tv Squawk on the Street CNBC November 5, 2019 9:00am-11:00am EST
did tweet out. you can see we're down 14.5 billion, the chinese down 53 billion. so in percentage terms, it is a lot more painful -- i'm sorry, on the u.s., in dollar terms, more on china. >> that does it for us today join us tomorrow right now time for "squawk on the street." ♪ move on up move on up ♪ ♪ move on up good tuesday morning welcome to "squawk on the street." i'm carl quintanilla with jim cramer, david faber at the new york stock exchange. tide of record highs and trade optimism rolls on today. dow futures up 80 points, amid reports the white house is considering to cut some tariffs. europe is mixed in the ten year, approaching 1.84 ism services and jolts in an hour road map begins with wall street's record rally, stocks point to a third straight day of gains, fueled by increasing china trade optimism
come up, excluse of ive insightm jamie dimon and ray dalio. >> shares of uber, they're sinking on continuing losses, more than a billion dollars in the third quarter. but the ceo predicts profitability within two years. >> and done everything right going's new chairman backing embattled ceo dennis muilenburg of the max crisis. uber, shares falling stocks now 35% below the ipo price in may yesterday on closing bell, the ceo said he sees profitability as david said for the company in 2021 >> it was a very significant beat on the top line in terms of revenue growth accelerating and the bottom line. we increased our 2019 midpoint of our guidance and ebitda by
250 million. i'll tell you, while we haven't finalized our planning, and it is going to take a lot of hard work from a lot of folks, we're targeting 2021 for adjusted ebitda profitability full year >> sort of echoes of what lyft said last week street is mixed on this. i saw price target cuts and raises today. >> you got rbc saying that there is 1.7 billion shares about to be unlocked. web bushes is has 163 million, interesting there was a dispute on that. this is one of those calls, you're listening, good, good, good, good then you get to uber eats and you say what why are they in that business? why don't they cede that business that would make it so 2021, maybe third quarter of 2020, that was the big issue you got grubhub last night shake shack talking about it last night this is a bad business
it is bad for them maybe worse than others. >> gross bookings almost missed estimates. uber eats missed nelson, the cfo on the call, talked about nearly 100 cities adjusted ebitda margin positive for uber eat, but the large capital private inflows to the online food delivery category, competition is fierce in some markets. went on to say it only 15% of eats gross bookings that mack over half of their adjusted ebitda margin loss we said this, what is so interesting about this, their largest single investor, softbank, is in part some of the capital behind those very competitors that are causing these margin losses. >> it is amazing to me if someone were to blink, no one blinks, square was smart to sell caviar i didn't -- that's intriguing
because how much of that is making it so they can't blink? if you -- there is no -- we're photog think more of this company, not less if they did that. >> they did, he did said they did get out of south korea it shows a willingness on their part to exit markets where there is a low return on investment. >> but this food business -- can we just accept the fact that when you have behind the scenes, look, i own a restaurant, i own two restaurants, this is what we talked about had i was with these ceos of restaurants, they say, look, this is just a fiasco the money that is in a business that frankly is not a good business i had a guy on last night who had the o-joe scooter, 30% delivery, i'm saying, get me some o-joes and let me beat uber i don't want to be in the business. >> at some point that business will rationalize, delivery of food business. right now a lot of money still moving into it as we said from
large investors. i don't know funding business models, some of which -- one of which, some of them will succeed. you can't -- you're going to get out of it, only to watch somebody else win? >> i don't like to spend $10 to get $8 i've never seen that business model work >> this goes back to the discussions we had pre-ipo relative to the few analogs there are, it is a complex model. you don't like complexity of -- >> here's what happens you go to uber eats, you say, grubhub is saying i'll pay x got to come underneath grubhub and then you go after that you go to door dash and say, look, uber is coming in here it is what we call ootball you can pick these guys against each other there is no edge it is a total commodity. what i called uncoded free sheet paper. there is no model that can make sense. no margin that can make sense. and when you're in the
restaurant -- even my little restaurants, i can argue with these guys. >> my point is about uber, there is ride sharing, there is logistics, there is delivery do you want them to be in all these -- >> i like them to be in freight. freight is not that good now because of the economy they're doing fabulously in freight. that's a great business. they have that technology business that was hard for me to read, sounded like -- >> other bets, yeah. >> i just -- i think -- >> i think that if -- there are -- remember they say they're number one, but some of the markets have two, three, four, five competitors. >> some of the -- dd, a huge investor. >> the guy has a tie and he's got great -- he's got the mints and the water back there and you feel like you -- >> really? where have you done dd >> my son did. >> nice.
>> he feels luke s like a king k there. >> got it. >> dd has differentiation. dd has game. >> if you say so >> did you get the 50% off uber yesterday? did anyone else get that >> i bottom got 30. >> they were asked about it, of course, they said we don't know what each individual shareholder will do. they had constructive dialogue with their long-term holders and they do go on to say, though, there is a lot of supply that will hit the marketplace. we don't know what's going to really happen. >> bad answer. >> bad set of facts. >> we have taken whatever steps we can to have the dialogue we need to with most of the parties, whatever that means and, guys, finally, for me, i thought most interesting part was the very beginning of the call, dara said the companies that can compound top line growth at massive scale and improve margins, allocate capital and the right thing for
other constituencies, we're working hard to be one of those magical companies. >> the year of magical thinking. >> i didn't understand that at all. it was -- it was kind of a ethereal, little philosophical, and absolutely nothing that i wanted to hear >> we'll watch uber, down on the premarket. the other big story is the market at large. stocks on track to continue their record run today dow coming off the first record close since july as you probably know the s&p's 16th record high of the year nasdaq outperforming both of those, though. up 27% year to date. as you have said, we have reverted to faang. that's doing so much heavy lifting here. >> look at apple i was at -- a gathering, who should be the man of the year. person of th year i think that tim cook -- think about what he's accomplished. >> you think ceo of the year.
>> you're talking generally, man of the year, like -- >> i'm saying -- i'm nominating him right here person of the year particularly $2.5 billion. >> really? >> nobody else on the entire planet you think might deserve that. >> runner up in 2012 had a better year this year. like babe ruth -- >> hoover? >> hoover? >> why is that so off. he created a -- he has a trillion dollar company. we all walk around with white things hanging out of our ears. >> my question would be over nadella, over some of the other -- >> yes >> growth -- >> the business person benioff, because of the business is the greatest force of change, that's another -- business is -- intellectual business is booming. the business ceos are thinking they're thinking rea
twitter and not care about what i'm saying. >> i'm listening. >> what did i say? >> you said they're thinking >> who >> benioff. >> you put him over cornell, jensen juang. >> he's number one he's fantastic and just a gentleman just everybody -- they got thousands of happy engineers there. that's jensen juang. >> the person of the year, you don't necessarily have to do good things, it can be you're in the midst of muilenburg. >> muilenburg, person of the year >> no, a lot of trouble, interesting. >> yeah. >> dealing with it, trying to. >> listening to that interview with calhoun was fascinating this morning. >> that was a fabulous interview. >> so much news. >> unbelievable. talk about a rectitude guy coming in and saying we'll pay america, we'll solve this problem, we talk about it every
day. >> he did not -- >> no flinching there. >> no, he did not duck >> well, phil did try to get him oncarrier compensation or the pricing of the max when they -- >> did indicate there was conceivably going to be compensation paid. >> he didn't -- he did say that we let him down, gary kelly. >> i had dark parker on, hundreds of millions of dollars, he's -- they said, yeah, but we're going to do that did you ever know him tv. >> calhoun, no i didn't -- >> man of tremendous stature and a person of -- >> he did say it was well regarded. >> if you missed it this morning, on squawk, said muilenburg has done everything right, they're not looking at club x this will be called the max when it returns to service, they believe before year end. >> there is one thing that i
wish that muilenburg had done in front of congress, which is say, listen, i'm not going to take a dime and calhoun said that muilenburg said it this weekend i also thought what he was talking about was muilenburg deeply affected with congress and that is something that you want to hear i didn't think it was for show nothing for show just for real. >> does that give you more confidence >> i said yes. yes. i feel more confident. this is a huge part of -- this is a terrible tragedy. and when i heard today, it is a terrible tragedy, it is not -- boeing is going to do everything it can, not the boeing way there were a lot of questions about the actual engineering of it and whether it was right, the right redundancies and he said we made mistakes he didn't say mistakes were made he didn't say, well, you know, look, we're going to examine that made mistakes. i thought that was great too this man is a chairperson.
