Transcripts For CNBC Squawk Box 20170322 : vimarsana.com

In europe things are in the red. The dax and cac are down 0. 6 . The ftse off by 0. 8 . Knitly, sto ly in italy, stocks are down about a percent. Right now the dollar is up against the euro which is trading at 1. 0874. Down against the yen. And crude oil has been weakening even as the dollar had been struggling with issues. Wpi down abo wti down by 1. 43 . Have we shown the tenyear . No. I would show the tenyear. 2. 40. I will do a story in a second talking about fed speak again. Who cares about the fed anymore, theyre irrelevant, not at 2. 40. 2. 40. We were on our way again. We were on our way again theoretically to 2. 60, 2. 70, 3 . What does that say . Does that say 1 gdp number in the First Quarter stays at 1 . None of these things in the trump agenda come on time . Or big as expected . Are they delayed . Does trump care lite mean tax reform light . Or do we even get the taxes . So these ive never been in congress, i never will be. But theres a lot of kabuki dance. I understand that. A lot goes around. A lot of whipping goes on. But everything im hearing is there are 30 guys with their feet in cement. You can only lose 22 in the house. They dont have the count right now. Hard to believe wall street will be watching every single vote count tomorrow night. And that those 30 have complete have direct opposite concerns of the senate, of the guys in the senate. We will have a democrat on today, Ranking Member on the Budget Committee to talk about trumpcare. His whole opinion is moot. The republicans think they expanded the entitlement state, these guys want to expand it more. Im interested in hearing is there room for any sort of compromise when you get to taxes . Or in the second and third rounds, will they will they cooperate and try to lower costs . I wouldnt bet on that at this point. For wall street what matters, can you get to tax reform . If you can find any sort of cooperation across the board, maybe. Maybe this market sell juf cou selloff could be the leverage republicans need. Trump has been saying markets have been doing fine since ive been elected, all of a sudden the agenda is threatened and we get a selloff. Not quite the t. A. R. P. 1,000 pointer. No but it could be binary sort of events. Weve done stories about dont chase this market. I wrote down where it was, 2316 on the s p. Were at 2344. We were telling people dont buy at 2316. Even if it pulls back, its above where you told us not to buy. But it means so much is riding on thursday nights vote. If it happens. If they dont whip these guys into shape, its oh, a couple of guys got a soccer game for the kids. There will be an excuse. Would they push ahead with a different version of the healthcare reform . Would they pivot to taxes . Thats the thing. You have to do it in this order so you have the savings you can build on for the tax reform. If this gets bogged down, i wonder if they pivot. Forget about infrastructure. Keep your eye out for potholes. Theyre not going away. Stocks to watch, fedexs Third Quarter earnings and revenue rising during the peak Holiday Season but profit missed foreca forecasts. The stock initially dropped as much as 3 , but then stocks recovered after the ceo fred smith said the company is optimistic about higher margin growth. We believe strongly that our Strategic Investments to expand our global scope and our portfolio of services will significantly increase longterm profits. And nike reporting higher Third Quarter profits but revenue missed forecasts. Among the reasons, currency headwinds, and increasing u. S. Competition from rivals adidas and under armour and future orders also disappointed analysts. On the Conference Call, Ceo Mark Parker said nike will adjust operations to meet customers changing demands. In product were doubling our cadence and scale of innovation through performance and sports style. Throughout our supply chain were doubling our speed from product insight to delivery to the consumer. And in the marketplace, were doubling our direct connections with consumers through digital, membership and personalization. We will talk to a nike analyst in a few minutes. Nike has been trying to guide analysts away from the importance of the futures orders, yet futures orders come out on the Conference Call and it drops like a stone. I dont know how they can be tied in. We will ask the analyst on whether or not they think futures orders is important. Sears holdings warning it faces substantial doubts about its ability to stay in business. Earlier this year the parent of sears and kmart announced plans to close 150 stores and just last month said it would cut costs by as much as a billion. The fed is still in our lives. This morning we have three guys that many people have never heard of. We have, because we follow these guys. This guy will talk. Thats dallas fed president , robert kaplan. He says the central bank should hike rates two more times this year and continue to gradually trim back the balance sheet. He is a Voting Member of the fomc. Then you have cleveland fed president , loretta mester. She says she favors the central bank takes steps to reduce its 4. 5 trillion balance sheet. Then when you go up to boston, boston fed president Eric Rosengren spoke late yesterday and warned that the run up in u. S. Real estate prices could intensify future economic downturn. Hes urging regulators to consider tools beyond Interest Rates to help that sector. Heres the tenyear that we were eluding to. 2. 4 . Its not far from a 2. 39 handle. I dont know what that says. We have been confounded by it. Theres flows. People like bonds over here still. Even i therd that theard tha trade is off now. Positioning in terms of a bullish dollar is off . Is off. Is that because they dont think the border adjustment tax is going through . Where i think it if i well find a reason, but i think it got totally overcrowded. Everybody who wanted to get in was already in. A lot of times that will happen. In europe, the Political Developments are better than expected with macron winning the first debate. Well see. He tried to watch some of that debate. Did you . In french . Yeah. That was the problem. That was the problem. I hear a word every once in a while. Sabotage, i hear i would hear a french word every once in a while. No. But they were the guys started out, macron, hes new. Kind of new. 39 years old. Hes a bit shy, i think. Then the other guy, talking to someone yesterday. The other guy. The bribe was a million dollars. Really . You can get in trouble for that . Over here it would have to be 100 million not really, but over there, thats a lot. There are some people that think that the le pen numbers are like the Hillary Clinton 98. 5 numbers. Including mark brandt. She will win the first round, but consensus is she gets crushed in the second round by macron. But they are saying theres a whole group of people not polling. Mark grant stuck with that idea. Hes been right about a lot of issues he called up to this point. An update on a story we told you about yesterday. Secretary of state Rex Tillerson had planned to skip a nato meeting next month, but now the state Department Proposed new dates for that nato meeting that would allow tillerson to attend. Changing the meeting date would require the consensus of the 28 members. Last night President Trump said he will attend the nato Leaders Summit in brussels scheduled for may. The expression, you should never say has the meeting started yet in they say, no theyre waiting for you to get there. Never go to a meeting that can start before you are there. Thats whats happening here. You cant have a nato meeting without Rex Tillerson. 70 of the defense outlay for nato comes from the u. S. So youll have the meeting with us . The head of nato already said hes interested in changing the dates. How can you have a nato meeting without Rex Tillerson . Who will buy the drinks . Its been overplayed to say we dont care about nato and thats why nato couldnt do it. The head of china is here, the president is here, with all the issues in north korea i wouldnt want him missing a meeting with china either. I can see all the euro caratcarat eurocrats at dinner, heres the bill what . Me . Where is Rex Tillerson . President trump is making a push for the new healthcare bill. Eamon javers has more. Its a day of wheeling and dealing on capitol hill. Today is the last day for the Trump White House to wrangle votes for its healthcare bill which is facing a vote in the house of representatives tomorrow. As of now the analysis is the Trump White House may not have the votes. Last night the president did not sound like a guy who felt that he had the votes either. Take a listen to what he had to say. We had to go with the healthcare first. And were doing well. I think well have some great surprises. I hope that its going to all work out. I hope that its all going to work out is not something you say when you know you have the votes in the bag. This white house has some work to do today. Last night the president also had a message for the business community. Heres what he said there. We will do everything we can to lower business burdens and to make it easier for hour businesses to thrive and compete, but in exchange they must hire, invest and grow in america or were not giving them anything. Okay . So i dont know if this is too much analysis, if you read between the lines, it does not feel like the president is as enthusiastic about this healthcare proposal. He said we had to go first. We had to do it. We were forced into it because of the legislative calendar, as he is excited about reducing business burdens. That animates this president that they want to get done the but the two things are linked on the legislative calendar. You were talking about the stock market pullback we saw yesterday. In the White House Press Briefing Room i asked sean spicer about this. This is a white house that has said they view the stock market very much as a report card or a realtime barometer on their performance. I asked spicer about that yesterday. He said, you know, look on a down day you cant look at one day in isolation. You have to look at broad business confidence. Theyre not necessarily using stock market yesterday as the report card for their performance. Back over to you. Might not ab report cabe a rn the performance but a worry or trepidation about what happens tomorrow which could delay tax hikes. Thats obvious. Youre not getting a 14 move and then say, wow, you guys suck because its down a point and a half yesterday. You wouldnt do thashgt rigt, r . A lot of people have total horror watch the market go up after trump was elected. They were waiting and waiting, one day i had people on twitter declaring victory yesterday, that trump has terrible business policies, terrible president , because of one day. On the s p, like i said earlier, were still about 2 3 above where most people already said were way too high. Even if you do pull back 5 , youre still above where any way, everything is political now. Drives me nuts. I dont know if i can continue. Everything is political. That is true. My point was a more narrow one. This white house said some things about the stock market that white houses typically dont say. They dont normally say, yes, judge us by the storm performance. Yes, we view that as a metric. They normally stay away from the stock market. Because frankly oftentimes they dont understand it. Also they feel like it can come back to bite them if they embrace a couple days up, then theyll have downturns and answer for that. This white house has said Different Things about the stock market. Do you know how many times the obama people said the gdp never got above 2 , but the stock market tripled. They say that constantly. You just have to be consistent. Just say stock Market Performance is a measure. One day when it goes down 200 you have to own a oneday pull back, when its up 14 . Fairs fair . Thats ludicrous. If you believe the storm Performance Measures the president s success broadly, not just in one day or hour, you have to apply it both ways. Factor in consumer confidence, Small Business confidence, animal spirits, factor in everything. It shouldnt be a revelation to all these people that if youre that youre a little friendlier to job creators that things may look up. Suddenly people are saying golly, some of these pro business things may help the stock market. Thats not even a stretch. That has nothing to do with trump, its pro growth policies. Theres no question that wall street welcomed two main thrusts of this policy. Business tax cuts, and deregulation. The idea that businesses would have more room to maneuver o out without government coming in and telling them what to do, that is something they liked. And trump saying we could have let this thing collapse. They introduced this entitlement, the democrats did. Now trying to fix it will tarnish the republicans. If you just let it collapse he said you cant let it collapse, like the guy from cant have it collapse. And when you try to fix it, its like thank you, sir, may i have another . Let me bend over. Can i have another . The obama people felt the same way about it. We promised to do something on healthcare. We were going to propose a major reform on health care, there were outraged town halls, the death pab panels. This was a quagmire for the democrats as well. This has been a quagmire since 1993. This is a tricky, divisive bigger issue. Now people will just make fun of you for realizing that. Who knew it was so complicated. All right javers. For more on the markets, joining us is joe zidel from Richard Bernstein advisers. Here we are saying it again. Bernstein again. He was on monday wasnt he . Yeah. Is this the bernstein Advisers Network . That has a ring to it. And simien himen from pro shares. It got weird that almost every day the market went up. So weve been waiting and waiting, but we really do sort of are we overplaying a 200 point move yesterday . Is this the beginning of something that turns into a pullback . I think people are overreacting. Becky, in your intro you talked about how the markets had not had a more than 1 down move since october. Its the longest streak. 