interested in doing. The big thing is that have other people looked at the proprietary technology in replicated the same types of results, or is there some notion you cant give it because its a trade secret or something . I dont know. I think what she made a decision was, rather than the same route, you do scientific approaches, you test, people publish it. She decided to go through the fda and have the fda verify the quality of the results, and that has been a slower process, and thats why this is one of the reasons, i think that the Scientific Community has been questioning what is the capability. Are there scientists that really are knowing what they talk about, saying the technology doesnt make sense at this point . Technology does not exist at this point . Remember cold fusion. That would have been great. It needed someone else to replicate it, and they were unable to. It helps to have peer reviews. Theres not been peer reviews of this. Thats scary. When you established an alliance, did you seek peer review . We wanted to do the peer review. They didnt let you . We have not done it yet. Because . Well, we have not gotten to that point in the relationship. Did they say no to showing you how its done . They did not say no. They did we just didnt get the samples. We just signed off on the contracts, just recently, and we have not had the opportunity to do the testing. So now they are going to give you everything . The plan is they will go out, people will see the technology from our group, and theres healthy skepticism. No question about that. Having the Cleveland Clinic on board as an alliance is a big deal like having all the guys that are in their 90s that had great reputations when they were in their lives earlier. It just seems like the same kind of thing almost. You know other than hes testing. Were going to do the test. Report back to us. You, obviously, have seen other partners like walgreens ta and others not doing business with these people. Im guessing people called you in the last few weeks, should we be in business with these people . What was the thinking in terms of staying . The issue is that i think somebody has to verify this, and we would like to do that. And they are on board with that . They are on board with that. You have to come back then when you get results. Well publish the results. Okay. I mean, i think thats so, i mean, everys skeptical about something that is disruptive in a new industry, and i think thats perfectly reasonable they should be. I think that we need to have that verification done externally bea third party, and wed like to do that. If thats what it is. It may be that people are jealous of the technology, but looking at what is claimed saying current science does not currently allow for that to be done, and if, you know, theres guys that know their stuff, right . That might an eyebrow might be raised. I dont know. I dont know. You know, theres a lot of skepticism. Theres skepticism in our organization, and theres skepticism across the country, and, but, you know, i think its time that we need to. If you could pick one person not stealing technology or one group that wont steal the technology, just to replicate the results that sounds so incredible. Thats what wed like to do. Good. I have to ask you all another headline over the weekend. We spoke about it yesterday. There was a big story in the boston globe about surgeries. I dont know if you read the piece or not, and what what it means, but you read the piece, you know, the spotlight team, theres a big movie about the boston globe and spotlight team. This particular piece showed theres a lot of surgeries takes place where one doctor is involved with multiple surgeries at the same time unbeknownst to parties. A doctor schedules two or three surgeries at the same time. The patient does not know it, and they orchestrated an elaborate day going one to the other back to the other, and in this instance, in terms of what the story suggested, there have been complications with this. Do these things happen at your hornets . Should patients know . What do you think the repercussions of that piece are going to be . Yeah. So i can tell you at our hospital, if we were going to do that, patients should know, but we dont do that. You dont do it . We dont do that. . Okay. John, we spoke about it. You do it . We do do it. The republicason we do it is be of our efficient system where these are not just done by one surgeon, but teams of surgeons, nurses, surgical teches and so on. Some of the surgery take 12 hours. In order to meet the needs of the patient, the surgeon does a specific part of the operation, rotates room to room, but they are on a team. People are not waiting with an up necessary prolonged aesthetic for the surgeon to come back in the room. Its orchestrated over years, tightly regular lated, and its the right thing. That does not mean everybody does it the right way and theres not risks and concerns, but we watch over this with great, great precision. Toby . Yes, thats a good point. There are teams. Its not just around one surgeon doing the entire procedure. Its teams. You know, we have someone, for example, doing cardiac surgery. Theres a case thats being closed. Somebody else is in the process of getting their operation started. So, yes, they do, but its very regulated. We do not have the major portion of the case being done by anything other than the surgeon. Get robotics surgery. We wont need doctors. Right. Oh, please. Id rather have the surgeon there and know they are floating back and forth than the robot. What about floating robots . No. So much to talk about. I beg you all to come back. In the meantime, thank you to all of you. This was a great conversation. We really appreciate it. Thank you. When we come back this morning, david tepper is live from carnegie melons Business School, the school that bears his name. Talking Higher Education, and, of course, the marts with the Billionaire Hedge Fund manager after this. 40 of the streetlights in detroit, at one point, did not work. You had some blocks and you had major thoroughfares and corridors that were just totally pitch black. Those things had to change. We wanted to restore our lighting system in the city. You can have the greatest dreams in the world, but unless you can finance those dreams, it doesnt happen. At the time that the bankruptcy filing was done, the Public Lighting Authority had a hard time of finding a bank. Citi did not run away from the table like some other bankers did. Citi had the strength to help us go to the credit markets and raise the money. Its a brighter day in detroit. People can see better when theyre out doing their tasks, young people are moving back in town, the kids are feeling safer while they walk to school. And folks are making investments and the community is moving forward. 