you got the sense that muilenburg works for the board there were questions in front of congress, the board do this, the board do that, congress is so jaded about theboards being owned by the ceos. this board is not owned by the ceo. it is just not it is an independent board that's what i thought calhoun accomplished >> take a listen to this >> from the vantage point of our board, dennis has done everything right from the beginning, from the beginning. remember, dennis didn't create this problem but from the beginning he knew that mcas should and could be done better. and he's led a program to rewrite mcas, to alleviate all of those conditions, ultimately beset two unfortunate crews and the families and victims >> he did say muilenburg will not get any bonus pay until the max flies again. some argued is that an economic
incentive to rush this plane back >> no, no. i think that -- i think calhoun, he said he won't be back for a year, shouldn't be back for a year one thing i thought was so great about what he said, reminds me of jim mcnerney, we're not even -- this is going to fly when it should fly there are a lot of people who hope it can fly just because it is setting back business i got the impression from calhoun business is irrelevant. >> you seemed more interested if boeing planes could be part of a china trade deal. >> i think that -- that mr. calhoun got that question wrong. becky was not trying to conflate the two, if they fix safety, i think there is a lot of us saying, when is china going to show good faith? i know that navarro would like to see some good faith and it is not just an ag buy
anymore. it would be something like a real commitment to boeing, president xi, depending what outlet you read, is alternately hoping that the tariffs are cut, trying to make a deal. look, president xi, if you're watching, completely isn't, you can get huawei back in, which i know he is watching. but you got to give a big order. can't just be soy. that day is over brazil is the way you get soy. people think you can switch. soy guys i deal with and the chemical guys you can't just say, okay, that was brazil now we're switching to u.s it doesn't work like that. i also think that they wouldn't be so wrong, no one is going to like this other than millennials, they could use a nonbeef product. >> the chinese >> yes they love -- they love milk that is not milk. you know that? they love -- i think it is time they go to ethan brown, to -- before mcdonald's does,
mcdonald's has a test going on in 27 -- are you kidding me? this is time for the new ceo to step up an say we're going to try it like burger king did with the impossible burger. talk about a mistake that easterbrook made, among others i don't know about the other stuff. i don't care about the other stuff. >> we do have news on the outgoing mcdonald's chief. upgrade at beyond meat today we'll talk about that. >> great upgrade. >> a big morning on tap as well. jamie dimon will join us, talk about everything from u.s. china trade to the presidential election and hedge fund billionaire ray dalio on the market's record run and his call to reform capitalism cramer's mad dash and opening bell coming up don't go anywhere. ♪
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time for mad dash. opening bell, about ten minutes from now, right here from the new york stock exchange. peloton -- >> they deliver. >> the quarter, yeah. >> this was the best of the ones that have come public during this period, this little window. 103% growth, 526,000 6 million. holy cow now, here's what's key when you look at the number of
the amount of money these are making, these guys are making, they raised it, david, their fiscal year ends in july we were looking for 1.35 billion, they'll -- tremendous number of people on it my wife removed her laundry and used it this weekend she was, like -- what was that >> gross margins up to 46.1% that was the 14 basis point improvement. >> david, these guys are for real i think so >> why is the stock down >> wow >> i don't know. i guess because they all -- they're all bad. >> got to find out. >> except for the chinese stocks those have been real super >> total revenue, 228 billion. >> you can't please people this was a good -- i made fun of this deal, it was a good quarter. this is the year of magical
thinking isn't that jone gan gideon? >> yes. >> a 52-week low. >> we'll see how the stock opens. by the way, want to show -- >> which is that, like, simonize did you -- >> i simonize everything, including my face. be sure to stay tuned, by the way. we have an exclusive with jamie dimon, ray dalio, and we'll also be talking to the ceo of peloton. that's coming up next, but next we got an opening bell as well i am the twisting thundercloud. i am royalty of racing, i am alfa romeo.
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you're watching "squawk on the street." opening bell in three minutes on this tuesday another busy session full of trade news uber, peloton, we talked about already, election day, and kentucky, mississippi and virginia you mentioned peloton. shake shack was theother big name out last night, jim. >> a little light. little light we're looking for 2.7. they come in at 2. analysts stick by it they think it is still a great growth story this is the most challenge, the challenge industry go back to mcdonald's. there is burger wars all over the place. wendy's, shake shack is -- i think some people say it is not real -- it has more going than that in the end, a comp number is a comp number. come back to chipotle.
turns out they did have unbelievable numbers. >> they posted two looking for 2.5. is that a worth a fifth of their market cap >> i thought the same thing. were people looking for 5? that's not that bad a miss this isan unforgiving market for growth stocks. peloton was up 2 david and i were going -- by the time we finished talking about it, it is down growth stocks are having a hard time keith meister talking about how good adobe was last night. adobe was fantastic. big analyst meeting. adobe doesn't hold, then i think people will dislike these stocks again. i think the uber -- uber will flood the market i got no comfort about the lockup expiration, none. did you cover it >> no. when they just flat out say we don't know, hard to get comfort, right? what was the quote, we don't really know what's going to happen >> by the way, as for adobe, they do guide above for 2020
we got targets up at citi, jbm, rbc. you mentioned lockups, bernstein goes to outperform beyond meat saying we think the lockups are going to be disruptive in the short-term, they keep 106. >> beyond meat is one of those companies that has -- it has a cult following with money. it is not tesla. that has a cult following. this got much better balance sheet. i think people are starting to wake up to the idea, not that it is an ecosystem, but can be used in many different ways this company is pure when you speak to them, they do the -- when you speak to beyond meat, they're on a mission, they're mission driven these are terms when i say them david laughs at me they have a purpose. they're purpose-driven the millennials are driven to, like good things and they're not -- and positives and --
>> save the planet >> yeah. >> on the day -- >> they're all -- >> let them eat coal >> let's get the opening bell here at the s&p 500, cnbc real time exchange, big board here, madison square garden company, celebrating college basketball champions classic, the spartans, the jayhawks -- >> michigan state. >> yes. >> and wild cats >> wildcats. >> they all look good. see those, you think, i cannot believe it is basketball season already. >> and by the way, at the nasdaq, qnk international group. >> the most important thing that happened in the past 24 hours was some crazy bobcat black panther that walked on the -- it was at the giant game. there it is. there is a metaphor everything you need to know about what was
once a great american football team. >> american sports >> that's what i thought of msg. >> everything. whether it is basketball or football, we're having a rough go of it here in the great city of new york. >> only one team i trust and i think it is really good. a team with a great kids playing quarterback, young kid not that danny dimes is a favor. >> not quarterback. >> wide receiver >> that season is over too unfortunately. >> could be recruited. d-4. >> we're not sure we want him to play, we'll see. >> calculus is tough if your kid is good, the coach is asking to keep him in, you got to start thinking ahead about injuries. >> it is a major issue it is. >> summit high, money badger, just patented by badgley, who is the kicker for san diego, got people 15 points not san diego. l.a. chargers.
got 15 points this weekend in fantasy. badgley. i live by this the guy was in my daughter's math class. >> you said you'll watch to see if adobe holds up 5% still regeneron up almost 6% on this news and upgrade of amgen as well. >> these companies are valued as if they're steel mills i think that when len is doing a great job. my travel trust will hold on to amgen. some guys are developing drugs, inovio, there is stuff going on for regeneron that is terrific amgen, they have -- they own otesla, it is the halcyon days for pharma
this is all senator warren, vice president biden, whoever is in the lead, if warren is in the lead, these stocks go down it is pretty amazing must be an algorithm. >> i would imagine. >> it is still early that's what everybody -- >> you say that every time. >> i do because it is true. >> that discourages horse race talk. >> i think at this point, howard dean was far in the lead carey was at 4% in iowa. he went on to become the democratic nominee so, you know. >> washington nationals were -- they were open very badly and end up winning the world series. >> they opened very badly and ended up as world champions. >> below the mets. >> let them play the game. >> at this point, last cycle, ben carson was probably about this time was in the lead. >> okay. all right. let's step back for a second the idea is that there is biden, and then there is like a team of like 40 people who would like to make it so we never have to pay for drugs again. that's a wild exaggeration.
