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tv   Squawk on the Street  CNBC  August 17, 2012 9:00am-12:00pm EDT

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all of these cases. >> right. >> they were wiped out in gm. >> we'll have to leave it there. secretary, you have to come back. this was a lot of fun. >> thank you. >> joseph, have a great vacation. >> thank you. >> have a great weekend. join us on monday. "squawk on the street" begins right now. good friday morning. welcome to "squawk on the street." i'm melissa lee alongside david faber and mr. simon hobbs. carl quintanilla and jim cramer are both off today. the dow is starting the session 29 points away from a 4 1/2-year closing high. the s&p about four points away from a four-year high. we look like we'll open to the downside on both the dow and the s&p. as for the picture in europe, some positive signs there, sending stocks to near 13-year highs.
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we have a mixed bag right now. the roadmap starts off with the facebook fallout. shares hitting a new low after the first lock-up expired. who's telling how much more downside for the stock when the massive lock-ups come later this year. >> a new milestone for apple shares, closing at a new all-time high as jeffries raises its price target to a whopping $900 a share. we'll talk to the analyst behind that call. >> and the turnaround at the gap continues. the retailer boasting a beat on earnings and raising its guidance. gap shares trading higher premarket. a phenomenal performance for that stock over the last year. >> and then as we mentioned, there is europe shares hitting a 13-month high fueled by comments from europe's angela merkel that the country remains committed to the euro. we stick with facebook. one day after the stock failed to all-time lows, $19.69, was that intraday low before closing at $19.87 following the first lock-up expiration.
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mark zuckerberg, according to "the wall street journal," conceded it may be painful to watch his investors continue to retreat from facebook stocks. the value of shares have fallen from $19.1 billion to just over $10 billion. i think the smallest violin in the world right now is playing for mark zuckerberg. but investors who have been locked in the stock have really, really suffered at this point. >> they have. yesterday we talked about it and you made a lot of the fact that i said it was a broken stock. it's down 50% from its ipo price. we focus so much on those early days on nasdaq's problems, on whether it was morgan stanley that was responsible. but here we sit roughly three months out from the official public offering and it's facebook's problem at this point as they deal with this overhang of stock that's going to continue for some time. yesterday the sellers were more likely -- the unlocked shares
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were more likely to be sold because they were people who sold some of the stock in the ipo, they were the early investors but there's a lot more stock to come. >> i predict there will be a massive short squeeze on facebook. i think this stock could potentlly rocket towards the end of the year. this is why i would argue that, partly because the short interest is so large. coming into yesterday, it was roughly 80%. there's a massive short position. if you read shandy's article today in "the journal," it talks about zuckerberg talking to the staff. it's been a painful period but he's explicitly saying here, the press doesn't know the company's future plans. if they did, they would have the same faith in facebook's ability. >> that there's a message internally that's not being conveyed publicly to shareholders? >> correct. and there's speculation they're
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going to come through in the fall. >> that is a huge leap of faith that there's a message being conveyed internally at the company as to how they monetize the roadmap ahead that's not being conveyed to the outside world. why would they sit on that with their shares sitting at new lows day after day? isn't it their responsibility to shareholders out there suffering through this decline to actually let us know what is going on there and what their plans are? >> they would argue they're playing a long-term game and there are further lock-ups to come. at what point do you get worried about the share price? and let's be clear about this, this enables facebook friends to be able to see what other people are buying, share their purchases and their charitable donations. it would be social commerce, a new wave of social commerce. >> can you press the button and say, i want a higher stock price?
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>> maybe the technology isn't quite ready. maybe they're waiting to roll it out -- >> i appreciate the side of the argument that you're bringing to the table. but for shareholders who are now sitting at close to all-time lows on this stock -- yesterday was a baby lock-up expiration. the big one comes in november. that's going to be 1.3 billion shares. >> it will go down sharply. i think the final point here, you follow these valuations. at this point at least the analyst who followed the company, this is still not an inexpensive stock. >> no, even with the decline. huge decline in the shares. >> let me make one more point. what also comes out of this article is they are concerned internally -- and i paraphrase here, about staff retention.
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they're worried that people -- >> they should be. >> at that point, he may have to profit maximize which he said he wouldn't do in order to retain his staff and keep the party going. this may be a change in sentiment within facebook. >> if that's what it takes, then that's what it takes. >> just saying. >> shares of apple rising in the premarket one day after hitting a record-closing high of $636.34. the stock less than $8 away from its all-time intraday high. jeffries raising its price target on apple from $800 to $900 a share. the firm saying its channel checks indicate apple's ipad mini has gone now into production. the jeffries analyst will join us to discuss his call on apple later in the program. this is an important stock for the market. >> in terms of percentage, it's 20% of the nasdaq. >> in terms of the gains we've had over the past year -- >> this was a quiet move to an all-time high.
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not intraday. a quiet move to an all-time high here. in the past, we followed every tick of this stock. coming out of not a great quarter, and in the midst of a quarter that will not be a great quarter given people continuing to hold back before the iphone 5 comes. >> there is a pressure out there amongst mutual fund managers, money managers, et cetera, to own this stock going into this product launch. the traditional pattern, historic pattern has been running up into the product launch, selling off after the product launch. and we're bookended by what will be a seasonally strong quarter with the fourth quarter. let's get a shareholder's take on the apple situation. michael senseatera owns about 375,000 shares of apple. michael, great to have you with us. >> thanks, guys. >> how important is apple tv to your bullish outlook for apple? >> we look at apple tv like a long-term call option on the
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company. it's more important for us in the short term what iphone and ipad units do. apple has done a fantastic job of disintermediating and making it larger and larger. if they can partner with cable providers or media content guys much in the same way they did with the record labels, we think it can help the company longer term. but short term, we're more focused on ipads, iphones and their continue to take market share there. >> what would be a more richly valued option? >> if you think about it thematically, we like to think apple's done a good job of getting into these channels much like they did in the record industry saying they want to provide a new way to do old things. i've never met anybody who likes their set-top boxes and the
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interface therein. at ridgeworth management, we look for those companies who can really find ways that disrupt their markets and get pricing. so apple probably -- they've always had the apple tv business. it's been a very small piece of their business at $99 for the apple tv. will they do a television, a set-top box is less important as will they be able to get the proper contracts with cable providers or with media companies directly such that they can allow and provide content to their user base. >> michael, one of the reasons to buy apple is because you believe that it's an exceptionally well-run company and it can deal with the fact that it's reaching the scale that it is and whether it can contend with the large numbers. in that requirement, how concerned are you that within the last 24 hours we've actually had an apology from apple over what it appears to be doing in some parts of its retail empire? the british guy that they recruited apparently cutting
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staff hours in certain markets and a reversal now on that. is that significant for you as a shareholder or more or less white noise compared to the product development? >> that's the definition of white noise to us. at the ridgeworth large cap growth fund, we're looking for key metric on every company we own. key metrics becomes the reasons why these stocks can outperform their peers and outperform the market as a whole. a real footprint of any type of company is going to have fits and starts, periods where you're growing, shrinking, changing, moving staff around. apple's square footage of retail has been some of the most profitable ever. they can make changes. we give them latitude to do that. we want to focus on the things we think drives the stock. for us, that's units of a lot of these major product lines. >> don't you almost have to own the stock if you're a growth fund like yours and you're going to compare yourself to various indexes and/or to your peers? doesn't it become an automatic
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that you have to own apple. >> i would challenge people to make the bear case beyond the market cap argument. but in the russell 1000 growth index that we bench ourselves to, it's 8% of the index. to your point, you have to own 8% of your fund if you just want to be market weight the index. >> michael, are you 8% of your portfolio in apple or are you more? >> we're more than that. we're about 175 basis points active. >> michael, great to speak with you. >> thanks, guys. >> shares of gap rising in the premarket. second-quarter profits up. better-than-expected 29%. strong sales in north america. they raise their full-year forecast. the gap has been performing quite well, executing well, inventories have been managed far better. it's been a turnaround that has been reflected already in the
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stock price. >> and the stock valuation. if you look at the p/e and the forward p/e, it's trading at a higher multiple than macy's is. you see the turnaround happening, great metrics such as gross margins improving, inventories going down, big same-store sales increases across its businesses and you wonder how much of it is already reflected in the premium valuations. >> school traffic is down. that's one concern. apart from that it is a stunning reversal listed in terms of the personnel changes they've come through with, the partnerships they've done within fashions. and also i guess they write the color theme. who knew that color -- i was so flabbergasted -- >> colored denim. a huge trend. >> it turned into big bucks. >> color is very important. let's get a little bit more on
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the gap right now. let's bring in two analysts that have different opinions on the stock. evelyn cupperman and joining us, richard jaffray. what gives you pause here? melissa mentions the valuation being somewhat rich. is that perhaps part of why you only have this thing rated a market perform? >> right. gap is up 85% this year. that's one of the best-performing retail stocks. that's better than the past decade that we have seen gap stocks. to say that expectations are high is an understatement. the street estimates are already ahead of the company's raised guidance. and the stock is trading at 17, 18 times that earnings guidance the company put out. that's significantly ahead of the -- what the stock has averaged over the past five to ten years. i think a lot of the good news is priced in at this point.
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>> richard, to that point, your response? it has been a heck of a run. they do seem to be executing far better. but is the best behind in it terms of the performance? >> no. i think their execution while very good has not been great. they've left a lot on the table in terms of traffic. traffic is down year over year. they're still not attracting all their customers back into stores. there's still a lot of runway ahead. a business that's now an 11% operating business can expand to 14% or 15% closer to the historical range of the company. >> the ceo on the conference call mentioned that marketing investments have paid off online and social media have led to near immediate boost to product demand. is that where you see getting that incremental online business, increasing the store traffic? is the company on the right track to being well executed as opposed to leaving some stuff on the table?
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>> i think the future is going to be marketing in ways i can only imagine whether that includes tv, social marketing, traditional print advertising. i think there's the whole gamut out there that they're going to explore. old navy's been very successful on tv. i think that continues. >> pick up on what richard is saying about the ability to raise the margin. they're embarking on now cutting one-fifth of their stores in north america which to his point will push that margin higher? >> right. that's very true. the store base is much healthier today after years of closing stores. and it is true, they are actually entering higher margin businesses such as the e-commerce channel and some of the international franchise. i wouldn't disagree that there's margin opportunity. but, again, in retail, you have to prove yourself every season.
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so i think there's some good evidence that the product and the marketing initiatives might be working this time on the healthier store base. but the competitive environment is getting a lot tougher in the back half with jcpenney with some of their peers in the mall. i do worry we're going to have to see more in the back half. >> aren't they locking in effectively a very good team around them with the relationship they have with people like h & m? >> that's right. so those have worked out very well for them. and like i said, i think a lot of that is already priced into the stock. the other thing to look at is a couple of years ago, they put together six quarters of negative comps before things started going wrong again. so i think we're taking a little bit of a wait-and-see approach, especially at this valuation, to see that this is not just a
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two-quarter phenomena of good weather in the first quarter and some strong fashion trends in the spring. >> thanks to you both. appreciate it. coming up, after falling to all-time lows, when will shares of groupon bottom out? you want to hear one analyst's latest call on the stock and how low he thinks groupon can go. also ahead, the road to the white house meets the race to get fit. we'll talk with p90x founder, tony horton. paul ryan apparently has 6% to 8% body fat. very impressive. another look at futures as we head to the final trading session of the week. looking at a mixed bag. more "squawk on the street" straight ahead. ♪ [ male announcer ] aggressive styling. a more fuel-efficient turbocharged engine. and a completely redesigned interior.
