tv Squawk on the Street CNBC August 11, 2014 9:00am-11:01am EDT
>> merchandise. throw "star wars" in. >> comics on the back, marvel comics of the back of the cereals. >> that's dc. >> sorry, sorry. sigh, girls don't know this stuff. >> yes, they do. she said that. make sure you join us tomorrow. "squawk on the street" is next. you'll be here. >> i will. >> same here. ♪ ♪ good monday morning. welcome to "squawk on the street." i'm carl quintanilla with jim cramer david faber, back from a week's vacation, at new york stock exchangen markets up all around the world. futures point to up open on the back of friday's rally, the best day for stocks in months. big week for retail earnings as we watch global political tensionsing of course. ten year yields around 2.42. stan fischer on the tape from sweden raising concerns about u.s. economic growth.
europe's in the green, as well. road map begins with markets. after a nearly 200-point dow rally friday, chaos in iraq, fischer's disappointing global recovery but stocks keep ticking up. >> kinder morgan, $44 billion to bring its businesses under one roof. an exclusive interview with rich kinder, chairman and sooceo of kinder morgan. >> priceline, ceo joins us. >> new fronts on amazon's price wars. push back, preston and king, a new rival, the magic kingdom loses its spot on amazon.com. stocks coming off a volatile week which ended in the black. friday's session the best for the dow and s&p in five months but stan fischer sounding cautionary note, speaking in sweden. he says the global recovery's been disappointing with few exceptions. growth in the advanced economies underperformed expectations of growth as economies exited from
recession. its also possible that the underperformance reflects a structural longer-term shift in the global economy. and points, guys, to that labor force participation rate which he says very unclear why that is, if there is true slack and if there's not, you're going to want to raise rates sooner rather than later. >> another way to look at it, which stanley, who is brilliant, i met him a bunch of times, he's the dean -- people in korea have shrines to him what he did with imf, turning around that whole region. you could read this, listen, stay easy because we can't get things going but maybe there's something bigger, secular going on that makes it so the economy's in the world can't turn. he's a thoughtful man. his words will be interpreted by many. he's kind of an oracle. for me i took it as being, look, rates have got to stay low until we catch fire here. >> you have been obviously -- you've had your eye on ukraine,
and you've been nervous about that? >> yeah. right now i feel that ukraine's calling russia's bluff. they're encircling separatists. i think that putin wants clarity on crimea because he's got the naval base there. he wants some buffer. divisions haven't left. every time we get complacent with ukraine, it's a big mistake. however i also think that the president exercising leadership by rolling back the isis, even if it means three pickup trucks shot down, makes people feel like, wait a second, it's not chaos throughout the world at this moment. >> well, i mean it is chaos in a lot of places. >> not in montauk. >> it's in its own chaos out there, unfortunately. it's been discovered by -- thank you "new york times" last ten years writing 17 articles of summer. move to the ten-year, chaos and a 2.42 yield. >> no, what happened last week,
at end of the week, by the way, you started to see money coming back to companies that yield 3.25 that don't have any growth because people kind of threw in the towel. i keep thinking back to delivering alpha. i mean the question was, whether the big money was going to be 3% or 2.75, whether the fed was going to raise immediately or not. and this happens. everybody's caught. the big money, it's not everyone, it's hyperbolic, but so many caught wrong and now they're saying, maybe i have to go back to general mills, even though it didn't report a good number. >> it's just astounding. >> it is. >> every single year people thinking the trade is to short the long, short the ten-year, we're going to make a lot of money, and you're wrong. what's it been, five years running i believe. >> stanley fischer saying, look, rates aren't going anywhere. you can argue what he's saying, there's no demand for money and then say, wait a second the fed's keeping rates down.
i know the big money guys don't want to hear this, i think the fed could sell 500 billion in bonds and there would be buyers, whether chinese, russians worried about their own money. demand for treasuries is insane. >> we'll get some note auctions this week. see what demand is like. a lot of m&a. >> there is. i'll tell you, people who like money, those borrowing it to do deals. we've seen that in amazon. there's not in this deal but certainly creeping sense of other bubblish times. kinder morgan what i'm talking about, it's consolidating publicly trading units into one company $44 billion cash and stock transaction that includes kinder morgan energy partners, kinder morgan management, and el paso pipeline partners. we're going to talk with kinder morgan's ceo richard kinder later on squawk. i can give you the term but was i'm going to turn to you. you know mlps and this company
very well. from one k&p, 2.31. and 10.77 a share in cash. cash consideration adds up to $4 billion. 1 kmr equals 2.4849 km ishares and 1 el paso .9451 kmi shares and get 4.65 share in cash, elect cash or stock in that one. why's he doing this beyond the terms? >> he was on -- i've been a big backer of rich, he's one of my bankable guys. i i fell he would say kinder morgan partners, the xwbig one underperformed he would recognize these rates would kick back money 43%, some say 60% of the actual net income going back to the partner, kmi, that had been disadvantaging kinder morgan to be able to do deals though it had done el paso.
the cost of capital was too high for kinder, people felt it was large numbers. rich kinder's company produces as of last year 55,000 barrels of oil in texas, it's also an oil company, great holdings there. the essence of this company was, people said, rich is letting down people because his company was taking too much. didn't mat that rich was getting a dollar a year, didn't matter if he ever sold stock. if kinder morgan wants to guy anybody, it will be able to. >> fining itself in an unable to do that, effectively at this point? >> right. so many deals to be done right now in the oil patch. we're looking for consolidators both in pipeline and oil. and rich hasn't been able to participate as well as he'd like to. i'm saying rich, he's been on the show a dozen times. first guy told me, when people say, jim, how did you know about energy interpence? rich kinder told me. >> knowledge of the pipeline
system. >> that's rich teaming me. rich and mark, just teaching me. listen, you have to understand what's going on in the country. and this is for rich to be able to take advantage of the vast networks. he's got marsalis, the pipe to the west, canada, rail, but people were confused about the structure. be confused no more. a hugely -- >> by the way, they're all benefitting. >> the cost of capital's bad. by the way, this is -- this is amounted to a pay cut for rich because rich got the kickback from the incentive distribution rights. i said rich, if you don't change things the stock will never come back. kinder runs a company for shareholders by shareholders and bingo, he did it. that's why you're seeing the complex up because he's created a huge amount of money with this. >> to give people a sense of the size of the deal, the total enterprise value exceeds all of
u.s. energy m&a so far this year. >> i'm going to give you the real size. i was supposed to be on the beach. >> you came in specifically for this. >> rich is -- you know, you go back on this. this is something that makes shareholders money. it's been a tough time. >> kinder was a huge lchlbo one point. this man has familiarity with how capital marks work. >> for our favorite brokerages, one of the things -- >> a lot of fees being paid. >> the largest -- this is the grand daddy of the partnerships. many talked about, first thing we talked about search for yield, 6%. what does k mr. i do? $2 dividend in 2015. that stock's up. suddenly people say put $20 instead of -- $2. then you have a great yielder that will be able to grow. this is the consolidator of the massive pipeline system built all over the country. it's a huge win for everybody
involved in the kinder family. >> kinder's ceo richard kinder will be on the program, talk about the $44 billion transaction, one of the biggest ever in the energy industry. also, priceline. darren huston joining us for exclusive regarding quarterly results. stocks lower in the premarket due to guidance. take a look at futures. if the dow can close higher today the first back-to-back gains since middle of july. almost a month ago. more "squawk on the street" live from post 9 at nyse in a minute. so i can reach ally bank 24/7, but there are no branches? 24/7 it's just i'm a little reluctant to try new things. what's wrong with trying new things? feel that in your muscles? yeah... i do... try a new way to bank, where no branches equals great rates.