>> that's a wild exaggeration. there are some moderates, amy klobuchar or cory booker or then people who have no chance, the bennetts and guy from montana. >> hannah montana? >> no, what is his name? >> hannah montana, she's polling 2% >> hannah montana is good. >> some of those people -- >> i saw -- i saw juul last night. she is not -- >> not juul? >> no. they call me assassin. read that book that's jewell. they call me assassin. >> yes, i remember >> look at disney coming down now. worried about that. >> one week to go before the launch of disney plus. >> the selling and the growth stocks, pepsico, yesterday, procter was down gigantically down four points people are flooding out of those stocks, going to the companies that would do well in a trade agreement. and this is just one of those
worthless rotations with people use a fortune by buying high and selling low. and i wish we could stop them, but they won't let us. >> a company we watch closely for a while, occidental petroleum, purchaser of anadarko, not having a good morning either. >> yesterday, chevron was up $5.30, it reported a rally not great quarter with production and people said now we know why they needed anadarko >> right. >> occidental, wow, david, yeah, that's -- that's suboptimal. >> deleveraging continues to be the key for this year and beyond, given all the debt and what you talked a lot about it they gave to warren buffett. >> look. >> i just think that you got to love the permian to death. the number of pipes that are coming from the permian, the amount of money, the amount of oil comes out. you need the saudis to shut down you need to take out 2 million barrels a day.
because we have got so many barrels that are just waiting for those pipelines. natural gas, natural gas is worthless. easier to flair than it is to ship i can't believe peloton is down a buck and a quarter i can't believe it. >> it was up, as you said -- >> what do you have to do? this market is a hard task masker. >> we'll talk to john foley in the next hour from peloton interesting guy. >> you mentioned oil, jim. aramco. >> jokers. what is that the -- >> yeah. the spartan. spartan. hey, spartan spartan! how are you doing look at this will you believe this? this is what it comes down to, believe me how are you doing? >> you mentioned oil road show begins the 18th and then list on the 11th of december. >> when is that lockup
>> that is a key lock. >> are you once again worried about air supply with the big new issues coming in >> have to look at these. i just feel like that one has got to be -- thank heavens it is worldwide. it is going to create, you know, ecosystem against the market won't be all the u.s look, i -- coca-cola is at 52. do something this is crazy. these are good companies >> yes, yes. speaking of good companies emerson, worth mentioning. >> i thought it was a good quarter. but a bad forecast. >> reported earnings and that's one part of it and then they did come to a piece with the activist investor de shaw. showed up in the stock they have an agreed upon board member added already to the board. mark lynn. >> tell us about him >> he'll have 11 directors, ten independent, he's got more than 20 years of experience operating
multiindustrial businesses and senior executive roles as well as significant legal expertise and board experience >> okay. >> audit committee chair there he is. mark blinn and also they're going to move or at least put a -- >> that's a good call. >> to one year terms, no longer a staggered board and they're going to put in some different metrics in their compensation metrics. >> willing to do -- he's pro shareholder. that's driven. starbucks. >> what about starbucks? >> going straight down >> i know. interview -- >> i know, but -- i know i know, but -- >> kumbaya and the stock went straight down. >> i have -- i have respect for certain ceos. >> i know. >> down 18 straight. >> $100 stock in july. >> all it has done they missed,
lowered growth rate a little bit, took it back up, i think just like -- remember, adobe lowered the growth rate, and now brought it right back up maybe this is the time that -- maybe to raise, maybe they got anything, pumpkin spice, loyalty, give us something give us something. tell me something good tell me something sweet. >> i'll giveyou something good >> ring central? >> i'll talk about xerox here is a name you haven't heard from me for a while. stock is up a little less than 6% looked to be up more than that remember a couple of years ago, the big fight that broke out over xerox, when the company, remember it had the long-term joint venture with fuji, where fuji film owned 75%, xerox owned 25% and xerox wanted -- fuji was going to say we're going to roll 75% in, we're going to own.1% of xerox for that and carl icahn came along and darwin deesen, large
shareholder, and said, no, no way. what are you doing don't do that. and they won it was a nasty activist battle they won control of the board. they got rid of the ceo. and here we are, take a look at the performance of the stock over the last year we haven't talked about xerox, it has been strong >> we got to look a little further. >> you can look at the lows, december, january period there, and you can see where the stock is now why am i mentioning it today big news from them and their ceo. john byzantine they are dissolving the fuji film long-term partnership that has been in place since 1962 to sell everything over in that part of the world. and for selling their 25% stake, they're getting $2.2 billion add another 100 million from another jv that they're also selling out on they have $2.3 billion in proceeds coming to them, 2.2
billion, i spoke to mr. byzantine this morning by the way, up over 20 times the actual cash flow that was coming out from the jv to xerox you're talking about 120 multiple or more to cash flow for that and now they got a lot of money. what are they going to do with it some may be returned to shareholders mr. byzantine telling me as well they're going to look to be aggressive when it comes to adjacent and within industry merger and acquisition perhaps to buy importantly, though as well here, you got rid of this crown jewel lockup you may remember from the reporting i did back when this fight was taking place, that was a key here it was not just you do this deal, even if you get out of it, you can never sell to another company. the crown jewel lockup will allow fuji to control the property, the manufacturing rights in the market if you try and sell, we can stop it and we have the right of first refusal, we can come and do anything. it is gone now gone and so xerox, jim, does become
at least a company that potentially could find itselfi the midst of consolidation, perhaps as a buyer, perhaps as a seller i did ask mr. byzantine that, he said, listen, we have no plans to sell ourselves, no process going on of any time and he went on to say, we're on the attack they have taken a lot of cost at the company. they have project own it saving some $640 million this year they're targeting 250 million in cost out next year and then they're also talking about the future of r&d, artificial intelligence, 3-d, not next year but starting to see some return from that in - >> net healthcare is interesting. still printers, still scanners but much more of a high tech company. great reporting on this. a lot of people watched this stock go up and just say, well, what is that didn't that go away a long time? >> no, xerox is back $8 billion market value over
that, up again today, very good year and it is a case where the willingness of the activists to hang in there for a long time is being rewarded remember, this was not going to be the price the direct shareholders got if they cashed out in that old deal that was resisting. it would have been below this. well below this. >> that is a situation where if you stuck with it, just made a lot of money. >> yeah. >> a lot of people wrote it off. i remember they did the split, i wrote it off i said, all right, i don't know. is there any real value there? thought it might be like one of these companies that just has been bad in general. digital equipment. that was -- >> so it will be interesting we'll keep an eye on shares of xerox and the company itself, it is now free from fuji and always and has an additional $2.3 billion in capital let's head over to the bond pits and check in with rick santelli. >> good morning, david there is so many traders and
investors, armchair technicians, that really don't like interest rates going up but i think the last several sessions rally do drive home the point and some of the best rallies in stocks are accompanied by rises in yield as price goes down. look at three-day of 10s we have been moving up rather aggressively if you open a chart up to july 1st, here we come, once again, trying to test that all important close at 190 you see on the chart there look at the three-day of bunds are they leading the way many think so. china issued about a little over 4 billion in securities in euro paper. that might attribute to some of the selling pressure in bunds today, but no matter how you slice it, that three-day chart is aggressive. open the chart up to july 1st, these are the highest bund yields, the least negative bund yields since about the third week in july and finally, if we look at what is going on with the dollar versus the chinese yuan, very fascinating there, the weakest
on the dollar side, well, since july and if we continue to take this home, 10s to 2s from basically minus 5 to 22 in quick order. so the steepening of the yield curve, we can argue is to why, at the end of the day, the equity markets and treasuries moving up together, really does underpin confidence in the u.s. economy. carl, jim, david, back to you. >> all right, rick, well said. let's get to bob pisani, see what's moving back here on the floor. >> some trade optimism helping, we're in the middle of a powerful cyclical rally. that's the thing motivating the markets. what do i mean banks new highs, a lot of them energy, what is going on there three days in a row, energy rally. transports rallying as well. utilities, consumer staples, they're lagging today and on the month. this is a cyclical rally i complained yesterday, only 10% of the s&p was at new hays with the s&p at new highs there is a lot of stocks, a lot
of sectors just below new highs, we get another couple percentage point moves, we're going to get breakouts. some of the big pharma companies, glaxo, astrazeneca, bristol-myers, merck, close enough for me to pay attention a lot of retailers out there big ones moved this year, the discounters, walmart, ross, costco, tjx, 2% or 3% from new highs, close to breakouts. the other big breakout in the retail group, home improvements sectors, just below new highs, stanley already there, home depot, masco, sherwin williams you get 150, 200 stocks in the s&p at new highs we also see semiconductors, that's a market leader this year a lot of the big names there, taiwan, micron, lam research, all below new highs. want to see technicians squawking a little bit, watch the transports on the verge of a breakout just shy of a new high here. maybe 1% from a breakout in the transports
you get the dow theorists talking about the confirmation with the transports and the industrials. russell 2000 off 1% from a new high everybody last night after the close, messaging me, what's going on with energy stocks? since the close of october, we had a notable rally. big moves up double digits in exploration of production companies and service names like schlumberger and halliburton. this is 2 1/2 days of trading. what is going on here? a lot of speculation, a lot of interesting theories about what is floating around first off, don't forget, the rally is broadening out. this is the most beaten up sector it maybes sense they should move up a little bit. we had a modest oil rally. that's not nothing we also have seen a cessation likely of tax law selling. this was the most beaten up group. some of the firms, their season ends in the end of october, there would be a lot of tax law selling going up into that that stopped october 31.