40 of the lights were out, but theyre not out for long. Theyre coming back. Bob dylan. To improve my language skills, ive read all of your lyrics. Youve read all of my lyrics . I can read 800 million pages per second. Thats fast. My Analysis Shows your major themes are that time passes. And love fades. That sounds about right. I have never known love. Maybe we should write a song together. I can sing. You can sing . Do be bop. Be bop do. Do be do be do. Do do do be do. David tepper is live from the Business School in carnegie melon that bears his name. Exclusive interview on Higher Education. The holiday rush is almost here. David bren nandon is the new chairman of toys r us, and he is talking changes on the holiday rush. Markets back from the dead in october. The dow up 9 , asia locking the biggest monthly gains in three years. Were going to get you ready for the opening bell as the third hour of squawk box begins right now. Live from the most powerful city in the world, new york, this is squawk box. Welcome back to squawk box here on cnbcs first in business worldwide, im andrew with joe and becky, and we are 90 minutes from opening day on wall street, the best month for stocks in four years, and futures at this hour, hour and a half before the markets open this morning, youre looking at green arrows. Dow up 33 points higher, nasdaq would be up 7 points, and s p up 3 points. Looking at markets in europe at this hour, call it marginally negative. Everythings off, but just slightly. We should tell you on track for the biggest monthly gapes in six years. Among the top stories at this time, Valeant Pharmaceuticals is terminating the roip with philidor. They are shutting down operations as soon as practical coming amid controversy about the relationship between the two. Well have more on the story at the bottom of the hour. Breaking overnight, the Senate Voting 6435 to approve a twoyear budget deal averting a government shut down that extends the debt limit through 2017 and sets spending levels through september of that year, including long term reforms to the social security, disability, insurance programs. The president is expected to sign the bill quickly. Some deal news among Regional Banks this morning. Keycorp. Breaking buying the first niagara, valued at 11. 43 a share. They closed yesterday at 11. 38. You saw paul ryan yesterday . He had a gavel like my gavel. The speaker, youngest speaker since 1869. You see that . Yep. Boehner, he just said, you know what, im bringing this box of kleenex. Im bringing it. Im going to need the kleenex. Bringing the box. Exxon reported profit, beating by 89 cents, revenue above forecasts. This is a little bit interesting. Well try to figure out which operations because its a, you know, sbintegrated oil giant, b beating expectations even though oil prices have not recovered to any great degree at this point. You can see that there was a time to buy that stock too recently. The earnings from downstream chemical on the rise. Is that it . Yeah. So downstreaming chemicals, so refining, thats where the crack spread comes into play. Huh. Right . Wider or narrower crack spread . Wider . So they make more money . Right. Chemical is interesting those are up as well because we have not seen, dupont was not great, but dow was good, remember . Right. Will octobers performance mean a strong finish to 2015 . Our don chu has a look at that right now. Dom, good morning. This year, overall, again, a way to look at, perhaps, how some history plays into what could happen in the future to provide Historical Context here. Becky, looking at the dow industrials, over the past year, were up about 3 . Now, on a month to date basis for the indexes, again, we are seeing the best gains seen overall. Look at the dow, also other parts of the market as well. So if you take a look at whats going on, advancing here to whats happening as well with the particular chart. The s p a 00, again, up 4. 75 for the year, up 89 for the month overall. The nasdaq as well, whats happening here with the nasdaq. Over the past year, 11 upside. Theres a nice big move here in the month of ogbject. Whats driving performance . You mentioned what happened with exxon mobile as well. First of all, the dow, nasdaq, and s p on track for the best october since 2011. S ps only had 12 monthly gains if you count this particular month of 8 or more going all the way back to 1987. Just for context again. Sectors that drove it, exxon mobil, a story today, look at the markets doing it, its been materials, technology, energy stocks. Again, fitting in the theme with exxon mobile. The three best performing sectors so far this month. More cyclical and sensitive, indication that the bulls may have a little bit of steam, but well put this, again, in broader contexts as well. According to the data partners, they took a look at the performances of october going back to 1980. Since then, octobers gained 8 or more four separate times, 82 98, 2002, and 2011. Three of the four times, positive, and average return for the rest of the year, all right, going back to that, 4 to the upside, so, again, its not saying its a crystal ball, but its Historical Context on what happened in the past to see if it happens again in the future, guys, back to you. Dom, great, thank you so much. Sure. All right, cnbc is at