♪ priceline's out with quarterly result. take ow items the travel site reported better than expect numbers, helped by a big rise in bookings. guidance is below consensus as the company spends heavily on international expansion. we'll talk live with darren huston on "squawk on the street." not a lot of specifics given on this current quarter guidance, guys, though booking's up 34, good for the quarter reported. >> i find price has a history of blowout numbers and then a guidance that causes everyone to sell, one point the stock down 20 bucks. now coming back, as people
recognize priceline's historic way of dealing with things to say, okay, look, we don't know how well we're going to do and then making people feel uncomfortable and coming on strong, which is why it great to have the ceo on. another quarter where i just feel they're building full rollout, open table, continues to see great mobile growth, meta search is important, different business growing fast. these are all things that could send the stock up ten by the owned of the day, frankly, up ten. >> that's coming up later on this morning. iraqi prime minister al maliki deploying forces across baghdad, in a battle to keep his job. as the white house stepping up air strikes against militant group isis in the kurdish north of the country. nbc news in erbil, iraq with the latest. good morning. >> reporter: good morning, carl. getting news in the last few minutes that the largest voting bloc in iraqi parliament has chosen the deputy speaker to
become prime minister. now all eyes are going to be on the existing prime minister, nuri al maliki to see what he's he does. he's given no indication he's going to give up power willingly. last night he was on television, accusing the president of violating the constitution, saying he wanted to serve a third full term. now we're getting reports out of baghdad of police officers and security forces loyal to maliki moving into positions across the city. so it's exactly what the united states and international community does not want to see because they want a united front, a leader in baghdad, who is capable of uniting the kurds, sunnis, and the shiites rather than al maliki who has been divisive and authoritarian, according to his critics. he's losing support, not just from the united states, but also from iran and also from shiites in his own party. so now we're hearing, they have chosen the deputy speaker of the
parliament, it be will interesting to see what al maliki does next. what the country needs and what the united states is asking for is a longer-term vision for a united front, consensus government, so the government stands firm against this threat of isis. ironically, it comes on a day and distracts from more good news that we're getting up here in the north of the country, which is for the peshmerga able to retake two strategically important towns they have lost a few days ago. they did that with the support of the united states air fire. we're hearing that the cia will be arming the peshmerga directly which should help them against isis because they have been massively outgunned. >> thank you very much for that. nbc in iraq for us today. cramer's mad dash, count down to the opening bell. exclusive, with kinder morgan's ceo, richard kinder on the deal of the day, some say the year,
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happening with tesla. this is the second upgrade we've seen. this is recommendation changeded by deutsche bank saying, even steep growth trajectory leads up to upgrade to buy. talking about significant volume increases. a lot of people are betting against tesla, thinking the a great short of all time. compared to the market size of ford. talk about how many, ford makes more cars in the day than tesla. what they're saying is, this is a very, very -- going to be a very, very profitable company. a lot of intellectual shorts saying this call is just a farce. but in the meantime, tesla's breaking out the technicians love. i know that shouldn't matter. but they're talking about earnings estimates going so high, david that you're talking about 2016, making -- talking about 933, i mean $9? >> that's all because of production numbers which people see going through the roof. you've got huge bulls out there, dan bentton, huge holder there.
momentum stock. >> yes. >> as long as numbers go up, one assume the stock may go up until it perhaps succeeds and meeting those expectations. >> then it's over. that's the way biotech works. it's $9 number, it's going to 300 rapidly. i'm not saying it should. i'm saying if that's number's real there's no justification for it to down here, it should be much higher. money managers looking out years and see this growth, they have this incredible accelerating revenue growth, it could happen. >> yep. >> i'm not going -- elon musk did not deliver in solar city last week, though it's an affiliated company, the cash flow. herb greenberg put out this remarkable note, his reality check report saying cash flow, they don't care about it as much. that's going different trajectory from tesla. tesla's good. >> one small step for man, one huge step for man kind. >> 35% of this, wow, okay, 30%
of the stock is short. >> okay. >> the big wrap, mannkind had a great insulten solution, inhaler, couldn't find a partner. sanofi, the most aggressive european drug company, has come and gave them $925 million for rights, 65% of the earnings are going to sanofi but also take the losses. 35 to mannkind. piper says good news. the shorts will battle this today but it might be puric, now that you have the big partner in sanofi, this is i a world-wide story and you know, i -- people have to cover what i'm saying. shorts will say, like tesla, jim you don't understand. i'm saying, listen, i may not understand but i'm telling you what's going to happen, i didn't think they'd -- well, i said until they have a partner, i couldn't get behind. then sanofi, who is maybe one of the most respected companies in the world comes in big time. they've been doing a creeping tender offer for regeneron.
now -- >> it's not another regeneron. >> it's acting like, they're in the market trying to get 30%. but sanofi's a company that has said, we're going to race through technologies more than merck, pfizer. mannkind is one of them. stories negative going into positive, tesla and mannkind. which is why i'm highlighting. >> keep an eye on the huge deal in the energy, coming up kinder morgan's $44 billion transaction. we'll talk about it with the ceo, richard kinder. ho opening bell coming up. chocolate is very individual.
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since march and the dow does avoid three straight losing weeks. b of a saying, we think think is going to be a single-digit correction in terms of coming off the intraday high. >> looking if something happened in ukraine over the weekend, it would be a different discussion. i think that one of the problems that we're having is trying to factor in ukraine slower business in europe. last week was the beginning of where i heard people say, wait a second, gasoline going down, consumers starting to spend more, retail earnings coming this week april downgrade of jeffrey's of walmart. i don't know about that. i feel that what's happened, there's beginning to be a story with the employment number, the lowest number since 2006, for claims, maybe the u.s. is doing better and we can put aside europe if we buy noninternational companies. i think that percolated. plus, the first time that i really heard, besides gasoline, lower rates are going to restart housing. housing bears are out there.
>> yes. >> i don't know. i checked in with my mortgage broker. >> you were going to call this weekend. >> you know, it's good again. i mean money's there. if you want to buy property, money's there. it's there at a good price. lowers fica scores. i'm -- >> property costs -- >> good thing -- >> obviously i'm not talking about -- >> not in new york. new york i fine is -- if the conversation's going to turn to, hey, housing's come down a little bit, maybe some of the banks will let go inventory, maybe hedge fund will will sell rental properties, kick the tires if trying to get mortgage money at a lower price. housing is more affordable. >> walmart call, by the way, jeffrey's cuts to hold. price target 89 to 76. they say amazon's coming on. dollar stores are going to get
aggressive. target's getting aggressive, trying to get back the lost share. >> no shortage of things on doug mcmillon's to-do list, the relatively new ceo of the company, you know, trying to at least get growth going domestically. it's largely a domestic play with 25% or so revenues coming from overseas despite what had been many aterms to change that dynamic. it's about here -- listen the size of it alone, we talk about it often, you can't forget it. it represents something like 20% of all of the public-traded retailer sales. >> why don't they benefit from lower gasoline prices? why don't they benefit from easier credit? why don't they seem to fit into the mix of when people do a little bit better? why do they not get that customer? it's mystifying thing. >> strange. >> it is. >> by the way, gas prices 3.52 now for average regular, down 8 cents year-over-year.