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♪ there's now evidence of facebook's ceo mark zuckerberg is taking notice of his company's sinking stock price. "the wall street journal" reporting that zuckerberg told employees in a companywide meeting earlier this month that it may be painful to watch as investors continue to retreat from the stock. the companywide meeting, part of a new effort to boost employee morale. that brings us to this morning's "squawk on the tweet" question. what should mark zuckerberg do to boost employee morale at facebook? tweet us. we've got your responses throughout the morning.
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i'm sure plenty of responses will say things like, increase the stock price. >> or employ marissa mayer. coming up, sunday marks eight years since google became public. what an incredible ride it's been for investors in google's stock. we're going to talk about that with the author of "the google story." taking a look at futures as we head into the open this friday. an important bounce potentially. it could take us to year highs. stay with us. and more "squawk on the street" from the nyse straight ahead. [ male announcer ] eligible for medicare?
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♪ if when we open for trade in six minutes, the s&p rises 0.3%, it will mean we are at our april highs and a post-financial crisis high. art cashin joins us. you said we would tiptoe into the weekend. >> people are trying to find out where things stand. draghi made his defense of the euro, we'll do anything necessary. we had a sharp rally. for eight sessions we moved laterally. yesterday angela merkel emerged from the witness protection program. she was dressed in her fairy godmother outfit so everyone felt better about that. we got another leg-up in this rally. there was a remarkable lack of
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detail, however. and i think that's why people will tiptoe into the weekend. >> if you look at what draghi said two weeks ago, it was obvious he was going to keep the germs on board. that's why he was announcing the process that spain and italy had to ask for the bailout. you could have predicted the germans would be on board. >> well, verbally they're on board. i think -- we don't have the detail yet. spain hasn't said, i admit it, i need a helping hand. that hasn't happened. so, again, i would suggest to you, simon, that we're lacking the details, which has been a problem in this all the way through. >> but technically speaking from the market standpoint, you mentioned the push higher, the leveling out and then the push higher again. technically speaking, isn't that a good move for the markets to 4 1/2-year highs on the dow. 20 points away from those highs on the dow. >> it's an excellent move in
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that. they went up and then they moved laterally. the laterally raised a question mark. are they exhausting? will they be able to make it? the fact that they could add on to it is technically very good. what you need for them to do now is to blow out through the 1,422 old highs and see how they react. that prompts a big round of short covering. are the shorts going to panic here? >> are these typically the slowest weeks of the year we're coming into, so many vacations. is there anything you can really count on when we watch volume days that are amongst the lowest of the careyear? >> the volume has been shrinking and more remarkably up until yesterday, the volatilitity had shrunk. there were studies that the volatility and the s.p.y. and the spdrs are the lowest it's been except at any point like around christmas. >> art, good to see you.
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there we go. the opening bell rings for a friday. here at the big board, we'll speak with them in a few minutes. over at the nasdaq, kayla harrison, the olympic champion in judo. >> real sailing aficionados over there at the big board. dennis conner won the america's cup four times. >> follows a stream of business titans, ted turner, of course. larry ellison. >> exactly. >> you know your sailing. >> you really do, simon. you're like an encyclopedia of sailing. >> let's watch apple shares today. apple shares are making their way closer to a fresh all-time
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high. we are at $640 right now. yesterday, apple closed at a new record closing high. >> as you said earlier, this is the typical pattern in advance of the launch of the new products, the iphone chiefly in this instance, you get this run-up. and then potentially they book profits before the end of the fourth quarter? >> no, usually sells off immediately after the product launch and gains steam in the fourth quarter because that's seasonally the strong quarter with back to school and the holiday season all this one. apple, by the way, interesting stat with cicso increasing its dividend yesterday by 75%. apple is the third biggest dividend payer in the s&p 500. and technology dividends now account for 14.22% of all s&p 500 dividends paid out which exceeds consumer staples at this point. >> that is unexpected. although many of these companies are piling up cash at a rapid rate.
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i think cicso is close to $50 billion in cash. don't forget, a good amount of it for many of these companies is overseas. they don't want to pay taxes when they bring it back to the u.s. hence, it stays there. in the case of apple, i forget where we are. every minute it changes. keeps going up by $1 million a minute or some unbelievable number. >> in the case of cicso, it is the maturing of those stocks from growth arguably to value. and the desire still to attract shareholder interest with the dividend increasingly. >> yes. >> arguably. >> they would like to argue that they are also growth companies. >> when you take a look at apple, apple is a huge dividend payer. >> but in this market in particular where people are searching for yield so aggressively, it has helped a great deal to have a significant dividend. and we've watched the names such as at&t and verizon and many others that do have that, hit in new heights, largely as a result of those yields. >> watching social media stocks this morning. groupon hitting a new low,
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$4.75, that intraday low. price target was cut on groupon to $3 a share. >> from $6.50. >> it's down by about 4%. facebook is managing a gain. bouncing off of its all-time low set in yesterday's session. we are seeing facebook shares up by just about 1% right now. taking a look at some other stocks on the move, the gap, for instance, a new 52-week high on shares of the gap. $35.31 here, up by 2.5% on better-than-expected earnings. raising its forecast for the year, not quite as bullish as the analyst estimates on the street so far. but still analysts are taking it in stride. they like the gross margin improvements and the fact that inventories are going down. they like the fact that gap is on track to open 30 stores in china. they want to see how the brand floats in that country. then they'll re-evaluate their strategy at that point. moving cautiously forward with
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international expansion. reminder, gap shares right now, the p/e is 19. the forward p/e is 17. >> we heard the argument earlier from the bulls, the bullish case about how the margin could expand up to 15%, which is obviously transformative. the call was for, i think, $40. >> and just quick on another retailer, footlocker, new 52-week high today. second-quarter beat. inventories coming down. making a nice move, up by almost 4% early on in the session. let's check in with courtney reagan who's on the floor. >> good morning, melissa. as i look up here, we're about 22 points higher on the dow. it is friday. it is august. but still we are higher, moving slightly higher to continue the what we've seen this week. and if you think about europe, the headlines have been pretty quiet. but what angela merkel said about maintaining what germany can to make sure that that euro is maintained, it made the markets a little happy.
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we've got the yield on the spanish ten-year below 6.5%, near lows of the week as we move into that european close and move into the weekend. and you were talking about the retailers and a lot of these specialty names are getting it right. let's start with the gap, hitting again 52-week highs. not only do we beat on the top and the bottom line, margins improve, inventories good. this decade-long turnaround plan is finally resonating with consumers and also with investors. ann beating on the top and bottom line as well. foot locker also doing well. if you have the right product at a price the consumer perceives is a good value, you can do well. let's move from retail now back to the earth. look at shares of molycorp here. struggling today. this rare earth miner planning to sell $450 million of stock in convertible debt to help fund
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its operations. this raises questions as a result. they're downgrading shares to a hold. moody's cutting the credit rating after the bell yesterday. so now we're seeing shares trade below 52-week lows, which we hit yesterday. i believe we're below $10 a share right now. we'll watch that as the day moves before. and look at ion, tech services company. they have lost a patent lawsuit out of texas. right now, shares really, really taking a hit. this has to do with a patent that has to do with seismic technology. so, again, all earth related. back to you. >> thank you very much, courtney reagan. let's go to rick santelli at the cme group in chicago. good morning. >> good morning, melissa lee. i think with merkel comments and europe slowly coming back into the news, even though many traders and a lot of the activity is probably not going to come back till we get into september, there's this ongoing debate and it's actually twofold. what has been the cause for interest rates -- you hear a lot
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of reasons but they don't hold water because equity markets aren't going down. a lot of the reasons interest rates would go up. it's ryan being the vp pick, because of the federal reserve implications for ben and q.e. doesn't hold water because that was pushing rates up, why wouldn't stocks go down? the markets have an opinion. when did mario draghi come out with his comments? july 26th. let's make that the starting point and let the markets have a say-so in this because it's pretty revealing. if you look at the charts in that context, look at ten-year note yields. remember, two days afterthat comment on the 24th was our lowest yield close ever under 1.40. pretty much straight up, don't you think? let's look at the equity markets. let's look at the s&p 500. pretty much straight up. now let's look at the spanish stock market. pretty much straight up. and almost a carbon copy of what our stock market looks like. last one is euro currency, not quite as clear. but the things i draw away from this is they are buying the notion at the moment because euro is still hanging up higher than it was on the 26th.
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melissa lee, back to you. >> rick santelli, thanks much. let's go over to energy and metals and check in with bertha coombs at the nymex. >> watching that brent contract, it's really under pressure this morning. part of it is at the september time period and the september futures mark that shut-in of production, expected to come back in october. also a report from reuters that the white house is considering dusting off a plan for an spr release. hitting the brent contract more and gasoline more as they are more about the international global production here in the u.s., production continues to be very strong. so wti, not as strong. in metals, platinum is the story, extending gains here. getting report that is that clash between police and striking miners at the lanman mine yesterday, death toll above 30. violence into its seventh day now. a lot of folks are worried this
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could become more political and that the unrest could spread throughout the country. that's something that folks are watching. that appears to be the wrong video there. we had some video of the violence in south africa. back to you guys. >> bertha coombs, thanks so much. there was a story floating around the pits that perhaps the obama administration could be looking to release some oil from the strategic petroleum reserve, the spr, to lower gas prices and oil prices. let's bring in the source of that report, stephen shork. great to speak with you. in your note, you along with a lot of strategists believe that the bull trend in wti is very strong and we are likely to go higher on wti and you also write with each dollar increase in oil, you have to figure the odds shortened, that the white house will step into the fray. at this point, what are the odds of the white house stepping in with an spr release? >> at this point, melissa, i'll place the odds at about even money at the situation.
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the white house is in an extremely difficult position right now because voters are going to be paying more for their gasoline in the month of september than they were in the month of july at the height of the driving season. according to aaa, retail gasoline prices have increased for 20 straight days. that means that since the beginning of july when prices typically move lower -- for instance, over the previous five years, prices for retail have moved lower in two out of every three days. this summer, prices have increased five out of every six days. we are paying considerably more for our gasoline. the problem here is crude oil prices, the brent market, which is a proxy for the refinery acquisition cost of crude oil, has jumped $10 from mid june to mid july. very strong correlation. a $10 move in brent crude oil translates into a 22 cent per gallon increase for consumers.
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over the past month, gasoline prices are up 22 cents. the problem is brent's jumped another $10 a barrel. 30 days from there, correlation guesses it will be another 22 cents higher which would push the average price closer to $4. >> at the same time, isn't there a magic window in which the obama administration would have to act in order for it to not look overly political? >> at this point, that ship has sailed. it's going to be a political move. but the obama administration has a fundamental -- they do have a cause. part of this rally that's being driven is on concerns of supply in the north sea. there's a lot of maintenance going on in the oil fields there. you're not getting the normal amount of oil you would. the obama administration could make -- it is political, but they could make a plausible cause that because of north sea production snafus, we need to release barrels here to get more oil onto the global market.
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they do have plausible cause right there. >> stephen, thanks for your time. appreciate it. >> thank you. a very heartfelt ringing of the opening bell today. we're joined by mr. america's cup, dennis connor, recently voted america's greatest sailor by his peers. welcome to the program. congratulations on ringing the bell today. >> simon, thank you very much. it was a great thrill and honor to be here. >> so you won the america's cup four times. >> yes, i have. >> which means -- >> thanks for not mentioning i lost it a few times, too. >> you lost it and you got it back again. >> the queen lost it in 1851. >> you lost the cup but you managed to win it back again. >> i did. it was a great thrill having lunch with the president and being on the cover of "sports illustrated" with president regan. the parade was great. but donald trump was in the front of the parade with the cup and i was nine rows back.