carnegie melon all day today covering the universitys expansion of the campus of which includes a new home for the Tepper School of business. Right now, our own kelly evans has an exclusive interview with a familiar face on squawk box. Good morning, kelly. Reporter good morning, joe. Good morning, everybody. I am here at Carnegie Melon University with david tepper this morning, a key alum. David, i hoped the tepper would up lock secrets on the stock market, but this is different, isnt it . Yeah. No well, you know, maybe some stock market secrets break k ground there, but it is different, kelly. Its, you know, i like to say the tepper, whats done there is not a building not something built, but an idea. Its an idea for a new type of interaction of business, the Business School, and different parts of this university. Hopefully were building here a new way of education. You have put a ton of money behind this. So here at carnegie melon, the Business School is called the Tepper School of business. True story. After your first gift, but now your gifts amounted to over 100 billion. Mark zuckerberg gave 100 billion to private schools private schools for kids, Political Action committees, why put your money in the Business Schools and carnegie melon . Well, you know, its im putting my money into carnegie melon and this project because i think this is a very unique place in a unique university in a unique city. Carnegie melon and university of pittsburgh are right down the street from each other. Very unusual for two major universities. I think that pittsburgh, unique setup that has a possibility to create something very different in learning. So, you know, you say Business School, and ill keep saying not just a Business School because when were building here and what the building will be, its going to be the the building is going to be the its going to include the welcoming center for the whole university, so when any new student comes into the university, they come in this building. The biggest eating areas in the Business School. Theres a huge Entrepreneurial Center in the school. A lot of places in schools talk about integrating different parts of the university. The Business Schools often are aside some places, in other places, but here the Business School will be, the Business School in that building, not just a Business School, is the center of campus. We try to integrate the whole university, the whole learning into one, so i like to say, carnegie melon, you hear the talk, integration, integration, were walking the walk here. This building walks the walk. This is a relatively young university, carnegie and melon together in the late 60s, really, but there was National Attention here this year when uber had come to try to take some faculty or to partner up with the university really and take the selfdriving car assets and some of the work thats. Done here for 30 years and incorporate that into their open projects to move forward in the space. Looking into the story, for me, and for many others, you come to realize this thing has been going on with carnegie melon for a while. Look at google, bringing google to pittsburgh. Now with a lot of key alums at microsoft. You know, how much more do you think the carnegie melon name is known between the unique partnership unlocking and bringing academics to the middle of Corporate America . The school, the people you talked about, google has a major campus here, apple is building a major campus. I dont know if you know that or not. You mentioned microsoft, thats seattle. Thats a two second through seventh person in microsoft cmu alums. You mentioned uber. The uber transaction, if you call it that, they did not take tenured profs, and they stayed here. Its key, you know, the intellectual capital stays in the city. You have the opportunity here because of integration, building here, not mentioning another place, theres a school on the west coast that some people that starts with an s, sometimes plays football, but anyways, theres smo this potential is nothing short of bringing an entrepreneurial venture police to bring here. We have the tech companies. They know it. They know the secret. You keep the intelligence with the ub rerer you take the capital, we have all the guys in mic microsoft, fantastic, but they are in seattle. We have a ton of people at amazon. Theres a great relationship with amazon. You look at the hottest companies, hottest companies in the tech arena, you know, three, four, five the ones called that way, have big precedent this pittsburgh. With this university, they know the secret, so to speak. What we build here is going to enhance that and be sort of nothing short of any other place in the United States, and even though i mentioned that other place, i could tell you, that Business School is also to the side someplace. Were going to be in the center of the place. Its going to be in engineering, computer science. If you want to, in the future, when the place is built, if you want to start a business, be a venture, youre a student, youre a kid, nba that wants to leap that way, this is one of the places to go. How important is it to you to be number one . Because i consider myself number one in other arenas and a Football Team that i have that is number one, although some disagree in other parts of the country, its very important to be up there in the, you know, viewed that way, and, listen, its, you know, takes time, and, ho hopefully this is a steppingstone. Theres a lot of exciting things happening here. This is one of them. Talk about the business that got you here, investing, stock markets up 8 since last appearan appearance. Cautious on the market. Looking today, what kind of opportunity do you see . Look, i mean, its you know, you had a couple things this month, real fast on the markets, e e cb surprisingly easy leaning, chinese surprisingly lowered rates. Surprised too. And, you know, we were cautious before on the stock market because of margins and all these other thing, and, really, those things have not changed much. We do have a little easier, on