can't organize with that. >> this is just one of those momentser you start saying i like domestic, give me a little domestic. i like yield, give plea a little yield. kmi, nice yield, $2 a share. >> we'll get to in a moment. there's the bell. and a look at s&p at the top of your screen. down here this morning, west lake chemical celebrating its ipo. over the nasdaq, a california are y renewable resource company. discussion of inflashtioninflat. dean foods will take it on the chin. >> i thought the bridge quarter they could say dairy's peaked. look, there's -- cattle's a problem in the country. just a shortage of cattle. >> shortage of cattle. >> shortage of cattle. hoping the russians said we're not going to tack much australian beef. also a moment in time the drought's hurting. you're seeing it all over the place. dairy's challenges.
remember, plant-based dairy the -- that's not dairy. that's an oxymoron i said that, the company that was pushed, spun out of dean foods white wave. that's soy and almond. dean's been a loser. i thought it could turn around this quarter. it's not turning. >> not only a bigger than expected loss but the ceo said the rest of the year looks rocky. volatile dairy commodity environment, can give guidance beyond the current quarter. >> i felt it also i felt the pizza companies i fell about to -- dairy was going to come down. dairy's the stickiest part of inflation right now. want to talk about inflation, steak, dairy, bad. >> back to your cattle. >> yeah. but remember, deere reports this week. deere's going to be hurt because grain prices are down. >> right. carl mentioned walmart and the dollar stores. i did want to mention the proxy for family dollar came out, they got it out quick lip proxies,
yul see the background in the merger and it goes on and on, starting in 2011. what we're interested is what happened recently it does confirm reporting i had on day one about dollar general and whether it was or wasn't there or was surprised by that deal between family dollar and dollar tree. indeed, in reading this, assuming that dollar general's company a, which it was, we can more or less come to a conclusion that, again, as i reported day one, they were not aware, at least, of the deal coming and as recently as june 19th, it indicated they were not interested in strategic transaction, that being dollar general. now, since the deal has occurred, as i've reported large shareholders, we called them up, they said you've got to get after this, even without a ceo next year. that was a key part of what happened here as well. their ceo deciding to leave next year. que
we'll see whether dollar general chooses to do that. the deal moving ahead with the proxy out today. i wanted to point out, it did confirm what we said day one. other reporting out there that indicated they had had a chance to come back with a topping bid of some kind, no such scenario is indicated in today's proxy filing. >> kind of interesting. this one doesn't want to go away. i thought dollar general was out from day one. >> synergies are enormous, there's some antitrust. when this goes away, it's done. any -- any chance you had of becoming as big as they may want to is gone for good. >> very good point. i know there's -- jim stewart, excellent piece on friday. >> on the antitrust. >> even whispers, blocks the t-mobile deal, some say time warner -- >> i don't know if i agree with him on that one. >> i love jim. i disagree. >> sprint and t-mo we knew for a long period of time from the beginning of the talk that that was the key impediment. in fact, if you recall, when i
first reported on the talks way back before soft bank came in, they wanted deutsche telekom to join them. >> right are. >> and they backed away, worried about antitrust at that time. that's been therea long time. >> sprint seems dead in the water. brought a new ceo -- >> melting ice cube. >> john -- i've got to say, he's a hitter. he's a hitter. all right, guys, we've got kinder morgan, this is the big story of the day, consolidating subsidiaries under one roof $44 billion cash and stock deal. this would make the second largest energy deal in history after exxon's purchase of mobile. the third largest oil company after exxon and chevron. shares of kinder morgan of all sorts, el paso, rallying. rich kinder the ceo and chairman of kinder morgan. great to see you this morning. >> thank you great to be here, jim. >> okay, rich, talk to us about
what is the best thing about this deal other than making things simple. what will this allow you to do that you couldn't do otherwise? >> well, we have done several things, jim. we've dramatically lowered our cost to capital. eliminated incentive distribution rights. cost of capital now the yield that we're paying at kmi which at today's trading 4%, 4.5%. we believe that significantly lowers our cost of capital. also of course the debt that we issue will be on aftertax basis now. put all of this together, lower cost of capital, some modest savings by putting all of these companies together, need to issue less equity because it's a lower yield structure and the tax advantages, we will get a step up basis in the assets that we're buying. if you roll all of that in, that amounts to about $20 billion in cash tax savings over the next 14 years.
you put all of that together, we think this is a recipe for us being able to do lots of capital projects and lots of potential acquisitions that we simply couldn't do under the old structure. now none of that's bake into the numbers we're showing people which call for increase of the dividend to $2 for 15 and 10% growth in that dividend out through 2020. what i've just talked about would be in addition to that, jim. >> rich, one of the reasons you taught me how much oil and gas there is in the country, is this one of the reasons why you wanted to do the deal because you didn't want to be left behind what you told me over and over, oil and gas renaissance in t this country? >> yes, it is. we think it's a fertile field to be plowing today. and this new vehicle that we've created, putting everything together in kmi, is really positive and allowing us, we
think, to make bigger in roads into this very important area. >> now, rich, a lot of people have been saying, you know what, rich kinder would never do this, idrs, rights would amount to pay cut if he did this. you've assures me that you run a company for shareholders. ath lot of this, it doesn't amount to a pay cut for you, you realize witness you do this, you'll make more money overnight and that's exactly what you created? >> i think that's right. i guess i'm kind of the canary in the coal mine here, you know, i'm the largest shareholder, i own 23% of the present company, and i'll be reducing my interest to about 11%, as we put out all of these shares to buy up kmp, kmr, epb but i'm happy to do that because i'm creating value for myself and the rest of the shareholders, whether a shareholder in kmi or kmp, or epb coming into kmi as a result of the transaction. >> mr. kinder, you're not
stranger to the capital markets as well as expert on oil and gas marks. you've taken the company private, taken it public again that is kinder morgan. did you see this problem coming a long time ago? if you did, you know, why did you choose to structure you had previously, or was there another way you might have gone about dealing with this cost of capital issue particularly? >> well, in no way is what we're doing a negative toward mlps in general. mlps are a good way of accessing assets. but in our particular case, we have gotten so large and the yield was high enough on both of ur mlps that having the right kind of cost of capital, the right hurdle rates for new investments the right capital, the right to make acquisitions, we had just simply not able to do that. by doing what we're doing now,
this puts everything into one basket with a very low cost of capital. i think it will allow us to grow even more significantly than we've outlined. >> rich, do you want to stick with the idea that you're plus some oil, some carbon dioxide, co2? i think the new structure allows you shine what you bought, what you have had from yates, you've got the ships, the pipeline, the railroad. is this a chance to become integrated oil company with a terrific pipeline business? >> i think we'll probably stick to our knitting, jim. i will say, having the c carb gives us optionality we're pleases with the sweet spot we're in now in terms of the tremendous need for midst stream infrastructure. and if you couple that with the size and strength of the franchise, you know we estimate it closing we'll have a total
enterprise value about 140 billion, and in addition, i would add that if you comb the s&p 500, there are only ten companies in the s&p 500 that have market cap of over $75 billion, have dividends payable over 3% and have growth in the dividend projected at over 5%. we're one of those ten. and our growth rate is substantially higher than anybody else's in there. i think what we're creating is a machine that will pay high dividends that will grow those dividends and will really be able to provide excellent returns for all of our shareholders. >> rich, viewers want to know what we call this, this transaction. is it a spin in, a rollup? are there many situations you're aware of where it could be replicated? >> i don't think -- there may be other instances, i hadn't considered that. i think certainly it is just