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>> of course the sport is changing all the time. there's a lot of big money now. larry ellison springs to mind. 1 billion. is that a good development, do you think? >> america's cup has always been at the leading edge of the sport. without the money and people like larry that have the vision and the drive and the passion to try to win, the sport wouldn't move ahead. the man in the street likes to follow this. all in all, most people have a chance to beat larry. >> who were your backers when you won? >> i had no money. i had to -- corporate world, merrill lynch, pepsi, american airlines. i had the help of the corporate world that tried to sell product by being involved. it was a different world. now it's back to what it used to be, with sir thomas lipton and vanderbilt. now it's the billionaires against the billionaires. it's come full circle now. >> but in a good way? >> i think so. because without that money, you can't be the best sailor in the world. but you can't win without a good boat. >> the america's cup gets under way next week in san francisco. do you still go and participate?
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>> the actual cup is in september of next year. these are tune-ups. i watch and stay tuned to what's going on. but larry doesn't need any help from the dinosaurs. >> dennis, nice to meet you. congratulations. >> thank you. >> melissa, back to you. coming up, groupon's fall to new all-time lows. we'll talk to an analyst downgrading the stock, slicing the price target. says the free fall isn't over. [ male announcer ] at scottrade, we believe the more you know, the better you trade. so we have ongoing webinars and interactive learning, plus, in-branch seminars at over 500 locations, where our dedicated support teams help you know more so your money can do more. [ rodger ] at scottrade,
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i've got a nice long life ahead. big plans. so when i found out medicare doesn't pay all my medical expenses, i got a medicare supplement insurance plan. [ male announcer ] if you're eligible for medicare, you may know it only covers about 80% of your part b medical expenses. the rest is up to you. call and find out about an aarp medicare supplement insurance plan, insured by unitedhealthcare insurance company. like all standardized medicare supplement plans, it could save you thousands in out-of-pocket costs. call now to request your free decision guide. i've been with my doctor for 12 years. now i know i'll be able to stick with him. you'll be able to visit any doctor or hospital that accepts medicare patients. plus, there are no networks, and you never need a referral. see why millions of people
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have already enrolled in the only medicare supplement insurance plans endorsed by aarp. don't wait. call now. groupon hitting a new all-time low in today's session, trading below $5 a share. stock was downgraded to an underweight last night and lowering the price target to $3. ken is an analyst and joins us. what was the biggest thing you got wrong about groupon? >> that's a good question. i think that we probably were too excited about the local opportunity. and i think really seeing how merchants and consumers could
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use the platform to find goods around them. i think that was slower -- it's still a possibility on the stock. but i think for us, the nearer-term concerns have more to do with the daily deals business and the declines you're seeing in overall billings there. what we highlighted in this report and our decision to downgrade is that given that groupon pays its merchants out about 60 days following when they collect cash from their consumers, now that you have billings starting to decline, you have a working capital benefit that is working against them. and we see it at being very challenging for group ton grow its cash flow going forward. >> ken, we should point out, you had a very good call as well. in terms of at least questioning that first-party goods business in terms of how they were booking things. and then you did get the company to actually give us a little bit more information, which resulted in what we saw last quarter. i talked to a couple of buy siders who applaud your work on
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that. >> thank you. >> when i read your note here, you're talking about -- you're reducing your operating cash flow assumptions and ebitda assumptio assumptions. talking about cash coming down at the company. doesn't seem to be particularly a good mix at all etch in terms of this company's ability to generate cash into the future and maintain debt level that is it's going to be all right with. >> one of the misconceptions here is that groupon has a lot of cash on its balance sheet. a lot of that cash is not theirs. they still have roughly of their $1.2 billion in cash, they have about $800 million in accrued payables. i think as you look forward, too, as you think about the operating cash flow last year, they did about $300 million. well, about $400 million of that number was due to the cash they had on hand that they ultimately had to turn around to pay merchants. that has virtually disappeared
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now. and in tuesday's release, you saw that go negative. when we look forward at this business, given the rewinding of the -- or the unwinding of their working capital benefit, i think it's going to be very hard for them to show that income earned can offset the cash that they're going to have to pay out in that respect. i think especially when you're talking about a de-leveraging of the cogs going into first-party goods as we discussed in that earlier report and the fact that the company pays a much higher tax rate than most of its peers, given the complexity around its internatio erations. >> i listen to these figures you're throwing out. it makes me think that groupon may have a limited number of days ahead of it. >> i wouldn't say days. i think what would be required really for you to see that play out is that billions would have to -- would actually have to stay either flat or show some declines. i think the company has provided revenue guidance. and part of that revenue guidance is the fact that they are booking 100% of goods sold
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first party through direct that is driving that revenue line. but when talking about their cash flow situation, a lot of it has to do with their overall billings growth. and that showed a decline quarter over quarter recently. until the company can convince investor that is that billions can reaccelerate, which i'm skeptical of, i think you are dealing with a situation that could potentially -- >> why not just walk away entirely from the stock? why bother with a $3 price target, given what you're tau t talking about? >> i feel like i did walk away from it. we give them credit for the cash. we currently assume that billings can stay flat to growth slightly. if billings continues to go negative, you're talking about lower from where we are currently. >> ken, thank you so much. moments away from breaking news on consumer sentiment. we'll bring you the results, plus market reaction. also ahead, tony horton, the mastermind behind p90x, the exercise program getting a list
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thanks to the vice presidential candidate paul ryan. we'll speak to him straight ahead.
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breaking news on consumer sentiment. rick santelli at the cme group in chicago with those numbers. >> thanks, melissa lee. we're waiting on that number. it should be released momentarily. 73.6. it's a bit better than we were expecting. and it's definitely better than our last look at 72.3. but the real issue is our last number was the lowest number of the year. so 73.6 now becomes the third lowest number of the year. we had 73.2 in may. and the high watermark -- excuse me, june, high watermark was may at 79.3. a bit better than expected. there are so many things that factor into confidence, energy prices are a big one. and certain parts of the country have seen major spikes of late. we'll have to continue to monitor how that affects confidence. melissa lee, it's all yours.
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>> thank you very much, rick santelli. not too much movement on the markets on the back of those numbers. the s&p 500, just about two points away from a four-year closing high, if we go two points higher and close at that level. >> which is a post-crisis high. >> yes, it is. exactly. that's why it's important. >> and we should also point out that in europe, which we have not talked about that much over the last few weeks -- may be one reason we've been moving higher on the s&p is we haven't been talking about it. yields are down a bit. things continue to move at least for now in the right direction. >> and what's happening in europe is you've now closed the underperformance you had with u.s. stocks. only two or three percentage points year to date lower. it's a very, very strong rally. we're going to talk about facebook and what zuckerberg has up his sleeve for the market, according to today's "the wall
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street journal." and why there may be 40% upside on apple's stock. we'll talk to jeffries' analyst who has just upped his target to $900. that and more on "squawk on the street." 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
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welcome back to "squawk on the street." we have july leading economic indicators. the last number of the week and we've had some big ones, up .4. this is better than expectations. we were looking for about half that. we talked about this on the exchange a couple of days ago. another revision and another negative revision, originally released for june, down .3 is now down .4. it's positive this month. back to you. >> thank you very much, rick santelli. let's get to the roadmap for the next big hour of "squawk on the street." facebook shares bouncing back little today after hitting a new all-time low on the back of yesterday's first lock-up expiration. with the largest lock-up still yet to come, how much more selling is in store? >> and apple sneakily hitting -- >> it is at a new intraday all-time high, just now.
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sorry to interrupt. >> that's fine. ahead on the program, jeffries' analyst one of the reasons it's doing so well is jeffries has a $900 price target on apple. they will be on the program to justify a 40% higher call. >> $644.13 is the new intraday high on apple shares. plus, don't look now, but for the first time since the early 1990s, the gap just might be cool again. our panel of experts will sort for the retailer's new design and marketing initiatives and lay out their thoughts on gap's increasing competition. but first, keeping a close eye on shares of facebook following yesterday's new all-time low on the back of its first lock-up expiration. rick summer is a senior analyst at morningstar. we've invited him back to weigh in on this move this morning. always good to see you. >> thanks very figure me. >> has anything changed in your view from the last time we spoke to you just about 24 hours ago? >> no, not at all. one of the things -- we sent out a note to our clients last night
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really it rating, expect near-term volatility. but this is something very close to watching, getting close to being extremely attractive at our levels. 40% discount to what we think the company's worth right now. >> you would recommend buying it ahead of the biggest lock-up to come in november when 1.25 billion shares come to market? >> really depends on the client and the portfolio. there's obviously the potential for another legdown here. a lot of float is going to come out particularly in that november lock-up. we'll see about a billion shares come out. 44% of that company. but we have to remember, people that are selling are already selling. there's not a lot of over demand here at this point that's oversaturated. it's a bit of a self-fulfilling prophecy, we believe. >> that is an important dynamic. the flip side of that is where do you think the buying will emerge from to drive it higher to where you think it should be?
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>> that's a fantastic question. we actually think it's going to take some turnaround in the business. oftentimes you see a stock price be a leading indicator of that turnaround. it may take anecdotes and more transparency in that mobile business as that mobility starts to look stronger. we really believe the competitive advantages for facebook are going to start to make people be a lot more optimistic in this story. regardless of the fundamentals of the business which should turn around and growth can reaccelerate over the course of the next year and a half, the question is, do you want to try and time to it get to the bottom or actually wait for that turnaround to actually occur. >> rick, this is a silly question but i'm going to ask it anyway. as facebook's market cap declines, does it become a merger or acquisition target? >> yeah. webls. there's a great deal of control that zuckerberg has. they have a great deal of cash on the balance sheet. one of the positive things that we actually believe, they can control their own destiny.