109 sessions. Thats the longest streak since 1995. We should put that in context. If you think about the conversation yesterday, the narrative that dominated traders and investors yesterday, it was about trump will get hung up on healthcare. He cant get to tax reform, Everything Else. What was missing from the dialogue or conversation was any talk of fundamentals. This whole this whole market move since the election has all been about the trump rally, the trump bump. But what people are overlooking is here we are with Fourth Quarter 2016 earnings now behind us. S p 600 s p 500 across the board had tremendous Earnings Growth. Small caps alone, year over year Earnings Growth over 90 . Yet the small caps yesterday bore the biggest brunt. The russell 2000 lost all of its gains for the year. In the last 12 months we have been in a classic earnings driven market, but its been all about politics, all about healthcare, then tax reform. Everything else. The underlying fundamentals are pro equity, pro cyclical and things continued to go up from her here. Im glad you mentioned small caps, that is an opportunity. The underwer foperformance of s caps wasnt just yesterday, it was all year. People like the trump trade and the domestic aspect, but the hair on it is you get more leverage in small caps, thats sensitive to fed hikes. One way to play this is focus on quality companies, dividend growers, better Balance Sheets that can get some of that benefit without the headwinds of the higher shortterm Interest Rates. Why shouldnt we think this is the start of a 5 correction . Naturally within the market there should be a 5 correction. So why go in and buy down 1. 2 . Youre right. You know 5 corrections tend to happen, and tend to happen more often than people think. Theres a technical aspect as well. We have friday expiration, so all the options contracts expired. We went to this week, and there is momentum coming into the market. Thats creating the selling pressure that we saw yesterday. The bigger question comes down to not the next 5 move. We know using the s p from 1960 on, almost five times a year the market will sell off five times or more. The bigger question is what do conditions like like six months to a year from now . If you are in the camp that conditions will look better, use the weakness as a buying opportunity. Our view is theres a lot of underlying earnings momentum. Fundamentals are pretty good. People look at this market and say its expensive. It has to pull back. Sure. When you look at the earnings momentum among u. S. Equities alone, the s p can basically go up 10 from here, from where we are right now. By the end of the Third Quarter the pe could be lower. So we have enough Earnings Growth he says buy dips. Do you say buy the dips or sell i agree with the math. You say buy the dips or sell buy the dips. Interest rates are still low enough to support pes. Thats a real question, isnt it . Theres an opportunity to look outside the u. S. Now that the dollar is quieting down its run. Valuations are cheap. Emerging markets are also beneficiaries of growth. They are already up 8 this year. Theres room to run . True. And they outperformed the year before. But thats a catch up from the beginning of the finlt cancial crisis. All right, gentle men. Bernstein. Meanwhile, look, they put your hairdo on trump. You are happening. Do you believe the daily news . All through the election they had him as a clown, as this he looks better that way. You look better that way. You do. Why a billion dollar tax cut when you can do a trillion . Exactly. Thank you very much. When we come back, shares of nike falling after the company post ed revenue that fell short of estimates. Well have a closer look at nikes numbers next. And dont miss our special guest at 8 00 a. M. Eastern time, billionaire investor marc lasry will be with us. Squawk box will be right back. You have access to indepth analysis, level 2 data, d a team of experiencetrers ady to help you if you need it. Its like having e power of trading oor, wherever you are. Is yo trade. E trade. Start trading toy at eade. Co ist because so many go after it the same way . Chasing after short term retns. Instead if getting caught uwith the crowd, the Investment Managers atgim take a long term vw, teaminspecialized activenvesting th riskmanagement rigor, to seeouglobal opportunies. We mane over a trillion dollars this way, tracting many of the worlds leading investors. Partnewith pgim. The Global Investment manament businesses of prudential i provide for my family. I will use my education to help my community. I will inspire our next generation of leaders. I am a college student, but i am only 1 . Only 1 of College Students are american indian. Donate now, and help our numbers grow. Welcome back. Nike earnings beating the street with profits of 68 rents a shac share. But nike missed on revenue. Joining us nis paul. It was a Conference Call where people were talking about future orders. People were saying wait a second. Lets take a step back. What did you think . The third line was a beat from lower than expected sgna, but the revenue guidance was below our forecast. And they also did not they were reluctant to discuss their outlook for the next fiscal year. I think there is some concern right now around what that longterm algorithm for nikes growth will be. As you mentioned, theyre pressured from competitors. And i think that the consumer environment is very negative for a lot of nikes whole say e. Sale pa wholesale partners. They said wholesale orders were down by 4 . Is that a concern to you . The direction of futures definitely is. This is the first consecutive quaur quarter we have seen futures decelerate that said, because of the changes in times of when products ship along with a mix moving to a more dtc business versus wholesale, its no longer telling the whole story. Certainly directionally it is a concern. I think the bears will harp on that today. Are you a bear or a bull . Im a bull. It comes down still to product. We very much like the pipeline that we see over the coming months. We think nike is coming forward in 2017 with a better balance between fashion and sports wear as well as performance. We think that will allow them to compete much better with adidas over the coming months. Theres a big launch this weekend called the nike vapor max. We think nike is taking real steps, if you will, to really solidify their dominant presence within this overall athletic cycle. With the stock down 4. 25 , you say thats a buying opportunity. Absolutely. What about nikes competitors . Would you say the same for under armour and adidas . We do recommend adidas globally as a firm. We think they have the momentum. Not just here in the u. S. , but across a lot of markets. Under armour on the other hand, we could see a little bit more down side to be frank with you. We think they have meaningful investments they need to mange make to expand footwear. To what expect does nike have a credibility problem on the street . December they gave guidance for gross margin which they missed this quarter. People are asking why should i believe in the company at this point . I think nike has a longterm track record of success. They were very bullish a few months ago in outlining this longterm algorithm . Did things change that quickly . Theres no question that the environment changed rapidly. I think nike is controlling what they can. The reality is theyre losing points of distribution across the market and a lot of retailers are closing doors, are unable to get good footsteps into their boxes. That has a direct impact with the overall revenue growth. Would i think of nike as an Apparel Company now or footwear . Certainly both. Which is more important . Do you follow all the their products . Very closely. You do . What are these things i got, they got no tongue. They got no tongue. Yes. These sneakers. Have you seen them . Of course. Theyre so light. Its almost as if they are lighter than air. But theyre expensive. Like 150. I didnt pick them out, theyre ugly. But they have no tongue. You put them on. Theyre made of material. Is it strong and will it last . Theyre the greatest sneakers ever but i cant believe they wont fall apart. I think you hit on two points. No tongue and light . No tongue. Nike has been head first focused on innovation and newness. With that came an escalating price point on the product. So i think we got to a point where the Consumer Preference changed a bit. It wasnt to a combination of not just whats new, whats the latest noninvestigati efst inn cool and what are the stars wearing. What are you wearing . We do see nike over the coming months having a more balanced approach between the shoeless, sockless look. Youre wearing sneakers, whose are they . Nike, of course. I have a pair of air jordan ones, black History Month edition. Nice. On this morning. Paul, thank you. I have to do this. When we come back, i have to do it. I cant believe this french election. Are you still watching it on youtube . No. No. You will not believe this. One of the guys is accused of having ties to vladimir putin. All right. And the Russian Press came out and said its fake news. Were infecting everyone. Unbelievable. When we come back. Coming up, a busy day for housing data, Mortgage Apps at 7 00 eastern, a new report on housing inventories and some surprising numbers. Lets look at yesterdays s p 500 winners and losers. Introducing conduent. One of the largest business process companies in the world. Whether its in health care, customer care, technology, transportation or government. We touch millions of lives every day. Conduent. Advancing the everyday. Its been over 100 years since the first stock index was created, as a benchmark for average. Yet a lot of people still build portfolios with strategies that just track the benchmarks. But investing isnt about achieving average. Its about achieving goals. And invesco believes doing that today requires the art and expertise of highconviction investing. Translation . Why invest in average . Welcome back. Youre watching squawk box live from the Nasdaq Market site in times square. Good morning. Lets check u. S. Equity futures and how theyre setting up after yesterdays selloff. Saw that 1 move on the s p 500 for the First Time Since october 11th. We look to open slightly positive there. Watching the action in the nasdaq. We saw for the first time the first record high and then a onemonth low in the same trading session. Thats the first time that has happened. Turning positive there as well. America is in the midst of a housing shortage according to a new report by trulia. Joining us is Ralph Mclaughlin chief economist from trulia. We are seeing inventory on starter homes tight, arent we . Absolutely. Starter home buyers are hit the hardest. Over the last year weve seen an 8 drop in the number of starter homes. All inventory is down, but starter home buyers are feeling the impact. They have to spend about 38 of their income to buy a starter home. That matters because thats the point where lenders start raising eyebrows as to whether or not this household can afford that home. Its a challenge for all buyers, but hitting starter buyers really hard. The price spread has widened, right . Yeah. Thats the big problem. Investors bought up a lot of homes and theyre being rented out. Number two, this price spread is keeping some home buyers that already own their own home from trading up. If they cant trade up, they wont put their home on the market, it becomes gridlock. The supply problem is not building new homes, thats whats happened . Thats part of it. In the big picture, we need new homes. We are building homes at 63 of the rated that we normally build homes. Thats a problem. At any given time 1 out of every 10 homes on the market is a new home. Theres other fundamental issues going on which have to do with the ability to afford a home you might trade up to. Why doesnt this fit in with the whole millennium world . We only need 63 . Yeah. Of the homes. Millennials represent the biggest pool of potential home buyers. Potential. But weve been told they were shunning home buying, they wanted to live in the cities, rent apartments. 40 of them are living with parents or a close relative. 40 . Dont egg me on. Please dont egg me on here. Im trying to bring them in to watch sdqux sq squawk box. Im not doing a good job. No, youre not. Haters gonna hate. Yeah. They cant get out of the basements. Tweet here. Its not their fault. Because they dont have jobs. No. Because there are not enough starter homes. No, theres not enough starter homes because theres no demand from millennials. There is demand from millennials. They tell us more than any other age group they want to own their own home. Some day. Some day i want to have a job, get off my electronics. Why are they not coming out and emerging . Some of them may actually be wanting to form their if youre not in Silicon Valley, its hard to get hired with a button. Its also hard to have kids living in a basement. What happened . Start ups are in focus. Steve case joins us with an announceme announcement. Then we are just a day away from a crucial healthcare vote in congress. John yarmuth will give us an update on the vote count. And marc lasry will join us and tell us where hes putting his money to work. Youre watching squawk box on cnbc. I work with people everywhere on sea, on land, and in the air. Inspecting towers way up high avoiding turbulence in the sky. Personalizing eatments with dna and recommending who should play. Dress that thinks, whiccrops to grow, tax prep to help ep payments low. You can find me on an oil rig, i answer questions small and big. Hello, my name is watson. I answer questions small and big. Wanna get away . Now you can with southwest fares as low as 59 dollars oneway. Yes to low fares with nothing to hide. Thats transfarency. Time for the executive edge. The Financial Sector was under some heavy pressure yesterday. Driving the broader markets lower. Wilfred frost has more on the reasons behind the decline. I didnt have a bounce in your step today, did yoyou, because e market finally sold off under trump . You were more excitable today . Do you have a smile on your face . I do only sense i heard the tones of mr. Joe kernen, but for no other reason. As you will see, if i get to the reasons, i dont put the reason behind the bank selloff just to politics. To the reasons, the main one being the ongoing fall in Interest Rates. Yields falling across the curve yesterday. But worth noting that even before this weeks move in rates, the yield curve had been flattening which is bad for banks. Thus it figures bank of america was the biggest faller yesterday since it is the most Interest Rates sensitive of the big banks. Another reason cited for the decline is lessening hopes of trumps agenda being delivered on. For banks were talking in terms of tax reform and deregulation. Those fears elevated ahead of the crucial thursday healthcare bill vote. But are they overdone . For example, while jamie dimon was optimistic last week about the impact of tax reform on the economy, the Immediate Impact on banks any way is lower. Dirmen himse dimon himself stating in the past that it feeds through to wages. And investors may become less hopeful of financial deregulation. Morgan stanleys president said we are unlikely to see a ledge lati la can be done through appointments. He concluded so i dont expect any big change quickly but the very fact that the tone is being signaled is constructive to the markets. Either way, as we know, banks significant selloff yesterday and leading the market lower. Someone sent