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tv   The Exchange  CNBC  July 31, 2019 1:00pm-2:00pm EDT

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consolidating. >> okay. steve weiss. don't want to confuse you, but i'm going with apple. >> i knew it. >> momentum continues. >> that's just fantastic amg amgen. love this one. countdown to the fed begins now on "the exchange." thank you, scott hi, everybody. here is what's ahead just an hour to go we will have lots of discussion and debate about that. that's all ahead in rapid fire today dom chu is here to set the scene
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for us similar story there, and it is nasdaq outperforming up 0.2, all in anticipation for what could be the biggest phet decision, so the indices very much in wait-and-see mode. one of the other places we're keeping a split close, gold prices are off the reason why it's important, gold prices have been one of the biggest beneficiarieses of the anticipation of a fed interest rate cut in fact, just since the beginning or probably the end middle of may, we've up about 13%, this reaction could be big, and then the stock of the day
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we'll put up general electric. those shares have seen a roller coaster ride that's just intraday earnings came out better than expected, but there are still some worries about the longer-term projects for ge. since december, shares are probably up 58%, but still well off the highs. ge is a stock to watch today back over to you, kell welcome to "the exchange." the chicago pmi dropping further into contraction china's factor activity fell for the third straight month negotiations this week were, quote, constructive, and the stocks will continue let's drill down in the markets. bob, to try to make sense of this all, what is the landscape as you see it. >> they're spinning forward,
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august, which is historically is not a great month. what's it look like for august >> let me show you july, but not bad, not a lot of outstanding movers but again not a lout of outliers s most of the rest of the market is right in the middle, up 1% to 3%, including consumers staples, reits, and the positives are u.s. economic data remains strong for the most part rates are low, and there is an assumption that the central bank backstop is going to continue, but there's negatives as well. earnings growth is flat, just slightly up for the year, but the market is up 20% stocks are pretty pricey right now. clarity on global growth, still very elusive unfortunately, kelly, history is not on the side of markets in august it's the worst month for the dow
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and s&p since going back to 1987. >> bob, thank you. we are less than an hour away from the fed decision let's get straight to steve liesman. he's in washington this is or last chance to see you before you go into the lockup. >> it is just about an hour before the fed expected to cut rates. it will either elevate or repeat the uncertainties that were repleat in the last. and i've got a big questions there has sure been a lot of talk about it. they'll be listening to james for how he explains the cut and what it means. right now looking through this july contract, 100% reliability, and 57% chance of
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another rate cut in december this comes after a barrage of criticism from the president among those comments, the president said he would not be satisfied with just a 25-base point cut. he wants the fed to go 50. the president also complained that the -- dollars hitting fresh two-year highs, it's done nothing but strengthen, so kelly, to those people who think they know how to manipulate a currency, i would say guess again. >> i would echo that steve, no dot plots, no projections today, right we only get the statement? >> you only get the statement. you get the dot plots four times a year if you'd like it more often, kelly -- >> no. >> perhaps i can ask the chairman. >> feel free, but my guess is you have more important things to say i'll say kelly to we-- wants me
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dots, and he'll say wear polka dots judy coronado is here and andre is head of -- ceo of zoey financial. julia, you're expect a quarter-point cut? >> yes, i am i'm also expecting them to end balance sheet reduction at the end of july and then as steve subjected, leave the door wide open i believe the base case is two rate cuts for the fomc, now and again in september, to address persistently low inflation and downdied risks but that they will go more methodically, 25 now, 25 in september, and then wait and see how the outlook evolves.
