tv Squawk Alley CNBC December 13, 2018 11:00am-12:00pm EST
welcome to "squawk alley." i am carl quintanilla with morgan brennan and jon fortt we begin with apple. shares are higher, despite the on-going batted he will with qualcomm the ft reports that qualcomm is filing suits to ban sales of iphone x s and xr in china that's after the court in china banned sales of older models apple wants to invest a billion dollars in austin, texas david wolf is with us, and larry haggerty good morning, guys we also have piper shaving price targets, day-in and day-out, 170. have we seen the last of these or close to it >> i hope so, one of our largest positions. think where we were a couple months ago in the narrative exchanges. we were talking about it deserves a consumer staple multiple 12 and a half times next year's
earnings, 10 and a half x cash, we think it is overdone. >> larry, you agree? >> i would certainly concur. every morning, carl, apple's installed basic customers increases, and there's basically no way this doesn't happen each year the customers spend more money on stuff, and basically apple has a monopoly on services and accessories business you really are hard pressed to buy things that plug into the apple devices anywhere else. and the margin on these things and margin on the app store are very large you look at apple, it is not only the valuations, it is precash flow characteristics of the earnings apple doesn't need capital to grow they sell stuff that generally speaking declines in price or stays flat, there's no current
asset requirements, don't finance receivables. it is a cash machine >> and yet we see this period of investment happening now for the biggest tech companies apple is building out in austin, southern california, seattle, a few other places, amazon you just heard about, their new branch announcements google trying to expand in san jose and other places. we go to a period where some companies to fuel the next leg of growth feel the need to lay ground work in the form of investments in people and should investors read into that >> absolutely. again, companies need to reinvest these are asset like businesses. at the margin, it is people. you mention the geographies. spreading the wealth across the country. i think the apple announcement today, i'm sure there are folks in d.c. interested in that announcement as well i mean, there's even with
alphabet, geopolitical news in the sense of regulators looking at them. again, to your point of your question certainly there's going to be people growth and we would hope to see that i mean, the companies may not need to invest in significant plant and equipment, but for the next greatest service you need the people to do that. >> larry, given the headlines and maybe potential cautious optimism around a deal between the u.s. and china, how does this play out for apple? >> i think the stock in order to really perform well, morgan, has to solve the china problem or somebody has to solve the china problem. i think the president gets scored out of negotiating. all of the negotiations, watch washington over 20, 30 years, they always go town to t-- downo the last minute. there will be a deal done,
whether it is significant or not, who is to know. it is the fine print, the legalese the chinese government isn't in a particularly good position right now. things are clearly slowing in china. the currency is at the upper end of what is socially acceptable the chinese government basically has to maintain stability. if they don't maintain stability, there's a chance that people may protest as they did in hong kong five, ten years ago. everybody's interest is in solving the problem. i think it is going to take awhile it is kind of sport for the powers that be i think they've already taken the toll on the shareholders the stock down $70 billion that's enough penalty for one perhaps delay in cash flow. >> david, i wonder what you think more broadly apple, faang, old school tech, however you
want to frame it will play as a narrative in 2019. will it get as much attention as it got this year >> i think it will but maybe for different reasons. maybe the sexiness is off it apple, qualcomm, they're off 30% from recent highs. facebook, off 42%. peak to trough that said, if a stock is going to outperform, if they're among the leaders, they're going to get the attention and certainly given we're invested in those names, we're expecting that next year, so it may be a little different thought in terms of how dominant anything and everything about faang one by one, they've been taken on the valuations are such that we like them here, we like them a lot. >> larry, you're also invested in some of the media companies, you follow some of the more traditional media companies. earlier this week we had the multi billion noncash charge with verizon, obviously at&t and
time warner continues to be in focus. how are you thinking about these stocks >> i think what's happened here, morgan, is that the market is assessing a penalty on deals deals are terrific they generate fees for the investment bankers, you get enthusiasm on the sell side of the street the reality is most deals don't work tremendously well we have two poster child deals that aren't working as far as i can see at all, i give them at best c minus at&t, time warner, verizon with yahoo and aol. and you basically have the verizon board say we made a $4.5 billion mistake people look at it, say it is not cash, let's ignore it. it is inevitably cash because there's a lot of management time and shareholders of yahoo which i was one got something in their pocket for the trouble now the shareholders of verizon
are getting really nothing the shareholders of at&t right now for owning time warner are having to worry about the dividend you look at the cash flow of at&t and look at their interest expense and you look at the dividend and there's very little money to reinvest in growth. so looks like to me at&t painted itself into a corner the mergers i think for 2019, there are going to be less deals, especially if rates go up i think rates are going to probably go up a little bit. >> it is a little bit of an ancillary area to where you normally focus, but interesting. you talk about the faangs being taken out, google and facebook have been dominating digital media and advertising story, yet all of the up starts, oath, smaller companies, a lot of them around new york are struggling because of the dominance of facebook and google.