the other hand, the fed talked about raising rates, and, you know, theres a much better chance than there was a little bit ago to raise rates. Theres faith in the economy. Whats the paradigm . You know, thats what you did well . Paradigm . You identified the pair dime were in, a period where the target rallies, and if not, the fed gets involved to boost markets. Either way, you win. That happened many years back to the postcrisis period. What paradigm are we in today . Well, we dont have to be in a paradigm. Were in Old Fashioned investing here, keep cash on the sidelines, diversified portfolio. I dont like the bond market right now, but own bonds if youre sitting out there. I dont think theres any magic formu formula. If there was, it would be trying to really easing a lot, and i consider them too tight playing games with the economy. If theres going to be a paradigm, thats china really easing, not one quarter, but they could lower a couple hundred dips. Speaks to the authority you can have in the market when just knowing about your appearance, sun edison up 5 , and there was rumor youd talk about it. Stock pickers market. Do you pick sun edison . You know, people smoke a lot of marijuana out in the viewing audience and people on twitter because i dont understand where stuff comes from. I never talk about stocks on the program. We have not had big positions in the book for a year. I was just i mean, really, truly, you know, there must be really good ganja in the country. You get the rumors, people in stocks desperate for anything to make them pop, but i wanted to make sure we were not missing something here. In the portfolio, the moment includes names like gm, apple, health care as well, hca, and some big moves in that space. I have to quickly ask about apple because thats the big one going back to what you talked about here at carnegie melon. Has apples moment passed . Is Software Going to continue to eat the world . Can apple still thrive . How do you see potential sm. Well, you know, as long as apple continues to build a campus near carnegie melon, its interesting the companies, google, microsoft, uber not public, but saw the private equity all the guys associates with carnegie melon are doing pretty good. You know, as long as apple builds a bigger campus here, they will do well. Of course, this is the place to be. Yeah. What about General Motors . We dont have a big presence in pittsburgh. We used to make steel here. The company, not long ago, we went into the driveless cars here. Yes. We have a partnership with gm here. Right. Supported. You know, i should oh, i do own gm. I forgot about that one. It was surprising on the day when you had ferrari going public, gm stock did better, up of on those results, ford rockier, i guess, why is gm, is that leverage to the u. S. Economy . Do people continue to buy cars at a rapid pace . Gm, two things, it is leverage to the u. S. Economy. It has been done very well. They you know, they are doing better than other folks like ford in china. Look, im not gsh not that i love to give, you know, i dont talk about managements that much, but mary is doing a really good job there. You know, so thats for you, mary. She really is. I, you know, im a fan, and, you know, we did a deal with them, and, you know, which i think gave them leeway not to have other people bother them, activist type people bother them. Its got its act together. To tell you the truth, the market is not recognizing it yet. Market had a great october after a rough couple months, but the area hit hard, of course, health care. Hospitals too. That was out of nowhere. Hca, i bring up if that reason. What in the world is going on with hospitals, and is this the end of the free money obamacare, you know, rising tides to lift all boats period from the last couple years from them . I want to know what your portfolio has in it. I dont know. Health care is difficult in a lot of places. We have hospitals in pittsburgh too. By the way, when we do this corridor, pitt will be brought into it at some point, and the medical school in pittsburgh and carnegie melon i dont know if you know this, but they have they are cooperating in some ways so they are brought into the entrepreneurial stuff here. Thats why you got your undergrad degree . Pith . I did. Went to intercity school in pittsburgh. I paid for the university of pittsburgh to get through, and i paid for carnegie to get through, and then, you know, then i built a building here, so, you know, i own a part of the steelers. You got a few things going on. I have things going on in pittsburgh. Just before we bring everybody in from new york in a moment, but to close the discussion on health care, obviously i like how you brought that in. It comes back d the valean issue, drug pricing is one thing with the hospital space. People are trying to wrap their heads around this. Did something change . The payer mix . Why hospital admissions are not as high at expected . We have a big position, which is, you know, filed in hca. If we did anything recently, we added to that. The stocks have been hit, we think, too hard. On the other hand, everybody with there is a problem with theres not a problem, but an issue, you know, walmart, mcdonalds, i think its the chicken company, you know, potential wage pressures in this country. Right. Theres some of that, but we think that would be a good sign, honestly not necessarily if theres this is a margin shrinking for mar gyps in the country is earnings. For the right reason, because of a tight labor market. No, no, its good. Its good for people. Im in favor of to is certain extent of higher wages, particularly people getting higher wages on the lower end. It seems to be lenar had a report that there seems to be a shortage of up Skilled Labor in this country all the sudden, which is interest. Interesting because theres higher wages, thats good. Its just not too out of hand, and thats the challenge for the fed right now. And then, broadly, does that indicate that this economy is going to be okay . You know, were hearing people talk about recessions, talk