me a leak to the french debate translated. Do you know anything about this . Did you see any of that . I didnt watch it but read quite a few reports of it. The biggest takeaway is mr. Macron, the centerleft candidate has edged slightly ahead in the polls, 26 1 2 to 25 . In the first round. In the first round. I have some friends that were saying a lot of people agree with what le pen is saying, but theyre afraid of her. Its weird. Yeah, its true. Its true. Then its like they cant see it happening. I think also hatheres some interesting breaks in the polls. Similarly to trump and brexit, macron and the mainstream candidates have supports in cities like paris, he will pandn rural areas. And le pen does well in the youth vote which is not the same with brexit and trump. Thats a difference, and worrying longtime difference is where france is heading. You saw the kremlin had to come out and say the news that were trying to influence fillon is fake news. Its everywhere. Russian interference in french elections, relationships between fillon and putin and fake news from the kremlin. Its like deja vu all over again. Im using french. Exactly. Very nice. You were using yogi berra. Whilwhilst wolf was talking, will be speaking to the author of a book, the rigging rate scandal. Our first name has always been american. At at t, we employ more than 200,000 people with goodpaying jobs. Connecting consumers and budiness through mobile, internet, and entertainment. At t invests more into americas economy than any other public company. Bringing americans more choices, more freedom, and entertainment everywhere. No company is more invested in americas future than at t. Various shouting heigh ho its off to work we go woman on the gulcoast, new exxonmobil projects are expected to create over 45,000 jobs. And each job created by the Energy Industry supports two others in the community. Altogether, the industry supports over 9 million jobs nationwide. These are jobs that natural gas is helping make happen, all while reducing americas emissions. Energy lives here. Welcome back, everybody. The libor scandal, the manipulation of the rate, is one of the biggest financial scandals in history. Our next guest had an inside view as the scheme unraveled. Right now were joined by the financial Enterprise Editor of the wall street journal, also the author of the new book the Spider Network the wild story of a math genius. And david, thank you for joining us. My pleasure. A title like that sounds like big talk, but i have to tell you, its true in this case. In this situation, i dont think you oversold anything. Good, im glad. Its quite a tale. This is a sprawling, globeencompassing tale that features all of the normal type of wall street villains, the hardpartying crowd, but also more unexpected types, mildly autistic man who prefers hanging out at home with a bucket of Fried Chicken is the main character. So its a fascinating story. The main character is tom hayes, the one individual who all of had has really been pinned on. Hes the one guy right now rotting in a jail cell outside of london. He was accused and convicted of being the centerpiece of this massive, sprawling scandal. In my opinion, he ended up being a very convenient person to lay the blame on. Certainly, he deserves a lot of the responsibility, but is he the only one who deserves it . I dont think so. When i first started reading the headlines about libor, i thought, youve got to be kidding me. This is so deep. I cant believe there hasnt been more of a takedown scenario, that there werent more ways of reaching out to find the parties responsible. What happened . This was the very definition of a systemic scandal. Libor touches just about every type of Financial Product out there in the world today. Probably dozens, if the not hundred theres got to be trillions in liabilities. Absolutely. Theres all these derivatives out there too voluminous to count. That touches everyone. Its not just people with a mortgage. If you live in a town or a city or have a Public Pension Fund that is trying to protect itself against swings in Interest Rates, theyre almost certainly using Interest Rate derivatives pinned to libor. The manipulation of it was totally widespread. People up an down the totem pole knew what was going on and often participated. And the regulators to a large extent, central bankers in both the u. S. And uk were well aware of what was going on and did absolutely nothing to stop it. This practice has been going on for years. Tom hayes took it to a new level of sophistication and ambition and he was uniquely naive or stupid or lack of subtlety, really. He was totally open about what he was doing. Theres no attempt to hide it. His argument is thats a sign he didnt know what he was doing was wrong. Its probably partly a reflection of the fact he has a mild case of autism. But it certainly made him an incredibly easy target for prosecutors who were so eager after the financial crisis to be able to kind of show some scalps. How come nobody has gone after anybody else up and down the line . Thats a really good question. Its hard to build criminal cases against individuals. Hayes was uniquely open and brazen about what he was doing. To me, it shows a real lack of ambition and creativity on the part of prosecutors that they havent tried to flip people like hayes. Instead, theyve used him as the ultimate guy they were going after and didnt make any attempt to go after his superiors, who by the way, remain to a large extent in senior positions. Kind of stunning. David, thank you very much for joining us this morning. Really interesting read. Thanks for having me. Coming up, one day away from a possible vote that could change the countrys Health Care System. Well find out what happens if the bill passes or fails. Later, democratic congressman John Yarmouth will give us an update on the count. The trump trade losing traction. Markets post their first 1 fall in five months. Well tell you what you need to know about your investments straight ahead. Startup shakeup. Teaming up to find investments that could change the economic landscape in america. They join us to talk about their new partnership and investment plan. And we are just one day away from a vote in the house on Health Care Reform. The ranking democrat on the house Budget Committee is set to testify today against that bill, but before he does, he will join us for a first on cnbc interview. Congressman John Yarmouth is our guest. The second hour of squawk box begins right now. Live from the beating heart of business, new york city, this is squawk box. Good morning. Welcome back to squawk box here on cnbc. Were live from the Nasdaq Market site in times square. Im melissa lee along with joe kernen and becky quick. Andrew has the day off. Take a look at futures after that big selloff yesterday. Looks like well open positive on the s p and nasdaq. Yesterday, the s p financials suffered the biggest daily drop since june, since brexit specifically. U. S. Banks had rallied 22 from the election through monday. Heres whats making headlines at this hour. Well get a snapshot of the Housing Market later this morning when the National Association of realtors releases its existing home sales report for february. Economists are expecting a drop of 2. 5 . That report is out at 10 00 a. M. Eastern time. A new development this morning in an attempted crossborder takeover deal. Azko nobel has rejected a revised 24 billion takeover bid from ppg industries. Akzo says the offer still undervalues the company and does not address the risks. And the future for one of americas bestknown retailers is in question. Sears holding expressing doubts in its own annual report about its ability to continue after years of losses anticipad sales declines. That headline, sears one of the bestknown retailers. Thats only a 15yearold story. But with the acceleration and the disruption in retail at this point, all of these things we used to say we were overmalled for 30 years. Remember Arthur Martin . That was in the 90s. Were going to put it together with kmart. Thats going to help. Yeah, those two. Tie two stones together. Exactly. I feel like the with way retail has been shaken just in the last two years, especially in the last six months. Ten years ago it was they this these great brands, craftsman. Stocks and socks, remember that . Forgot about that. But youd walk in and say, hello, hello, hello, hello, looking for someone. They wouldnt reinvest in the stores, which is a huge part of the problem. But just hearing that, its a longrunning story about whether they can compete. But the fact they say it in their own annual report makes this particular story a little bit more biting. Thats the first step, recognizing that you have a problem. The fist step towards recovery. As for the broader markets, take a look at whats been happening in europe this morning. Youre going to see there have been some red arrows there. In fact, the ftse is down by 0. 8 . The dax and cac are off by 0. 5 . In asia overnight, some losses there as well with the nikkei down by 2 . The nikkei was catching up after being closed. The hang seng off by just over 1 . The shanghai composite down by 0. 5 . If you look at the energy markets, u. S. Crude oil inventori inventories climbed by 4. 5 million barrels, more than expected. That brings additional pressure to wit. The dollar has been mixed this morning. Its up against the euro at 1. 0793. Its down against the yen. Gold prices, very quickly. Down 1. 40. The tenyear note has been one that weve been watching so closely because yesterday lower yields at this point, the tenyear yielding just 2. 4 , putting pressure on financials. That was a big part of the selloff yesterday. In a developing story overnight, another day, another attempted Missile Launch from north korea. U. S. Military officials and south korea say it failed almost immediately, exploding within seconds of the launch. Yesterday north korea issued a warning of a potential preemptive strike. Over the weekend, the country tested a new advanced some kind of stronger thrust rocket engine. This time it didnt work. As i said, its just about every day were talking about another test of some sort. Saber rattling. We say stuff, tillerson says stuff. I dont know whether its really certainly feels like its getting bigger. All options are on the table. This is a huge black swan for everything we talk about. Much bigger than the markets. This is a black swan for life in general that were watching. In washington news, Supreme Court nominee neil gorsuch will return to capitol hill today for another round of confirmation hearings. Yesterday he answered questions from the Senate Judiciary committee, telling members hes a fair judge that respects the law. Gorsuch would not weigh in on the legal merits of cases that could come before the Supreme Court, including President Trumps temporary travel ban. Is al franken a lawyer . I dont think so. Did you see any of that . I heard about it. I heard about his questioning back and forth. Had he like pamphlets and stuff. Hes got one of the most studied constitutional law experts in the world. Youve got Stewart Smalley looking from pamphlets about trying to talk about these very, you know, detailed i heard it was really good. It should maybe be replayed this saturday night at 11 30 because it was so funny. On snl. Yeah, where he was. Where he earned his stripes. In the meantime, stocks are doing something they havent done in quite a while, dropping more than 1 . Dom chu has that market story. I mean, you guys, you mentioned it. October 11th, the first time weve seen this since then. Its been such a rarefied event to see these kinds of moves that it catches everyones attention when it does happen. Lets show you a little bit about what the s p has done since then. You can see its been kind of a slow, steady climb ever since what happened, at least on october 11th. The s p 500 ramping up a lot since then. If you then go to take a look at maybe what happened with the nasdaq, just over the course of the past week, you guys may recall yesterday we hit a record intraday high on the nasdaq overall. It was 9 36 in the morning. From there, we took a slide all the way down lower. One of the reasons why we cared is because over the past few days, weve hit record intraday highs on the nasdaq each day but failed to close at record levels. Maybe some indication already there that there was weakening momentum in the marketplace overall. You can see for the nasdaq, that one little tick there on the righthand side of your screen and a slow, steady drop ever since then. Becky mentioned it before here. Certainly a big part of the overall story, the biggs decliner by far in the s p 500, but more so if you take a look at specific parts of the banks. The banks overall and regional banks in particular, took the biggest hit. It traded three to four times its average normal volume in a day. Regional banks were the ones supposed to benefit most if the yield curve, if the difference between lowend rates and heegend rates, longer rates started to get bigger. Bank profitability was supposed to improve. That thesis was driving a lot of the financial outperformance over the course of the past four or five months. That took a big decline yesterday. I will point out small cap stocks. Actually now went negative year to date. So thats the reason why some traders are at least a little bit more cautious right now. Its not that the bull case is totally out the window. Obviously were still near record highs. But small cap stocks and banks certainly a focus for a lot of guys. Dom, stick around. We want to dig deeper into the markets with tom lee, managing partner and head of research at fund strat Global Advisers and steve white from citi private bank. Tom, i want to start off with you. You say take a pause right here. Yes. I think the market being down one day being isnt going to say we should change the trend, but i think there has been divergences between the stock market and high yield and small caps and commodities. To us, it makes sense that other markets are saying the s p may need some time to consolidate these gains. We really wanted to be more cautious in the first half. How do you interpret this pullback, steve . The context of it is not just whats going on, on capitol hill, but also weve seen yields come down. Weve seen gold at the highest level since the beginning of march. The safety trades are back on. Whats your interpretation of the markets movements . Within equities, this is the first time in a long time where sector rotation hasnt protected the broader market. That does show a little bit of exhaustion. Weve had a big move since november. We could never rely on markets to just have pure, uninterrupted confidence in reflation. I think weve had big moves in expectations. We were not going to go from reflation bag to stagnation. The next few months theres going to be a lot of drama over legislation. Ultimately, we think theyre not going to give up and well see tax cuts that will boost the american economy. If we didnt, we were already at record profits in the Fourth Quarter of last year. Its not even that demanding for us to hit this years earnings estimates when we were over 125 a share for the s p in the Fourth Quarter already pip do. T i dont think they gave up because of the daily news flow over one peeiece of legislation. Some people would argue a lot of the gains and i understand your point about hitting earnings estimates targets for this year. Some make the point that if you believe a lot of the rally was predicated on trump agenda being enacted, if you dont get health care or get health care lite, that means you dont get taxes or tax reform light and te and. That poses a problem. I think riskreward is a real issue now that markets are 11 higher since election day. If you look at p. E. S, the breadth of p. E. S, its higher than in october 2007. Unless youre confident about tax cuts or a big revision, the market isnt going to pay you to buy stocks here. One of the things we noticed yesterday, the underperformance of credit markets, specifically high yield, thats been a cause for concern. Also, if you look at the way the credit markets are shaping up, at least for treasury yields, we look back on october 11th when we first saw this kind of a move. Its a completely different picture in the treasury side. Yields on the ten year were 1. 