has everybody overestimated this category in general, including potential for facebook and google, or what? >> maybe they have these are such dominant media companies, facebook and google think about what it takes to displace them, particularly on ad spending. there are going to be startups and effort, silicon valley funding to pick out niche areas. but at the end of the day these companies still dominate that ad space and their market shares within that space. >> guys, it will be fascinating in the coming weeks and months talk to you soon thank you. >> thanks. coming up, after reaching an all-time high last quarter, why is the percentage of americans that say now is a good time to invest hitting a two year low? we have results in cnbc's all america economic survey after the break. st wh at fidelity, our online u.s. equity trades are just $4.95.
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surge in spending. the growth expectations for people's home value growth, wage growth, and stock market outlook have gone down, some more than others, but gone down. holiday spenting straight up it is a good time to invest. you can see record plunge among afternoon americans, down to 38%. that gets rid of some but not all of the optimism that accompanied donald trump when he became president and among the financial elites, people with high income and lots of money in the stock market, that went down for a record plunge in that group these are people that are the investors, down to 57% it was across parties. you can see that 74% of republicans back in october were optimistic that's down to 57%
democrats didn't like the market and because everybody invests based on who is in presidential office, 33 down to 26. at the same time, take a look. they may be more pessimistic but they're spending a lot of money. first time over a,000 thousand dollars for spending for the holidays certainly there's optimism on spending, and the reason is pretty clear 57% say their incomes are higher, their income or somebody else in the household. 38% are spending less because they have less income. the outlook, guys, is good for spending, people's wages are up now, but maybe in the future because they're concerned about the economy, then you get falloff. all of this is on cnbc.com read full reports of the survey. back to you. >> interesting numbers, steve. we'll see what retail sales say tomorrow major indexes are mixed.
a fair amount of chop in the early part of the session. s&p did break out of correction territory. let's bring in art cashin. ubs director of floor operations steve's data mixes in with what we got from bull, bear ratios last night, correct? >> that's correct. a little bit of anxiety and concern. i think as you aptally lly ment the challenge is to meet and surpass yesterday's highs. until you get to that, the market is kind of a yawn that's 24830 in the dow, 2685 in td s the s&p. >> do you think the way to characterize is a sell to rally, given what we've seen today, we are off highs for the dow already. >> we've seen a pattern that you
see strength earlier in the day, and seems to fade as you get toward the close not consistently, but if you're looking for patterns, that's as close as you come to one i think it is there, but volatility has been extraordinarily sharp. you're seeing some signs that can accompany an extended bottom, but i want to see volatility calm down before we take big jumps here. again, it is simple stuff, folks. you look at yesterday's high they've got to get to that and get higher otherwise, you have a pattern of lower highs. and that doesn't help when you try to invest. >> how muchgeopolitical impact are you seeing we have the confidence vote in the uk, signs of potential turbulence with turkey on the horizon as well. it seems reared its head a couple days ago, we looked at questions over what would happen with brexit.