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and considering they have such strong competitive -- that's going to be very, very important for their growth story going forward. >> we should point out stock hitting a new low. take me through why you think it's worth so much more than this? what is the key metric you're using in terms of determining value here? >> one of the things -- we did a ten-year cash flow period. we still look at a shift from offline to online advertising that's going to occur. this is going to be a different bucket than actually went to search engine marketing. this isn't disrupting search engine marketing. this is disrupting traditional offline branded marketing. but we're not there yet. we only have $5 billion, which is still a large amount but annual $5 billion of revenue. we think that revenue amount triples over the course of the next four years. and then looking at double-digit growth on a topline basis there. what that means is we have reasonably rich multiples going forward on a price-to-earnings or price-to-sales basis but we think they're warranted given
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the growth prospects for the company. >> when you get calls from clients, when you take the temperature on facebook, is it more that you're trying to convince them that there is a fundamental story there? or do they want to buy the stock? >> i think right now, we talk to a lot of the rotation that happened with google. we find a lot of new investors coming to google that understand the story simply because the valuation was so rich a decade ago and they never took the time to learn the story. then when it got cheap, they weren't ready to pull the trigger. we're trying to make sure investors aren't doing the same thing with facebook. what we're encouraging people to do is investors to put it on their watch list. keep in mind, our investors aren't high-frequency traders. they're looking for companies with long-term franchise value. this one is starting to look reasonable enough so where they can put it on their screens. it's not right for every investor or every portfolio. but that's generally the discussion we're having today. >> rick, "the wall street
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journal" reveals that zuckerberg recently said to employees the press doesn't know the company's future plans, if they did, they'd have the same faith in facebook's ability to fulfill its lofty stock market valuation. what do you think he is referring to? what are the plans that zuckerberg has that will boost its stock higher? is it the want button that may be revealed in the fourth quarter? >> there's two important elements that are going to come out of this. one is mobility. a lot of companies have been hammered by their inability to monetize mobile. we think mobile gets monetized. but the problem is who's left standing when it's time to actually monetize mobile. who's going to be a giant in mobile? clearly we believe google and apple are. but we believe facebook has strong competitive advantages there. we think they're going to be able to materialize more in a mobile sense for con textual-based advertising. two is platform. platform helps not only in mobile but it helps in the
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broader web. to the extent they actually help applications get discovered which is one of the key problems right now in a mobile environment and on the web environment, we think they have a great deal of value to deliver and their advertising eco system as it develops could be one of the richest available. >> rick, good to speak with you. >> thanks for having me. >> ironic that yesterday when we were speaking to rick, the stock also hit a new low. >> i don't think that's rick's fault. >> no, just saying it's interesting. i don't blame rick at all. >> it's often hitting new lows. >> that's true. >> chances are. >> 19.65 is the new low on this. on facebook, "the wall street journal's" reporting that zuckerberg told employees in a companywide meeting earlier this month this it may be painful to watch as investors continue to retreat from the stock, what should mark zuckerberg do to boost employee morale at facebook? tweet us and let us know what you think. we have your responses
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throughout the morning. let's check in with where we are in the commodities space this friday morning. bertha coombs is live at the nymex. good morning. >> good morning. we're seeing a lot of pressure here on brent prices. beginning with the october contract, the concern has been that in september in the north sea, you'll have a lot of shut-in production. we saw that september contract rise above $116. ray carbone joins me. people are talking about this report that the white house may be ready to, quote, dust off plans for an spr release. it seems to be having an impact. >> i think that's what it's intended to do. dust them off, talk about it. but it's probably premature. we're still in the midst of the driving season. we still don't know if israel and iran attack, to expend the bullets that are necessary when it's truly an economic emergency and not just uncomfortable
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pricing of gasoline, which we have around the country now, over $4, causing some concern, but still premature. >> in terms of the strategy of it that reuters reports citing unnamed sources said that they're concerns that prices could balloon in september with the shortages and the fact that these iran sanctions are kicking in in europe, it seems to be europe is the issue. >> it does, but at the same time it would be a world problem. these would be oil releases from probably the u.s. and probably product releases from europe. that's why it seems premature to talk about it and do it now. but certainly not to talk the market down a bit as we've seen a run-up in prices over the last month as we've seen those israel/iran concerns push the market higher. >> some analysts think we're going to see these prices lower by about five bucks once we get into september. >> that's anybody's guess. bullish people will be there waiting to buy that and some people taking profits.
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>> what's your thought? >> i think we'll have a politically expedient pullback in the market. but i think in general, the market is tight all around, product and crude markets declining, production in brent, that's not going to change. so pullbacks are probably there to be bought. >> thanks very much, ray. the other thing we talked about before is also the fact that you release oil but gasoline is the problem. we don't have gasoline strategic reserves. >> thanks very much. if you're paying attention, apple shares hitting a new all-time high last night and this morning. in fact, get this, $602 billion is the market value of apple. we'll figure out if that's an all-time market high. >> is apple going parabolic? isn't that parabolic? >> has apple gone parabolic? it has, yes. we're going to talk about ipad
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mini rumors. could that change the tablet market? and just how much longer can apple keep going like it is? back after this. aflac to provide a better benefits package... oahhh! [ male announcer ] it made a big splash with themployees. [ duck yelling ] [ male announcer ] find out more at... [ duck ] aflac! [ male announcer ] ...forbusiness.com. ♪ ha ha! take the privileged investing tools of wall street and make them simple, intuitive, and available to all. distill all that data. make information instinctual, visual. introducing trade architect, td ameritrade's empowering web-based trading platform. take control of your portfolio today.
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let's get back to apple now which hit another new all-time high this morning. jeffries' analyst raising his
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price target on apple from $800 to 9$900, 40% higher than we ar now. he kindly joins us now on the cnbc newsline. good morning, sir. why the move? >> a couple of things. our discussion with asian manufacturers indicate iphone 5 production yields have improved very recently. we think the ipad mini has gone into production and we believe the i-tv has gone into production. three major product launches coming in the next three to six months moving the shares higher. >> what does the i-tv product look like? >> full-featured integrated television set. the set-top box is in the tv set. much as you would touch your ipad or iphone, you would touch the device. there's a new customer that we think is apple. >> what sort of revenues do you expect from that.
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that product might be a liability in terms of the investment that it could take to launch around the world. >> interestingly, we don't think that's going to be the big driver of earnings. we think rather it's the halo effect. once you have an i-tv or you're hooked into i-tv services, you're unlikely to buy any other phone other than an iphone. it's about selling more ipads and iphones than about tvs. >> you write that you don't expect an i-tv announcement in september but you believe this device is in full production. because of that belief, do you have any more details on what it might be priced at and when it actually might be rolled out? >> our best guess on pricing is around 1,5$1,500. best guess in terms of loss is sometime in calendar q4, late in the quarter or early next year. >> based on your own channel checks and your own firsthand research, you're essentially dismissing what has been written
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up in "the new york times" and various other publications that apple is moving more towards a set-top box. that in your view is not true? >> no, we think they have been talking to cable companies and that they have been showing them a set-top box. but there's nothing precluding much like the reporters have indicated that that's a set-top box not included in a television. in the negotiations in early days, you're not going to show your entire hand. >> it's a function within a broader television? >> correct. >> do you think that is going to revolutionize the category for televisions overall? how rapidly can other people come through with the i-tv, as you describe it? you are painting a very exciting picture for a lot of people who might buy a new television. >> we think that the key here is the ability to move content amongst your devices seamlessly and easily. the pause live tv and to interact with that tv. and importantly, we think it's also the removal of that distinction between live tv, on
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demand or your library. you really won't know where one begins and the other ends. >> and who do you think is going to buy into apple that will send it to 9$900 a share? >> we surprisingly find that there's still a lot of bearishness with some of the large institutional shareholder who is say, look, we haven't owned it thus far, we've missed the boat and it's game over. we think they'll be forced to capitulate and own it because we think the numbers are far too low for calendar q4 and for next year. >> peter, nice to see you. thank you for joining us. >> it's a hard to imagine an institutional investor managing just a broad either growth portfolio or value portfolio -- not owning apple at any point. >> right. >> seeing it's such a big percentage -- >> you're at $600 billion now. talk about almost a $900 billion market cap at that price. >> which you don't like because of law of large numbers. >> although it hasn't caught up to apple yet, which is stunning and one of the small numbers
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continues to be its multiple which are arguments for why you would want to own the stock. all i know is you're really are excited about apple tv. you cannot wait for a new tv. >> i had an almost religious conversion to apple when i came here. we can't buy stocks. but i so wish when i saw that product and fell in love with the product i would have bought the stock and ridden it all the way -- >> you wouldn't have sold anywhere along the way? >> no, i wouldn't. i'm in love with apple products. i'm totally in love with the way they fit together, with the control they have. i'm astounded. if the i-tv comes through like that, people like me will have another conversion that will be ecstatic. >> when it comes out, we have to film simon opening up the box because the reaction is going to be like a child on christmas morning. >> but i am a demographic of young men that can spend a vast amount of money because they
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have very high disposable incomes and they can drive that apple stock like nothing else. that's the demographic that the advertisers. they will have done it on the most basic of things which is a television that you watch the games on. i think it's phenomenal. >> you did call yourself young, which is great. >> in a relative sense. >> apple is up by more than 1%. let's just leave that there. with unemployment still high in many states, how might the jobs report play in the presidential election, especially in the key swing states? jane wells is live in glendale, california,'s state unemployment center. you've laid out a skcorecard fo us. >> reporter: the national unemployment number inched up a little bit in july to 8.3% from 8.2%. but look at these numbers. 44 states increased their jobless number from june to july, versus only 27 who increased it the month before. two states plus d.c. had a lower
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unemployment rate in july versus june. it was 11 in june versus may. four states had no change at all, versus 12 the month before. but only eight states have measurably higher unemployment rates than the national average. look at nevada which has the highest unemployment rate in the nation. its rate increased to 12% in july from 11.6% in june. you have wisconsin where paul ryan is from, its plummet rate is up to 7.3% from 7%. north carolina up 9.6% from 9.4%, higher than the national average. and iowa, the president spent much of his week there, up from 5.2%. here in california, let me show you tape inside this diop center here in glendale. california stayed the same. 10.7%. it gained about 25,000 non-farm payroll jobs in july. that's slower than the month before when it gained 38,000.
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but let's look at some of the faces behind these numbers. listen. >> i'm looking for anything. >> one of my skills is i type 110 words a minute, zero mistakes. >> i've been looking for eight months, looking for administrative work. >> i have a part-time job. but it doesn't meet the bills. you dig what i'm saying? >> reporter: that guy used to be a loan officer. we all know what happened to the mortgage business. california housing, still the main problem with jobs in california. later on "power lunch," we're going to look at the biggest winners and losers out of today's numbers. back to you. >> jane, thank you very much for that. everyone loves silicon valley for its latest and greatest tech developments. but what about the food? up next, we'll take a look at what's on the menu for companies like apple, google, oracle and much more. ♪ later -- >> you're one of those little fancy lads, aren't you?
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rainstorm. another intraday low on facebook, $19.43 was the fresh intraday low. we're going to talk to "the wall street journal's" reporter about facebook and how the stock price is being affected within the company and how it's affecting morale. let's get a market flash. let's send it over to brian sullivan. >> good news for ann taylor. this was a big quarter for ann taylor. they beat on both the top and bottom lines, sales and earnings better than expected. slight revenue gain. upgraded by rbc. operating margins rose more than expected and the e-commerce site
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performing very well for ann taylor. that stock up nearly 18%. it's up 34% year to date. sitting at a new 52-week high. back to you. >> thanks, brian. marissa mayer in one of her first moves as the newly minted ceo of yahoo! was to offer her employees free meals. but what about the rest of silicon valley? what is really on the menu behind those closed doors? jon fortt is taking a look inside the catering world of silicon valley's hottest companies. he's got that story. jon? >> reporter: david, here in silicon valley, food is actually incredibly important. and in kitchens like the one you'll see here at paypal, it's often really good. you won't find mystery meat or generic deli sandwiches here. lots of fresh ingredients, especially healthy vegetables. where are they getting fresh corn like the corn that they're getting when the country is facing a major drought? turns out a major caterer here likes to grow locally.
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a fresh shipment of corn arrived here at the paypal campus and the kitchen staff started getting it ready for cooking. the catering company is growing corn in the upper northwest with a farm. they find places where they can get fresh sweet corn. the catering company started silicon valley's food obsession, bon appetit. it's a daring idea that companies would want restaurant-quality food with high-quality ingredients. after oracle became one of the first customers, the company got momentum. things really got going when google made its food free a decade ago. the idea has spread since then. facebook created themed restaurants at its campus. twitter, another bon appetit customer, has free food. and start-up employees often cite food around here, food quality as a big plus for working where they do.
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it can also keep employees on campus instead of roaming around to find lunch and dinner spots. that's the kind of impact that led to yahoo!'s move. >> i think when yahoo! announced that they were going to do free food, it sent a message to those employees. they have been up and down a number of years through different leaders. and i think the message was, we care about you, we're going to create a great culture here. >> reporter: that's the founder of bon appetit. he told me marissa mayer called him up soon after she joined yahoo! and said she wanted to see yahoo!'s food go free. the next day he said they ripped out the cash registers and reconfigured things. bon appetit now has more than 400 customers across the country, educational institutions serves well over 100 million meals a year. back to you. >> what is it about those west coasters? why don't they do it on the east coast. >> a lot of them do.
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>> hedge funds bring food in. google has a big group of people that they feed here. >> cnbc doesn't, though, does it? >> no, we have the generic deli sandwiches. pebble beach is hosting its premier collectible car auction of the year. sales are expected to exceed over $200 million. cnbc's robert frank is live with a quick sneak peek. wow! hello. ...a tree that bore the most rare and magical fruit. which provided for their every financial need. and then, in one blinding blink of an eye, their tree had given its last. but with their raymond james financial advisor, they had prepared for even the unthinkable. and they danced. see what a raymond james advisor can do for you.