that may be taking a little bit of steam away from the sellers may get a short squeeze as well. all of this makes some sense for explaining the rally may be some political issues around, elizabeth warren to the extent that her polls go up and down she's been anti-fracking that may be a factor here. some other companies have announced capital expenditure cuts as well the point is, pay attention to all of this, because when you see a sector like energy stocks start to rally, that's a real sign that the rally is broadening out carl, back to you. >> thank you very much by the way, market services pmi, 50.6 is the lowest since 2016. still not in contraction. >> isn't that exactly what -- that's a great metaphor for the economy. not as bad as we thought, but it is slower than last year and i think a lot of people trying to say, listen, there could be more rate cuts just because they should never have been that many rate increases. that makes me feel -- >> ism at the top. as you saw, later today, pair of wall street heavy hitters.
time for cramer and stop trading. >> bless you. >> thank you. >> marriott reports a number that a lot of people feels is not so great and the stock is down 1.50 before the market opens and now it's starting to come on. this is the key battle ground stock with adobe if this company misses and yet still doesn't go down, that's a very good sign for certain kinds of senior growth stocks. watch that could be the tell of the market today. >> what's tonight? >> i have fireeye, a disappointing stock for a security company and tolio a disappointing ecosystem platform twilio had an accounting issue
and i'm glad they're coming on a lot of people furious. >> more a calculation error in their guidance >> yes it's an error and we have to find out why by the way, can i say i think under armour, i do not think it's -- i think it's more innocent and feel better after doing my work on it. you can sell the stock because the quarter went that good or the forecast, but i'm minimizing now. i hate to do this, minimizing accounting issues. i think the press is blowing it out -- >> interesting goldman takes it out of conviction buy but keeps the buy. >> you don't like the stock because of the business but not because of the accounting issue. >> see you tonight as we've said repeatedly this morning we have exclusives with jamie dimon and ray dalio coming up dow is up 54 ♪
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good tuesday welcome back to "squawk on the street." i'm carl quintanilla with david faber at post nine of the new york stock exchange. a look at the markets, dow up almost 50. big hour coming up, jameie dimon and hedge fund ray dalio to rick santelli rick >> we are expecting ism nonmanufacturing and here it is. 54.7 definitely better than anticipated. 54.7 of course this is an october read and it now turns out to be the best since august, which was 56.4 but here's the important thing, 52.6 last month, september's with was the lowest since august of 2016. to have this additional lift is psychologically beneficial and also keep in mind, the last time we were understand 50 in the service ism was december of 2009, just to put some
perspective on it. should be out momentarily, not out yet, expecting what is it 17th or 18th number over 7 million once it went over 7 million it's never looked back we'll come up with that in a bit. back to you. >> all right rick, we got a pop in equities dow up 83. 10-year up to almost 1.86 here we'll watch reaction to that important number in the meantime out to the greenwich economic forum where leslie picker is sitting down with a special guest hey, leslie. >> hey, carl that's right i'm here with ray dalio, the founder and chairman and co-cio of bridgewater associates. you have an upcoming linkedin post you were talking about this on stage here at the greenwich economic forum where you say that the world has gone mad and the system, meaning capitalism, is broken. you point to things like the wealth gap and printing of money and monetary policy, unfunded liabilities. what are we going to do about
it >> well, let's first touch on what it is, okay we've -- the necessity of trying to be stimulative when there are not other monetary policies, you can't lower interest rates anymore. there's been a lot of printing of money and as a result of that printing of money investors are very flush with money and as a result, they're taking very low returns and they also are buying dreams rather than earrings and stocks we've pushed that to an extreme in techls of those returns and then at the same time, it is clogged with investors investors have an abundance of money and then we also don't have much in the way of the trickling down we do know that we have populism of the left and populism of the right and we're going to come into a period of time where that's going to be the more challenging and it will have big effects on the markets because
it will have a big effect on tax policy, but it will also have a big effect on how we are together if i take those things, the large populism of the extreemme and the battle between those two, and then i take the absence of effective upon tarof monetary that's the nature of that market i believe that we would need to have smart togetherness, to engineer a process by which the system works better to produce more equal opportunity and also can raise the size of the pie because there are a lot of good investments, investments in education. if we're under funding ed kags or doing a number of things that could produce high return on investment we'll be better off and so that's my basic perspective. then also, i'm pointing out that
the pushing to negative rates we're running out and that's going to lead to fiscal and monetary coordination necessity. that is very dangerous we're going to have large budget deficits, large debt, we're going to need to fund those liabilities that we have, we have pension liabilities and health care liabilities. that means there's going to be a lot of printing of money and what that looks like is important. that's why i'm saying the system is not working efficiently monetary and fiscal policy and the means by which there is an equal opportunity not working efficiently at a time when we have the circumstances we have. >> whose responsibility then is it to fix it you point out a scary situation. is it corporate america's responsibility, is it the government, is it individuals in this country through philanthropy who is going to solve this >> i think it can't be done in a
fragmented way i would say the leadership whether it's the president or state lipps aeadership and so os to take a come together approach of different types of people i'm not saying it's likely, i'm saying it's necessary, because we're going to a war-like environment. so the smart people who are in contact with various on-the-ground needs to realize that they have to engineer together to make sure that our economy works well, education, for example, if you look at the education statistics, we've to improve education, it's a hell of an investment, so i think that's the nature of the beast, that it has to be top down directed, it's got to be coordinated, it's got to be nonpartisan or bipartisan, and i don't think that's likely. i think what's most likely is that we -- as we move ahead
there will be more printing of money that's necessary to fund those deficits there will be bad returns because they will be driven down and that the dreams of selling companies that no longer -- they're selling dreams, not selling earnings and not even selling a path to earnings, that those things will have to be normalized, will have to be rectified. time will produce a paradigm shift. there will be a paradigm shift where those things that supported the economy and the markets in the past will increasingly be in jeopardy. >> now, in the last, you know, few years, we've seen, you know, obviously on the fiscal side, tax cuts we've seen on the monetary policy side we're now in a lower interest rate regime would you recommend reversing some of those things to accomplish your goals? do rates need to go higher from here >> no. i think that -- no, i think the system is pretty much stuck.