do you expect that to continue up to the end of the year? >> yeah, no, i think it will however, i think people are trying to dig in here, we're about to have change of leadership in congress they want to see will there be any initiatives beforehand, do the democrats want to try to wait and see, will the republicans do any lame duck work and see where we go from there. for now, yes the geopolitical is of interest, but slightly in the backdrop because they're looking more domestically, that's where the game will be played. >> what do traders say about a shutdown, do they care, and the cohen sentencing and the president's reaction today do those matter? >> they matter to some minor degree i don't think greatly. what's interesting to watch, the cohen sentencing didn't have as much effect as the agreement of
the national enquirer to provide data i think, i don't want to overanalyze this, i think that's because cohen is a lawyer, and trump could say i didn't tell him to do anything wrong, he is a lawyer, he should know right from wrong oern on the other hand, you can't make the same claim with a newspaper and what's going on there. that's why i think it may have had a more notable reaction than the others we'll continue shorting and parsing through this hopefully we'll get santa claus out here right now, we have his picture on a milk cart, see if we can get him back in the game. >> i have to get your take on draghi qe is part of the tool box, it is permanent, it is something that may be considered usable in contingencies going forward. here we are. right? >> here we are is dead right
i think you're hearing not only is our fed backing up, he is backing up, it is a global situation. people realize the quote, unquote return to normalcy may be a delayed process because we don't know if the economies globally are strong enough to take a return to normalcy. >> art, see you soon thanks >> my pleasure. as we head to break, take a look at the best performing stocks today procter & gamble, caterpillar, mcdonald's pldog weape inll, too. a lot more "squawk alley" still ahead. don't go anywhere.
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wilfred frost is live in london after theresa may survived yesterday's confidence vote. hey, wilf. >> reporter: she celebrated that victory according to reports with two glasses of red wine and packet of potato chips, but today it was back to work. work meant traveling to brussels to try to improve terms of the brexit deal, something that will not be easy, judging by comments of various eu leaders today, including president macron of france who said we cannot renegotiate what was negotiated over months. we can have a political discussion but not a legal discussion there remains a lot of uncertainty over the likely shape of brexit. for that reason sterling is lower today than it was at the weekend, albeit rallied 24 years ago on the news of prime minister may's victory
news that the ecb would end the bond buying program is lower on the session today, after president draghi struck a lackluster tone on the economy >> the latest data and survey results have been weaker than expected contribution from external demand and several specific factors. while some factors are likely to unwind, this may suggest some slower growth momentum ahead >> reporter: european equities are fairly resilient, the stock 600 up 1.2%. >> is your sense, we talk about it from the uk perspective, but the trouble the uk is having with brexit, is that strengthening the eurozone do
you think in general, sending a message to other countries that might have been thinking of doing something similar? >> reporter: i don't think it is, jon, for two reasons any form of brexit, while likely more damaging to the uk economy than it will be to the eurozone economy will also hurt the eurozone economy, clearly the more disorderly the brexit, the more damage on both sides of the english channel. as for the political question, will this make other eurozone countries think leaving is incredibly easy, certainly not, but it's also fair to say that the political pressure across europe remains, whether that manifests in a brexit star referendum or not, there's populous pressures that need to be dealt with. >> indeed. we are seeing it in france >> before we let you go, a quick question we know how much focus this has been for the markets and for investors and from a political
standpoint what's the sentiment like in terms of main street >> reporter: well, there's been on-going protests all week i have to commend the energy and resilience, matches theresa may's resilience it is incredibly divided brexit is an issue of constitutional importance and seriously polarized opinion and that's been shaken out once again in the last couple of days as it was in june, 2016. that's always unfortunate to see but at the same time these are issues people care passionately about and it is good to see that's all been done peacefully. >> wilfred frost, thank you. now let's get to sue herera who has a news update. sue? >> indeed i do, jon, thank you very much. good morning, everyone here's what's happening at this hour after a week of peace talks,
yemen's warring sides agreed to a cease-fire and withdrawal of troops from the port city. the u.n. secretary general making that announcement. >> you have reached an agreement on the port and city which will see mutual redeployment of forces from the port and the city and the establishment of a government wide cease-fire the u.n. will play a leading role in the ports. >> french security authorities issued a wanted poster for the suspect in the attack that killed three people. he has a long criminal record and has been flagged for extremism. here at home, the aaa says more than 112 million people will travel this holiday season, 4.4% increase from last year most travel by car nearly 7 million take to the
skies. the travel period starts december 22nd and ends on new year's day although there's another survey that says the busiest travel day is the 20th. forewarned that's the news update back to you guys carl, back to you. >> the song says the traffic is terrific >> there's no place like home for the holidays >> thanks, sue. the major averages, s&p keeps dipping in and out of negative territory keep your eye on 2646. that's the level it is 10% off the september 21 highs another target slash for apple this week, one of the latest analysts to make a cut is with n e hesi othf is break.