putting everything together in one basket and i think that's very important. we've just got a hell of a pran chiz here with 80,000 miles of fine pine and 80 terminals and we can continue to grow it and turbo charge that growth on a growing forward basis. if i didn't think that way we wouldn't be doing this. >> the ruling from the xhefcomm department, i know it's not clear whether more people can do it, but you're probably the number one outfit, what you can do, so people understand, this is the idea of exporting an oil-like product, another one of the reasons to do this, ability to capture what could be a major export market? >> i think that's entirely possible. right now, for example, our kinder morgan crude and conden say line is unique. we crisscross texas. we can move it across texas to our terminals on the houston
ship channel and then export it, as our customers want. so i think you will see more cond cond condensate exported but that's a growth area in the future. >> you have said over and over to me, it's possible we could be continental energy, self-sufficient by 2020. do you think that's the right timetable? are you sticking by it? is it better than that? >> i think that's a good timetable. we ought to be careful how we throw around the word energy self-sufficient. i think that you will have to take into account imports and exports. when you balance them out we should be at a point of neutrality, something in that time range, jim. obviously, given our refinery mix, i think we'll still be importing some croods, we'll be exporting refined products, perhaps exporting crude oil at some point in time. i'm extremely bullish on what the shale plays have done for
not only our business but the american economy in general. just enormous opportunities on a growing forward basis. i saw a recent survey, projected well over $600 billion in midstream energy infrastructure built in the next 20 years. and that's significant. and we intend to be a significant player in that bill-out. >> rich, is there any truth you might double your salary here? >> i'm going stick to my $1 a year. >> they are calling you on twitter the fortunately rich kinder. >> the real benefit of all of this goes to all of the shareholders and it's a real compliment to the whole team at kinder morgan. you know, we have a great team they're the ones that are doing the heavy pulling. and i'm the one making the big bucks at a dollar a year. >> well, rich, the doubters are silenced. thank you, rich kinder, for coming on and for building a remarkable company that has let
many people make a great deal of money. >> all right. thank you very much. appreciate the opportunity to be on your show. >> thank you. >> with all of that got some action one of the posts here. >> kinder morgan, i think, yeah. >> bob pisani on the floor. bob? >> well, we're waiting for the final components of the kinder morgan deal to come together here. kmp, the last kinder morgan partners, just opened, 91 right here. so that's got a nice move to the upside. it's not just lower cost of capital. infrastructure assets especially pipelines the most critical component of the continued growth of the unconventional oil and gas play here. that's why the mlp business, so important. you control that, you control everything. so much interest in mlp etfs, amlp is the symbol, a great run all year, people interested any play associated with mlp. this one going in the opposite direction essentially.
you can't get enough of them right now. a great overnight here. obviously, no movement in the ukraine. that was good news. the real mover overnight, stanley fischer speaking over in sweden. of course on the federal reserve saying global recoveries disappointing. a guy very much in the middle sounding very dovish. i think most people would agree, that was the reason we lifted around 3:00ing, 4:00, moved to the upside. china huge rally, too. that helped us. benchmark there, shanghai hitting the highest levels of the year. middle of the year, in a terrible shape, well underperforming now it's come up. we had inflation data that looked subdued. there's a new high. japanese stocks gains, it's not obvious why. high effort levels in four months, up 2% in japan. but the japanese economy's contracting. they had that tax hike, that's not good news. the prime minister abe will face tough decisions soon despite the rally. lots of comments from food companies. dean foods, disappointment,
bigger than expected loss, talking about a rocky recovery from the ceo. balance of the year looks rocky what he says, continued unpredictable and dairy commodity environment. talking about lower numbers in third quarter. most of the big food companies all to the upside today, if you'll notice. cisco matched, the food company, and their revenues beat here, 50 cents in line with expectations. aramark, terrific profit, sales better than expected for aramark. dow's up 33 points. >> thank you very much. want to come back to a story from last week. i was out but able to join my colleagues on the phone at least when we learned of fox's decision to withdraw its bid for time warner. and surprisingly, perhaps, chose not to try to raise that bid and hang around longer. but simply said, we're going home, following our standalone
plan, and we won't be seeing you for quite some time, as i reported, of course at that time. can tell you, interestingly as well, there is a large shareholder in fox. at least worth discussing. valueact, a company that i've spoke been a number of times, interviewed of course, the principal behind one of the key principals, own a billion worth of fox and built that position through that period where it was -- fox's bid was in play. having spoken to ubben, in a position that represents top five at valueact itself, remember a large, activist that typically takes positions in companies that are not controlled and eventually can seek board representation but owns those stocks for many years typically. in this case, they were a believer that a combination with time warner made a great deal of
sense at a great price. completely in sync with management's position to exit in the belief they are better off as a standalone business, at least for now. telling me he loves the standalone plan at fox, believes company can earn $2.50 a share by 2016. fox sports will just be breaking even, just at the beginning of what may become a significant generator of cash and growth for fox overall. does he believe the time warner deal makes a lot of sense? like so many other shareholders out there, absolutely. and ubben of the view you get a revisitation of that, let's call it, year and a half, two years. we'll see, so much can change over that period of time. but he does also like the standalone plan. certainly worth mentioning again, a billion dollar holder of fox now valueact. expects to be for year potentially to come though no expectation of seeking a board seat again. unusual for activists to get
involved in a family controlled company though in this case they did once valueact involved with martha stewart, there was a shareholder with miss stewart and herself. parallels between fox and time warner and another large position of value act, valeant and allergan. a bad week for event-driven managers with the blowup of the fox bid, sprint and t-mo going down, look at valeant stock price lately. jim, interesting it see whether valeant would consider a strategy followed by fox, namely, saying, okay, we're done. we're going to be execute on our own standalone plan, though many plee believe that's not something mike pierson can do at valeant, he needs to do another deal. i wouldn't be surprised some shareholders are saying, you know what? get confidence back in your own business to grow organically and just simply show growth.
traded a low multiple, get out now, the erosion of valeant stock price has certainly contributed at least to the belief that allergan will be able to prevail, although as i always say, there's a lot of time to go. >> i think a lot of people misjudged dave pyott, the ceo of allergan. i think that people kind of felt he would say, you know what can i do? he's done two things, one, established $10 a share number, which people are buying into but, second, he's exposed value. >> they've unrelentingly attacks valeant in every way possible. >> you realize, wait, this i valeant and a house of cards. is valeant, they've got drugs, made good acquisitions but pyott made you feel like you have to sell. valeant has to move on or buy another company in a friendly fashion. >> when we come back, exclusive with priceline ceo darren huston. "squawk on the street" continues in a moment. so ally bank really has no hidden fees on savings accounts?
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management. let's me put it right now, stock up 8.8, now up 9% this year, coke is down 4. 5%. i appreciate everything nelson peltz has done. i would go over coke, they're overpaid, fat and happy. the best consumer package company out there time to focus on ones that have been losers, not the one that's a winner. >> nice. >> all right? >> what's on "mad"? >> yes. a winner, not a loser. >> what's on "mad." make money off -- rich kinder has made money, what's the next level? what else can be bought in the pipeline? order the mlps. continue the momentum. >> glad you came in today. >> you bet. >> as am i. >> see you tonight. >> priceline's darren huston, keep it here. i make a lot of purchases for my business.