you can't raise rates because, as a result of the stimulation, companies and various entities have a lot more debt it's stimulated. the borrowing and the purchases of companies back with borrowed money and all of those things, have produced a stimulus you know you can't -- if you do reverse it, it will have the effect of causing prices to go down let's say if we reverse the tax cuts, okay, and we're looking at different proposal, the proposal to reverse the tax cut and change elizabeth warren's, for example, with would result probably in about a 15% change in earnings. that would be a 15% change in tax value of stocks and earnings each one of those things, if you reverse them, you're going to reverse some of the things that
has happened and it has enough consequences i think you have to engineer things carefully i think there's lots of good investments that could be made in some things -- we're going to need to raise taxes but the question is how it's well engineered and whether we're doing that in a bipartisan and in a nonpartisan basis there are no simple answers because when we run out of monetary policy, we've run out of the stimulant that we usually can go to, to deal with that situation, at the same time as there's this polarity. >> i think we have a question back in the studio at the nyse never mind we -- so your pure alpha fund lost more than 2% this year, which is largely been atributed at least in reports to bridgewater's bet on government bonds. i know you said that interest rates, low interest rates are bad, but at this point as an investor, can you fight them how do you --
>> no. i'm not trying to fight them by the way, it's been misattributed to what it is. we're down about 2%. we made money in 18 of the last 18 years the all weather fund is up about 14% or something just to be clear we don't ever claim to make money every year in any case, if you want my thoughts on markets i would be happy to give you thoughts on markets. i'm not going to talk about positions. >> let's get your thoughts on the markets because yesterday, once again, the stock market hit a record high, up again today, could likely close again and another record high. do you think this is an overbought territory or do you think this is kind of a breakout territory for the equity markets? >> there is the amount -- i don't think it's a breakout. i don't think it's particularly over bought either because what you have is the weight of money. there's a certain amount of money out there, a lot of money,
central banks bought 15 trillion of assets and so on, so we have a lot of money and the question is where that money goes if you look at the short-term interest rate and you compare what is the bond yield with that, or you compare that with what are expected equity returns are, based on risk premiums, the whole returns of asset classes have gone down to very is very extremely low levels, all asset classes have gone down to those levels that discounting has happened, and that lower tax cuts has largely happened so that's the nature of the dynamic. as long as that remains the dynamic, a lot of the good things are behind us and there's no reason to disrupt the bad things right now at some point, though, as we're going forward, there's going to be bigger deficits and you're going to have to fund it we're dealing with almost a currency issue, longer term, in terms of what is the value of
currency when those liabilities, not only the debt liabilities, but the pension liabilities or the health care liabilities, with which are like debt, promises that have to be paid, they will either be paid by higher taxes or they'll be not paid and defaulted on. i don't think they will be defaulted on i think by and large they will be paid but if they raise taxes too much, then it changes the nature of that economics so, for example, profit margins have gone from about 7% of revenue, to about 14% of revenue. that increase in profit margins. i don't think we're going to see that same type of increase in profit margin because it has to do with compensation as a percentage of revenues declining. so the mere mechanics means that there's not a lot of new things that are going to push it higher in the way it was pushed higher and there's not a lot of negative things in that way, so the big negative will be a gr
gradual monetization of debt when we have a lot of debt and that will have an implication for currencies and capital flows. as long as there's a lot of money trying to find something and it all competes with it, then we're going to deal with low returns going forward. it doesn't mean price falls. >> what does that mean for excesses out there if you have all of that liquidity. >> it means, of course, enormous amount -- it's not efficient resource allocation in the same way. right. because it's financial engineering again. like if you could borrow at negative interest rates okay and you don't even -- it's not even the borrowing at the negative rates. a lot of deals mean you don't have to pay back the principle the the idea basically is for the most part, you can roll over your principle and so that means you're given money okay and that means investors, why are they giving money away
they're giving money away because they have too much money. because they -- the other asset classes are priced off of the other and they don't have a commitment for any particular level, you're selling dreams ta is not economic allocation of resources, but it's not the same thing as a bubble that's going to burst like 2007 and 2008 when those debt came due and there was no rollovers of that debt. that produced the financial crisis we were able to anticipate in 2007, 2008 is th that is not what we have today we have a big squeeze happening. >> what does that mean, a big squeeze? >> a big squeeze means that gradually, more obligations come due. if we take the amount of debt, combine it with the amount of pension obligations and combine it with the amount of health care obligations which are -- need to be met or defaulted on, that we have a lot coming at us.
we have large deficits and therefore it's -- and we don't have an effective transition of monetary policy. when all those purchases of financial assets don't trickle down in the same way because we don't have as credit worthy borrowers on the lower spectrum, lower income levels, let's say the bottom 60%, if i take the bottom 60%, the majority of the population, and i look at their credit worthiness and their incomes and their circumstances, they're difficult to helped to in terms of that bad credit worthiness and you don't buy the bonds. that system in itself creates an inefficiency you put a lot more money into the financial system, it stays in the financial system, it does not have the traction that is normal to get the other spenders a lot of the -- the key is at the top they don't spend
if you have a high income person or a wealthy person and you give them more money or if you give a pension fund or if you put more in the financial system, it will say in the financial system and when it doesn't go down and have that same sort of traction in the economy, it creates a sluggish economy that's a worldwide phenomenon that it's not just in the u.s. so if we're taking other countries, i can go around the world and take europe, it's the same situation, china in a greater extent is a great situation, they're all facing something similar. because they're all connected, so that what we do with china and trade or what we do with europe in trade or even their importation, because their economy goes at a slower rate, they're going to import less and capital flows, they're all connected. because it's weaker there, it's weaker here. so you have this sluggishness if you rev it up and stimulate it you spin the wheels and put more
in the financial systems that's the mechanisms that are affecting the nature of the markets and the economy. >> a big piece of that, of course, is income inequality, a topic that you have been writing about for some time now. i want to play for you a sound bite from lee cooperman on cnbc talking about income inequality and how it's created this vilification of billionaires out there, especially by that of senator elizabeth warren the focus turned to you and income inequality which you previously called a national emergency. take a listen. >> winston churchill said it well y you don't make poor people rich by making rich people poor. okay he also said, to paraphrase, you know, the main vice of capitalism is the uneven distribution of prosperity the main vice of socialism is the equal distribution of misery i respect ray dalio. he's a man, like myself, took the giving pledge, i believe he's done very good things with his money.