welcome back a rough few months for apple, the stock down more than 20%, relinquishing the company crown to microsoft a number are cutting the targets from 222 to 188. joining us, the analyst that wrote that note. and also portfolio manager and director of growth equity that has other investment ideas aside from apple good morning, guys >> good morning. >> when we look at services, i look at apple's announcement of the cities they want to expand,
seattle which is big in software but data center and data in general, austin as well where they've got a lot of customer service build out. seems like this is a service driven growth strategy that they've got, even if you expect services growth to dip near term, isn't there a sign they're investing for the long term and potential there? >> it is part of a long term story. when you look at apple, most of the growth comes from the service business it is a broad business, not just app store, it is a google relationship, it is the extended warranty, the video services, music. clearly they have a lot more to go on services and software side, but we think it will flow. >> lou, if you're looking at taking money out of apple, putting it somewhere else, what are the areas where you would suggest investors put it >> i think there's lots of areas to deploy that capital, it is
especially given the fact that so many other cuts we heard about had more to do with shipments rather than services. >> i think a lot of people focus on the hardware side of the business, it is the most important part of the business, but there's also a growing story around services for four, five years now, and it is a bullish story. we still like it long term, it is a good business, throws off a ton of cash. near term, we're concerned to see slowing in growth. one of the big issues, apple, even though they're a massive company, they're levered for growth in apps and games in china. and as the game market in china slows and there are restrictions from the chinese government, that can impact this company in a way people don't necessarily understand. >> so are we likely to see in the next year or however long, you give a time frame, the degree to which the service business is tightly tethered to hardware sales, and specifically iphone sales, and so much of it while it is called services is
transactional off the app store, i don't think it is clear how much room apple has to expand revenue and profitability, aside from what's happening with iphone unit sales. >> it is somewhat disconnected from iphone unit sales they benefit from used iphones as well in a way most people that look at apple don't necessarily understand or build into the model if someone has an older iphone, they can still access the services, particularly when you talk about china and other asian markets. they're able to sell a lot of apps and services they're not selling new. they can still build the installed base despite the fact that iphone users will be down >> you mention other areas that could be potentially good investments now, even with the drop in apple stock, you don't think it is a buy here >> at this point i think it is fairly valued. but i think there's a couple of
narratives out there that i think you have to question to some degree. one is that services, there's an expectation they can grow 20, 25% pretty consistently. and i question that, particular particularly when unit sales are declining. the other narrative is that apple, trade is too low of a multiple, should trade like a consumer products multiple i disagree with that completely. consumer products companies trade at higher multiples because they're consistent within good times and bad. it is hard to envision apple sales continuing to increase being able to sell a thousand dollar plus iphone if we head into recession that's certainly a risk and a reason i don't agree that the multiple should expand to anything more than it is today >> eventually we'll see. thank you both as we head to break, look at shares of general electric, the
stock up big, 9%, following upgrade from sell to hold at jpmorgan that suggests the bottom may be near shares up 7.31 first, rick santelli, what are you watching >> i'm watching the statements made by the ecb, taking a step back, thinking the u.s. was lucky. we kept talking about normalizing, changing from policies of easy money is it possible in europe this is the normal that's what we're going to discuss after the break.