about a slow down, talk about whats happening in the industrial sector. The United States is great. Its that country that some people put in red on the other side of the world starts with a c. They are causing a problem. Everything related there, but the pure United States is, you know, listen, were strong here. Its the ying and yang, and, again, this is hard for the fed. I think in, you know, people underestimate, you know, if that place straightens itself out, if they ease and get themselves straightened out somehow, how fast the fed raises rates. Thats another. Might be another paradigm for you, kelly, because you like that word. Is that with a gm at the end . It is. It is tricky. My daughter spells, i cant spell that word. I learned youre like a lot of other carnegie melon guys. You have a background in show biz. You know, and people might not know how successful this school has been in turning out people who win emmys, tonys, cartoonists, disney hires. The professor who gave the last lecture is the guy who helped put together assets from engineering and Creative Division going back to andrew carnegie. We helped sponsor the tonys last year, and i went, and they asked me to sing. I refused, but, no, it actually was an incredible show. At carnegie melon, the Fine Arts Department here, i keep talking about the people of fine arts, we hope they brought into the stuff in this new quad. Yeah. And into the entrepreneuriie. Theres that in the find arts, engineering, computer science, all parts brought into this thing. We have an excellent, excellent Fine Arts Department and acting department. Ground breaking taking place in hours time. Get ready. The shove elf is ready. The work is beginning, and so much money is given in support of this university, and well have much more throughout the morning. Thank you so much for joining us. Thank you, kelly. Appreciate. Kelly, say the team is going down sunday. Going down hard. Reporter you have to tell him that, joe. Tell him, kelly. Thats joe. I can just hear i can just hear joe. I thought it was like an 80yearold guy. Thats joe, really . Sound old. Wow. I think hair makes all the difference in the world in terms of how old someone looks. You know, i hope that makeup people got the shine down, joe. I cant see it, joe. So, you know i dont care about the bengals, i just dont like pittsburgh. Anyway [ laughter ] well, joe, go to the game because youre bad luck. Youre just always invited. Thank you. All right. David, thank you very much. Kelly, thank you. When we come back this morning, headed back to carnegie melon later this hour to talk Higher Education with the schools chairman, jim, and you remember jim as a frequent guest, and well talk Holiday Shopping with the new chairman and ceo of toys r us, and squawk box will be right back pb. Ideas are scary. They come into this world ugly and messy. Ideas are frightening because they threaten what is known. They are the natural born enemy of the way things are. Yes, ideas are scary, and messy and fragile. But under the proper care, they become something beautiful. Welcome back, futures looks to open 50, nasdaq up 11, and s p up 5 points. Look at shares of pmc, accepting an increase overed of 11. 60 in cash. They previously greed on 10. 50, but there was a higher bid. Breaking this morning, valeant cutting ties with philidor, and meg now has more. Becky, thats right. Valeant cutting ties with philidor, a Specialty Pharmacy causing consternation after last night. The benefits managers announced it was cutting relationships with them over cvss case, not adhering to the terms of agreement. Some facts, valeant bought option to buy it for 100 million, the option them to buy it for 0 after that. 6 of the revenue this year, flowed through philidor, specifically on the toenail fungus drug, jublia, and now its a question what do they do, shift to other farm sees, whats the new model going to be, and so a lot of questions leading into the call with ackman at 9 00. Good were tackling this problem. Toenail fungus . Yes. We should have talked to the guys with the Big Health Care we did not mention toe fungus with them. What a scourge. What a scourge. Thank god. Thanks, meg. Thanks, guys. Breaking consumer data when we come back, personal income and spending data from september minutes away. Well be right back. Im here s that are sixtytwo and older about a great way to live a better retirement. Its called a reverse mortgage. 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We have Third Quarter employment cost index. Up. 60. Spot on with expectations, following up. 20 in the last look. The cost of employment are up a bit, but expected. Personal income for the month of september delivers half of what we looked for, up. 10, but that extra. 10 showed up in revision. Maybe the most important thing in the economy predicated on consumption is the spending side, up. 10, but it did not grab anything from last night, remains at. 4. The inflater month over month, down. 10, expected as well. Personal consumption expenditure, year oaf year, up 1. 3. The feds favorite indication of inflation, but, real, indication inflation that matters, the only one that matters is how people feel about it in their wallets, and maybe math does not match what is in the back pocket every day. Back to you. Thank you, rick, appreciate that. The triple crown has a race left in the career, why hes the odds on favorite to win tomorrows breeders coup, and then new toys r us chairman and ceo David Brandon is joining us on the squawk set to talk about changes made this Holiday Season. Back in a moment. Opportunities arent always obvious. Sometimes they just drop in. Cme group can help you navigate risks and capture opportunities. We enable you to reach Global Markets and drive forward with broader possibilities. Cme group how the world advances. Today, were seeing new technologies make healthcare more personal with patientcentric, digital innovations; from selfmonitoring devices that can interpret personal data and enable targeted care, to Cloud Platforms that invite providers