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♪ one hour into trading. here are the stories we're squawking about. new depths for facebook. shares falling to fresh all-time lows. $19.35 is the last low hit. different story for google and ebay. hitting new 52-week highs. and the university of michigan's consumer sentiment index rising to three-month highs, up more than a point to a better-than-expected mid august reading of 73.6. for the first time since the 1990s, the gap appears to be cool again. the retailer's new design and marketing initiatives appear to be resonating with shoppers. the stock is up over 85% just this year. and earnings, well, they were also up, 29% in the second quarter.
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how did the gap turn things around? rob frankle is a branding expert and author. and natalie muda is an advertising reporter. rob, too soon to declare victory for the gap? do these things perhaps fall back on themselves or do you think they really have forged sort of a new identity again for a brand that certainly suffered greatly after being a winner for quite some time? >> i'm really sorry to break the news, but this is like the 18,000th time that the gaps and their new executive team said they're doing rebranding. they're actually still is no real branding. the last time they did something and really pushed this kind of press release is when they signed sarah jessica parker to a $3 million contract in hopes of spiking that. that didn't do anything either. the gap has for a long time been
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essentially bankrupt. they have an identity and we have awareness. and they have a lot of press releases. but when you still get down to it, there's absolutely no reason why the gap should be perceived as anything unique or special, especially when you look at their competitors like, for example, american eagle outfitters or even abercrombie. >> yeah, and the gap is also not just the gap but it's banana republic and old navy. many would say that perhaps the company would be better off having separated into those and each creating its own identity more effectively in the market. >> perhaps. but i think gap is actually doing a pretty good job right now of getting out there in the marketplace and doing interesting things on social media, looking at big content plays. and that, i think, is going to start from the ground up, really giving consumers something to believe in and helping to define what that gap brand is. >> rob, you are being very harsh on a business that appears to be doing extremely well, relative to where it has been, if you look at the data that they come
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through with, and certainly the view on the stock market with the share move over the last 12 months. >> you know what, thank you for bringing that up because i'll tell you, one of the best success stories you can have is with a client who has really no place to go but up. the fact is that gap has been underperforming as a brand for a long time. and i would take issue with the fact that it is a brand because quite honestly, even in this social media darling world of the digital age in which we live, go to the gap website. the biggest thing that you're going to see are 25% now, discount coupon codes, save this much. >> and i get e-mails from abercrombie every week with exactly the same. that's the nature of retail at the moment. why do you think the brand is to important in retail at the moment? isn't the truth that increasingly, particularly as you go online, people will be prepared to shift through different brands, through different shopping experiences to find actually product that they want and the product
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ultimately leads -- and in this instance with color, it would appear that gap has delivered. >> actually, all the gap has really delivered is a lot of press releases. if you look at their new campaign that they're trying to do, this is essentially the same thing after the sarah jessica parker failure that they tried with josh stone. the problem is they don't have a brand strategy. and in order to have a brand strategy, you have to be perceived as being the only solution. you don't have to be the only solution. but the whole point of a brand is to say, yeah, i don't want to go shopping anyplace else. give me a reason why. and to date, nobody, anybody can ever come up with a reason why they see gap as the only solution. >> natalie, i assume you don't see it that way. >> i'm going to have to disagree. i think they're doing some really good things. they've had some successes with 969 denim. they had a big campaign around black pants a couple of years ago. the bright is working for them. they're someone that's known for basics, right? this modern icon's redefined
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where they're looking at redefining the white shirt, bringing color into bottoms, i think it gives consumers a reason to go there because gap, regardless of what's been happening over the last number of years, there is a level of brand trust there. it's familiar. it's on every street comfortable and consum -- corner. and consumers are comfortable shopping there. >> classic american basics at a good price, decent quality and pretty much on note when it comes to fashion trandz trends, whether it be skinny blag pants or colored denim or whatnot. >> that would be good. if gap wanted to identify with that, that's what they state their brand strategy as being. but they keep going to these celebrities, they keep distracting themselves and the public from delivering that message. so to this day, nobody can articulate why they would go to the gap. >> rob, isn't teen retail unique
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in that your target audience is always new and always coming online. you view it differently as an older men than those -- >> you know what, i just watched you deliver a sermon on apple where you articulated every reason why you buy everything apple. that's what gap needs to be able to get from their constituents as well. >> i've clearly said too much. >> the thing is that when it comes to retail -- and i think now we would etch agree, there's hardly one -- there's not one solution for anything. as an avid shopper, i don't like at any retailer as a solution. >> how many worst performers are there? there are loads of badly performing retail chains at the moment. there's very few that pop up. >> there are a lot of retail chains doing badly. they're all doing badly for the same reason. you look at jcpenney, that's --
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they're trying a price strategy, import management from apple. it isn't working. look at sears, very trusted retailer, one of the best brands in american history. circling the drain. why? no brand strategy. everything is going to the wrong reasons. >> from a marketing perspective, though, with the brand strategy -- here's the thing i love about glenn murphy, he is very clear with his marketers. if there's not a strong message there, he's not going to spend on it. the marketers know exactly where they stand. i would suspect they're feeling pretty good today because glenn said on the call, i love the marketing. they got more money from me in the first half. and gap north america specifically is going to get more money in the second half because we're on the right track. >> we have to leave it there. thanks to you both. let's get a market flash from a man who knows about branding and fashion, brian sullivan. >> i know nothing about either one of those. but i appreciate it, simon. i do know engines, big engines
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like caterpillar, this is an important story for cat. the stock's not moving any huge way. but you know how much we talk about europe. sales dropped 1% in europe, the middle east and africa. but caterpillar sales to its dealers rose 28% in asia-pacific and 25% in north america. so we're seeing caterpillar really differentiate itself here and in asia. europe remains weak. but the market likes what it hears. they were concerned about caterpillar. that stock's pretty positive. by the way, speaking of retailers, take a look at a.r.o., aeropostale, weak guidance, bad back to school. aeropostale going in completely the opposite direction. earnings fell 98% last quarter. 98%. that's a lot. >> that's true. and the stock down $1.32. brian, thank you. ahead in the show, one of the ten costliest cars in the world expected to appear at
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pebble beach's big auto show this weekend. a rare model. up next, we'll take a look at some of the world's most expensive classic cars. david faber trying to get your credit card out and ride in style this weekend. [ male announcer ] how do you trade?
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♪ some of the world's top collectors are gathering for the premier car auction of the year in pebble beach, california, today. cnbc's chauffeur to the stars, robert frank, joins us now with a special guest. good morning. >> reporter: good morning. we are here with the ceo and founder of gooding & company, david gooding. expected to sell more than $100 million worth of cars this weekend. david's going to tell us all about it. we're in a tough economy right now. markets very volatile.
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how does this global macro situation affect or not affect this market? >> it does affect us in the sense that it actually brings confidence into our car market. there are uncertainties in the worldwide markets. certainly there's a flight towards hard goods, collectibles. we've found that the car market has really strengthened from that. people feel very comfortable putting their money in assets that they know, love and enjoy. >> reporter: we talked to owners yesterday who said, i'd rather put my money in a car that's going to be safe in the garage, unlike a stock which could disappear overnight. tell us, as an investment, what should people know -- is this a sure bet? are cars a great safe investment, or are there things investors should know before looking at cars at a sure bet investment? >> every investment has its risks, obviously. and cars have been great investments. but i always tell people, buy it because you love it. buy it in case if it goes up or
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down, you've got to love it. that's the first and foremost thing. so i always encourage people -- they say, where should i put my money? i say, put your money into something you're going to want to have, whether you drive it, look at it, whatever. first do that. but then i try to give them advice based on that. >> reporter: buy something you love. tell us about this car. this is a very special mercedes. it could become the most expensive car ever sold at auction. going to fetch at least $10 million. possibly more than $15 million. tell us about that phone call you had in 1992 where you first heard about this mercedes. >> back then in 1992, i was working for christie's, and we got these calls, people would call up and say, i have an old car in the garage. this fellow called up and said, i have an old black car in the garage. and he said, it's really dirty. i said, do you have a photo of it? yeah. out of the fax machine came this car. it was looking very dusty and dirty but it was this car,
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nonetheless. and it was the holy grail. i didn't know it existed. i immediately went to connecticut, found it and it blew my mind. i have been chasing it ever since. >> reporter: it is a stunning car. another stunning bunch of cars you have this week are the wolf collection. tell us a little bit about those ferraris going up for auction on sunday. >> sherman wolf was one of the premier collectors. he had a passion for ferraris. we have the california spider which we expect to make $7 million to $9 million. >> reporter: david, thanks so much for having us. good luck this weekend. >> thank you. >> reporter: let us know, simon, if there's anything you want us to bring home for you. there are some cars here that are $100,000 or so in addition to the $10 million. let us know what you want. >> tell me, do you get to test drive them? can you take the cars out on the road or do they have to buy them as seen? >> reporter: the people can test drive them. a lot of that was done before this week -- before the auction. but these are people spending
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millions of dollars in cars. they want to know that the cars work and they're doing a lot of literally tire kicking and opening up the hoods. but a lot of test driving as well. >> enjoy your time there, robert. nice to see you. thank you very much. that is a growth area, these collectibles are a huge growth area. >> why didn't you tell robert what you wanted? sounded like he was buying. it's an up-and-coming rival to fast-growing pinterest. and apple has been rumored to the company. up next, we'll be joined by the ceo of the falfancy.com. but first, rick santelli. >> we need to talk about the markets. there's been a lot of movement this week. a lot of movement since the end of july. why are they moving? we're going to frame that in the context of europe. but maybe the most interesting thing that we're going to do is we're going to talk about how sense of urgency, sense of urgency can be a medicine in and
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of itself. think mortgages here, and that's all, yes, always at the top of the hour. ♪ i can do anything ♪ i can do anything today ♪ i can go anywhere ♪ i can go anywhere today ♪ la la la la la la la [ male announcer ] dow solutions help millions of people by helping to make gluten free bread that doesn't taste gluten free. together, the elements of science and the human element can solve anything. solutionism. the new optimism. wanted to provide better employee benefits while balancing the company's bottom line, their very first word was... [ to the tune of "lullaby and good night" ] ♪ af-lac ♪ aflac [ male announcer ] find out more at... [ duck ] aflac! [ male announcer ...forbusiness.com. [ yawning sound ]
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rumors of an acquisition by apple and slebtsity fans are all part of social media play. the fancy.com users can purchase anything from furniture to hotel booking with the click of a mouse. joining us now is the founder and ceo of the fancy.com. joe, great to speak with you. >> thanks for having me. >> it's a fascinating site but i have to first ask you about those rumors and whether or not you would be willing to put yourself up for sale. >> i don't know anything about that stuff. >> you know nothing about it. >> no. >> you can tell me right now that it's categorically not true? >> no, i just don't know. >> might be true then. >> might be true then. >> anyway, in terms of the fancy.com, joe, how is the growth going there? i don't know what metrics you use to mark your growth. >> thanks. we're adding on about 10,000 registered users every day. we have around 1.5 million users
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at this time. each day people are buying more than they -- than had been bought the previous day. i think yesterday we had around almost 150 orders and over 500 items were purchased in total in those orders. so we're happy with how it's going. >> and how do you make money exactly? >> each time an order is placed we take a 10% commission of each order. >> a 10% commission. why are sellers willing to pay you that much? >> i think the idea is there's a lot of excitement around this theme of social commerce. so you have all these consumers are popping up communities around products. they're fancying items and sort of declaring their interest in these products and merchants and brands are trying to figure out how can they access this social