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what is the basis? it's been very strong outside of manufacturing. yes, i think it is justified i think it's justified, because the fed has systemly erred on the side of being too tight lit real for trally. they have overestimated the neutral real interest rate and overestimated the sensitivity of inflation to falling unemployment i think they have been systematically tight relative to what this would have been, and that's manifest in they missed the inflation targets, so i think they're marking to market the reaction function and acknowledging that we can live down here with a three handle on the unemployment rate can no negative inflation response. >> my follow-up question is this
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is not happening in a vacuum and the markets are so extreme, paul, in fixed-income markets. german bund had a fresh new low, 43% has tive ylds if you exclude the u.s. and look at the investment-grade universe, should the fed be leaning against this, actually to make sure we aren't having a massive bubble in fixed income >> there's always the risk of irrational exuberance in the international markets. that's probably the most daunting risk going forward. fundamentally if you have incredibly negative interest rates around the world, it should inform where neutral is for the united states. i think effectively neutral in real terms is zero for the united states, so i think the fed will be starting a path to getting the nominal fed funds rate down to the level of inflation, which is below 2%
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now. >> andre, for investors who look at they bond yields and say give me a break, 2% in the u.s., and everyone else in the world is attractive, would you tell them it makes sense, you can rationalize being at these levels or no >> the fed is looking at two scenarios, one is are we more concerned about deflation or more concerned about the consequences of bubbles because we're being cautious i think they have taken the stance of we fear deflation more than seeing frothiness, potentially even a bubble and some asset classes. >> but they're way -- you can look at the other central banks and see how it plays out they might do -- japan has been buying stocks, or what kind of measure, is that really helping, scott miner says the fed should hike rates, not cut them, but the biggest problem is we need a
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rapid increase in the supply so that's an issue that japan. it was always talked about as a cautionary tale, the fed cut in '98, spurred the dot-com bubble and crash, and it's interesting that's now being talked about as a positive example for what could happen here >> right, it is feats despite
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all of this exuberance in financial markets, we're still seeing global dgp slow down very steadily >> so the fed is doing what it can on the other hand, it's all they got it's time for fiscal he policy makers. >> amen, amen. it makes them seem relevant are we looking to the wrong place here >> i think the reality is the fed has been the only game in town for the last decade and we've seen the limitationsi
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knew that chuckle was coming. >> it has to be on the table >> let's keep that independence. >> the chinese wall. >> the fed has independently missed its inflation target on the low side for 10 years. >> and they are. we had the fiscal policy maker, in the hopes it would a -- the incoming gdp suggests that was wishful thinking investment has ground to a halt.
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so that's a disappointment that i think is informing the fed's concerns here. >> andre, the final word and translate this into what an investor is supposed to do what strategies work so you have to stay diversified, as we mentioned, whatever the fed does is not going to cure
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the world's ills. >> i don't envy his ception, the way this plays out. >> for sure. we appreciate you all here here's what else is ahead on "the exchange. >> announcer: coming up, no longer a phone company apple proves it's got more up its sleeve than many thought was there anything in the report that should give investors pause? endless scrolling and autoplay one senator is proposing a bill that would ban both. consumers may be happy, but media stocks, not so much. and the consumer staples stock that's see a massive run this year, as candy, cookies and china give its bottom line a boost. this is "the exchange" on cnbc
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shares were just down -- compared that with a 22% decline back in the second quarter cook also noted return to growth in mainland china. let me bring in angelo zeno, and tripp mickle is an apple reporter for "wall street journal. welcome to you both. i was frankly surprised that people sha people shall rugged orugged offe >> they kind of tied it partly to foreex as well as positive numbers on a prior year ago number you're looking at closer to 18%. the with you big disappointment was services
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that i think investors are looking toward the potential service offerings later in the year so we have the apple card coming apparently anytie, apple arcade, apple tv plus, tripp same question to you, this was the slowest increase since 2015. okay, so if we say it was 18%, stripping out those factors that angelo mentioned, this is still supposed to be the future of the company. is it a problem that it didn't grow more quickly? >> well, i think this is a big open questions that analysts and investors have been wrestling with for a he well, wrestle, and we were still sorting that out, and part of what's going on here, too, there's a law of large numbers equation at play here we've seen services really grow tremendously over the past
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couple years, and as a consequence you'll naturally see the percentage growth on a quarter over quarter base and year-over-year basis change. >> ultimately you use the hardware as a portal into apple services for the most part, so anything you would add to that i know after this you still have a buy rating, $240 12-month price target. >> what do you expect it to look like >> one thing i would add is, listen, i think services growth is clearly more tried to growth, and we think the installed albeit a considered he bush but that being said i think paid subscribers is an important number we're looks at 420 million looking to grow that to about 500 million at some point next year, the growth is very good,
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and once you get consumers becoming a paid subscriber, they're more inclined to spend ear more on the services sigh. on you view is we're looking for growth of about 15% to 18% because of what we're rooking for on the installed things. >> the wearable numbers were astounding is this the apple watch? the airpods? all of the above how does it change their financials in the future >> it's a bit of a black box, but certainly apple was really, really smart to launch new air pods in mar and take that pride up to $199 a lot of people are crediting that with really giving it some waeshls momentum during this period that usually is a bit of a lackluster quarter for apple that's part of the reason they are so impressed. >> my dad forgot his the other
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daze and it was almost a crisis. thank you both apple shares up 4% this afternoon. coming up, wework is working hard to get people on board we'll take a closer look plus back be the most market moving and most controversial st0 nucision in years. ju 4mite toss go we'll get you set up when we come back in two
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welcome back to "the exchange." let's get a check on the market ahead of today's big fed decision stocking in the green barely clearly as dom said earlier, just a holding pattern we're up less than a tenth of a percent for the major archss 2.02%, we'll see whether it's lower after this decision. spotify is down more than 2% on a wider than expected loss. the revenue did come in above expectations, shares are down more than 3% right now how about electronics arts it is popping up more than 5% on a revenue beat held by the battle royale game. and shares of moulden coors are down more than 7%. the company blaming unfavorable
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weather, weak industry demand and higher marketing costs now to sue herera for a news updale. >> thank you, kelly. here's what's happening. hud secretary ben carson in baltimore striking a very different tone about that city than president trump he says the administration is continuing to look for ways to work together to improve the problem areas in the city. >> just in the last year when you look at the federal money that's come to baltimore, it's been in excess of $16 billion. i don't think there's been a lack of investment i think perhaps we need to look at how that investment is utilized the milepost 97 fire in oregon has burned more than 12,000 acres, and it's only 15% contained. fire officials say despite those numbers, they have been able to make some progress due to cooler
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weather. and hall prince, a broadway director and producers of shows like "phantom of the opera" "cabaret" and "sweeney todd" has died he would not a staggering 21 tony awards. hall prince was 91 years old two of my favorites he directed and produced "fid her on the roof" "south pacific," the lest goes on and on. >> unbelievable. >> it is here is ast is what's coming up >> announcer: ahead, brexit is starting to show up in more and more earnings call from. hidend callers to candy. sotheby's is starting to hear the pain. and the rise of the high-tech diaper it's all ahead in "rapid fire.