to collaborate with the patients they serve. Thats why over 90 of the top 25 Global Pharmaceutical Companies are turning to cognizant. Our domain experts, technologists, digital and data specialists, clinicians and scientists are transforming the way Clinical Research sites collaborate with pharmaceutical companies, and enhancing Patient Engagement with innovative platforms and solutions. Our populations growing healthcare needs present growing opportunities for our clients to advance the future of medicine with digital, and improve the quality of lives. American pharaoh has one race left in his career, and thats tomorrows really rich Breeders Cup Classic every year in lexington, kentucky. The odds look good. The challenger, beholder, is not running because of lung irritation as of yesterday. American pharaoh was the 45 favorite, and coverage of the breeders cup starts tomorrow at 4 00 p. M. Eastern on nbc. It always does well, but i figure going to do really well tomorrow with american pharaoh. Exciting. The last right. Thats right. The l. A. Clippers and mavericks in los angeles. Clippers owner, Steve Ballmer and mark cuban were not seated together, but thanks to the managic of the kiss cam, they apierred together, they had fun with it. There they are. Kissy, kissy. The franchise dispute the over the summer after clippers start jordan backed out of a deal with the mavericks. They win 10488. Really . Wow. Repo all right. Wow, never mind. Going to tell you about toys r us, but that was censored or something. Racy . A little. This morning, a familiar guest to squawk viewers, jim rohr, chairman of carnegie melon is next to talk innovation and bring iing new technology to Higher Education. Of its back tmobiles most popular family plan. Get 4 lines with up to 10 gigs of 4g lte data, each. No sharing just 30 bucks a line need new phones for the family . Get the Samsung Galaxy s6 for zero upfront, and just ten bucks a month. Plus, get a samsung 4g lte tablet on us when you get a new data plan only from tmobile. Can a a subconscious. Mind . A knack for predicting the future. Reflexes faster than the speed of thought. Can a business have a spirit . Can a business have a soul . Can a business be. Alive . Less than a month from black friday and official kickoff to the Holiday Shopping season. Iconic retailer, toys r us, has a new ceo, just 120 days on the job, and joining us first on cnbc with the game plan for the Holiday Season and his strategy for the company, dave brandon, chairman and ceo of toys r us. Good morning. Good morning. Great to have you in. Well, thank you. We certainly welcome, like, product and toys and stuff. Next time, maybe, you know, just we want to see how we like you, since youre new. Yes, yes. When you come back, i dont know, whats on your list this year . Kids have very long lists. The toys r us is a household name, brand name, but sometimes i wonder, you know, what the current state is in terps of i think gaming and electronics and physical toys are still something that everybody wants . Absolutely. Absolutely. You know, were goabout to ente the time of year where people focus on toys, wish lists for kids, and amount of innovation that im seeing in the toy industry is quite remarkle. When do you bring in all the associates, all the temporary associates . Are they there already . Starting to build, yes, in fact, this year, we decided to bring our Seasonal Team members in earlier just to get them trained up and ready. They need product knowledge, right . Exactly. Need to know exactly what to do. Are there ten hot areas this year . Well, you know, you never know. We got a lot of toys that we believe in. We take deep inventory positions. We create a lot of value for the customer, but its its an evolving process. We saw the movie, someone wanted to sell a stupid building that turned into, like, remember, like, goes the i remember tom hanks tried to play this is no fun, and guys, adults come up with these thing, and you never know what catches on. Thats right. Complexity of assembling toys now, electronics, robotics, just remarkable. Toys for children of all ages. Sq what is your goal for comps for same store sales . Certainly, we struggled in the last few years in terms of sales. We had a really bad 2013, and 2014 was a good year of recovery for us. Going into the season of the year, youre balancing a desire to grow the top line, which is important, but also have the integrity or margins. For us, a big part of it is theres such a steep curve in terms of execution. You got so much business compressed into just a few weeks, part of the game is flawlessly executing the Business Model from the supply chain to the stores to the consumer. Thats hard. Yeah. You have people doing that for you, dont you . Well, we have a lot of talented people who have a lot of experience in the industry at toys r us, but we bring on 40,000 Seasonal Team members, and were were a specialty retailer, so we have to get those folks ready to greet our customers, give them a great experience in the store, and at the same time, we provide them a great experience online. Would so sorry. Would price make the difference on why someone wants to go to walmart or target instead of a toys r us, or are you make the experience worthwhile if it costs more . The answer is yes and yes. You have to be competitive with price, values important, and easy in todays world to price compare, but theres also a lot of complexity and choices, and if you go to a specialty retailer providing you the experience of the offerings out there, price points, you know, whats hot, what are kids interested in, thats a big benefit as well. We have to put ourselves in position to appeal to folks purchasing in all the channels. Whats your store traffic look like over the last now versus three years ago . I ask just because so many more people are using things like amazon for these. You have the advantage of toys only sold there, but how many people come in the stores . Right. Were a brick and mortar retailer and building a 1. 