i don't think he's recommending socialism. >> are you >> i'm not recommending socialism. >> we could have made some news with that. >> i'm not recommending -- i am recommending the reengineering -- we have a problem. the problems has to do with really equal opportunity and because you have to create productivity to raise wealth you can't just disrupt that. you have to create productivity. we can create a lot of productivity to raise wealth and divide the pie well. you have to increases the size of the pie and divide it well. i'm just an engineer, right. i understand how markets and economics work i also realize that the system is not producing equal opportunity. i really want to emphasize equal opportunity. there is the american dream. the american dream which i was fortunate enough to live, you
know, is can you have something approaching the good guidance of ideally on values, development of character, and then together with that, education, and then you come out to a market in which there's equal opportunity. that's america's greatest strength i agree with lee cooperman in terms of the notion that when you can make your dreams come true and you -- the other thing you have to understand is that most billionaires have not worked to become billionaireses. what they did is produced things that people wanted i didn't try to make -- i fell in love with the game of the markets and made the money i made steve jobs loved the game. most people are doing it because they love the game and then they produce things that other people want that makes for a better society. i think the key question is, like almost ask the audience,
are billionaires exploiters of the system to the detriment of the system or are they contributors to the system to betterment of that in any case, when we fight each other, when it's terrible to demonize the other side, if we instead say, how do we work together and understand and empathize so that we can deal with this together, that's going to be the key. >> all right we're going to leave it there. ray dalio of bridgewater associates, thank you so much for joining ug us. >> thank you for having me. >> back over to you, david. >> thank you, leslie very interesting to hear mr. dalio ranging far and wide much of it not particularly positive speaking of not that positive, stocks are pairing their gains the dow and nasdaq off highs after hitting new records. the dow the only average in the green. joining us here at post nine, goldman sachs' chief u.s. equity stris david kostin i know you didn't have a chance to listen to dalio let's just sort of get your
latest thoughts on where things stand, given the new highs, given we're towards the end of earnings season. how would you characterize things >> characterize the fact that u.s. equity market is basically tracking towards our year end target of 3,100 and baseline forecast when you think about the environment, on hold, already cut interest rates three times, that's consistent in our view with a economy that continues to grow modestly and earnings growing next year in 2020, 3,400 is a target at the end of next year, roughly 10% above where we are now. that's basically reasonably an optimistic environment we're looking at right now the big risk is what's the election. >> that's where i was going to go because next year does include a presidential election, about a year almost exactly from now. >> exactly a year from today you have leap year for next year extra day. >> thank you for that. you're always with the extra little bit of information, david. you know, you like a lot of
other strategists are starting to put pen to paper in terms of what we should really expect, what we may see in terms of movements and various sectors as a result of the comments from the various candidates you say there is rhetoric versus probability. what do you mean >> the way i think about it is, there's lots of noise going on, as there is in every presidential campaign season, let's break that down into a framework of thinking about the overall dynamic for next year. earnings sensitivity and valuation. if you think about what earnings happens one of the proposals, some of the discussion points have been to roll back a part of or all of the trump tax cut that took place and so that would represent now around 8 percentage points of earnings. you had tax reforms, effective tax rates, before the tax reform act was around 26% today they're around 19%, 18, 19%. that gap if you were to reverse
that, that's worth some dollars and if you think about it we sit here today, you look at the end of 2020, the market is going to be pricing 2021 earnings our forecast is around $185 of earnings if you were to reverse that, that's worth basically now around $164 of earnings. that's a big ask every one percentage point reduction or increase in the tax rate is worth around 1% of earnings growth. think about earnings and you can come up with assumptions the valuation side what is the valuation suggest and the drivers? economic uncertainty, you have consumer confidence. some of the other drivers of that in our models suggest if fund certainty was to rise for various reasons, uncertainty about policy, what have you, that's worth 1 to 2 pe points in the market put numbers on that. the market today trades at 18 times forward earnings and 18 times forward earnings take that one to two point, 16 or 17
times. that's the way i would think about the probabilities for next year >> is the ideal outcome for the -- either one house of congress to be opposite party than the white houses? >> you know history suggests if you have a divided government in some cases that's gridlock you can argue whether that's good or bad from a social point of view. from a market point of view not a lot of things happen and that would be, you know, modestly consistent with our forecast look at the markets, our pricing, they're assigning a high likelihood in terms of the digital markets, like 75%, that democrats retain control of the house. more than 50% in the forward market of the presidency moving to the democrat side and the, you know, most likely outcome the senate stays republican. to your point about a divided government that's consistent with our view of the economy basically continuing to move higher and earnings growing part of the baseline assumption of 3,400 >> where is the market in
absorbing where we are with trade and china? >> well, we look at our trade index and suggest more likely than not you'll have some kind of a transaction that seems to be the broad commentary out of washington and the market is basically pricing that in and some of the stocks that are exporting to asia and china have actually rebounded a little bit, reflecting that. >> what are you seeing within the market itself in terms of particularly growth versus value if i can call it that? we've seen a number of growth companies that continue to lose money, but obviously a higher profile, uber for example, peloton reporting a strong quarter, down sharply, is there anything you can identify as a trend here >> well, last time i was on we had a conversation about the ipo market and some of the drivers of that and we identified having studied 4,500 ipos, every ipo done in the united states in the last 25 years. it basically leads to a
conclusion statistically meaningful, two variables you freed need to have for an outperformance of an issue would be your revenue growth, something north of 40% revenue growth and your path to profitability, positive net income in year two and three, that is meaningful in terms of driving out performance. that would be a way of thinking about the new ipo market and broadly speaking to your question about growth versus value in an economic environment, where you see as we anticipate a roughly 2%, you know, modest growth, still positive, that's consistent more with growth stocks out performing value in this environment. when value does well, is when growth is very, very strong or when it's weaker contraction in this environment we prefer as a strategist to be opening more growth oriented stocks and some of the technology area companies. think of some of the industrial companies. ism recently had a modest tick higher and if that's a second derivative inflection point that could be consistent with those stocks doing well.
>> where can oil end up in six months or how high can the 10-year yield go >> goldman sachs in those areas basically rates modestly higher from these levels, basically looking around 175 at the end of this year, 2% for 2020 and if you think about oil, modestly higher that's not significant. >> jyour job is to forecast the equity markets and some of the sectors within them year to year, closer than that i don't know if you had a chance to listen. you joined us sort of mid dalio conversation there, talking about large deficits, printing of money, bad potential returns, system being stuck, you can't reverse rates, low returns, he didn't say a lot that was positive do you ever step back from your day-to-day roll at goldman sachs and worry about some of the macro concerns that may be out there? >> absolutely. from a social point of view a lot of the items he mentioned are certainly pertinent.
think about it in an investment point of view, the u.s. consumer is 70% of the economy. what's happened to the consumer? the lowest unemployment nate 50 years. still have job creation. wages rising you have the consumer has delevered for the last decade, the strongest consumer balance sheets in ten years. all of that is more consistent with a consumer continuing to, you know, help drive the economy. now, the corporate side is of greater concern. lowest ceo confidence in a decade so that's come down dramatically and has implications for decisions on capital spending uses of cash that's an important titem but te business fixed investment is about 15% of the u.s. economy, and 70% the consumer to the extent that consumer is likely to continue to grow that's a positive. linkage between those two but i would say the mo more important issue we focus on near term would be on the consumer but having said that, ray
dalio's points are accurate. a lot of imbalances on a macro level. not so clear how they affect, you know -- they'll eventually be important but what is your investment horizon that's a meaningful issue. >> on europe some progress on brexit we think. some argue we've moved past the existential crisis on the banks there. when does it start stealing oxygen from u.s. equities? >> the issue with the european market is that it's a very, very small exposure to technology so if you think about what's driving earnings, what's driving the u.s. equity market and margins, that has been a singular attribute in the united states the u.s. tech is 15 plus depending on how you define it, 15 or 20% of the market. in europe it's 5%. it's tilted towards consumer banks and oils those are less -- i would say less growth in those areas on the other hand the uncertainty in the u.s. political environment does suggest a lot of portfolio
managers focusing on some of the opportunities sets in europe our forecast out there right now, better earnings in the united states, more stable profit margins lead to the out performance of the u.s >> thank you >> david kostin, goldman sachs. >> when we come back an interview you do not want to miss, another one, jpmorgan's jamie dimon and peloton shares down we have a first on cnbc with the co-founder and ceo john foley. big show still ahead don't go anywhere. ♪ ♪ ♪ ♪ ♪ ♪ ♪