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demand. and i think they're looking at our platform and see there's a you unique way for demand forring around my product and let me try to access this demand this way. >> joe, you join ounce a very important day here on the stock market where facebook is hitting fresh all-time lows or very near to them. juan of the things that facebook may launch in the fourth quarter is a like button. it has the biggest online community -- want button. forgive me. it has the biggest online community, of course, of all. can you talk us through what that could do for facebook's business, is it goes into social commerce like you are and equally what that could do for your business? would it destroy it? >> no, that would be exciting for us. we sell the products that you see on our site. if you see a product or a place, you can book a trip on our site. if there was a function on facebook where users of facebook could, you know, promote items that they're seeing on their
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favorite sites, i would imagine they would be promoting our items. but, you know, without knowing too much about facebook's business plan, i don't know anything about it, i would say when you look at all of these social networks you kind of have to look at what is the use case, what are people using this particular social network for? in the case of our social network, people are using it as a shopping utility. i'm going to go there to buy stuff. >> i understand that. so what do you have? what do you bring to the table, a technology or do you bring a community to the table? where does your have lie? >> i think it's this -- this nicely integrated set of the two. so i would say we have a really unique discovery platform for consumers to sort of stumble upon products that they weren't aware of or places that they could book a trip to, and then this marketplace that we've created for merchants and brands to sell in to those consumers
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the way it's wired in to commerce, i think is very unique. >> all right. joe, it was great speaking with you. thanks for your time. >> thanks for having me. >> joe einhorn to fancy.com. >> you just seen the future potentially of facebook. if you start seeing that you get a short squeeze on the shock. >> you're really into that short squeeze idea. >> the short interest is so great. no wonder the stock continues to fall. it's like natural gas. >> outstanding is going to mathematically dwindle when you increase the flow by 300%. >> right. >> no, no, no. not if you then take that new stock and you short again with the new stock just coming on. that is what i see happening in the market. i don't see these as big people selling. i see them making the stock available to borrow and then short sellers continuing to short sell. like they did on natural gas. great trade but it came to an end. >> facebook shares are down another 3%. evidence of mark zuckerberg's taking notice of facebook sinking price has
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emerged. zuckerberg told employees earlier this month it may be, quote, painful to watch as investors continue to retreat from the stock. the company wide meeting is part of a new effort in recent weeks to boost employee morale. that brings us the tweet, what should mark zuckerberg do to boost employee morale at facebook? tweet us. we will get to some of your responses next. why not take a day to explore your own backyard? with two times the points on travel, you may find yourself asking why not, a lot. chase sapphire preferred. there's more to enjoy. you walk into a conventional mattress store, it's really not about you. they say, "well, if you wanted a firm bed you can
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time now for squawk on the tweet for a friday. zuckerberg told employees in a meeting earlier this month that it may be painful to watch as investors flee the stock. well, this morning we are asking you, what should mark zuckerberg do to boost employee morale at facebook? alex tweet, zuckerberg should start wearing a shirt and tie and throw away the hood difficults. >> it may come. >> it may welcome. all right. so that was this hour's "squawk on the street." let's get to it. here's what you might have missed if you're just tuning in. welcome to hour three of "squawk on the street." here's what's happening so far. >> i would be out on the street
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for a candidate who said we're going to create a sensible progressive, refundable, value-added tax or some variance of that. >> tim cook may not be the product innovator steve is. i think tim cook is doing a fabulous job. my sense is that apple is still got, you know, great, great days ahead of it. >> we focus so much on those early days on nasdaq's problems, on whether it was morgan stanley that was responsible, but the end of the day here we said roughly three months out from the initial public offering. and really it's just facebook's problem. >> the bell rings for a friday. >> now that you have starting to decline you have a working capital benefit that is now actually working against them. and we see it being very challenging for groupon grow the cash flow going forward. good morning. we are live here at post 9:00 at
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the new york stock exchange. let's get a check of the markets here. the dow right now, we are just about 34 points away from a 4 1/2-year closing high. the s&p 500 meantime dipping into the red here. down by less than a point at this point. and the nasdaq is small gain up by two points. retailers rallying big time today after the gap's better than expected second quarter. ann taylor hitting five-year highs after a 24% jump in sales. michael kors trading high and chico's riding the wave up. buzz ahead of the expected iphone 5 announcement in early september continues to grow. i'm speaking of riding the wave, let's get the road map as we head into the weekend this friday morning. facebook ceo mark zuckerberg finally acknowledging the stock's fall biological weapon have the inside scoop on the mood inside the social networking giant's headquarters. it's been eight years since google started trading on the
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public market. we'll talk to the author who wrote the book on google about what he thinkses the company has in store for its future. and european markets are hitting new highs as chancellor angela merkel suggests she's in full support in the the way the ecb is attempting to line up france and spain for bailouts. we will talk about the european markets. then the workout regime that keeps paul ryan in tip top shape. oh, yes, the p90x, the frontman for the program tony horton will join us live to talk about the boost in business that he's getting thanks to the wisconsin congressman. now on the presidential ticket, all that and more. including melissa lee's on take on that program. fitness fanatic herself. >> i have never done p90x but the idea of muscle confusion is an attractive one. gary, what do you do, right? you're very confused? >> you know what, it's not my fault. faber left this place an absolute mess. i'm trying to get myself
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organized. sorry about that. good morning. >> good morning. >> good morning. >> how is everything? >> facebook shares, by the way, fresh low here. $19.05. >> i'm going to explain to you why i think it will keep going down. i just want to bring numbers up to date. i just got these. do you remember a few weeks back we looked at how much money had been lost in the various social media ipos. money that was transferred from investors who bought these things on the deals to the vcs, private equity firms and many companies themselves. that number after yesterday, and we're talking about facebook, pandora, and groupon, it's up to $61 billion. $61 billion has been transferred from here to here. and i must say, i was trying to think of a way to extend the conversation we had yesterday, which is if you're going to get these shares as a vc, of course you're going to sell them. i tried to explain the reasons why. but i was reading something this morning and a gentleman john
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goldman, he's visited the show. he summed it up perfectly. i want to read from what he said. if you think about the business models of private equity and venture capital, they are simply in the business to recycle capital. their job is to basically redeploy the capital from one deal to another. there's no emotion here. they're t not going to think about is facebook a good investment, is it not, because for the business model to be disciplined to work, they will redeploy can't at that time, payout partners. and again, let's not forget the fact that these firms generate tremendous fees for the investment banks. so it's a cycle that keeps going. there is no emotional thinking about what you do with the stock. >> they need an exit. and their only decision right now, as every investor should do, every single time they're deciding to buy or sell or what not, is if you put this capital here in thin vestment, is the return on capital going to be greater here or elsewhere. and for a vc partner investing
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in high growth firms, the return on capital is going to be higher elsewhere. >> absolutely. >> how do you know that? how do you know, simon, just for the sake of argument, hang on. how do you know there will not been an announcement -- i'm making it up. in the fourth quarter there will be a major announcement from facebook that they're entering e-commerce and they're going to have profit treem streams of $900 million? >> melissa hit it on the head. their goal for investments is making six or seven times their money. when they look at facebook and levels and redeploying that capital back into other investments, they don't think facebook -- >> nobody is buying facebook for now. you're buying facebook -- >> that's not the business. we're specifically about the venture capitalist. >> we should thot be surprised that while these lock-ups continue to come as it is said here, very succinctly. this is the business model. their job is to redeploy the capital. sell to retail investors.
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they're not going to be emotional. they're going to continue to sell. >> okay. let's bring in sandy rice from the journal. stay here. let's bring in sandy rice from the journal who wrote an article today and how mark zuckerberg in meetings are now acknowledging what is happening to facebook shares and the implications that has for morale on the company. were you surprised that he had made those comments? >> yeah, i was. when i first heard about it, because it was such a drastic change from his position before. you know, he really wanted, always, i mean, from the time we started covering this company, he's talked about how going public isn't important, the stock price isn't important. he's going to keep employees focused. we all know that the day of the ipo he posted this picture on his facebook wall, stay focused, keep shipping. he hasn't wanted to acknowledge it at all and he's really fade an about face now. >> let's bring in julia, our own reporter, of course, for social
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media. julia, what do you make of what's going on? >> i think if zuckerberg had to acknowledge what's going on with the stock, especially because as it neerd that $20 a share mark, that's a key psychological mark. the company's shares losing half their value since the ipo. i think to continue to ignoring it would just really infuriate employees. one thing he has to focus on right now, especially because he sads that they do want to continue growing the employee ranks, he needs to focus on making sures that employees are satisfied and they feel like the company is on track. and also, keep in mind, he's trying to hire. he wants to make sure that people want to stay, let alone that he's going to be able to continue attracting those people. he needs to start talking about what the plans are they have in the works to the press. and to investors. >> sheandi, to julia's point, will we see a mark zuckerberg more willing to speak win vesters to make his case, to lay out the road map as to how the company is going to get turned around? >> no. >> no? >> i highly doubt that.
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>> even though he's finally acknowledging a decline in the stock and how that is an issue? >> he's acknowledging it to employees and he's acknowledging it that it may be painful.but ie of the things that he said that i thought was really interesting is he said we don't read the press and we don't care about what the press says because the press doesn't know our plan. >> i don't think that's the point. it's more subtle than that. he may not give a damn about shareholders down here at the nyse. he said that he wasn't going to profit maximize. that's already written on the wall. however, he does have to retain his staff. and, therefore, talking to investors may become a means to an end. he may have to decide that he's got to focus more on revenue and profit streamsy to keep the project ticking over. simply to keep facebook as the place to be employed. >> but what he's telling the employees is we know that we're on track for that. that's what he's saying. he's saying we made investments over the last 6 to 12 months
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that will bear fruit very shortly. he listed all sorts of things in this meeting they reported on, he listed all sorts of things to employees that he's going -- that they know is going to come out soon. commerce is one of them that you mentioned. mobile is another. >> guys, we know that management -- >> but -- >> david reported last week, they've been on this road show in anticipation of this thought. when you look at the tape, there's your answer. they've been out there trying to tell people what the long-term story is. and that -- when you look at that price you know the answer to that, simon. they've done a terrible job telling people why they should be buying the stock right now. >> julia? >> and i mean, i just think that, to your point, if he's talking to employees about all of these things they have in the works to bear fruit, make it's time to start talking about those things publicly. we've been talking about them here on cnbc, about what could be in the works for more mobile ads, payments and ad sales. i think we all know what's going
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on but maybe it's time for them to just go into more detail. that is so promising, let the rest of the world know about it. >> i'll leave you with -- you can have the last word. >> i think that's a fair point. but i think that first of all i just want to make clear that i don't think employees are going around, you know, crying about the stock price. this company, it's like a religion. people are really -- they buy into mark zuckerberg's mantra. i think when he made this speech he was really saying it to them as a way to make sure that the morale wouldn't go down, not that the morale is already going down. i just think that you have to understand how they work. i don't think he's ever going to really care about investors. he's just telling employees we understand this is painful but don't worry. >> we will see. we will see. wow. the employees don't care -- the employees out there buying the houses in silicon valley, buying the cars, and -- >> on hope their stock options -- >> believe me, they care. >> great to see you. julia, thank you for joining us from the west coast as well. i want to make one more point.