2 billion and growing dotcom business, and so we got to have mobile apps, appeal to the customer that wants to shop on their computer and their hand held, but at the same time, were working to build traffic in the bricks and mortar stores, and this time of year, we have very busy stores. Whats the traffic pattern over prior years . Down to low Single Digits. The big challenge for toys r us right now is growth. And traffic down to low Single Digits from how long ago . A year or two ago . Yes. Our job right now after a lot of we had a project called bit for growth where the company worked hard to get right sized in terms of expenses. Weve done a great job with that, and we improved, poised for growth, and thats really the focus now is getting that top line moving and getting that traffic on both the dotcom site and bricks and mortar buildings. You got anything, like, i dont know, what were they, Cabbage Patch dolls . Anything that you think might you need you dont want to run out of and you like 30 years ago was Cabbage Patch. Pet rocks . Thats longer ago. Transformers are back. Sure. Toys recirculate. Whats the fad . Tickle me elmo . A lot of noise this season is star wars, that franchise is huge, and theres a lot of product, and theres a lot of innovation, and so youre going to see a lot of that in stores. We have a store within a store just in the retail outlets where you go in, and we have an enormous offering of star wars toys, exclusive, only available at toys r us. Jurassic toys or minions or harry potter hes now doing Nbc Universal movies. Yes, yes. Im just trying to, you know, sway you corporal. Before you leave, hell get your card, for personal shopping thing because hes got young boys, right . Youre going to go into toys r us and expect the vip treatment. We go to the one no times square. Youre closing that . At the end of the year. Why . What happened . We have to talk you out of it. The kids like to go the lease is running out. The ferris wheel, yes. Thats a great ferris wheel. It doesnt make money. Thats right. We had a lease on the store ending, and, frankly, the lease rates and the costs of doing business in that location was just just buy the ferris wheel, knock out a wall. We can make you a deal for that. Where you moving . You have a big family room in your home. Where you moving . Looking for real estate in man hhattan to build something r right seized for us. Meaning not a flag ship store . Yeah. Thats 150,000 square foot store. Wow. In the middle of times square. Hard to make money. Whats it say that if toys r us cant make it in times square . Says that reality costs in new york city are unbelievably high, and when you combine taxes and other issues associated with supply chain delivery into the stores and those locations, its just not commercially feasible. What would make you happy for comps in the Christmas Season . Positive comps. Positive . Positive comps and maintaining integrity in terms of margins would be a great Holiday Season for us. Well watch for it. Thankthanks. The last guy has a big job at hudson now . Yes. A couple guys ago. Couple guys ago. With the Cabbage Patch era. Im living there. Theres been new toys since then . Damn. David, thank you. Thank you. Appreciate it very much. We continue the coverage from Tepper School of business with kelly evans, and jim rohr, now chairman of the board of Carnegie Melon University. Kelly . Reporter he is, app drew. Thank you very much, james, thank you for joining us here this morning. Nice to see you, kelly, great to be here. Reporter we talked about pittsburgh and a city people associate with the steel belt in the troubles of the past. Youve been here for 40plus years at pnc, now carnegie melon. In a time when people in the country are desperate to know how do we do it, how do we generate growth, how do we bring down the Unemployment Rate, and how do people get jobs, whats the perspective as you see it . Working to the over a period of time, one piece at a time to rebuild the city. 13 years ago, 9 unemployment, and 50,000 people left the region. Wow. A wellknown trouble spot in the rust belt, and now theres more employment in the Pittsburgh Region more than ever before, the most liveable city five times out of seven years, and forbes has us as one of three cities to visit. Its a great place. Sunday magazine named the view from Mount Washington as the single best view in the United States, so its a great place to be. You also really promote your companies. You really promote industry from the moment arriving at the airport, you see it, huge signs about the Companies Pittsburgh is so proud of, and everything they stand for today. As chairman now at the board of carnegie melon, whats the vision . Whats the plan to take all the gains consolidated in the period and continue to drive that forward . Well, i think you just want to continue to do what youve done in the past. People working collaboratively to make things better and better. Think about carnegie melon, its a great example of collaboration. The melon institute and carnegie tech put together 50 years ago, that was unusual combination of research and engineering, but and the fine arts school, part of carnegie tech because andrew, as you know, believed in the arts as well. Yeah. Rolling forward to where we are today where big data, Machine Learning are remarkable assets in this environment today and a big part of whats today and what will be our future, and put that together with the arts, i mean, when you think about Something Like the iphone, which has excellent technology, but also excellent human characteristics as well. Think about avatar and what took place there and much of which is done here. Yeah. Think about robotics theres technology in it, but a lot of the human touch to it. Carnegie melon really is the place to be. My brothers told me that you cant say youre number one in anything because that upsets people. Think about computer science, engineering, Machine Learning, cop computation, finance, and arts. They are clearly one through three, and they Work Together to make the most of various projects. Staying at