great to be with you. >> great to be here. >> we're in london and i have to start with a question on the state of play here how much is your optimism on and commitment to the uk more widely weighing since brexit and the three years of political mayhem since. >> we love being here. this is a fabulous city a global melting pot, unbelievable talent and stuff like that. we're devoted to london. obviously the british people will decide what form brexit takes and, you know, the negotiations even after brexit i think would be very tough and complicated and we're devoted here over time brexit will cause a die m diminishing of the financial center, it will not be quite the powerhouse it was. >> switching focus to earnings and jpmorgan more broadly. your recent revenues rose 8% year over year most of your rivals were flat. in fact, that kind of continued a theme of the last few years of your out performance is it harder to make those market share gains moving forward? >> yeah. i've said the competition is
falling back remember revenues for one quarter depend on a lot of things over the last years, a little luck, literally the weather sometimes. i think you have major competitors everywhere thi i think it's a good thing. people competing and investment banking, globally, credit card, it's going to be harder to eek out gains and hope we can try to do that. >> one thing i think was consumer in the u.s. seems strong, perhaps cooperate optimism less so overall your theme on the kwaulz more bearish than you've been recently is that fair >> a little bit. the consumer 70% of the gdp is still quite strong the balance sheet, income, wages going up housing in short supply. credit is quite good the business side, business sentiment has dropped dramatically, confidence, cap x has dropped and a lot around the complex geopolitical issues and in particular trade. i think trade has made a lot of ceoss question when they should investment and slowed it down an probably slowed down the economy
a little bit it doesn't mean we're going into a recession. it may mean a slow down. >> china has been in the news, of course, recently with its trade and other actions. to what extent are some of their actions whether that is limiting democracy in hong kong or other things bad enough that u.s.'s companies should be criticized for making profits in china? >> well, i don't think it should be criticized for making profits. i think there were legitimate issues for the better part of 10 or 20 years, american companies, the american government, didn't pay that much attention to all the things taking place in china. this administration came out and said these are issues that have to be resolved the business community supports that there's nothing wrong with doing business in china. these are trade disputes we hope get resolved in ways good for everybody. i think there's legitimate criticism you should have done it sooner that's probably true. >> as it goes with hong kong there's been a lot of debate around the nba business there. if your employees spoke out based in hong kong spoke out in either favor or against protests
there, would that be something you wouldn't mind them doing >> >> it's not up to me. the citizens of hong kong can do what citizens do we don't want them to do it on behalf of jpmorgan but this issue is serious. number one, we want a peaceful resolution there we think collaboration, resolution, peace is a very good thing. but it does point out some very differences between the chinese system, which is state capitalism and censorship and the american system. those don't have to end up in a cold war but they cause a tremendous amount of complexity for, in particular, american business and trade policy and other related policies >> in terms of the fed, you said 70% of the economy is strong, unemployment is very low, equity markets are at record high do you agree with the three rate cuts that the fed has done this year >> i think so. i think the fed, very smart people, trying to act wisely, they also can't completely predict the future the american economy is growing at 2% or thereabouts and dropped
rate a little bit, kind of an insurance for extending the recession, inflation is rather low, 1.3 or 1.5% i'll leave the judgments to them but i think they are pretty wise people and probably pause a little bit, may not be a bad idea either. >> when we consider some of the factors in the interest rate markets of late, a spike in the repo rate, after the september rate cut, the following rate the effective fund rates increased initially before they then fell. has the fed lost some of its power, some of its control >> no. the fed is a very powerful institution. they have a lot of tools at their disposal, including their voice, their capability, their ability to act strong and tough in multiple ways financing markets, rates, et cetera i think the technical thing about rates going up, they missed there are issues there they're technical. what happened to reserve balance sheets and bank's ability to
finance repo and stuff like that i think there should be permanent fixes not just temporary fixes. let them work on all of it and they will finish their deliberations. i think it's important for the american public, this is not about what's good for bank not about regulations. this is good about proper function of markets. whether they change it or not for jpmorgan we're fine either way. i think you're going to see issues like this happen increasingly if we're not careful because of certain constraints put in place. >> i want to move on and talk about wework we were discussing it a little bit before the interview started. firstly, it had a $47 billion valuation there or thereabouts, whatever the precise number was and has around an $8 billion valuation. how many more companies are out there like that in the private snashgts there is a bubble in that part of the market? >> first of all i don't agree it had a $47 billion valuation because i would never say because someone paid the last price it's worth that price. >> it's significant. >> that's not price discovery. price discovery is when a lot of smart people around the world knowing all the facts can kind of buy and sell all the time
i think it would be cautious they're all different. you know, some of these companies have unbelievable technology some are venture, may work or not work some are, you know, trying to grow so fast that they cause themselves they're all different. i think there are lessons to be learned about the valuations and now you go public and how you treat the public shareholder those lessons should be learned by everybody who wants to go public. >> do you feel sorry for adam neumann in all of this >> i'm not going to go there i don't know >> but he was advised by some, including your bank, that a higher valuation than has currently been achieved was possible so is there some level to which he was misled by some advisors like jpmorgan and goldman sachs and others >> you don't know the private advice we gave him or the company and when it became a problem, jpmorgan did what it always did, i got a letter from someone saying when we were being criticized saying you did what jpmorgan does when a client has a problem. at the end of the day we did, we
offered them a bought fully financed kind of deal that can get them to the next stage of life and they all have a future life we want them to. we don't want them to lay off 14,000 people. so a lot of lesson to be learned by everybody involved and so i've learned a few snimyself >> what have you learned in particular. >> i think companies going public should have proper corporate governance before they file an s1 your independent board before an s1 take a lot of time to go through how you disclose the stuff to the public and be responsive to the shareholders they should be treated like partners an investment bank can guide on price but the price discovery is where you get hundredses of people in a room like this, smart people different way of analyzing things, going through the companies, prospect, future, discounted cash flows, growth prospects and that is price discovery. a bank should help guide that but because someone says we're
different than that does not make that law. >> do you pledge here and now that you won't put your company's name on another s1 with that level of corporate governance questions >> i would never make a pledge to you or anybody else like that i don't make mention i do the best i can every time i can. >> but you said it should have had better corporate governance, all male board directors, you talk about that not being the case at jpmorgan the founder owned buildings where the company was a tenant the founder had multiple person loans against its own -- >> a lot of those things were prior. some of those things were changed going forward. if i remember correctly the company promised to put a female -- they had a female board member >> the s1 -- >> you don't knows the conversation that took place on the first s1 -- >> you said they should happen before the s1. >> one of the lessons -- >> going forward is that something you don't want to put jpmorgan's name on the s1. >> i would never tell you something like that. i will decide on every specific
case and the specific case if we don't want to do it as a client we can not do business with them, give them advice they take and still do business i'm not going through the details waf we did in this particular one i think we helped wework get to a proper conclusion which is very important i would have -- i really would have been bothered and upset mostly by if that company had been a failure and a chance to succeed and now it has a chance to succeed moving to markets broadly jamie, lots of headwinds out there, very low volatility, a bit of complacency, do you think? >> i don't know. markets, guessing the market is hard to do i think there are a lot of valuable companies, rates are very low it looks like the stock markets are forecasting a pretty -- outcome and the bond market it's hard to say because a lot of bonds being bought by central banks. it's hard to tell what that means when rates are this low in an environment not so bad? >> in terms of your forecasts
for the year ahead, a lot of analysts have eps growth, but part of that is because they expect buybacks to continue. are we at the point in the cycle with the rate where it is it's plausible that 2020 net income could be lower than 2019 net income. >> of course that's always plausible. i don't know what 2020 will be if you have a recession yeah we're affected by interest rates, credit, things around the world. you know, believe it or not for your viewing public i don't worry about that as much as opposed to the business. hiring great people, build great product, admit your mistakes, fix them, move on and, you know, that will be what it is. i can't affect -- i actually can't affect 2020 very much even today if i could only by doing some pretty stupid stuff. >> should people expect the pace of buybacks to slow up a little bit with your shareholder price at a record valuation since the crisis compared to your rival's? is the pace of buybacks going to slow down now? >> i can't answer that question.