76 . Not only that, we had a wall street journal article on monday saying, look, with the yield pushing up towards 2. 6 , is this changing the attractiveness of the stocks versus bonds. If youve got the yield back at 2. 4 two days later, what does that tell us . Youre still comparing where youre going to be putting your money. Are you going to put it in stocks or bonds or in real estate . From all of these areas, what looks the most attractive to you . Even if we had all the growth we could ever hope for, the global yield environment is going to make the u. S. Absolutely shine by comparison. I mean, were showing up with european yields moving up to half a percent. If were lucky. Some of that can come off a little bit. Some of it might be the hope that were going to be above a negative yield in the eurozone. By and large, were not were going to look at high yield in the United States as being a very attractive place to be for global investors. Its come full circle. When the oil market was collapsing a year ago, all of those highyield energy bonds have come back. Theyre back above those levels. Its not going to be as easy anymore on any of these markets, but this is still going to be a relatively good attractive valuation compared to the alternatives around the rest of the world. Do we agree volatility is higher, will be higher or will remain higher . Already this morning we have the vix up by about 3. 5 . Granted, its still below 13 . When you see that spike, you think about the impact on risk parody funds. The volatility goes up. Position in equities goes down. If volatility remains higher, theyre certainly not going to be repositioning back into equities, which takes the buyer out of the market. If you take a step back, the vix has been in the low tens. If you look back at history, its never really peaked at 13. If its making its way back to 19, everything you just said would amplify downside risk. I would also say one place to look for as well, weve been talking about oil and how its diverged. Energy stocks have been underperformers. We wondered whether or not oil was going to fall down to meet energy or energy was going to rise up to meet oil prices. Its evident right now oil prices have fallen to meet where Energy Stocks have been. Bear in mind on the oil side that the u. S. Is just grabbing a larger share of the world. When we look at inventory data, the fact that if the u. S. Is going to grab a larger share of the world, were going to have more inventory. Thats quite observable with whats going on in the rest of the world in terms of production investment cuts. So i think that were going to find the big picture the last two years, 60 cut in explore nation and production is going to be the story that dominates. All right. Steven, tom, and dom, thank you. Coming up, the Health Care Bill front and center in washington. But also on wall street, were going to find out which stocks may or may not benefit from the legislation and some of the new amendments. Thats next. Then steve case and j. D. Vance will join us. Well talk jobs, the economy, and their new partnership. Later, kentucky congressman john yarmuth joins us to talk about tomorrows important Health Care Bill vote. Hes a democrat. I dont expect a lot of those guys doing anything other than voting. No, stay tuned. Youre watching squawk box on cnbc. 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. Were drowning in information. Where, in all of this, is the stuff that matters . The stakes are so high, your finances, your future. How do you solve this . You dont. You partner with a firm that advises governments and the fortune 500, and, can deliver insight person to person, on what matters to you. Morgan stanley were just one day away. Thats unbelievable. From the house vote on the obama repeal and replace bill. Joining us to talk about whats at stake for health care stocks, a Senior Analyst at lyric partners. Back by popular demand from last time. Before we start, you probably do have to handicap tomorrow. Why dont we start with that. Do you think they can whip these guys into shape, or is it going to go down . What do you think . Well, its a big binary catalyst, no doubt. For the medicaid hmos and hospital stocks in particular. If the bill actually gets passed in the house and they can whip those votes, i think those stocks sell off even more. They have been giving up some of their gains. Im in the camp of i think theyll be able to whip enough votes in the house to at least get it passed through the house. The senate is another matter, i think. We can talk about the managers amendment, which certainly i think isnt improving the situation any. I doubt the cbo score gets any better with this amendment. On the one hand, weve had them appropriate additional funds to appease the senior lobby. You may see a bit more enrollment, but on the other hand, for the freedom caucus, they have done a big change, i think, in medicaid. Now theyre saying immediately no new states can expand medicaid with the enhanced subsidies we had under obamacare. So this big, bold thesis on florida and texas expanding medicaid potentially ahead of 2020 now in is not there anymore. So some that had traded up in the first couple months of the year, you know, that thesis goes away. Thats pretty funny that just as an aside no, you mentioned huffington post. Big headline, Major Health Care honcho hates this new bill. It was molina. The stock has been going down. That company is one of the losers with this bill. So obviously thats why hes definitely. Squawking about it on huffington post. Anyway, so you also got to figure out what happens once we get to this if i were you, i wouldnt know what to do. Once it gets to the senate, do some of these amendments become less draconian . Does the entitlement state get even bigger once it goes to the senate . Do you have to take back everything you just said about the amendments . What do you expect to happen once we get there . I think they would end up loosening some of the restrictions on medicaid to get the vote. There are a number of republicans states, as you know, that have already expanded medicaid. Some of the republican governors have come out with a proposal thats a little more moderate. My view would be they would have to change it a bit to get the vote. All right. But well see. Lets take it back to ideas for people that are watching. So you think humana, united health, and anthem will all have upside potential from what happens if this goes through. Yes. As i had said a couple weeks ago, they have the benefit particularly from the repeal of the obamacare tax. That lays the bathway for broader tax reform which is huge for Domestic Companies paying full taxes. When you compare that to any potential downside that united an anthem have, it pales in comparison to the upside from the taxes. Hu man humana has hardly any exposure to medicaid at all. With the amendment, they actually moved not for insurers, which are really not impacted by this, but broadly speaking they had moved the repeal from 2018 to 2017 and are now sunsetting the cadillac tax repeal a year later. All in all, this legislation is great. I think the stocks have traded up some. I dont think by any means theyre reflecting all of the upside. Id still be a buyer of humana, anthem, and united. I think if, for whatever reason, tomorrow the house cannot whip the votes on the floor, you may see a bit of a selloff. I would view that as a buying opportunity. Each of those names has a buy thesis thats related to Health Care Reform but independent of the legislation. I want to know, if i use a basket of community health, tenant, life point, if i use that basket on my screen, does that follow the chances of Health Care Going through . Will they sell off more, the higher the chances that health care go through . Is that some sort of barometer for me . I would think so, yeah. I think the hospital stocks are very tied to the passage of the legislation. So i think they would probably trade up more if the vote is not successful. Then they would trade down because theyve given up some of the gains in the last week to week and a half, but they would be a nice barometer for you to see how theyre trading. I dont know if we can bring up molina again. Thats been getting crushed, right. I was just reminded of something. So theres molina. You wonder why that guy doesnt like this. Do you remember who we had on the other day . He didnt like it. He was in here. When he got done, i was ready to sign up for obamacare forever. But that just tells you something. Whenever you hear anyone saying anything, you have to look at how it affects follow the money. But i believe these guys. Same thing with those advancing some of these. The aetna guy who said it was in a death spiral. You like that guy. You love him. I do. Is anyone just saying whats good for the country, or is it all about their stock price . I think any ceo is going to be talking about what matters for their business. I guess, all right. I dont want to make you cynical, ana. You just cover these things objectively and let us know. Anyway, im so glad that explains the molina thing completely. Thanks for your time. Well see you again. We need you here like once a week, i think. Thanks, ana. Coming up, steve case, chairman and ceo of revolution, and bestselling awe to be j. D. Vance join us to talk about their new partnership and how th they plan on focusing on startup investments. And congressman john yarmuth joins us later in the hour. Squawk box will be right back. Time now for todays aflac trivia question. Who is the only coach to win an ncaa and nba title . The answer when cnbc squawk box continues. Hey steve checks leg. Yeah looks like a real nasty moving back in with his parents. What . No. I just broke my leg. No, this is a full blown move in to the basement, youre gonna be out of work without that money from. Aflac you might miss your rent. Aww i just moved out. Bummer man. Hey i used to have my own place. Yeah . No, no i live with my mom, but its cool. Health can change but the life you love doesnt have to, keep your lifestyle healthy with. Aflac bp engineered a fleet of 32 brand new ships with advanced technology, so we can make sure oil and gas get where they need to go safely. Because safety is never being satisfied. And always working to be better. The markets change. At t. Rowe price. Our disciplined approach remains. Global markets may be uncertain. But you can feel confident in our investment experience around the world. Call us or your advisor. T. Rowe price. Invest with confidence. Oh. Ncome on. Och method whats going on here . You know how Ge Technology allows us to fix problems before they. They slow production, yeah. Well, no more catchy business acronyms. Wait, we dont need to smooch . Im sure we can smooch a solution we just need to hover over the candice, problem until. Just let it go. Hey, sorry im late for team building. Smoooooooch that felt right. Whats wrong with you . Hes so trusting. Wanna get away . Now you can with southwest fares as low as 59 dollars oneway. Yes to low fares with nothing to hide. Thats transfarency. Now the answer to todays aflac trivia question. Who is the only coach to win an ncaa and nba title . The answer, larry brown. Coming up, finding investments in flyover states. Steve case has a new partner for his vc firm. J. D. Vance joining the team. Theyll both join us after the break. As we head to break, take a look at how were shaping up for todays session. Looks like the s p and nasdaq will open positive. Dow looking to lose about 17 points at the open. i moved upstate because i was interested in building a career. I came to ibm to manage global clients and big data. But i found so much more. its really a melting pot of activities and people. applause, cheering new york state is filled with bright minds like victorias. To find the companies and talent of tomorrow, search for our page, jobsinnewyorkstate on linkedin. Search for our page, usaa gives me the and the security just like the marines did. The process through usaa is so effortless, that you feel like youre a part of the family. I love that i can pass the membership to my children. Were the williams family, and were usaa members for life. Please repeat the objective. Thrivent mutual funds. Managed by humans, not robots. Before investing, carefully read and consider fund objectives, risks, charges and expenses in the prospectus at thriventfunds. Com. Good morning. Welcome back to squawk box here on cnbc, live from the Nasdaq Market site in times square. Among the stories front and center, Mortgage Applications. Youre asking yourself, what happened in the last week . Well, they fell 2. 7 . Im trying. Its hard. According to new figures from the Mortgage Bankers association, both new purchase applications and refinancing activity were lower. The average 30year Mortgage Rate was unchanged from the prior week at 4. 