scott walker here's what's coming up at the top of the hour. will global growth fears keep stocks from truly recovering we discuss what really has to happen for the rally to resume. and the call of the day, sending ge shares surging. jpmorgan star analyst says the bottom could be in is it finally time to take a shot and pete najarian finding unusual activity in a name, about to make a move based on its options activity morgan, see you in about 20. >> sounds good, scott. looking forward to it. ge shares are up as scott just mentioned, taking the stock to neutral from under weight shares up about 9% the price target is $6 a share, saying that he is less negative on the stock as the number of unknown factors diminishes, saying key to the story is the
outcome of the known unknowns in near term which are better understood and around which the debate is more balanced as opposed to overlooked by most bulls in the past. why this is notable, when stephen tusa puts out a note, it tends to move the stock, he has been largely right in the past two years. he was the first bear in the stock, downgrading it, warning on cash flow and potential health of the company in may, 2016 the fact that he is essentially calling a bottom is getting a lot of attention meantime, guys, we had news out of ge itself as well today, details about the ge digital assets industrial internet of things, the fact it will do two things the first, it creates a new independent ge owned company that's specifically comprised of software assets, industrial internet of things assets, and the fact it is selling off the majority stake of service max which it acquired in 2016 to
silver lake, adding a little more clarity to part of the business that the former ceo had invested billions of dollars into building out, the idea of making ge a software company by 2020 we've obviously seen that go by the wayside, but a little more detail in terms of how they're narrowing their focus around software and how it relates to big machines and industry. >> if the hole is not getting deeper in terms of the stock, the question is how do they climb out if the digital business is something separate my first question when i saw that was what actual ip assets are going to that that will be gone from ge, and things like service are no longer a part, do they have their story together on the plus from here? >> i think that's a good question we're getting more details the beginning of next year right now, the company says it will be $1.2 billion a year in
annual software revenue company. ge has plans to hang onto it it is its own equity structure, their own ceo, board no plans to spin it off or to ipo it, but it is making sense in terms of having those digital capabilities around the service contracts of customers across their different businesses, whether aviation, pipelines, et cetera. >> as for the stock, back to levels of last tuesday, despite the jump today let's get to the cme and get the santelli exchange. good morning, rick. >> good morning, carl. before i get into it, a disclaimer this spot contains graphic financial information. for those of you on the squeamish side, be careful we talk about hard brexit. it could be a rough time in the short term for the uk. but i tell you what, hard brexit beats doing european hard time
mario draghi and all of the information out of the ecb today, i can only think of one thing, that it is illogical to me i'm not saying what they're supposed to do because i think there's no good way out of this. i guess that's the point that the ecb is basically solidifying current conditions as permanent conditions in my opinion. i just don't see how they can extricate themselves truly if you look at just italy alone, think about all of the paper being held at a price and yield that certainly doesn't reflect risk, how long can this containment field go on? what is the end game here? mario draghi entered october of 11, term ends october of '19 think about that they're telling you that rates are likely not going up in 2019, even though they said half in terms of the qe, they may
have stopped the big buying, but little buying keeps going on i guess the long and short of it is about timing. that's why i don't know if there's any way out. as we see a slowing, that's not going to make any of this easier, and it continues to underscore that the drip of morphine has put the patient in a certain comatose state with effect to what other alternatives to prop up various parts of the economy they give a jolt to the heart, wake up the patient, expect him to go running around the track it isn't going to happen so when i look at hard brexit, no matter how hard it is, the fact that the uk and brits have their own currency is so lucky for them because other countries not only would have a harder exit but to try to orchestrate that and land on the ground with their feet moving to try to move into their own currency again
pales the logic test i guess at the end of the day, as hard as it is to imagine what form it would take, at some point i think we're going to be talking about a european credit do over. jon fortt, back to you >> wow all right. thank you, rick santelli. julia boorstin has a market flash on snap. >> that's right. snap shares down as much as 3.4% earlier this morning they've bounced back, now down 1.35%. now, this comes after the stock hit a new all-time low on monday of $5.57 that's four times lower than snap's post ipo price of nearly 24.50, prompting an article yesterday saying snap should go private. snap is underperforming the other social stocks today. twitter is down about 1%, facebook is pretty flat. guys, back to you.
>> thanks, julia with apple planning to build new campuses in their area, that's not going to help either. up next, how this retail investor is navigating volatility in the markets. ceo of robin hood is with us on that the new interest rate announcement and more after the break. stay with us place, the xfinity xfi gateway.