we always going forward look at that i'm not going to tell you what we're going to look at and not look at. it's not a fair disclosure i understand the point even more important i would rather use our capital to grow our business and the constraints on that are multitude. if i had my druthers i wouldn't do buybacks at all i would be building my business. if i had my complete druthers i would have a dividend. >> tech and banking. there's been a couple of hiprofl partnerships of late facebook most high-profile apple and goldman sachs. does a partnership like that make sense for jpmorgan. >> we have many partnerships obviously we have a partnership with visa and master card, branded cards in southwest, united airlines. fairly great partners over years. we -- >> a company like facebook, a pure tech company. >> i would explore or entertain anything and the facts will
tell so, you know, you can have a relation which goes from labeling, bank as a service, all the way to you're their bank or something like that and there might be something in that continuum we might consider. i can't tell you right now because i don't know what that might be. >> do you think in ten year's time a company like facebook as big a competitor as jpmorgan as wells fargo are today? >> it could be not in the form they're in it would be hard to be a bank holding company. they would have to find a way to do part of banking people do that banking as a marketplace or service. they might find ways to incorporate banking in a way that competes with us and so again, i applaud capitalism, i applaud competition and i do expect, complacent, we have great current competitors and great competitors we don't know about yet. we better keep our eye on all of them. >> you mentioned recently that lib bra was a neat idea that won't happen, your words mark zuckerberg said in a hearing in congress, quote, if
america doesn't innovate our financial leadership is not guaranteed are the banks, are jpmorgan, not capable of innovating themselves >> no. we do a tremendous amount. i agree with him that, you know, we -- that the american banks are preeminent around the world and need to compete with the chinese. i told you their concept libra was a neat concept payment systems if you have a problem you want to fix like cross border transmission, i agree with him i don't think that in this day and age it will be then. that's not meant as an insult. we already have a jpmorgan coin, a tokenized coin where we can move money and stuff like that we haven't opened it up to a lot of people. we haven't made a consumer yet banks build a real time p to p system wholesale payment system rtp through the clearing house organization we have to innovate to win i think there are fin tech type of solutions for specific problems that libra was intend
go after that someone is going to do by the way. >> on the health care partnership with berkshire and amazon, it's going to start rolling out to your employees in arizona and ohio imminently. is that something that's just going to work for your employees and for jpmorgan or is it something that if it works well, could be rolled out to help all of america >> yeah. our job is to make -- have better outcomes for employees. better outcomes should be live longer, get better medicine, lower cost, higher satisfaction. so we decided to do is have some very smart people, you know, intensely involved in data analytics, testing certain things, modifying certain things, so the program you're mentioning there are two, making sure people with primary care, what's the long-term effect on chronic health, outcomes, et cetera with transparency, another one is high deductible plans have been hard for people so we're testing -- not testing, we're doing a low deductible plan that people that our
employees might prefer and might buy more preventative medicine that way and we will find out. whatever we learn we intend to share with the world this is not -- it was never meant to be a for profit type of thing even though it's a corporation. amazon is doing its own thing and berkshire, but hopefully we'll learn something here and share it we all should acknowledge there's a lot of things that could be improved in our health care system. we have the best in the world, doctors, pharma, surgeons, hospitals, you name it, be also have some of the worst 40 million uninsured, very high cost structures. too much fraud, administrative costs. too lack of transparency, too lack of preventative medicine. we don't teach for the most part health and wellness in k to 12 how to eat properly and get exercise to me there are a lot of things to do to make america a far healthier society and fix our health care. keep the best and fix the part not working well. >> i wanted to ask you what you made of the fact that one of your former lieutenants is now for the first time a direct
rival of yours, charlie sharp, of course at wells fargo what do you make of that >> just got off the phone with charlie. look, i have enormous respect for charlie and wish him the best and i think he will do a great job. i'm proud of our people. we have two great copresidents we've got other potential successors we've had people left who are doing quite well i'm proud of that. >> i mean, to that extent i was going to say are you proud of the fact that you created somewhat of a ceo factory, you mentioned some of the others outside, the talent coming up. how do you manage that >> yeah. it's d listen, first of all it doesn't mean everyone at jpmorgan is good we have our things we haven't always done that well either someone told me a long time ago that if you become a really good company, that's really good news but one of the negatives that people think you're a good company, they recruit your people that's the cost of doing business but the talent we have is extraordinary. i mean literally extraordinary
you've met a lot of them and i'm very proud of them and i get to travel the world with them and i'm kind of shocked at their capability the and what they can do. >> you shuffled the pack and switched roles between jen and mary ann, to the extent that marketplace now suggests in the three to five-year timeline you've given yourself they're the two frontrunners >> is that fair? >> it's possible women will end up running this company at some time in the future. >> okay. fair enough. >> but remember this is a board level decision not like i'm going to decide also the board wants to see people move around a little bit, in different jobs, get different experiences. so when you take a bigger job or my job you have a fairly broad experience >> jamie, we are going to hit the pause button for a moment. >> okay. >> before continuing to record a portion for closing bell on things like the business round table statement and elizabeth warren's response to that. but for the live portion, thanks
as always, jamie, guys "squawk on the street," i'll send it back to you. >> carl, good seeing you too. >> good to see you, jamie. great stuff, wilf. david is here too, by the way. >> thanks. >> he says hello. >> thanks, jamie >> in the meantime shares of fa from a year ago. the fitness bicycle revenue beat estimates and connected fitness subscribers doubled. joining us, peloton co-founder and ceo john foley c congrats. >> subs 2 x, revenue 2 x what's going on? >> stock going backwards is a head scratcher i am following jamie dimon last places you want to be on television one of the most impressive it is a head scratcher triple digit top line growth, single digits ebitda losses.
people want profitability. for us, it is a managed outcome. we can pull back on growth and be profitable tomorrow core u.s. bike business is profitable investments we are making in international, digital, new products and content, they're all smart investments, we're excited about them even in the face of investments we have narrowing losses we're proud of the team, think we've done a fantastic job, the board is excited about investments we're making, we're thinking long term obviously what happened today or tomorrow isn't something we're focused on. >> i want to ask about m and a and international, but the environment you describe that flipped where patience for nonprofitability has lessened, has it changed any way you approach the business tactically >> not too a large extent. we are focused on growth and profitability. it is not either or, because the business model is gorgeous we were considering doing what's
the nfl, the super bowl ad going to do a super bowl ad, decided not to in this climate thought it wouldn't be accepted well. on the margin there are things that optically probably wouldn't be accepted. we bought a manufacturer that we're excited about, that will be strategic, pay dividends as we scale the supply chain, try to get cost advantage over future competitors we don't have yet. we didn't announce that three weeks ago, we thought in this climate you don't know, especially in a quiet period and can't react. we're trying to be thoughtful, understanding, not tone deaf on how the world has changed, carl, to your point. but we're thinking long term, investing the next five to ten years, making smart investments, we love our plan >> jon torks the befud he willment on performance of the stock, many would agree, something you said on the call that gave people pause >> i don't know, great question,
david. i was watching, we were up six or seven percent premarket. >> i know you were >> that's a head scratcher, really is. the analysts have buy ratings, had buy ratings before earnings released this morning. you have to think they're stronger conviction on performance, where we're going there's information, asymmetry with the bike side having more access to us the insiders are excited, the leadership is excited, board is excited, sell side is excited. >> somebody is not particularly excited, using the opportunity to sell. you mention the hardware part of the business, the software part in terms of what you see as sustainable long term margins there, i know some investors are looking for more guidance on that can you give any >> our cfo is trying to guide we might have some decline in gross margins and connected fitness products, which is fine. we planned to do that as we bring new products to market
like our tread, before it scales, it has less hardware margins. over time things go up the interesting thing as you know, for our business it is unique we care about the relationship between hardware margin and cac. for all of that, sales and marketing is paid by gross margin and hardware. if we could lower the price over time in years to come, lower the gross margin in hardware, as long as cac comes down dollar for dollar, profitable on that, it is a trade we would make. it would maintain the relationship the percentage of hardware margin to us isn't as important as the relationship and gross dollars in the hardware margin we think we're smart in approaching these levers, and we're going to be very smart and strategic in the years to come. >> international you have been in the uk and canada awhile. launching germany this month,
first nonenglish. >> a fun one for us. exactly, hiring german nationals to coach out of london studio, back to investments, $50 million in a new facility of content creation facility. four studios under one roof in new york city, another one in london where german instructors will teach coming weeks we will announce a couple of german instructors you're right, carl the platform is in german, the bike interface, website, content, music, it will feel authentic to the german market it is the first foray into foreign language with respect to canada and uk, those markets are in front of where we were, way in front of where we were at the u.s. in similar time, as we track it, invest, but they're ahead of expectations, canada and the uk are in front of sales expectations kevin core kneel and the international team are crushing it. >> you talked about doing the
super bowl ad which you briefly dispatched with. curious about overall marketing, where you see brand building and consumer acquisition >> beautiful thing being direct to consumer, we control our destiny, open stores, television marketing, direct mail, a multi marketing formula. may open a new store, opened one in des moines iowa, might run a spot in sunday night football. the give and take between which performs over time and that formula is fascinating we have ph.d.s sitting on models in the cloud, understanding how to spend a dollar. another beautiful thing about business, predictability of revenue. we know how to grow, stick landings on what we tell the street, board, investors, how we're going to go, not only is recurring revenue or subscription predictable, the hardware sales are incredibly predictable as well. it is a beautiful business in
that sense >> stock's improved as you have been talking hope you come back. >> thank you for having me. >> good to see you quick note, cnbc parent company comcast, nbc universal is an investor in peloton. when we come back, watch the markets, been all over the map the first couple hours then there's uber. path to profitability is murky 'lock down 7% on another loss. wel go through the numbers in a moment ♪ ♪ ♪ ♪ ♪ ♪ ♪
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