46 . President trump will travel to brussels on may 25th for a meeting of nato heads of state. The trip was announced in a statement from the white house which also says the president looks forward to reaffirming a strong commitment to nato by the United States. And cke restaurant ceo andy pudzer stepping down. If the name sounds familiar, you know why. He had been the president s nominee for labor secretary before withdrawing. Hed been ceo since 2000. He did some things at carls jr. But left the onion ring on the bacon double cheese burger. Youve had one of those. Theres an onion ring on the sandwich. It makes a difference. And that barbecue sauce. Sounds pretty good, actually. Oh, you havent had one . Fried zucchini sticks. Of course ive been to carls jr. But you didnt order the western bacon double cheeseburger. No, but ill make a note of it. Ive been mentioning different foods on the air this week. They keep delivering them. Oh, really . Yeah, shake shack. A tbone steak. Maybe we can get one of those. I mentioned ive never had a five guys. I havent had a carls jr. Western Bacon Cheeseburger in a long time. Is this a way to get free food . Ill pay for it. Are you paying your rent or something . No, were upgrading. Its pretty nice. Congratulations. Did you ever do anything in the nasdaq in all your aol was new york. Went public in 1992. First internet public to go company. It was nasdaq. Pretty cool building. Steve case is here. Our next guests are seeking opportunities for startups across the United States. Lets welcome steve case, chairman and ceo of Investment Firm revolution and cofounder of aol. And j. D. Vance, a newly named partner at revolution, also the author of the massively popular hillbilly elegy. Hes going to be making investments in hot new startups. More portly, hes trying to change the economic landscape overall across the United States. Gentlemen, welcome to both of you today. Great to be with you. Steve, lets talk about rise of the rest. Thats an initiative you started in 2014. You talked about it here on squawk box when you did. Youve been on a bus tour, Something Like 26 cities. Your point is that 80 of the Venture Capital funding was going to three states, massachusetts, california, and new york. Thats nowhere 80 of the talent is. Exactly. Whats happening in Silicon Valley and here in new york city or boston is terrific. Great entrepreneurs building great companies. We should support them. But there are also great entrepreneurs all across the country, and we dont really Pay Attention to them. Most investors dont really look to invest in pthem. Thats what were trying to change, shine a spotlight on communities around the country. We have been to 26 in the last several years and are struck by whats happening there. Still, most of the Venture Capital is focused on the coast. That ties in the with the frustration in the country. A lot of people in the middle of the country feel left out. Thats part of the reason j. D. s book was so successful. So its great to be working together to take the initiative to the next level. J. D. , you really hit a nerve across the country with hillbilly elegy, just laying out what happens and how these people have felt left behind. Why are you moving back to ohio . What do you think you can do there . One of the big issues thats driving a lot of the social problems that i write about in hillbilly elegy is the fact the industrial economy has really changed in significant ways. It doesnt employ the same number of people it used to. A lot of people are unable to find jobs in the areas they grew up in or even nearby, broadly speaking, in the region they grew up in. I think one of the drivers of this problem is the fact you dont have enough investment. You dont have enough Economic Opportunity in some of these areas. Thats a problem that can be fixed. Thats a problem that can be fixed with capital, with investment, and with energy. I think a lot of these areas do have the energy, they have the talent. What they havent necessarily had is a lot of the capital. Weve seen it work in cities like detroit, where you have dan gilbert, whos been putting so much back into it. Are there other places you can point to . Detroit is great. We just backed a company in chicago called uptake, started three years ago. Now nearly a thousand employees. Do you have to go to washington to get help from federal funds . You dont need to go to washington. Theres a lot of capital obviously that isnt focused on these entrepreneurs and is mostly educating Venture Capital investors and Institutional Investors to Pay Attention. Part of the reason they should do it is because theres an arbitrage opportunity. Once the companies go public, once the companies are acquired, you get full price. You can buy wholesale right now and sell retail. Its a great opportunity for investors, part of what j. D. And i are going to do is try to educate investors in backing these entrepreneurs around the country. Have you spoken to investors . We have. Now this is taking rise the rest to the next level. Were trying to figure out other ways to accelerate capital flowing to these regions, which will then create jobs in the regions. I know its very early days, but what are your initial plans . What do you hope to do in ohio . Where are you focusing . The hope is to first educate the investor community, the business community, that there are really great opportunities here, that the valuations are lower, the cost of living is lower too. This is something entrepreneurs like. They can take the same salary that they would have taking in another place, but they can actually afford a house, support a family on it. Just getting the information out there, getting people to recognize these are really exciting places to invest in, to think about building a business in. Hopefully the metric for success is not just that youre educating people about opportunities that are there, but capital starts to flow into the rest of these rise of the rest cities. I think were going to start to drive capital there too. What lessons did you learn in Silicon Valley . What do you take back with you . I think one of the things i took back with me is that there are, you know, talent and energy are potential energy. They need capital to allow these ideas to flourish. You need capital to build big and successful businesses. I think the Venture Capitalists who do it the best are those who approach their capital pool saying, looks, we have the ability with this capital to drive some of these ideas to take them from concept to successful businesses that employ people and sell great products. I think thats the lesson, one of the main lessons i took from my experience in Venture Investing in Silicon Valley and something i hope we can apply. And i love the story. The fact they group up in ohio, moved to Silicon Valley, because thats where the opportunity was. Now theres a sense the opportunity is to move home, obviously taking the themes of the book, roll up his sleeves, and help some of these people. I grew up in middletown, which is right near cincinnati. How do you get along with your buddy steve . You know hes a huge were you a bundler for hillary . Ive always stayed out of. Ic tos politics . You stuck your neck out for hillary. You came on here and sung her praises. I was concerned that donald trump wasnt focused on innovation policy. We certainly talk about politics. I like when steve just tells me im right all the time. But then he cant move over to that side. Im right there in the middle. The. Hes a part of the thoughtful center, not the far left. Thats my sense. Steve, what is the sense that you get out of washington . Youve been concerned about entrepreneurial growth potential. As you see more of this, where are the opportunities, where are you most concerned . You got to focus on the future. We cant go backwards. We have to figure out what are the jobs in the future. Thats only going to come if we invest in entrepreneurs in these thirdwave sectors, whether it be health care, education, agriculture, food, energy, transportation. Do that not just in a few places but all around the country. There was a bipartisan bill introduced called the investing in opportunity act that would create Capital Gains insecentiv. There may be some policy there. I would expect the Trump Administration to focus on this. This is why he got elected. A lot of people did feel left out, left behind by globalization. The best place to focus is on the startups. The best way to back the startups is figure out ways to insent more capital to flow around the country. And to cut their taxes. Thats going to be huge. Some of it is taxes, some is deregulation. Theres a lot of things that need to be on the table. It goes back to this issue on the sectors. Entrepreneurs need the capital to fuel their take their startup into speedup mode. Youre not going to buy a basketball team, are you . Im not. Do you want to be on shark tank . I do not. Im just wondering the ultimate goal. Just to be able to spend time with you. Thats my purpose in life. Steve, thank you very much for coming in. J. D. , thank you. By the way, check out j. D. s book hillbilly elegy. Definitely worth the read. Coming up, kentucky congressman jan yarmuth on tomorrows Health Care Bill. Stay tuned. Your Insurance Company wont replace the full value of your totaled new car. The guy says you picked the wrong insurance plan. No, i picked the wrong Insurance Company. With Liberty Mutual new car replacement™, you wont have to worry about replacing your car because youll get the full value back including depreciation. And if you have more than one Liberty Mutual policy, you qualify for a multipolicy discount, saving you money on your car and home coverage. Call for a free quote today. Liberty stands with you™. Liberty mutual insurance. Big day on capitol hill tomorrow. Let me say that again. I read this and, you know, we always say things, but tomorrow is a big day on capitol hill. The House Republican Health Care Reform bill goes to a vote. Joining us now, congressman john yarmuth, who will be testifying today against the gop health bill. Congressman, i know you hate this bill. Youve got like a hundred reasons why its the worst bill in the world, but thats the issue of what were watching tomorrow, what the republicans are able to do amongst themselves. All you guys are going to vote no anyway. I dont even know whether i guess ill just let you go and tell me why everything about this is horrible and why everyone is going to lose insurance and grandma is going to get pushed over the cliff with the orphans. Weve already heard that. Go ahead and go over it for me again. Of course, the Congressional Budget Office has already said this bill would ultimately end up with 24 Million People losing their coverage, that premiums would go up, and the individual market 15 to 20 over the next few years and that people in that category of 50 to 64 years old in the individual market will be priced out of the insurance market. Other than that, its a great plan. It represents one of the greatest transfers of wealth in history, almost 2 trillion, 900 billion in tax cuts and 880 billion in cuts to medicaid. So it just goes in the wrong direction. My characterization of it is its not really a Health Care Bill. This is an ideological exercise to basically satisfy paul ryans ayn rand tendencies. But it kind of reverses the transfer of wealth that happened when you know, through reconciliation and without a single republican vote, that that transfer of wealth was pushed through eight years ago. Congressman, the only problem is obamacare never got even a plurality of popularity in this country until maybe now. It never got above 41 or 42 . All these republicans, theyre saying they got put into office to get rid of this thing. You got to admit, if you look at governorships and state legislatures and losses in the house and the losses in the senate, i mean, the american people, they were saying something about something over the last eight years for the Democratic Party to be in the position its in right now. Well, i can speak to kentuckys situation. When we polled consistently over the last seven years, obamacare polled very poorly. The Affordable Care act polled very positively. There was almost a 20point flip in polling just when you change the name. Now youre just calling kentucky people stupid, congressman. No, no, no. There was an awful lot of they just didnt understand so they didnt know it wasnt bad. They just had the name wrong . They didnt know it was the same thing. Now you see it time after time in kentucky and elsewhere around the country when people say, oh, this isnt we like the provisions in the Affordable Care act. This isnt what we thought obamacare was. And youre also seeing the experience of many people who say, okay, i know somebody who has a child with juvenile diabetes or Childhood Cancer or Something Like that whos got coverage. So theyre seeing that there are protections in the Affordable Care act for people who already had insurance through their employer but didnt realize there were additional protections now. So these guys are, you know, control the house now and control the senate and the presidency. Lets say that they do get something through and then you get the second phase and the third phase where youre going to be able maybe to make improvements on whats left of obamacare. You know the critics on the right are calling it obamacare lite. So theres going to be a lot of the entitlement still left. Will you and your colleagues on the democratic side be willing to work at that point on the second and third phase to try to vote yes on things that would help the Health Care System in the country, even if its republican . Weve always been willing since day one to work to improve the law. We know there are problems in the individual insurance market. As a matter of fact, thats really where the only problems exist with the Affordable Care act. And we need to get more providers of insurance in a lot of areas in the country. We need to do more to deal with costs. We need to bring the cost of prescription drugs down. Wed love to work with republicans on that because thats one of the biggest drivers of health care costs. So yeah, wed love to work with them. If the philosophy was were going to make this a better Health Care System and not were going to try to create some kind of pure, free market which doesnt exist anywhere else in the world. Thats in health care. Weve had a lot of democrats on. Youre really nice and seem very reasoned. I think its because youre from kentucky. Its in the middle of the country. So youre not its the bourbon too. When you look at the current climb and you saw i dont know whether you watched any of the hearings from yesterday. I did, yes. Are you at all uncomfortable with the position that the core of the Democratic Party has taken, or do you think it needs to be resist trump at all costs and thats what its going to be for four years and damn the torpedos, were not going to try and do anything because thats what happened to obama . I think its unrealistic to believe that we could keep anybody from being confirmed to the scalia seat on the court for four years. I dont think anybody believes that. I cant believe youre saying that. You see what schumer said . I understand. When you see what leader schumer says, do you so you would tell him maybe thats not the right tack at this point . What would you say to him . These are