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welcome back tomst let's catch you up on a few stories. time for "rapid fire." robert frank, morgan brennan andom chu, welcome, everybody. we have a not of nuggets that
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are relevant they also pointed to growth in china, india, southeast asia, russia and mexico, as growth drivers actually in the largest market, europe, the company is stockpiling goods to prepare for a brexit >> consumer staples companies in general have had a nice strings of these reports where many have reported organic sales growth. the idea you can grow your business without acquisitions, grow your business in sales without the effects of tail does that winds what's great about mondelez is they're place bets in the right emerges markets and getting it right with the right product mix. that's tough to do no matter where you are, mondelez is doing it right whether it carries the procter & gamble and into other product
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names. and they have pricing power. >> there you go. >> consumer have paid them >> it's almost looking frosty, but then there's earnings reports like this. >> and the argument have been the valuations have been looking expensive as of late i think exactly what dom just said mondelez, unilever, kimberly-clark, they have pricing power, despite the fact we've seen slower global growth and they've been able to price higher. >> and this was even p & g, they took a big wrydown. >> or i don'ts, the most stuff just keep putting more stuff -- just take out the cookie and just have nothing but stuff. [ laughter ] >> different kinds of stuff. all those flavors. i have realized the carrot cake
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might be one of my favorite. next epps. shares of astin martin hit a new low today, down nearly 75%, guys since going public last fall this was after the british car maker posted a $96 million loss for the first half of the year and cull the full-year forecast because of the small demand in the uk and the rest of europe. the the ceo says they had to -- we'll live with itsh we saw the pound get hit with the boris johnson elevation and so forth. >> britain was their top market, now it's the u.s. so there's definitely a brexit components astin is in this tough space where they were going to be the next ferrari. >> ferrari has done incredible. >> astin is in a tough spot in a crowded market you have all these companies
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making $200,000-plus cars. there's a lot of rich people in the world, but not that many right now they're betting on the new suv which they'll come out with next year and pinning their fortunes on that by the way, everyone, including lamborghini and ferrari, have come out with suvs i don't know if there's enough room at the very top for this many manufacturers making that many cars. >> remember when ford owned all of these things? >> they did. >> jaguar, astin martin. they divested of there must have been a reason why. you get the ink lynn between how they're doing, maybe ford was okay getting out of those things when they did back in the day. >> that's a key point. it's also worth noting that astin martin has gone bankrupt seven times and has had a massive, ambitious turnaround plan yes there's a lot of competition, but the company has dealt with a load of headwinds
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skipping ahead to the battle between big tech and washington is heating up with a senator introducing a bill he's a calling the smart act. social media addiction reduction technology it would ban them from autoplaying and -- >> as a consumer, i'm open to the possibility of this, because i'll start scrolling on twitter and i'm down in the rabbit hole. >> but do we need to ban this? >> i think there will be a local of question marks, and reportedly no one is co-sponsoring this bill, but it gets to the bigger scrutiny, bigger need for regulatory oversipgt. the over thing that i think is fascinating is senator holly he is a digit at native.