welcome back commission free trading. robinhood set sights on a new target, traditional retail bankg the company announced new checking and savings accounts with a 3% interest rate. joining us is the co-founder and ceo, beju bot. i'm looking at this 3% interest on checking and savings. debit card requires no minimum balance no monthly fees or deposit requirements no foreign transactions or overdraft fees i mean this sounds too good to be true. what's the catch >> we're excited to announce robin hood checking and savings, a product we've been working on for two years. we're excited to pay 3% interest on both checking and savings compare that to the national average of .09% offered by most savings accounts it's a huge difference for
consumers. and for the median american house, that's got about $8,000 to the bank, it adds up to $240 a year, which will be amazing for customers. we pay it out every single day so that's, that's like getting $1 a day in your account every monday through friday of the week every week of the year >> so a, how are you going to make money and how sustainable is it? rates, 10-year below 3% right now? >> our goal is to be profitable with this business we plan on making money two ways first, we collect interchange revenue. because we have debit cards we're offering through a partnership with mastercard and we invest customer cash into treasuries and government grade assets and we believe over time we'll be able to generate yield in excess of what we pay to customers. we intend for this to be a profitable business for us long-term. >> as you grow and add services,
there are costs. just yesterday you guys had an outage related to your options trading right now i'm looking at your status notification saying you've been working to restore access to accounts nearly all restored. you've got some customers upset. as you make these promises on services you're able to deliver. if something goes wrong and there's no human being for the customer to talk to you guys have around 300 employees how does your model account for that >> we had an outage yesterday. it affected a small percentage of our customers, we're excited to have it back and live for everyone as robin hood has been from the beginning, we're committed to building an engineering-first company. we can still hear you. >> we have a problem with the
audio. perhaps he was hearing something that wasn't us it's a challenge that they've got if they're going to pay out not only 3%, but do it every day. that's a real cost on the books. and once again, while the promise of this is big and we've seen the likes of jp morgan look to follow suit with no fee trading, their costs in. >> it's interesting, too, i know that they've made, maybe we can get him back on and ask him about it they've hired a cfo last month there's expectations that eventually they would go public, compar comparisons. 3% on checking and savings sounds very attractive to people beyond millennials that being said let's ask baiju about that in terms of plans for robin hood in the future you brought on a cfo i believe last month are you looking to go public any
time soon? >> it's something that's in the plans long-term. we have no firm timeline on it yet. but we're excited to continue to grow the business. excited to have jason wernig join us cfo, business is doing very well. >> i wonder -- is participation in the 3% checking, you think it's related to any weakness we see in equity prices or sort of like the corollary we see with cds, when stocks are weak people go to steady yield in. >> there's no correlation with that it's something that we have seen in the markets, the markets have been volatile over the last few months it's something we've been working on for a long time we're more interested broadly in expanding our services so we have more things customers can do with robin hood now we're excited to have checking, savings and investing in owner products. >> i want it give you a chance to go back and finish your answer i would ask you about the glitches on the platform
you said it affected a small number of customers. what's your commitment to making sure that customers are made whole and kept satisfied when things do go wrong >> we're 100% committed to making sure our services are up and reliable and that customers have a great experience. like you mentioned right before we got unexpectedly disconnec d disconnected, we had an outage yesterday, the team has been working around the clock to address it i have been involved as well and you now, it affected a small percentage of our customers and we're working hard to make sure that our systems are up and reliable for everyone. >> baiju bhatt, thank you very much for joining us. market shock continues, s&p roughly flat the dow is bouncing around, up 75 right now squawk alley is back in three minutes.
welcome back to squawk alley. we've got space news virgin galactic launching its space plane from california's mojave desert this morning the test flight climbing more than 15 miles, which is where the edge of space begins this is a big deal today's mission marks a key step in its plans for commercial space tourism. richard branson says he aims for
virgin galactic commercial flight by march 2019 the pilots became the first people to launch from american soil to space since the space shuttle program ended in 2011. keep in mind that would be based on the altitude at which the government awards astronaut wings. the more commonly accepted definition of wear space starts is the carmen line or 62 miles up from earth. nonetheless, a key test for virgin which touts more than 700 reservations at $250,000 a ticket and late they are afternoon we're going to be hearing from the billionaire founder of virgin galactic himself, richard branson on this morning's test flight and so much more. he's going to be joining us on power lunch at 2:30 p.m. eastern. guys, this, this spacecraft hit max speeds of 2.9 mach on the way up just three times the speed of
sound. >> commercial flights in basically 90 days? that seems aggressive. got to ask branson about that. >> it is, he's been aggressive with his timelines. >> i'm looking forward when he can send steph curry to the moon. >> and he's going to meet with nasa as i understand. >> let's get to the half >> synchronized global worries add another central banker to the list of those concerned about a weakening economy. can stocks go up if growth is going down it's 12:00 p.m. noon, the halftime report. >> a new warning of a global shutdown this time from ecb chief mario draghi how should investors take the news the call of the day, jp morgan steven tusa saying the bottom is in on general electric the halftime report starts right now.