always tough battles because when you have somebody and most every Supreme Court nominee is going to be impressive when they go through the confirmation hearings. Theyre very well prepared. They start off as very, very smart people. They wouldnt be where they are if they werent very intelligent. Gorsuch is not just very smart but smooth and affable. To be totally obstructionist on somebody who makes as good an impression as he does, i dont think bodes well for us if we dont have legitimate concerns about his judicial temperament or his philosophy. Damn. You are im glad yourening rai youre Ranking Member, congressman. I might even vote for you. Those people in kentucky arent stupid. They are smart. Thanks very much. Youre welcome. We hope to see you again. Thanks verying if for having. Pleasantly surprised. Thank you, kong manage. Coming up, we discuss the latest market move. Up next, stocks on the move ahead of the opening bell. Take a look at futures right now. We are turned back to the negative on the s p as well as the nasdaq. Dow jones looking to lose 34 points at the open. As we head to break, check out yesterdays moves in the s ps biggest sectors. Squawk box will be right back. Kevin, meet your father. Kevin Kevin Kevin Kevin Kevin Kevin Kevin Kevin Kevin Kevin trusted advice for life. Kevin, hows your mom . Life well planned. See what a Raymond James Financial Advisor can do for you. Various shouting heigh ho its off to work we go woman on the gulf coast, new exxonmobil projects are expected to create over 45,000 jobs. And each job created by the Energy Industry supports two others in the community. Altogether, the industry supports over 9 million jobs nationwide. These are jobs that natural gas is helping make happen, all while reducing americas emissions. Energy lives here. Take a look at some stocks to watch this morning. American Airlines Group was downgraded to equal weight, has been overweight at morgan stanley. Among the concerns, aggressive increases in capacity at american, when it already has below average profit margins. Urban outfitters was upgraded at key bank, which says the apparels Retailer Stores are well positioned and differentiated from those of its competitors. Snapchat parent snap is raised buy at drexel hamilton. The firm raised snaps view on itself as a Camera Company and the fact its platform is strongly engrained with millennials. It is true. They take a lot of pictures and snap those things out. Constant, constant interaction with that app. And it supplants instagram a little . With our kids, it has. They use instagram occasionally, but snap is the method for getting it out to their friends and reaching out. Youve seen emojis. If you look at them all together, you can look at a whole page of them. Someone sent me a comparison of that in hieroglyphics. Weve reverted. Coming up at the top of the hour, marc lasry. Well get his views on the Trump Administration and proposed regulatory changes that could be coming. Plus, where hes finding market sweet spots. Also, fedex cant deliver for investors. Revenue missed, hitting the stock initially, but bouncing back a bit this morning after the Conference Call with fred smith. Well speak to an analyst about the results. As we head to a break, heres what the ceo of fred smith said on the Conference Call while he was talking about higher margin growth. We believe strongly that our strateg Strategic Investments to expand our global scope and portfolio of services will significantly increase longterm profits. Wanna get away . Now you can with southwest fares as low as 59 dollars oneway. Yes to low fares with nothing to hide. Thats transfarency. Global market alert. Stocks fly and Oil Prices Drop to levels not seen since november. A squawk box newsmaker. Billionaire investor marc lasry joins us in studio. Plus, new this morning, Mortgage Applications drop as borrowers turn to riskier loans. Well bring you the details as the final hour of squawk box begins right now. Live from the most powerful city in the world, new york, this is squawk box. Good morning. Welcome back to squawk box here on cnbc, live from the Nasdaq Market site in times square. Im joe kernen along with becky quick and melissa lee. Our guest host this morning, marc lasry. Well talk in a moment. Not that hedge fund it has become kind of a pejorative. They dont do it better than anyone else. Its almost got a bad connotation. Were trying to charge 5 and 50. But you might be worth it at least. I dont know. Were trying. Lets look at the futures, which are extending yesterdays losses, at least a little bit. Actually, not the nasdaq. The dow is going to have some problems because of once again, im reminded nike. Thats the lead story today. Nike is a dow component. That was the lead story for me. News alert, news alert. Nikes future orders were the numbers were great. Up 16. The earnings were in line with expectations. It was the future orders and concern about whats happening in the retail environment. We saw it hit under armour very hard with future orders down. Analysts are nervous. Those margins were 1. 4 . They had forecasted just in december, which really highlights how things have changed in a few months. Okay. All right. Good. I saw this on the way in, in the car. Treasury yields, which ive always been scratching my head about, back under almost 2. 40. I dont know if they got there or not this morning. 2. 40 earlier. They consistently seem to get to 2. 6 or close to 2. 65 and then that seems to be the high end of the range. With everything were talking about in terms of gdp, stimulus, infrastructure, tax cuts, all these things you wonder, how does it stay so low . But it does. Its a Global Market maybe. The dollar, that trade that the dollar was going to go up forever, thats starting to be questioned. We have seen the euro perform a little better after the netherlands. Well see what happens in france. Then oil prices are at new intermediate or shortterm lows. In our headlines this morning, Sears Holdings issuing a warning about its ability to continue as a going concern. The retails annual report said substantial doubts exist about its future after losing money year after year and seeing sales decline. Dutch paint maker akzo nobel has rejected a revised takeover bid from ppg industries. They say it undervalues the company and does not address risks. Elliott advisers is urging the company to engage with ppg. And in economic news, total Mortgage Applications declining 2. 7 in the latest week. That number stands nearly 12 lower than it did a year ago. Stocks to watch today, fedexs Third Quarter earnings and revenue rising during the peak Holiday Season, but profit missed forecasts, hurt by higher fuel costs. The stock initially dropped on the news then staged a major reversal during the Conference Call when the ceo said the company is optimistic by higher margin growth. Its higher by 2 in the premarket session. Nike reporting higher than expected revenue. Futures orders disappointed analysts. American Airlines Group downgraded to equal weight from underweight at morgan stanley. They are concerned about increases in capacity with american being especially aggressive at the same time. Its margins are below average. Thats lower by more than 1 right now. Urban outfitters upgraded to overweight from sector weight at key bank. The analysts citing the companys well positioned in differentiated stores as well as a number of total stores. Despite yesterdays pullback, the s p 500 is only about 2 below its record high. Mike santoli is going to tell us which sectors appear well positioned and which ones seem vulnerable after yesterdays decline. Hey, mike. Hello, joe. Seems like we can call this an overdue pullback. Yes, only 2 from the highs. A 3 to 5 drop is routine in the market every two to three months. Weve gone over four months without Something Like that. So right now, this is just kind of a downward wiggle in the headline indexes and really not something that i think changes your view of what the trend has been, which of course has been up. A lot of people waiting for a dip to buy. 5 from the highs would be another 3 down from here. So youre kind of in that range where maybe thats what you want to get to, to have some kind of fat pitch. The first 1 decline in this very long stretch of 109 days without one is typically, if you look back at similar periods in the past, has not been a major market top. Its been relatively quickly recovered. So thats not a reason to think that something has changed in the way of tone. I think the big key here, underneath the surface of the index, this market has been correcting and pulling back for a while. The most popular areas of the market, banks, a lot of the cyclical stocks right now look more than 5 down from their highs. In fact, close to 10 with energy. I think thats where youre going to look. If this market is going to make a stand relatively soon, it could be the energy, financial, autos that have been in up trends and have already kind of given back a lot of their gains from the highs, guys. All right. Mike, thank you very much. Our guest host this morning runs one of wall streets most successful debt Investment Firms. Marc lasry is the cofounder, ceo, and chairman of Avenue Capital. They have about 11 billion in assets under management. Great to see you here today. Its a pleasure. Thank you for having me again. We havent gotten to talk to you in a while. In fact, i havent seen you in even longer because i was out the last time you were on. We know that you were a clinton supporter and a big part of the campaign, being involved with that. What weve seen in the stock market since Donald Trumps election has been fairly remarkable. What do you think of what weve been calling the trump rally . Look, i think its all good. To be honest, i think for what everybody is hoping is youre going to have this 2 to 3 gdp growth and deregulation. If you have that, its all positive. Its positive for everybody. I think the question is, is that really going to happen . The market absolutely believes. I think the market has gotten a little ahead of itself. Look, id like Nothing Better than to have 3 gdp growth. I dont think thats going to happen. I think youll be closer to sort of 1. 5 to 2. If it ends up being that, thats great. You think the market is overvalued at these levels because its still waiting on things . Much of this was based on earnings that was out there. With trumps election, it was also deregulation that doesnt have to go through congress in a lot of ways. I think the deregulation, thats going to be a big part of it. Its going to be how much are the banks really going to be out there and start lending again. Is this deregulation going to have a real impact. The perception is it will. I dont disagree with that. The question is how much, and are you going to get to that 3 . I hope so, right. I do, but i think at the end of the day when you take a look at it, its going to be closer to sort of that 2 number. If we dont get to 3 gdp, yo uh thi you think the market is already overshot . Yes, if you dont get to the 3 . Back in january, you told cnbc you thought wed see a 10 rise. Are you reevaluating that . No, i think youll see that. Look, for the next six months to nine months, i think everything is pretty positive. Youre not going to see these effects coming in, in the next six months. My view is for this year, you will see that 10 rise. The question ends up being, what ends up happening for next year. I think as the numbers start coming in, thats when people are going to start realizing, wait a minute, theres a real issue. Your record in the private sector, youre still a young guy. Thank you for that. Coming from me. But being able to navigate through pretty tough stuff, distressed d distressed debt and things like that over the years. Weve had a conversation. I know how you feel about the private sector. People have allegiances to Different Things for a lot of different reasons. You dont have to cop to this, but there were certain things in the last eight years that you were frustrated with in terms of the private sector, in terms of job growth. So knowing you as i do, youre going to ride this thing. You dont care its trump. Right . I just want to make money. Thats what you need to do. I dont even think you feel bad about it. You dont have any value judgments or anything. Youre more invested now than youve ever been in the past. Thats correct. And youre not shy about saying it. At the end of the day, its about what you said. Youll find over the course of the next six months that the r perception of everything thats happening is all positive. Everybody is waiting for this deregulation. I would love it to all work out. And the tax reform. Absolutely. Its all good for everybody. If that happens, that ends up being positive for the economy, yes. The wiggle we saw in the market yesterday with concerns about whether or not the Health Care Reform will get passed and therefore what that means for tax legislation down the road, is the market right in reading into that and thinking, okay, maybe this is a time to pause . I think it is a time to pause because everybody is waiting to see is the Health Care Bill going to pass, right. If it does, then what youre going to see is with a republican president , republican congress, things will get starting done more. I think everybody is worried, are they going to be working together as much as everybody wants them to. So if it gets done, then what youre going to see is everybody focus on tax reform. Thats going to end up being pretty positive. So i think there is a bit of lets wait and see. Its only a day, right. I dont think theres any harm in waiting that day to see what happens tomorrow. Although, if the vote does pass in the house, is that going to signal a new rally for the market to push higher as if, okay, the first hurdle has been overcome, its game on again . I think itll be how much does it pass by. If it passes by one vote, i dont think the market is going to look at that as being overly positive. I think if it passes i wouldnt say comfortable margin, but its got to pass by something a little bit more thatll have the market looking at, all right, thatll be positive. Now lets wait and see what happens on the senate side. To that point though, your forecast of 10 higher in 2017, is there an asterisk next to it, depending on how this Health Care Vote turns out . Which will then probably give us an indication of how tax reform might play out, which will then give us an indication of how deregulation might play out, which is a key to your call. Look, if the health care doesnt pass, i think youll have a bit of a dip. But then everybody is going to focus on tax reform. Were not sort of we dont make bets based on sort of certain events. I think to us, were looking at the economy an saying, all right, everything we think is going to be positive and that deregulation it is going to end up, i think, working itself through the system. Then the question really ends up being how much do banks start lending and how much are people spending. So Consumer Spending and then how much lending is going on. All that should be positive for the system. Do you even buy stocks . No. We just buy debt. I dont even know why why do you make a forecast . Why do you even dabble in forecasting . I think for us, the focus is really on the debt i dont even know why we talk to you about stocks sometimes. You like talking about stocks. Im happy to go down there. Im fascinated. Its 50 50. You have 4. 