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the street." road map begins with markets. despite chaos in iraq, worries about the global recovery, stocks are ticking higher. how long can that continue? >> also ahead, priceline's profit jumps with a forecast disappointing. we'll talk to the ceo in a few minutes. more than two dozen state attorneys general asking the fda to regulate electronic cigarettes like it regulates traditional cigarettes. the attorney general will join us live on that debate. priceline was around pressure, but the stock up 3% forecast for the current quarter did disappoint earlier. that is priceline, buys the restaurant reservation site open table and a 10% stake in its chinese partner. darren huston, the president and ceo of priceline joins us now in an exclusive interview from amsterdam where he still has hands-on control of the largest division, the most profitable division, booking.com. welcome back to the program. >> hey, simon, how are you?
>> i'm okay. we have so much to talk about. so many acquisitions. you like to do deals. there was some disappointment that the momentum may be slowing on profit ability. why is that? the law of large numbers or simply because you continue to sacrifice a lot to gain volume and share? >> well, simon, as you know, we had a great second quarter, 34% bookings growth, 31% net income growth. we think our forecast for the third quarter's prudent, reflects the fact the euro's down a little bit against the dollar. also making investments, though in off-line marketing, in our open table acquisition and number of other things. but we're feeling good about the health of the business. >> we have two big deals to talk been talk about the most recent. why you investing half a billion dollars in the chinese online player, c-trip to buy that 10% stake? what does that do for your business? >> well, simon, travels
inherently a business where you go from somewhere to somewhere and being a global business is very important to a travel business like the priceline group. china is the next big market for travel, by 2020, the largest percentage of the world's travelers will come from china. and we want to make sure we're an active player in that market. c-trip has been a great partner since 2012. from having a commercial relationship to investing as well. we're excited about the prospects from china. >> i guess in essence the chinese will be able to see your inventory on a chinese website. point is why half a billion dollars? you already had a commercial relationship. c-trip renowned for being fiercely independent to the expent it wants control and the past partnerships haven't worked out very well. >> well, you know, simon, i think we have a really great relationship with ctrip. working with them for two years.
we didn't just jump in we built trust between the two companies. they'll help a lot. they'll bring a lot of chinese customers to our business around the world and offer inventory to all of our foreign customers who go into china. this is one of those relationships i like to call almost like second cousin now that we have 10% investment making in ctrip and excited to keep move this partnership foor forward. we had a lot of success in china and expect more going forward with the partnership. >> we haven't spoken since you announced the purchase of open table, $2.6 billion in cash, and i think you completed the process for that within the last couple of weeks. now you're saying today, 45 restaurants in new york, you'll be able to pay at the table with your smartphone through the open table app. there are 20 more cities across the country that that will be available for by the end of the year. why are you so focused on open
table's payment system and the app when it doesn't make any money, and clearly everybody else is going to try to get in on the game as well? >> yeah, simon, just like we've done in the hotel side of the business, we started out just doing bookings. but what's critical, how you expand the customer's experience. that's how you build great relationships with customers and local marketplace which in this case is restaurants. so, open table, beforehand, was a way to reserve restaurants. now it's a fantastic way to pay. i encourage people to try. it's amazing. we know what table you're sitting at, you can watch your bill being built on the phone and pay with it and leave the restaurant without having to wait for the waiter to come and collect your credit card. we think this enhances the overall experience. we think it's great for customers, great for restaurants and great for our business as well. >> you said on the conference call that you've got the open table staff traveling to and from amsterdam from san francisco. you've got a lot to do. what point do you make money from this? what do you complete translating
open table into all of the languages that you operate in around the world and at the same time, when are you going to start the marketing of local restaurants? if i book on kayak or through kayak to go to a city, blend are you going to tell me what restaurants to visit when i'm there? >> well, simon, we have a lot of plans going on and a lot of best practice sharing and i would say a lot of work being done in the second half of this calendar year. i'd say by 2015, we're going to be full roll-out in many aspects, invest heavily because we think this is an amazing market, the restaurant business and we intend to play to win. so i'm excited. this isn't a play about the short term, it's about the medium and long term, and this will increase the market that the priceline group has to compete against. i couldn't be more excited and more optimistic we'll crack the code here. >> your stock isn't the only one on a tear. all travel names, expedia, airlines as well, doing
remarkably well. curious from a macro perspective, what you see, is the u.s. travel industry growing faster than gdp? >> you know, we've seen around the world there's a real mix of positives and negatives. of course we all know negatives, russia, ukraine, israel, et cetera. but the positives seem to be far outweighing negatives. the u.s. in the second quarter, travel has picked up after the deep freeze that the u.s. went into. but we're also seeing amazing amount of incremental travel in north asia. also in southern europe, an area depressed in the last couple of years. tourism seems to be break out. i think you're maybe seeing that in various players in the industry. it seems to be a positive environment for travel right knew and we're -- we and many competitors and other providers in the travel city are seeing the fruits of that broader macro economic condition. >> you know, you're a huge company, almost $70 billion market cap, expedia trailing
behind it 33. what happens with the orbitz of the world? you like to do deals. do they have stuff you like to buy. >> what happens to them? do they grow to your size or wither on the vine? >> yeah, you know i can't really speak for orbitz, but there certainly is a lot of consolidation going on in this tri. it's critical to have scale. there's room for a few big players. but there's lots of room for a lot of start-ups and other players in the industry. this one of the industries that's not hard to get going. other players emerging, air b&. s and others in the world. this is going to continue to be a competitive environment. but the critical thing to succeed on the internet, remain hungry and humble, and that's what i tell my team every single day. it's not about the competitors around us but it's how fast can we play, how humble can we be in the face of our partners? so we can continue to innovate and drive great experiences for our customers. >> on that note, i'll let you
go. i think you to address the worldwide workforce from amsterdam. thank you for sparing time, darren huston, ceo and president of priceline. broader marks right now, it looks like u.s. stocks are building on those gains. that rally that we saw on friday. next guest thinks stocks are extremely attractive now, relative to bonds and relative to cash. let's bring in the vice chairman and portfolio manager with aerial investments. has anything fundamentally changes with the geopolitical backdrop or are we getting into oversold position on u.s. stocks? >> yeah, it's always tricky to say whether people are overreacting because obviously things could get rough in the middle east and pessimists tend to be right about the middle east. but we do think that in the longer term, these things will sort themselves out, russia, something i know a little bit about, i think they're going to pick things up in the ukraine. and people will return their focus to the u.s. economy which fundamentally we believe is stronger than the market is giving it credit for.