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>> yes, sir. >> it could be they have convinced institutional shareholders of the long-term story. but you would have to be a fool to buy now even if you believed in that long-term story when you know the stock is going to go down because the lock-ups are expiring. >> if you truly believe this was an opportunity to accumulate a very sizable position, we have to move on now is the time you would step in and start buying. >> the lock-ups get bigger through the rest of the year. >> it's going go down because these people will sell because they're not going to think about pricing, just going to sell. that's the business model. let's bring in rick santelli in chicago and move the program on. rick, take it away. >> thank you, simon. the market view's the only view that really counts but getting a market view isn't easy. it's not like there's a memo released in the "wall street journal" every day. as a matter of fact, you know, when i traded, if i had a position on that was large, do you think i was totally objective in trying to explain to these why i had that
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position. or now, as a reporter, when i walk around the trading floor, if i know somebody has a position and i know what it is, their story is a lull bit different than the guy who has the other side of that position. so the markets realry, if you want to know what they think, the best way to do it is to pull out a chart. the reason we're having this discussion is because after the comments on the 26th of july, the markets have moved in a fashion that, to me, having no positions, no ax in this, no flesh in the game, seems pretty apparent that whether it's interest rates have moved up, equity markets, mirroring spanish equities, just look at the chart of the s&p since that date, or the dow, and compare it to the imex. to me the markets are saying a lot. they're saying at this point those comments caused major reversals in portions and/or pro active in taking new positions. does that mean they traded on information that's going to come to fruition? traders don't care about that. they just care they bout it here and sold it higher or bought it
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first and sold it lower. there's another issue here. what happens when interest rates move up? gee, i can't really remember. it's been so long since they moved up. i call it the sense of urgency. that is the antonym for sitting on the fence. what am i referring to? mortgages. how many times have i had big debates with the likes of steve liesman, as counter intuitive as it might be, if there's a inkling that interest rates might be drive ven, it might spark mortgage activity. as i walk around the floor today or i look at the wire services like ifr, what i'm hearing from these people is just in the couple of days there's been over 10 billion in origination, mostly in re-fi. i think wheree that mba information next wednesday or you talk to your bank, i think they're going to say you're going to have to wait a while because maybe one of the best reasons to spark activity in the mortgage market is to tell people rates actually may go up. back to you.
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>> rick santelli, thanks for that. let's head it over back to head yours for a market flash. >> i can't match that but i'm going to slap of a. groupon anyway. what else can you you say about the name. the stock is down again today. cutting their price target to $3 from $6.50. thanks a lot, that stock is down about 9.6% to $4.52. evercore sees it going down another $1.50. discount on groupon, the puns are over at this point because this is just a disaster. back to you. >> thank you very much. you going to mention the ia and where we are on oil? >> just a quick headline from dow jones at the head of the ie says a release from the spr is not warranted by current market conditions. we did see crude bounce a little bit. bringing you the news as we see it. >> iea in the past coordinated the release of stra tee yik? >> yes. >> american organization. paris-based. it's still important. straight ahead on the show, eight years ago google went
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public on sunday. since then, the stock has been on the monumental climb, not to mention the fact that the name of the company has become a verb, to google. we'll take a look at google's future and what it has to do to stay relevant moving forward. olaf's pizza palace gets the most rewards of any small business credit card! pizza!!!!! [ garth ] olaf's small business earns 2% cash back on every purchase, every day! put it on my spark card! [ high-pitched ] nice doin' business with you! [ garth ] why settle for less? great businesses deserve the most rewards! awesome!!! [ male announcer ] the spark business card from capital one. choose unlimited rewards with 2% cash back or double miles on every purchase, every day! what's in your wallet? or double miles on every purchase, every day! you want to save money on car insurance? no problem. you want to save money on rv insurance? no problem. you want to save money on motorcycle insurance? no problem. you want to find a place to park all these things?
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sunday marks a major milestone for google. eight years since google became a public company. they climbed 690% to $6.72 a
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share. so where does google go from here? what is next big thing for the company? david vice is author of the national best story of the google story and currently single adviser to new mountain capital. david, a pleasure to speak with you. >> great to be here, melissa. >> certainly, you're a google expe expert, but i've got to ask you about facebook. when you take a look back at google, what can the guys at facebook learn from what google learned? it didn't exactly have a smooth ride either in the early going. >> i think the lesson to be learned from the way google handled things in its ipo is to stay focused on what it is you do best. stay focused on the consumer, stay focused on technology, stay focused on innovation, and don't worry about the stock price. let the stock price take care of itself. >> ah, okay. maybe mark zuckerberg is doing the right thing by not taking a look at the new low today. going to ask you about google's
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bread and butter and that is search. they manage to continue to gain more market share. why the leads over microsoft and yahoo!. at the same time, they are diversifying into other businesses. when you take a look at a company that has been so dominant in one area and has made their fortunes on it, going into devices and self-driving cars and electric grids, what's your assessment of that? is it a strategy drip that could be something bad for the company, bad for shareholders? >> absolutely not. i think there's -- if you really want to understand google, there's only one number you need to know. and that is 5 billion. there are 5 billion google searches every day. 5 billion searches a day on the computer desktop, 5 billion saef searches a day on smart phones and on cellphones because google has innovated and become the number one platform. 5 billion searches because google does things like go out and buy frommers and so it owns the best data on the web. if you look at the book sitting
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behind me, 5 billion searches a day because google is digitizing all the world's books. >> all of these efforts are not reasons that make the company money when you're talking about the digitizing books and other things. it is search that still makes the money. what's the next big line that google will move the needle when it comes to eps? >> well, i think for right now there's two things. the first really innovative thing that i think is fascinating is taking place right now, and that is google has devoted a lot of resources and a lot of effort to developing a driverless car. google lobbied in the state of nevada, got a law passed that they could test their cars. and right now google has cars driving auto matically without a driver in the driver's seat. they've driven 50,000 plus miles
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without an accident. he grew up in michigan near the auto industry. he thought, wouldn't it be cool if we could develop a driverless car. if they can do this with cars the way they dominate the mobile space and desktop, it will free people up to do other things, including google searches. >> david vise, the author of the book on google. coming up next, rick santelli weighs in on the battle of man versus machine. what it could mean for the trading pitts. and we're counting down to the close in europe. ten minutes away. we'll have simon and the rest of the gang to wrap it up after this break. [ male announcer ] at scottrade,
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welcome back to "squawk on the street." i have a special guest today. he's an attorney, his name is george sang. he represents 4 traders at the cme and once again, we have another story, man versus machine. welcome, george.
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>> thank you. >> all right. what is going on here, and i know it has to do with a hybrid settlement system that was actually implemented towards the end of june in the greens. tell me what they used to do and what this change represents. >> sure. formally until june 25th, the settlement rule for other pits as well as the grain pits which is the one effected by this rule, was based on floor activity. 100%. and effective june 25th cme implemented a hybrid settlement system which will shift the settlement from the floor based activity completely to, i believe, subject to control by l al al ggo rhythmic trading. >> now it has changed.
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now, why is that a bad thing? >> well, first of all, the question becomes what are the membership rights. and the cme has stampeded those rights, ignoring its own certificate of incorporation which required that this rule change be voted upon by the b-1 and b-2 shareholders who are your full cbot members. >> got shares after this place went public when they used to have just a membership. >> became their membership rights. that needed to be voted upon and it wasn't. additionally, the cme actually ignored the board of ten directors, the board of trade that rejected this rule proposal as well as the rules committee, the cme, that rejected this rules proposal. and then in one day after their first annual meeting in may, implemented the new rule and they put in new boards. >> in the man versus machine context, your don't have a problem with electronic trading.
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a lot of those people people are holding a tablet computer and heavily involved. your problem is the high frequency because you believe in the 22 members that hired you believe it's going to distort or make more volatile that final settlement price. expand upon that. >> first of all, again, the case is centered on the rights of members. but what you lose by having a hybrid settlement is you lose order flow, price discovery, and counter parties. so that a price can be determined by supply and demand. when you go to this system, you're prone to violent, radical movements for the purposes of volume being traded by algorhythmic programs. >> out of time. my final question is, if this doesn't get changed in this hybrid system goes into place, do you think that affects the longevity and the probability of trading floors with humans being around for a long period of time? >> it will destroy -- it will
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destroy their businesses and usefulness. it will deprive the market of its integrity and of its intelligence. >> well, listen, i'm not sure if that is the only side to this story, but you heard one side and we'll continue to keep the public informed. it has large implications. back to you. >> keep it up, rick santelli. european close is coming up next. ♪ [ male announcer ] to hold a patent that has changed the modern world... would define you as an innovator. to hold more than one patent of this caliber... would defi you as a true leader. to hold over 80,000... well, that would make you... the creators of the 2012 mercedes-benz e-class... quite possibly the most advanced luxury sedan ever. ♪ join mercedes-benz usa on facebook for the best summer kes.
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european markets are closing for the session and for the weekend.
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something very important is happening in europe. the level of anxiety is falling away. whatever you think of europe, it is a fact of the price action that the level of anxiety is falling in europe. if you've been listening to what i've been saying to you for 2 1/2 weeks, you'll know that the germans would follow through on what the ecb is planning because draggy has a master plan. he laid itut on slow to the asset markets are beginning to reale exactly what's going on. there's a delay deliberately to bring the german on board. all you need now is the italians and the spanish to ask for help. it's in the italian and the spanish markets again today you need strong writers. both on the debt and markets. this is the month's track. you will see that those yields continue to fall because drahgi has a plan and it looks like he's ready to pull everybody on board. angela merkel climbed on board as well. let me take you to the shortened to the spanish market.
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two of year, the yields continue to fall. in other words, you have this rally and peripheral debt around europe and italy. it is also true that the short end of the bond market that the yields continue to fall. not quite so true on the long run if you look at the ten-year today. that's moving in the other direction. still, the general picture is as you can see. so as you get the rally on the stock market, so the underperformance that europe has had to the united states is closing out. the white line is the dow industrials so far this year. the yellow line is the top 50 blue chips in europe. sow you see the effect? the european markets, equity markets are closing the gap, cashing up on the days that you've had here in the united states. and again today, it's the banks that are leading. it's very unusual that all the banks across europe move together but broadly that's what you've seen. look at this. bp popular over in italy, up 17% so far today. whatever you think of europe, whatever you think of drhagi,
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look at notice the price action. big blue chips in spain the way in which the i bs rallied again today. you they not know how they play but they're rallying strongly and it's important to the markets. the uk banks have also rallied today because merkel is following through on what draghi has said. the german banks importantly are also rallying today. deutsche bank now for the year is down just 9% as a result of putting on an extra 3 1/2 today. so, melissa that underperformance coming back very strongly. very strong follow through for a second day in europe. people should take notice of it. >> thank you, simon. now let's bring in courtney reagan with a look at what else is moving out there. >> melissa, as you know, not a lot of catalyst moving equities. the europe 15 wild card mostly quiet. stronger than expected consumer sentiment. propped up equities for 30 minutes or so. settled to trade right around the flat line. we are watching the s&p 500
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which has been trading at a very narrow range today. if we can close about four points higher from where we are right now. we can close at a new four-year high. also, fairly split there. we've got consumer discretionary and tech leading the way. health care and energy lagging behind. almost split exactly in half. advancers to decliners. there are a number of economically sensitive stocks moving today. i want to start by taking look at shares of caterpillar. earlier in the week rival deere announced earnings not so great. caterpillar today's global dealer is much better. shares are higher today. one of the biggest leaders on the dow. also, take a look at financials across the board. mostly in europe. as simon mentioned, the bank stocks are higher. we're happy about angela merkel said about the euro and maintaining that. look at the financials here. the excela out performing the broader indices. look at this retail. the rlx, up almost 3% for the
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week. it was a good week for retail earnings. simon, back to you. >> okay. thank you very much for that. let's go to capital market, gary kominsky is giving us an update on investor sentiment, more broadly or on facebook? >> i don't know if it's investor sentiment. got to get you into my life. take a look at this chart. very quick thing. take a look. i came across this yesterday and it's not anything we don't know. but it's a pretty, pretty in your face reminder of what's happened. this is the average holder period of u.s. athletes. this is the number of years and you can see what it is. the basic turnover, we know what it is, how long people typically hold on to equities. it's basically eight months now. that incorporates retail investors, hedge funds, traders, across the center. when you look at this, the question that comes to mind, and it's not something we don't know but we talk about all the time, but, boy, is this scary. are there any investors, five to
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seven, three to five, or 20 years? well, you look that the piure. sorry about that. you look at this picture and the answer, i say, is no. i don't know, you know, you look back to 1920. you saw what happened. this is something that if we're still around in 20 years to look at this, where do we go from here? >> why did buy to hold die? >> it's not that buy to hold died, sim plon. what this is basically saying is that as a result of a lot of the new entrants that came in to the capital markets, such as dark pools, high efficiency trading. you got to the point where you brought in all of these type of -- >> the average have don gown. >> the people that buy in securities. >> 50, shows 10, 11 years. >> a lot of that had to do with the various different busts that we talked about, whether it was the stock market crash of '87, long-term capital. >> it was much harder to trade stocks back then. it was much more costly.