9 billion here in the United States. In europe, you got 4. 4 billion. Yeah, thats correct. You know theres some elections happening over there. Greece is ready to so you feel pretty good about europe. I think europe is a huge opportunity on the distressed side, yes. And the reason is because the banks are still forcing and weve talked about this. Theyre still forcing everybody to deleverage. Im sorry, the ecb is forcing the banks to deleverage. Because of that, youve got quite a lot of paper that were able to buy at pretty good prices. Better than a year ago or two years ago . Its the same. It just keeps on happening. The banks are selling about 200 billion a year. Were still able to keep on buying that. I really sucked up to marc when i thought he was going to be ambassador to france, which was going to happen like three or four years i mean, ive been to that place in paris. Ive been inside that joint. That didnt happen. I think it was better that it didnt. Youve got other stuff. You would have had to step away almost completely. But youre an expert. You speak french, moroccan. Whats going to happen . Are you following it that closely . I dont think le pen wins. You dont . No. You think theres ever a frexit . Sounds like fresca. That would have some huge issues in europe if le pen wins, just because of what would end up happening in france. But the chances of that are i think theyre 20 . Oh, really . What would that mean for your investments . How would you change your strategy . I think youd have much more distress. So that would be a good thing. For us, that would be a good thing. Youd have more issues. The measu the more issues, the more problems. That would be good for what were doing. But we dont really need that to happen. That would just have a lot more volatility in whats going on in europe. So i think for us, the fact the ecb is just forcing the banks to sell and keep on deleveraging, thats a fiveyear play. Really, what you want is just stability and that opportunity to keep on investing there. What about the opportunities for debt here in the United States . Where do you see that playing out . Where we see it still is on the energy side. You and i have talked about this. Ive talked about it here. I think when i started talking about it, it went up to about 400 billion. Today its about 180 billion. Theres still quite a bit to do, at least for us, on the energy side. On the aviation side. We do part outs. We buy end of life planes. Planes that air jamaica, sort of different airlines. So thats sort of where were seeing really what were trying to do in the u. S. Is be a liquidity provider. Provide liquidity for people who need it. And youre able to generate sort of, if you can, that low to midteens type of returns. Talk more about energy right at 8 30, i think. Its almost whats the expression where things are so good that prices might stay low and it might be selfdefeating that things are so good. Thatll make probably more opportunity for you. Yes, that would be good. But were going to have a renaissance here, arent we, in this country. Look, what youre finding is oil is staying somewhere between 40 to 50. Thats enough, isnt it . Its enough for a debt player. For an equity player, you need oil to be above 60. Thats sort of how youve got to look at it. For us, really, were just trying not to make a commodity bet. We want to end up investing in a company and saying, look, as long as oil is staying around that 40, 50 mark, were going to do pretty well. Can you get a double digit coupon in a Distressed Energy issue now . Not in a new issue. In a distress issue, you can. If its 6 and youre buying at a 50 or 60 you can still do that . God, no wonder you do so well. Nobody makes 16 , 20 anymore. All it has to do is not default. Thats correct. Or restructure. All right. Weve got to go. Marc is sticking around. Coming up, fewer americans applying for mortgages. The reason behind that change. Then, uber ceo getting a vote of confidence from the board. Stay tuned. Youre watching squawk box on cnbc. Welcome back to squawk box. Mortgage applications falling 2. 7 in the latest week. Diana olick joins us with more on the Housing Market. The fastrising cost of housing today is shrinking demand for mortgages and pushing those who are in the market to cheaper, adjustable rate loans. Total Mortgage Application volume fell 2. 7 last week. Its now about 12 lower compared to a year ago. Refi applications were down 3 and applications to buy a home were down 2 . Thats week to week. Mortgage rates didnt move last week, but they are nearly threequarters of a percentage point higher than they were on election day. And home prices are red hot. So borrowers are turning to shorterterm, adjustable rate loans, which have lower Interest Rates. The a. R. M. Share of total applications has doubled since the election. Its nowhere near what it was during the housing boom, but it is at the highest level in over two years. Now, demand for housing is strengthening as the Spring Market kicks into gear, but very tight supply of homes for sale is keeping prices high and bidding wars fierce. We get the latest read on existing home sales in about an hour and a half. Watch for that on squawk on the street. Back to you. All right, diana. Thank you. If theres no houses, diana i know, thats the whole point. I mean, there should be people building houses if theres demand. I dont understand. The chicken and egg scenario. The builders say they do not have the land, they do not have the labor, the high cost of materials, and theyre old building the move up and the pricier homes. Theyre not building the starter homes we need. You can to them. The labor force is a huge issue. We own houses, becky and i. Correct me if im wrong. This is good for me, right . Not if you want to move. Its good for your home price. If you want to stay, youre all good. Then your prices are going up, youre sitting pretty, gaining equity. All right. Never mind then. If youre going to stay, what does it matter . If youre not selling, youre not going to make a profit. You can pull cash out. You dont want to pull cash out. Maybe you do. Tom celek says i should do one of those reverse mortgages. Have you seen that . Hes looked into it. Its really a good deal. Like free money. Anyway, coming up, uber ceo gets a vote of confidence from the companys board. Details next. Stay tuned. Youre watching squawk box on cnbc. The power of a low volatility investing approach. The power of smart beta. Power your clients portfolio with powershares. Before investing, consider the Funds Investment objectives, risks, charges and expenses. Call 8009830903 for the prospectus containing this information. Read it carefully. Distributed by invesco distributors inc. Welcome back to squawk box, everybody. Uber plans to keep cofounder Travis Kalanick as ceo this is according to board member ariana huffington. She said the board has confidence in kalanick and the possibility of his resigning hasnt come up and isnt expected to. Huffington said kalanick needs to change his leadership style to that of a scrappy sbep neuroto become more like the leader of a major global company. Separately, aol Ceo Tim Armstrong is among the candidates that investors have suggested to serve as kalanicks chief operating officer. Thats according to a bloomberg report. Coming up, much more from our guest host marc lasry. First, check out the dollar index this morning. Up fractionally. Barenaked ladies, as we go to break here. Stay tuned. Youre watching squawk box on cnbc. Cant say that a lot. At blue apron, were building a better food system. Where instead of paying for middlemen, we work directly with family farms to deliver Higher Quality ingredients for less than you pay at the store. Get 30 off at blueapron. Com cook good morning, everybody. Welcome back to squawk box here on cnbc. Among the stories that are front and center this morning, the National Association of realtors will release february existing home sales just about 90 minutes from now. Economists are looking for a 2. 5 decline, which would partially reverse januarys 3. 3 jump. Recreational vehicle maker winnebago beating estimates by 3 cents with quarterly profit of 48 cents a share. Revenue well above forecast. Winnebago credits a more balanced portfolio and greater scale among the factors for those gainings. That stock is up by almost 8 . Shares of sears have extended their prior losses in pretrading today. In its latest annual report, sears expressed doubts about its ability to continue as a goirng concern, given its continuing losses amid declining sales. That stock is off another 12. 5 today. Lets get back to our guest host, marc lasry, Avenue Capital cofounder and ceo. I could talk about energy all day long. We didnt cover everything. Before we move on, i want to talk real estate, too, after what we talked about with diana. But how much of the domestic 4. 9 billion is energy . Is it half . Its about yeah, its about half. And i would imagine that thats the biggest percentage. The other half is divided into what type of just totally different. Like what . Could be anything. Manufacturing stuff . Yeah, i mean, its going to be were short retail. What do you mean short retail . Retail, so companies youve mentioned. Like sears we just talk abouted . So youre shorting the debt . Youll short the debt or the equity. So you do play in the equity markets, just not as much. Not as much, unless you think theres a real issue out there. Can you say specifically, is sears one of the ones youre shorting . I dont know if my Compliance Department will allow me to. I can tell you off the air, definitely, what were doing. Lets talk about retail in general. Thats been a picture that has just seemed like a rapid escalation of the decline of retail as we know it. All kinds of displacement there. So i think thats a huge opportunity for us going forward. Simply because when you take a look at whats happening in the retail sector, its just getting destroyed. So i think youre going to see a lot of equity value go down. Then youll have value to these companies, but its going to be a lot less than people think. So therefore, you want to be in that debt. We look at retail, and you think of that as the malls, the Stores Within those malls, but then you can play that out to nike and the trouble that dow component ran into yesterday when they announced earnings. Do you play beyond the general areas of retail into the players, like a nike and beyond . Suppliers, yes. A nike, no. Nikes debt isnt going to have any issues. Are the fears theyve been battered along with retail, but maybe fears are overblown because maybe certain ones dont own the stores that will close. Were not playing in that because we want to be much more specific and target specific companies from a credit standpoint. Which ones are going to get hurt more as earnings come out and which ones are currently having issues. The border adjustment tax, have you looked a tt that close . Do you have an opinion on whether overall its a good thing . Probably wouldnt be great for certain real estate companies. A lot of countries do it. Initially, kneejerk reaction is a , are you out of your mind . But ive had enough people that have come in here and said this is the way we should most likely do things if we can phase them in, and it would be a net positive long term for the country. Have you thought it through . I havent. I havent really looked at it. It would be good for you if youre short retail. Thats exactly it. I think you could make an argument both ways. I think for us, ill take a look at it when you start seeing if its really going to if theres a real probability of it passing. That means your short on retail has nothing to do with this additional massive head wind that could hit the retailers. That actually would be a positive. For us. Negative for retail. Also, i think negative for people because thats going to increase prices. When you sort of look at it, i just think right now the issues youre having on the retail side are just too big. I wanted to ask you about the auto sector. A lot of the automakers have been going down recently. There have been a lot of negative data points about used car pricing, for instance, and credit. The concern is obviously used car prices go down. That drags down new car prices as well. Auto yields on leases are coming down too. Is there any sort of trade in there . You had been in gm at one point. It had been one of your biggest positions. You liquidated that. I think for us, theres not much to do there yet. I think youre right. Youre starting to have issues. Remember, for us, we need companies to have real issues. We dont want to get in at the beginning. You want to sort of get in when sort of problems start coming. So i think its way too early. We invest theed in gm when gm h all those issues and was sort of coming out. That was around 2009, 2010. Today i think the tri industry fine. It may not be in a couple years. For us, its still too early. Why is it too early . Im just curious, what would make you change your mind . When you start seeing that debt trading around 70 cents. The only time that starts happening is when people start getting really worried about sort of earnings and different issues that companies are having. Is that the deaf fission for y definition for you . Yeah, its got to start trading around 70, 75 for us to really start focusing on it. To go from 75 to par, so 33 return, that takes about two to three years. So youre going to make 10 to 15 . Correct me if im wrong. You may have a Team Spending a year or longer getting into the industry before then. Oh, well have a team looking at something a year or two years. Youre just waiting. Youve got to wait for prices to come to the level that you want. It may never get there. So are we allowed to ask what areas you have teams looking at right now that youre not playing in . Yeah, i mean, i would say the auto sector is one of them. Would it be like auto lenders . Would it be the debt in an ally financial, or would you go with ford, for instance . When you look at its financing unit, the percent of assets as a percent of market cap is the highest among the oems. Thats absolutely correct. Youll look at those financials, yes. What other areas do you have teams working on . I think right now its more idiosyncratic. The only industries or areas that have real issues is on the retail side. Energy is the other one. So Everything Else is youre waiting for specific situations and specific companies. I wish it was broader. Its not. You can have sort of broad issues when you have positive gdp. When youve got that 2 to 3 , its going to be much more targeted, which is where were going to be focused on. Everything else, at least for us, is going to be youve got a company thats got this specific issue. How would you describe the days for distressed debt . How does this work out . We saw huge issues in 2008, 2009, 2010. What kind of market is it right now . I think the problem youve got today is youve got sort of less than a 1 default rate. So therefore, its going to be more idiosyncratic. So you dont have broad base, which is what you had in 2009. So for us, thats why we ended up having targeted funds, why with focus quite a bit on energy. So if we just want to invest u. S. Distress, youre going to find there isnt as much to do. You have to end up becoming much more targeted and much more focused and try and take advantage of the opportunities youre seeing. How many bucs games do you make . How many games do i go to . Ill probably go to about a third. You go to a third. Yeah, 25 to a third. You at. 500 this year . We actually are. Seventh spot. What does that mean . Means were in the playoffs. If the season ended today, wed be in the playoffs. I havent followed that closely. Jabari . He tore his acl again. Im watching college. Who will you draft . Who do you like . Do you watch college too . I do, but a lot of it is going to depend on sort of where we are in the draft. If you make the playoffs, then youre not going to have plenty of good guys to look at. Did you do a bracket for march madness . I did. I actually did the bracket. Im happy to say i got absolutely destroyed. I had villanova. I got killed within the first week. Thats a horrible feeling, isnt it . You know what you can do . You can join me. I dont have xavier beating arizona, but theyre doing so well. Im going to go xavier. I dont even care. I have north carolina. Then youre golden. Im golden. Well talk about some other stuff. How much is it worth now . We paid 500. Probably worth 1. 