>> you say that stocks attractive, relative to bonds the bond yields continue to go low. in terms of price appreciation, if you had bet on bonds this year, you would have done very well. that was a very much against the consensus trade. what does that tell you. >> right. well, that nobody should try to trade bonds short term unless you do it for a living. look, valeant investors don't tell you what's going to happen next quartz or next week. i was surprised by bond improvement. i think the chinese have bought a lot of bonds. we were focuses on the fed. and the chinese stepped up and driven a lot of bond yields very low. but that just means they've gone from overpriced to very overpriced. bonds right now, i believe, are at bubble levels. there are no attractive alternatives in fixes income. stocks, on the other hand, are much more attractive than either bonds or cash. >> you don't see cautionary signals, say, coming from the junk bond market which we been seeing swift outflows? shouldn't that say something about stocks and the risk levels
right now? >> well, i think it says something about bonds. i think absolutely there are risks in bonds, high yield you mentioned whenever companies start issuing zero coupon bonds, that's a sign of an overbought level. i think the high yield mark is scary levels. and that's why you see so many private equity firms doing leverage recaps, taking money out, leveraging out because the high yield bond market is highly priced now. >> looking at this stocks as al tentative to bonds, do you want to be in dividend payers where you're getting paid? where are you looking? now that we've had corporate earnings out for the most part, and they've done pretty well? >> yeah, that's a great question. for people conservative, we do think high yielding stocks are a better place to be than high yielding bonds. but, frankly, because yields are so low, a lot of stock investors have flocked to high yielding stocks like reits and mlps. in general we wouldn't say high yielding dividend paying stocks are cheap. it would be things like value
tech that's cheap. energy is cheaper. big investment banks like goldman sachs, jpmorgan, morgan stanley are cheaper, those are pockets of value in the market. >> charlie, on russia, the nato chief is out saying there's a high prob ability that russia will military intervene in eastern ukraine. what makes you think they'll get a deal? >> well, it's tricky. my last names bobrinskoy and my family comes there. people in eastern ukraine consider themselves russian and people in russia consider that part of the country, their own part of the couldn't trip ukrai ukraine's part of russia for longer than texas has been part of the u.s. it's a complicated situation was i happen to believe that we will get a peaceful resolution one way or another. it may involve partitioning parts of eastern ukraine into russia, obviously crimea's gone that direction. it's a complicated part of the world americans tend to be naive
what's going on the ground. >> thanks for that perspective. thank you for joining us this morning. when we come back, in addition to ukraine, chaos in baghdad, fighting in northern iraq, the kurds take on isis with the aid of u.s. air strikes. chairman of the foreign affairs committee, congressman ed royce, will join us live with his take on the latest events and what washington's role should be when "squawk on the street" continues. you'd do that for me? really? yeah, i'd like that. who are you talking to? uh, it's jake from state farm. sounds like a really good deal. jake from state farm at three in the morning. who is this? it's jake from state farm. what are you wearing, jake from state farm? [ jake ] uh... khakis. she sounds hideous. well she's a guy, so... [ male announcer ] another reason more people stay with state farm. get to a better state. ♪ get to a better state. the ca♪illac summer collection is here.
welcome back to "squawk on the street." watching shares of tata motors, india's carmaker tripled first quarter net profits boosted by sales of jaguar and land rover vehicles than stock, about 7% towards session highs there. back over to you guys. thanks for that. iraqi troops and security forces surging into baghdad there is weekend. this, as forces continue to battle islamist militants in northern iraq. nbc is live in erbil with the latest. duncan? >> reporter: good morning, sara. we could be headed for some kind of confrontation in baghdad, whether that's just political or whether it turns violent, we don't yet know. but iraq's president has chosen a new prime minister, he's the deputy speaker of the parliament. but the problem is, there is already a sitting prime minister, nuri al maliki, giving
every indication he does not want to give up power. last night he took to television to say he wanted to serve a full third term and accused the president of violating the constitution. also hearing reports out of baghdad of security forces and police officers loyal to al maliki bearing on the street. so it's all pointing to one conclusion, which is he's not going to give up the office of the prime minister easily. we don't know what's going to happen there. thatting of course, is a headache for the united states and other countries which have been calling on the iraqis to form a united government that incorporates the kurds, sunnis and the shiites a government that can stand together against the threat of isis. that threat is still very real. here in northern iraq, there have been some gains. peshmerga have been able to retake two important towns which are 30 minutes away from where we are here. they did that, of course, with
the support of u.s. air strikes over the weekend. also hearing more of the minority religious community, some of them coming down from the mountains, where they've been hiding from isis fighters, bringing horror stories of people dying of starvation and dehydration on the mountains. but still estimated maybe around 10,000, perhaps more of them could be hiding in the mountains, humanitarian disaster, some people are saying. the situation changing by the day. carl? >> thank you so much. for more on the situation in iraq, let's bring in house foreign affairs committee, chairman ed royce, republican from california, joins us orange today. good morning. >> good morning. >> let's start with al maliki, we've wanted him gone for so long here in the states. does this get easier if he's on the ropes? >> certainly gets a lot easier, once he's gone. as you can see, his own political party's turned against him. the question now is, will he try
to some kind of coup to hang on to power? that's something for the iraqis to work out but we've put a lot of pressure on the different factions there to get some kind of confident leadership. i think with the president's decisive move to replace the prime minister, that's a good step. >> first weekend of air drop and air strikes. duncan mentions the azidis, still some up there. isis appears to be on the aren't a little bit. could it be this easy? >> no. these are mixed results. what was discovered over the last 24 hours were mass graves in some of the positions that isis had taken. and there, the religious minorities, many burned alive, is evidence of the brutality of this particular al qaeda affiliate. and i think that that will tend to rally a lot of the different shia, sunni, kurd herb
populations to resist isis. air support seems to help the kurds. now that we're giving military equipment to kurdish forces, in order to fight isis, that seem to be helping as well. >> talking to a business channel, of course, and market's concern this remains contained somehow from a policy perspective. do you have any fear this will get out of hand, so to speak? >> the only unusual situation, despite the brutality of isis, it has drawn support from fighters across north africa, east africa, yemen. so when we had the african summit last week, and i talked to these african leaders, they were telling me that many of the foreign fighters that are leaving their country and the same is true in central asia, are going fight along with isis. you do have a lot more foreign fighters going into that region because there is this new call for a caliphate, bagdati
announced he's the leader of the caliphate. it's interesting to see if, with a new government possibly now in iraq, if they can offset the advances that isis has made over the last few months. >> congressman, i have a question on how this is playing out politicly at home. sunday talk shows, obviously talking about it yesterday. the democrats saying the president's doing enough, it's a tricky situation. republicans saying he could do a lot more. and most interestingly, i thought hillary clinton, giving an interview, separating herself further from president obama when it comes to syria and middle east poll sip does she have a more credible middle east policy and strategy to rally around than the president? >> this is a critique that comes not just from hillary clinton but recall our ambassador in baghdad, as well as many in the pentagon, had called for a more early intervention against isis. i had called for drone strikes
against isis when they were in syria, and then when moving on the road, armed drones could have been used to take out columns and give air support against the isis fighters. and it was the president himself who turned down those requests, both from the government in baghdad and from our embassy and from us. so what you see now is a critique coming from democrats, from republicans, about why did this get out of hand like this? why did they allow isis, you know, to move against mosul in this way and to take all of the money out of the central bank in mosul? that's what made isis so rich and powerful. >> mr. chairman, i guess for many people the question is what the people of vthis country is believe in their interest. i you have an nbc poll that suggests half of the people of this country want the united states to be less involved in global affairs and that is a sea
change, isn't it? with that in mind, it explains what many people believe to be the super reluctance of the president to act and to all of the points you just made. >> if i can just point out, no one believes that we should have u.s. troops on the ground. certainly former secretary of state clinton didn't say that. i don't believe that, neither do any of the political forces. >> but she did say that they should be arming the syrian rebels, and it was as a result of not arming that that isis is as strong as it is. she wanted armament from the united states pumped into syria. >> the free syrian forces, of course this wasn't a question of us arming them, other allies, jourdardanian jordanians, turks, this was something the saudis asked direction from us about. and there was no direction. at that time, there were no foreign fighters in sear yap there was the free syrian army and there was assad, but they were battling. the absence for support for the free syrian army our former
secretary of state is arguing, what brought the foreign fighters in and never over that three-year period despite the pentagon and others asked the president to get engaged here and try to take action, he didn't take action. and this is the critique. >> mr. chairman, appreciate your time today. thank you very much. chairman ed royce. ahead on the show, more than two dozen state attorneys general are urging the fda for stronger regulations when it comes to e-cigarettes, regulations more like those on traditional cigarettes. innian ta attorney general will join us live why he's pushing for tougher rules. she's still the one for you.