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>> i've got to wrap it. a picture is worth 1,000 words. speaking of thousands, did you see the news there were 20,000 pairs op counterfeit -- i'm going to say this right -- christian louis vuitton shoes. did you see that? >> no. >> you didn't happen to order any of those shoes? you're going to get disappointed. >> the word counterfeit and melissa lee don't go together. >> actually the word louis vuitton and melissa lee don't go together. apple hitting new all-time highs today, thanks largely to the iphone5 buzz. analyst at web bush securities. he joins us now. scott, great to have you with us. this is typical of what we see for apple in terms of a product launch. we see a run up into the product launch and typically see a sell-off. is that your opportunity to get into the stock that sell-off, after the launch? >> you know, i don't think we should see a sell-off after the
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launch. as we saw last year, they did launch the iphone 4 in the fourth quarter. that ran apple up 50% almost to the middle of 2012. i think we're going to have very strong launch numbers and a strong december quarter as well for apple. i think you will see just a continuation of the stock moving higher. >> at this point, what are the data points or the channel checks you can engage in and point to to build the case that the fourth quarter is going to perform just as well or better than what the stock is already predicting? >> yeah, i think when you look at the fourth quarter, you look at the data points and the builds you're seeing the channel. you're already seeing lots of news and pictures and graphics of the next iphone coming out. also, you're looking at the trial and the data points coming out of the samsung apple trial of the ipad mini. more talk about the itv and cable company discussions. multiple product launches. probably the iphone 5 will be the biggest product launch. i think you build a build case
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there's an upside to the fiscal q-4 and fourth quarter being modeled higher than we expect now. >> how worried should investors be that holding apple stock by what samsung is doing? >> you know, this has been an ongoing thing for quite some time. i mean, when you look at apple and samsung, it doesn't mean one is going to beat up the other for market share. both of those companies are taking market share from the rest of this smart phone market. they're both being winners right now. i think, you know, there's a lot of room for both of them to grow. apple globally has a lot of penetration opportunity. >> but in terms of china, beuse part of the apple bullishness is its penetration and future penetration in this enormous market. and over there, there might be some positioning by the chinese government which could actually end up favoring other competitors such as samsung or htc or qualway.
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there are certain models built on an expected penetration, expected sales of iphones into china. >> yeah. i mean, clearly china is a very important market. ios-6 is clearly target we'd the languages and siri fwhg chinese. corps of social networks in china. colorly shows apple is making a bigger push. china mobile with the world phone and technology of the iphone 5 clearly are -- or in next generation iphone is clearly targeting china. i think there would be one more step up in china before we worry about what's happening there. i think clearly think apple has other markets in southeast asia, indonesia, big growth markets longer term if china does start to top out. >> if they don't have an agreement with china mobile, which is the biggest cellular network in china, then will you start getting concerned? >> i think you start to get concerned that growth could top out there, at least in the iphone category, if they just work through the two carriers. again, i don't think that's going to happen.
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i think they're going to see further penetration, one more step up in china, versus what i think idc said, is maybe it's topped out the high net worth people are topped out in buying iphones. i think there could be one more step up there in china. >> scott sutherland of webbush. straight ahead, extraordinary story. investment banker who says the business make him a scapegoat in a high profile bribery case. before he goes to prison, he's talking to cnbc. that's on the other side of this break. hi. i'm henry winkler.
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up next on halftime, stocks rallying for six straight weeks. do you stay in the game or take profits? our traders debate that one. is former jcpenney ceo buying what ron johnson is selling? exclusive interview with the retail legend. is mark zuckerberg in over his hood difficult? the zuck save face and his stock? let get you one of the highest profile cases yet in the foreign corrupt practices act. garth peterson of morgan stanley sentenced late yesterday to nine months in prison for what the government says was an elaborate scheme to steal from the firm and payoff a chinese government official. before he goes to prison he's talking to our own senior correspondent scott cohn. scott, over to you. >> prosecutors wanted a four-year sentence but u.s. district judge went with the lighter sentence of nine months.
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and worth note that garth peterson did not plead guilty to bribery, just evading morgan stanley's antiprescribery controls which he tells us it's not to say there wasn't bribery in china, along with a whole lot else. >> out of control. >> tell me about it. >> i guess there's three words, you know, drinking, smoking, and womenizing, you know, all the time. >> reporter: garth peterson joined morgan stanley in china in 2002, and everything took off. >> three or four nights a week i would be out in a karaoke and the whole night, drinking like crazy, pass out and go home and a girl next to me. one time i went out with this client down in southern china, just on about five or six of us he spent 200,000 u.s. on just the alcohol in one night. 200,000 u.s. >> reporter: paying the clients back is what got peterson in trouble. he engineered a real estate deal that on paper made more than $2 million for a chinese government
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official. he says the deal, while wrong, wasn't a bribe. but he says the lines were not clear. >> this is where it's a difficult thing, especially in a place like china, where you get the thing where you do something for me, i do something back for you. >> do you think that morgan stanley was unusual in china or is that the way that business is done there? >> i don't think they were unusual. >> reporter: after morgan stanley fired him in 2008 and reported him to the authorities, peterson moved to singapore where he told his story to writer jeremy terrier. he turned it into a book under the pen name robin fitsuth. >> out here in asia the method of being business is relationship based. what is cut and fast draw in europe or usa may not translate to what is practical out here. >> morgan stanley calls peterson's conduct at the firm a deliberate and egregious violation of policies and values approximately garth peterson plans to go back to asia after he's out of prison but under a
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settlement with the fcc, he is barred from working for a u.s. financial firm. two other morgan stanley executives were placed on leave during the investigation but neither was charge with wrong doing. both have left the firm and are back in the investment business. as for the real estate business in china, it is a shell of its former self in more ways than one. we have more of our exclusive interview on cnbc.com. and we want to hear from you. e-mail us at investigationsinc@cnbc.com. >> thank you for bringing that to us. coming up next, forget jane fonda, step aside russell simmons, vice presidential candidate paul ryan is the one to really sell up the program, the creator of p90x joins us live next. tools are uncomplica nothing complicated about a pair of 10 inch hose clamp pliers. you know what's complicated? shipping. shipping's complicated. not really. with priority mail flat rate boxes from the postal service shipping's easy. if it fits, it ships anywhere in the country for a low flat rate.
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♪ last year vp candidate paul ryan gained national attention for his plan to fix the nation's finances. but before the budget plan, there was a beach body, as you can see here, during the 2009 congressional football season. wow. and ryan hasn't been secretive about how he stays fit. the man behind the physique is tony horton, create irof the p90x. >> i hear you guys have been looking for me. >> we have.
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how many more pp90x programs hae you sold? >> there's been some traffic on the website. exact numbers, i don't quite know. but i believe we're doing pretty well right about now. also, it's a very slow time for us in the summer. most folks are outside so this is a real boost. it's really helpful. >> there's some seasonality to the p90x. >> yes. around the first of the year, december, jan, february, we do well. folks who have their new year's resolutions but this time of year people are outside taking advantage of their fitness and going out in the world. >> the basis of the method is muscle confusion? >> yes. you don't have to be con funsed about muscle confusion. what it is, it's similar to what jack lalanne was doing in the '30s and '40s. he called it periodization training. the reason why paul ryan is having great success and members of the white house right now, i know the secret service is using it and michelle obama is using it is because it's variety in fitness. it's not just pilates, it's not just yoga, it's not just weight
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training. it's a combination of a lot of things, six days a week with healthy eating. that's why we've sold so many. i'm going on my fourth military tour. i've been to 32 military bases around the world because p90x is popular with republicans and democrats in the military and celebrities and professional athletes and moms and dads. it's one of those things that has caught on because it works not only after 90 days but after 90 day sdpls tony, you've never paid a celebrity endorser to talk about p90x. >> the nomination of mr. ryan is more good luck. >> yeah. it really is. you know, i mean, we've been very, very lucky. i wake up every morning thinking this six day a week hard core extreme fitness program sells out on home shopping network to grandmothers, you know. and it's being used with professional football players and olympians and members of congress. it's pretty amazing really. >> the one who isn't using it,
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of course, is mr. romney who told cbs the other day he uses an elliptical machine. >> i would say that's a very one-dimensional view of fitness. elliptical is certainly better than sitting on the couch and watching reruns of "i love lucy" but it's a step in the right direction. at least he's getting up and moving. the idea is to prevent injuries and boredom and plateaus. it's not just about the fitness, it about the food. enter excise is fitness and food is health. >> now you're in michelle obama's territory. you're going the other way around. >> no. i just launched tony horton fitness. you can go to tonyhortonfitness.com. it's an opportunity for folks to get home fresh delivered organic food delivered to their door. i'm trying to solve as many problems for people as possible. there's not only a health care crisis, there's a health crisis in this country. more and more people if they begin to look at those two
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things and see that it's not just about your appearance and aesthetics, it's about how you feel and how you sleep and how your brain works. there's things that i can do at 54 that i couldn't do at 24 because i work out every day and i eat well. >> amen to that. >> 54, wow. that's impressive. >> great lighting here at your studio. i must say. >> we do here as well. >> lighting doesn't cut abs. thanks for joining us. >> my pleasure. don't forget to tweet us this morning. the "wall street journal" reporting a facebook ceo mark zuckerberg told employees in a company wide meeting it may be painful to watch the stock slide. what do you think zuckerberg should do to boost employee morale at facebook? tweet us. we will air some of your answers after the break. [ male announcer ] at scottrade, you won't just find us online, you'll also find us in person, with dedicated support teams at over 500 branches nationwide. so when you call or visit, you can ask for a name you know.
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it's amazing...inside and out. ♪ join mercedes-benz usa on facebook for the best summer sweepstakes. sidewalk and a tweet for a friday. the mark zuckerberg reports that he is telling employees in the meeting that it may be painful to watch as investors leave the stock. we ask, what should mark zuckerberg do to boost employee morale at staff? he tweetds, come on, guys, we need more likes. move this puppy up.
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andrew tweets, he should post a mem no on facebook so everyone can see, and maybe tweet it, too. and taylor tweet, tell them, hey, at least we're not groupon. that's a nice goal, i guess. >> all right. final thoughts? >> serious note. did you see the news that dewey labeouf, former partners had to write checks back, call backs? >> yes. >> kind of didn't get that much coverage today. that's what this industry, wall street, has talked about. it shows it works. you know how painful it must have been for former partners who cashed out money, they paid these big fee, callbacks worked. when they wrote those checks, call backs work. that's what this industry needs to see. >> don't you think that callbacks will work if we don't see behavior like that in the future. we don't know -- >> it's a term. >> we don't know if the claw-backs work until we move into a period when we see fewer and fewer bad deals. >> i think as a result of

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