5 billion. Thats just you got to have money to make money. Thats what im realizing. It was good. You made a billion dollars . My partners and i. Oh, okay. Just one partner. Meantime, coming up, shares of fedex up in premarket. Well get the streets reaction next. Stay tuned. Youre watching squawk box on cnbc. Wanna get away . 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We can do everything. New york state is filled with bright minds like samanthas. To find the companies and talent of tomorrow, search for our page, jobsinnewyorkstate on linkedin. Welcome back, everyone. A new Associated Press report this morning says President Trumps former Campaign Chairman Paul Manafort secretly worked with a russian billionaire for the benefit of vladimir putin. Eamon javers joins us with the details. Heres what we know from the Associated Press this morning. Paul manafort had a business relationship, according to documents obtained by the Associated Press, with a Russian Oligarch who is close with vladimir putin. According to to the Associated Press, the secret work for the russian billionaire was to advance Vladimir Putins interest. It was a 10 million annual contract to influence politics, business dealings, and news coverage, including in the United States. That work began in 2006 and continued until at least 2009. According to a 2005 memo obtained by the Associated Press, mana fort wrote that it needed the appropriate commitment to success. He proposed he would work around the world, but including the United States. White House Press Secretary sean spicer has given a statement to nbc news about this report this morning. Heres what spicer has to say. It would be inappropriate for us to comment on a person who is not a white house employee. And Paul Manafort himself has given a statement as well. What he is saying this morning is, i worked with Oleg Deripaska almost a decade ago, representing him on business and personal matters in countries where he had investments. My work for mr. Deripaska did not involve representing russian political interests. So guys, this will be another headache for the Trump Administration today as they deal with the fallout from this story, on a week where the fbi director said the fbi has an open investigation into any possible links between the Trump Campaign in 2016 and the putin government and the putin governments efforts to interfere in the u. S. Election, guys. Because the media says its a headache . It was 2009 when it ended. Is it a headache for hillary that podestas brother worked for, you know, was an agent for the biggest bank in russia, which has tied to putin . People have ties all over the place with each other. Its a global maybe not quite as global as it was. People have Global Business interests. It was a decade ago. Why is that a headache today . Because you and msn say its a headache . Not sure who youre accusing of being in the msm here, joe, but look, this is something thats going to take the white houses time and energy today. Why . It was 2009 and it was a business interest. Because theyre going to be asked about it. Right, exactly. Theyll be asked about it by who . And because theres an open fbi investigation into any contact this is totally unrelated. And manafort was gone how long before the election . He had already resigned. Manafort worked for the president up until the convention, right. So after that, through the whole period of the general election, he wasnt the campaign manager. The white house has sought to distance themselves this week. Okay. All right. I dont know. Thats a one aspirin headache, i would think, at most. Anyway, thanks. Thanks, eamon. Fedex stock bouncing back after initially dropping upon the release of its Quarterly Earnings report. Joining us with more, managing director, chief Market Strategist and Senior Transportation analyst at avondale partners. It was really interesting in the afterhours session to watch the trade in fedex. Fred smith gets on the call, the ceo, talks well about ground margins and tnt. Then the stock lifts. So everything is paid off for fedex in terms of their investments . Well, it certainly appears so. I think everyones reaction, the markets reaction, my reaction initially, and i was the bull. It was oh, my word, theyve missed. Once you started to peel into it and look the a the results, you realize, oh, i see. Actually, this is less than we were expecting. Primarily because of fuel. This is a company that literally spent 200 million more on fuel this quarter than they did a year ago in the same quarter. Thats despite the fact they moved 3 more packages with 1 less jet fuel gallons. It was a reflection of their investment in the new airplane fleet. But that said, that produced quite a headwind. Its kind of a temporal thing. They maintain guidance for the full year, which means the Fourth Quarter they have a funny fiscal year the Fourth Quarter is going to be better than expected by a margin of more than the Third Quarter was less than expected, if that all makes sense. So do the results and guidance, does it sort of widen the spread, so to speak, between the value of fedex and the value of u. P. S. , given the weakness we saw in u. P. S. s latest results . Oh, absolutely. It continues to tell the story that weve been trying to tell now for years. Ive got a very Entrepreneurial Company thats still run by the original entrepreneur that started it versus a company thats highly unionized and run by a Management Team that is several generations removed from the original entrepreneurs. Its just a very different culture between the two companies. Otherwise, theyre very similar businesses but very different the way they approach the marketplace. All right. Were going to leave it there. Thanks so much for your time. Always my pleasure. Thank you. When we come back, jim cramer will join us live from the New York Stock Exchange. Stay tuned. Youre watching squawk box on cnbc. bell chimes nice work brother dominic. Now we just need 500 more. Translated into 35 languages, personalized oh and shared across the 7 continents. other languages spoken look abbot, i got it. Its a miracle. The Energy Sector has dropped over 8 so far this year. Since 1990, when the sector drops at least 5 , the oil and gas refining sub sector were watching shares of dow component General Electric this morning after talks with major shareholder trian management. Ge modified bonus rules to tie with more closely whether results are achieved. Trian issuing a statement saying it was pleased with the changes. Operating profit target for 2017 is 17. 2 billion. See the stock higher by just about 0. 6 . Lets get down to the New York Stock Exchange and talk with jim cramer. Jim, you cannot believe the responses i have gotten since. Tell us what etfs youre against and what specifically . Okay. Thank you. S p 500, etf, vanguard which is what Warren Buffett suggested, i think thats terrific. But the anti the socalled single stock risk that has been that you see constantly the proponent of single stock risk of all these new etfs, youre lumping in the best with the worst thinking you can somehow eliminate single stock risk in a sector, its an oxymoron but somehow gained great credence. I feel weve been brainwashed. Brainwashed by etf people who really believe somehow if we lump the bad with the good we do just fine. Its a mistake. Yeah, i mean, you dont have to go too far for an example. If you take a look at for instance i know you know this, jim, the ibb, you got some of the biggest components there, gilead, right . Its down 27 over the past 12 months and biogen is up 15 or so over the last 15 months. You want to own biogen, buy the ibb, youre out of luck. Exactly. We want growth from biotech, but gilead is either value or value trap. Why would we want those altogether . Why would we want the really great Cyber Security companies with the really bad Cyber Security losing to the great ones. Makes you think somehow youre diversified, youre not diversified. Yes, if youre an etf for gold that may be a better way than owning individual gold stocks, but the brainwashing has to stop. The single stock risk game, that is all about trying to get people to buy certain products that i think are really against their best issues their best interests. I got to tell you something, melissa, the people upset about this is typical of how brainwashed people are. Listen, i want to buy the bad with the good . Oh, wow, ill fight for that right. A lot of great points there, jim, thank you. And of course this is worth watching. Look at the clip on cnbc. Com, read the article, its great. See you in a few minutes. Later on, dont miss the ceo of winnebago, thats later on power lunch. But mobility its an autonomousthinking vehicle protecting those inside and out. And its the mercedesbenz of today that will help us get there. The 2017 eclass, with innovations no car has offered before. And that will change driving forever after. Lease the e300 for 549 a month at your local mercedesbenz dealer. Mercedesbenz. The best or nothing. Whats Critical Thinking like . A basketball costs 14. Whats team spirit worth . cheers whats it worth to talk to your mom . Whats the value of a walk in the woods . The value of capital is to create, not just wealth, but things that matter. Morgan stanley heigh ho heigh ho heigh ho heigh ho its off to work we go heres to all of you early risers, whats up man . Gogetters, and shouldbe sleepers. From all of us at delta, because the ones who truly change the world, are the ones who cant wait to get out in it. Welcome back everybody. Our guest host this morning is mark lasry, mark, lets end this conversation the way we started thit morning. You were a big supporter of Hillary Clinton. The election didnt go the way you thought it was going to go. What does that mean in terms of what you think of the Trump Administration right now and what youre rooting for . Are you rooting against them . No. I think for me what id like things to work out. You do want it. You want the tax reform to work out. You want gdp to be sort of positive. You want the deregulation to happen. You want things that are good for the country. So you want america to do well and if it does, thats positive, right . So i think for i need to be a little bit more convinced from sort of on the financial side that some of those things will happen, but you do want that success to end up happening. Because it ends up being good for everybody. You didnt emigrate. I wasnt born here, otherwise i would have run for president. So do you have any empathy in terms of those positions, legal, illegal immigration, border security, is there a way someone whos immigrant can say i agree with some of this stuff . Or not . Look, i think this is the greatest country in the world. I was able to come here with my parents, become a naturalized citizen. I think only in america could i have had the success ive had. Right. You sort of look at this country and what it always stood for was people could come here and that youd have a better life. And it is this beacon on the hill. I mean it really is. Right. So you want that. And i think thats what america stands for. So i would like it to keep on being that way. Can i ask you one individual Company Story . Sure. Have you looked at valeant . Do you own it . Valeant debt . Yes, we do. You do. So youre not worried about the company being able to pay its debt holders, violating debt kov nans, not having enough assets . I think it depends on where you are in the capital structure. So if youre at the top of the capital structure, youre going to do pretty well. And im assuming you are. You can assume we are, yes. Marc, we want to thank you very much for being with us today. Thank you. Its always a pleasure. We hope you come back again soon. Thank you. All right, where are we now . Were still negative. Nike is going to be a drag to some extent on the dow today. Well see the pan ultimate day before. It was how she said she just spoke to someone in ryans office who said the vote is still on for tomorrow at this point. They think they have the votes. At this point. Right. Its still on until its not, maybe. Well yeah. Well see. Melissa, thank you. My pleasure. Marc, great to see you. Thanks. Make sure you join us tomorrow. Squawk on the street is next. Good wednesday morning. Welcome to squawk on the street. Im Carl Quintanilla with jim cramer at the nyse. Faber is off. Futures as you heard just below the flat line after tuesdays selloff. The worst day for stocks this year. Europe is red. Nikkei down about 2 overnight, oil trying to hang onto 2. 4 and we begin with the stock slide. Is the rally over . Good to have jim back on a day like this. Nike takes a hit, second best dow stock o