number one is usually the battle here as well. You have your work cut out for you, but while we have you, i want to ask about something from the past profession. You were the chair at pnc before taking this job. We are now starting to see a lot of deals, a lot of consolidation in Regional Banks after it was quiet for years after the financial crisis. Are we in the precipice of seeing a lot more combining of Regional Banks in the country, maybe larger ones . I think youll see more. Were now coming through the overreach of the regulatory period. People are starting to figure out what the new out what the n regulations are going to look like. I think theres more to learn. But the impact of of technology, and the cost of technology, cybersecurity, coming down the small banks. People like to say regulatory costs are big on small banks. But cybersecurity is huge on small banks. Its a very expensive process. With technology and electronics being more and more of the Retail Banking business, it gets very expensive at a time when Interest Rates are so low. So nobody can make any money on the deposit business which is the largest business of the banking business. That part of the bank is not very profitable. Very high costs. You have to ship the cost. The opportunity for Smaller Banks to do that is more difficult. That will create more consolidation as you can get efficiencies out of the technology. Well be watching. James rohr of Carnegie Mellon university, thanks for your time. Thank you. Thanks to you in new york. Thank you, jim. Earnings coming in now just from chevron. Like fellow Oil Giant Exxon it pe Beat Estimates on the top and bottom line. Sometimes you wonder is it the company or the incompetence of the analysts . It also announced it expects to cut over 7,000 jobs over the next seven years to lower Capital Spending. That stock is up about 1 . When we come back, well get to jim cramer from the new york stock exchange. Check out the futures this morning. Theyve been higher all morning long. Right now dow futures up by 53 points. S p 500 up by five. Squawk box will be right back. Or stop to find a bathroom . Cialis for daily use, is approved to treat both erectile dysfunction and the urinary symptoms of bph, like needing to go frequently, day or night. Tell your doctor about all your medical conditions and medicines, and ask if your heart is healthy enough for sex. Do not take cialis if you take nitrates for chest pain, as it may cause an unsafe drop in blood pressure. Do not drink alcohol in excess. Side effects may include headache, upset stomach, delayed backache or muscle ache. To avoid longterm injury, get medical help right away for an erection lasting more than four hours. If you have any sudden decrease or loss in hearing or vision, or any symptoms of an allergic reaction, stop taking cialis and get medical help right away. Ask your doctor about cialis for daily use and a free 30tablet trial. Lets get down to the new york stock exchange. Jim cramer joins us now. Were just few minutes away from that Conference Call that bill ackman is holding on valeant. Another story in the wall street journal today and it looks like a lot of things are under pressure. That stock looks like it will open down by 7 or something. What do you think and what do you expect to hear from ackman today . Theres a cash flow story here. The cash flow is good. Ive been adamant there are two stocks in the segment that often get confused, ailllergen and valeant. What you hope valeant would do it hope that they talk about the underlyings, underpinnings of the core business and how that business is doing well. Not necessarily reason to own it but at least not to short it at 88, 89. Weve also got some earnings out this morning from exxon and chevron. While the profits are down significantly, you are looking at companies that are beating expectations. Some of it for exxon was the downstream operations what does that tell us . Its important to recognize that marathon cut its dividend yesterday. Why . Because marathon split into the production and split into the refining and marketing. And refining and marketing saved exxon and made chevrons quarter. Chevron distinguished itself. I was critical of chevron thinking they bought too much stock back at 100 and went down. They tightened some Capital Expenditures and the stock is up from august 25th. My hats off to them. They did better than i thought. Remarkable quarter. Jim, thank you. Well see you in a few minutes. When we return, well wrap up the week with a Holiday Edition of keep squawking. T yr companys data is secure, the possibility of a breach can quickly become the only thing you think about. Thats where at t can help. At at t we monitor our Network Traffic so we can see things others cant. Mitigating risks across your business. Leaving you free to focus on what matters most. I just had a horrible nightmare. My companys entire network went down, and i was home in bed, unaware. But that would never happen. Comcast business monitors my Companys Network 24 hours a day and calls and emails me if something, like this scary storm, takes it offline. So i can rest easy. What. You dont have a desk bed . Dont be left in the dark. Get proactive alerts 24 7. Comcast business. Built for business. Me . There you go. All right. Time for keep squawking stories that have people talking. Lots of buzz on twitter about halloween. Google launching the fright geist which tracks the most searched costumes nationwide. To determine how original or unoriginal your halloween might be. What does that have do with willie geist. Nothing. Happy halloween. Change your clocks. So you can watch us in the morning. Join us on monday. Squawk on the street begins right now. Happy halloween. Me or you . Good friday morning, welcome to squawk on the street, im Carl Quintanilla with jim cramer, david faber at the new york stock exchange. A lot to work with on this last trading day of october. Earnings from exxon, chevron, linkedin and starbucks. We will talk to Howard Schultz this hour. Tenyear is up to 2. 17. Getting more creeping