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index, there are about 176 down by at least 10% from their highs over the course of past year. now that's about a third of the index. so some traders looking for those larger outsized returns may be looking at some of these 176 stocks, because they have been beaten up more than others. a handful of the noteworthy stocks trading at deeper discounts to where they have been over the course of the past year. first, look at shares of garmin, gps maker, right? it's dropped 10% from its high july 4th. garmin has been working on diversifying its product, offering beyond traditional map and location services, into things like outdoor fitness and golf-related gear. investors have punishes the stock, after earnings in late july, nearly half of the analysts who cover the stock have a hold rating. average target price is 62 bucks a share. that's 11% upside from current levels there's a possibility there how about airline stock? which have been flying high over the course of the past year. one of the biggest out there is delta.
it's taken a huge hit, down 13%, just since june 9th. investors have been taking profits in the group as a whole but with passenger traffic and air fare showing positive signs, traders are taking a look to see if there is upside. interesting there are no analysts that -- who follow this stock that have anything but a buy rating here. average target price of $51 implies a 40% upside from current levels. how about a final look at a coal company? peabody, lost a quart or of its value since november last year. concerns about the prospects for coal in this country and demand around the world. still, though, analyst whose covered this stock think we could see 20% upside from current levels. that's just a handful of the names we're looking at. 11 buy rating analysts there in "the halftime report," we'll dig into the big consumer-related stocks that have trade down from their recent highs, very notable names, sara, on that list. >> looking forward to that, for
you to name names for us. stan fischer raising concerns about u.s. economic growth. calling the global recovery, quote, disappointing. we'll talk to another well-known economist. david rosenberg, that and more when we come back. when i'm working, things can get so hectic. so sometimes i need to find an easy way to express what's most important to me. like, with my crew, i use shorthand to talk to them and tell them what i need... and when i need to talk directly to my fans... but the most meaningful shorthand of all is the one i use when i'm about to drive: "#x." it's an easy way to tell everyone that i'm about to drive. and i do it every time before i get behind the wheel. use #x to pause the conversation before you drive. because no text is worth a life
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evacuating. >> good morning to you. that's right, also hess the latest company to announce it's suspending drilling operations and removing nonessentials out of northern iraq. but let's pause for a moment here and put this in perspective in terms of what we're looking at. a production story in june the iea said in northern iraq, prodoes was 360,000 barrels of oil per day. that's roughly 15% of overall production in iraq, which is around 3 million barrel. only very small portion, a third is exported. so this south is where we need to be focused worried about what's happening in terms of the geostability of the area. right now all is quiet. traders not getting too nervous about this. remember that we're talking about nonessential employees here. they assume risk when they go to risk in high risk areas and areas of conflict, like iraq, so they know what they're get into. these suspensions in all, you know, most cases, are not always a long-term and can be very
temporary. i also want to remind you, people when they take on this risk, they are compensated for. average salaries for oil and gas workers in the middle east more than $90,000 a year. if you have more experience, higher degrees making in six figures. talk about what's happening, it's important to step back, take a pause. remember the oil markets are taking this rationally now. west texas intermediate down 3%, back under 100 a barrel. gas prices in the u.s. shaving off six cents in the last two weeks. for now the markets are calm. >> jackie, somebody making the point today that you've also had of course this year unusually a lot of the big banks pulling out of commodity trading. so there's a lot less cash trading they knee-jerk reactions and oil prices will find an equilibrium. >> that's right. remember that that creates volatility, so that's off the table. also a supply and demand picture
now. supply globally doing quite well. demand is waniing, data out of china, imports are down. look at the market as a whole, and this time of year as well, oil prices should be substant l substantially lower than where they are. >> thank you very much. interesting to talk about the employees out there. looks like equity investors, by the way, pretty calm. geopolitical has taken center stage lateately. investors reading comments from the federal reserve and what that means for policy changes as the economy improves. stanley fischer, yellen's number two at the fed, said, quote, good reasons to believe weakness in labor force participation reflects still poor cyclical conditions. david rosenberg, gluskin sheff's chief economist and strategist. sounds like the center of the federal reserve is still firmly worried about the labor market and that should have policy implications.
>> well, i think that stanley fischer was just towing the party line, that at least part of the drop of the unemployment rate does to structural reasons or certainly has been -- we still have a labor market slack reflecting cyclical developments in the economies. there's an element of truth to that. when you take a look even at most estimates of where full employment is in the u.s. in terms of the unemployment rate, it's roughly call it about 5.5%. 6.2 right now. so even with everything that stanley fischer said, taking that into account, only .7 away from being a fully employed economy. the way things are going, i think we probably get there, you know, within the next 12 months. >> what, then, is the excuse for the federal reserve to stay on this easy money path? should investors be worried about higher interest rates and the fed getting behind the
curve? >> well, you know, terms of the last comment, depends what curve you're talking about. you know, if this was the days of old when you had the bond vigilantes in full force and the fed was trying to be preemptive, you can argue they're behind the curve. if i'm not mistaken, you've had fed officials tell you 2% inflation is no longer the ceiling, it's now a floor. bottom line is that the fed wants moderately higher inflation. janet yellen told us in march they want wage growth to gravitate into 3%, 4% range. consistent, by the way, historically with inflation above 2%. i don't think they perceive themselves to be behind any curve. my sense qe done in october, janet yellen told us a rate hike is going to come a considerable time afterwards, whether three months, six months, nine months, rates will gravitate higher in 2015. my sense, there's nothing to worry about. initially a psychological hit to
the market. would have been eight or nine years since we saw the last rate hike. it's something totally new. but you rarely, if ever, see the markets go into a bear market in the first set of rate hikes. it's usually the last set of rate hikes when it comes undownward pressure. >> i want to highlight what's happening here. this cuts to the heart of whether the central question as to whether or not they're behind the curve and should raise rates sooner rather than later. you agree, from what you're saying, what fischer is saying, further sfrtrengthening of the economy will pull some workers into the market. if you don't believe it, you believe it's cyclical you believe they -- a beg your pardon, structural, they will not come back into the labor market. they keep rates low for long, that's a policy error? that's the central debate, isn't it? where we are on the discouraged workers? >> right. well, look, i think that even by the fed's own admission, we're
really just at this point a stone's throw away from getting into a 5 hnl on the unemployment rate. you have a view the participation rate will go back up. we're averaging over 200,000 on payrolls a month. you saw out of the productivity numbers that came out last week that labor share of national income is starting to rise from historic lows. i think we're going to get to full employment, probably more quickly than the markets have got priced in right now. and my sense is that, you know, the economy's probably going to be growing about potential, take the unemployment rate down. i'm not going to talk about it in terms of the fed behind the curve. to me, that's a colloquial. if you ask me the question to whether or not the economy right now needs 0% policy rates, no, i don't think so. in fact, i think actually right now fed policy may be doing more harm than good, in my opinion. but my sense is that the first
initial set of interest rate increases is not going to have much of an impact on the economy or the market. it could have a hit, but it's really when the fed really has to go aggressively. i'm not sure they have to do that initially. the sense is not behind any significant curve weep don't knee 0% rates any more. >> interesting to see the bond market ignoring that. better economic date tap we're have to leave it there thanks for weighing in on this. david rosenberg at gus. >> kinder morgan announcing that 44 billion deal to buy up subsidiaries including the purchase of kinder morgan energy partn partners, kinder morgan management and el paso partners. all shares rallying this morning. of course, ceo rich kinder was on the "squawk on the street" exclusively in the 9:00 a.m. hour. >> lower cost of capital, modest savings by putting all of these
companies together, the need to issue less equity because it's a lower yield structure and then the tax advantages, we will get a step-up basis in the assets that we're buying. if you roll all of that in, that amounts to about $20 billion in cash tax savings over the next 14 years. you put all of that together, we think this is a recipe for us being able to do lots of capital projects and lots of potential acquisitions that we simply couldn't do under the old structure. >> next on the program, 29 states gearing up to fight for more regulations for e-cigarettes. we'll talk to indiana's attorney general about why he wants e-cigs to be treated like traditional cigarettes. over 1.2 billion eyeballs are on us during the two weeks at wimbledon. true tennis fans want to know what's happening. they don't want to just see what's happening, they want to know and understand why it's happening.
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flavors, marketing and indeed, internet sales of e-cigs. indiana's attorney general, greg zoeller, joins us with more. welcome to the program. thank you for joining us on cnbc. >> good to be with you. >> you applaud the fda's decision to regulate e-cigarettes. >> we don't want to leave an unregulated market. we do applaud their efforts at this point. >> so what exactly do you want? why can you not do it as stated individually. >> i think the platform of having the fda regulate what's essentially a nicotine delivery device is something that really should be handled at the federal level. indiana and other states are looking at our own state laws and our own regulations, so we'll be prepared if the federal government doesn't act soon. >> i'm interested -- you say there are 7,000 flavors of e-cigarettes. i'm interested why you want to ban that flavoring, presumably
if the product is legal and e-cigarettes are legal it would seem overreach to ban flavoring. you don't ban flavors of alcohol. you don't ban flavors of certain sugary drinks, do you? >> new yoo flavoring of the e-cigarette is to market to the youth. the doubling of the number of kids now smoking or vaping instead of smoking shows they're aggressively marketing to our youth. it will be a lifetime of addiction we're allowing them to provide. >> how on earth can you regulate a flavor? how can you say pina colada is worse than something else? that's crazy under the framework of the law, isn't it in. >> the same way we look at ingredients of the product. we done flow what's in some. we've seen formaldehyde, a known carcinogen. we're asking for additional regulation, not to flavor but was know what's being ingested by our youth.
>> but if you look at a number of studies, mr. attorney general, these e-cigarettes are helpful in cessation of real smoking. in other words, they're the lesser of two evils. there was a recent study by unc some doctors recommended them to patients as a way to stop smoking cigarettes? are you absolutely convinced here? i mean it's hard to make a case that they are as dangerous as real cigarettes. >> oh, no, i think to compare them to a known carcinogen like cigarettes is a mislabelling of the idea that we're talking about here. so if you're in your 70s or 80 and the you've been smoking your entire life, okay, e-cigarettes might be good, if your doctor recommends. but what we're focused on is selling a lifetime of addiction to our youth. so the flavorings of something which is a nicotine-based delivery device is something that really needs aggressive action either by the fda or
attorneys general. >> don't we need process? isn't the system based on fact? the fda, i understand, has got 48 studies under way into what these e-cigarettes may do and we'll get the results in 2018. isn't it moving ahead of the curve, almost in a sense illegal way to take a legal product and ban it on what you suspect it might contain? >> well i think we saw in the whole history of cigarettes that we waited and waited. the fda didn't act, congress didn't act, the lobbyists that affect congress really prohibited a lot of their action, so it took states attorneys general to step in, go aggressively against something which at that point was proven to be a carcinogen and kills thousands and hundreds of thousands of people a year. i think at this point, attorneys general, we're consumer protectors. we don't wait until we see the consequences. >> it's good to see you, sir. please come back and update us as you attempt to get this
moving forward. greg zoeller joining, attorney general for indiana. thank you. when we come back, walmart's down 6% in the last three months. now the stock's hit with a downgrade over jeffrey's the analyst who made that call in just a minute. with all the opions about stocks out there, how do you know which ones to follow? the equity summary score consolidates the ratings of up to 10 independent research providers into a single score that's weighted based on how accurate they've been in the past. i'm howard spielberg of fidelity investments. the equity summary score is one more innovative reason serious investors are choosing fidelity. call or click to open your fidelity account today.
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. walmart's rough quarter just for the a bit rougher. downgrade this morning, concerns about investment spending. not yielding the results we hoped for, a quote from jeffries out with a note this morning. joining us here on "squawk on the street," taking it from buy to hold. why are you not encouraged by what management is doing? >> we've had several quarters of heavy investment spending, and that cuffs a lot of different areas of price investment, labor investment and e-commerce investment. and while e-commerce sales have been quite strong, their low margin company, so essentially you're transferring higher
margin sales. so the turnaround has taken longer than we had hoped. >> you talk about turning a giant ship like walmart around. and what about the moods to shrink stores instead of the super centers? they found this has been pretty successful. >> it does take time to turn around for sure. in terms of the small formats that you mentioned, i think strategically they need to address that market. the dollar stores have eaten into their share. walmart is going after that. accelerated the growth. return on the investment in the smaller are formats is actually lower than their super centers in the early years of maturity. and so as they accelerate that growth, you're axle reallying a lower rl chlt format and it adds another pressure on return of
investment. and it's hard to argue for mull tim expansion. >> dollar stores are facing trouble, but obviously there is trouble at the macro level. you see it in target and some consumer companies. how much of walmarwalmart's pro are that tough environment and how much are self-inflicted? >> the low income customer has had a tough time for many year, certainly through this recession, they have recovered more slowly. that is clearly a part of the problem that all of these retailers that serve that customer are seeing. i think, however, the dollar stores as much as they have had some issues in recent quarters are still out comping walmart. i think some of walmart's problems are that they alleged some challenges late and they're playing catchup. doesn't seem to be quite enough yet. >> is it seem like a big part is whether they will make more more and higher margins online. we have to leave it there.
thanks for leaving us there. jeffrey just took-t walmart dow to a hold there buy. and preparing to take to the air. kayla tausche here with a look. >> new battleground for amazon, this time disney. we'll have that story. and also backlash against facebook's new messaging app. does it deserve the one star rating. we will ask that very question. and finally, chad dickerson on the kraft site move into retail. we needed 30 new hires for our call center.
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has a lot of a-appeal. guys, back to you. >> second quarter was even more challenging than we had initially anticipated. the most difficult operating environment in the history of the company, certainly didn't want to hear that. dean foods saying that and they're dealing with soaring milk prices to record highs. excuses continue to pile up. >> it is real. margins are under pressure. >> meantime overall market up. for that, we'll send it over to carl. >> good morning. it is 11:00 a.m.. 8:00 a.m. out west. and squawk alley is live.
♪ welcome to squawk ally. joining me john steinberg. always good to have you. after a weekend of flying drones, pretty good market, a and a lot to talk about in tech. first warner brothers, now disney. amazon reportedly stopping pre-orders for disney movies after an apparent contract dispute. amazon used this tactic earlier in the year with warner brothers. this comes as they