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it's not like an older senator who is maybe not as tech savvy, but he's been doing it aggressively the past year >> i wonder if they're having -- is endless scrolling going to solve the problem? >>hood a headline grabber, pure and simple i'm not sure if anybody feels like this has a shot of happening, really, but it certainly does put you at the forefront and gets you headlines and people know who you are now. >> even if you did it, would that actually change -- as the father of a 14-year-old, i know an if you ended limitless scrolling, this wouldn't change a thing. they're on it all day every day. >> by the way, everybody who as pivoted to online would like to know if they're going to ban autoplay, cnbc including. huggies and pampers are
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betting that parents will spend more on diapers. kimberly-clark rolled out a line with plant materials week in birthrate, 32-year low, need to make sure they can offset that stagnation in the business. >> it also means those parents, because they are having fewer children can spend more of that disposable income on them. this is targeting a very specific -- this is the robert frank market i'm okay going to costco and buying huggies or kirkland, because i'm going to use like ten of them a day. i can't buy the expensive stuff. >> don't you think there would be a market for -- i personally would be hesitant or skeptical about it, but don't you think there's a market for a diaper that can track how your kid is doing in the crib. >> if you're getting a notification that your kid just went, do you really need that?
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>> sleeping patterns >> but if the diaper is, what do you call, an entry point into the technology -- >> it's an exit point, actually. >> touche, robert. >> it's just a foothold into data collection about the baby, then you get into the issues you raise. >> the biodegradable things, i can see. >> 35 cents a diner. that's what it costs now. >> that's a lot. if any area other than razors was some -- how can there not be a cheaper way? as long as they work -- i don't even want to talk about the prince harry stuff that gets my riled up. wework's ipo may happen before than expected why is the founder cashing in on his holdings plus t-minus 20 minutes until the first rate cut in over
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a decade how will they defend that cut, and a market near report highs stay with us for that. "the exchange" is back in two. (gentle music) - my degree from snhu has helped me tremendously. the flexible class schedules allow me to go to work full-time, run my catering business and be a mom and parent. when i reached this accomplishment, it was like, it's here, it's happening, it's now. we, at southern new hampshire university, are the ones who succeed. we are the ones who break through.
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check out shares of nordstrom moving higher by about 7% on a report from dow jones citing sources that the founding nordstrom family may be looking to increase their stake from about a third of the company's shares to more than 50%. you may remember about two years ago the founding family had made an attempt to take the company private at around $50 a share. the board at that time rejected that offer at too low. we reached out to the company for comment. if we hear more, we'll bring it back to you. the we company is a up parent of -- wework, they're holding their pre-ipo present
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ace for analysts today with me is the founder and ceo of equities end. what is the we company up to today? >> you know, i wish i can't tell you. the we company's business model effectively is pretty simple it leases building, then rents it out, it's not a new business model. what is new about the we company is it's pitching its tecompany s a technology firm. it's going to help folks optimize how they build and operate. the worst-case scenario is that it gets pegged at a real estate company, which means it would be 20 times overvalued than its last round the best-case scenario is we're going to track what everyone is doing, it sounds like an amazon warehouse. they're trying to turn their
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offices into an amazon warehouse in order to get the tech valuation. i don't buy it >> so all of this is happening as they get ready for what reportedly could be a september ipo. this is probably one of the companies with the most hide-profile criticisms of its business model even uber and lyft did not necessarily have the heat on them like wework their valuation has continued to go up, but what's interesting about this is something we hear with wework or we company is the amount of capital that the founders have allegedly taken off the table, in secondary sales, with every one of these rounds, the founder will take a few chips off the table. this happened when snap went public we're talking about an order of magnitude more that has already gone in the possibilities of the founders, which is over $500 million. that's a lot of money that they
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are effectively holding on to risk free, because they sold it on the ride up. >> do we know if we're looking at -- so you want the last they were valued's juan $47 billion are we expecting them to do much more than that >> i think they'll at least try to match that number we'll see what the analysts and wall street decides to accept. you take a look at weworks competitors, they're between 0.5 and 1.3. a trailing multiple for the we company is 26 times. so i mean, you're talking about something that its peers are being valued one way this company is valued 20 times greater. for the sake of all the people i know still work there i hope i'm wrong, but i don't see how it can, by picking up and acquiring a few tech companies turn itself
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from effectively a real estate firm into a tech firm. >> atish, thank you. coming up, the case of a cut, what will chairman powell say, and how will the market react? we'll get you ready for the big event. stay here. only from fidelity.
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the market is pretty much expecting them to cut rates for the first time since the financial crisis in 2008 joins me is david wessel david, where is the crisis for a rate cut this time around? >> well, there isn't a crisis, but you don't need a crisis to cut rates. i think the reason the fed is likely to cut rates, threefold one they think they overdid it in december. two, they're quite concerned that inflation has softer than they expected. they want to prevent inflation and importantly inflation expectations for weakening third they see a lot of risks over the horizon particularly in the global economy, so they're basically buying some insurance. >> but a we heard, and i'll bet
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it curious to see if it does dissent, that he send that insurance isn't free and the corr could be financial stability. you've got to admit the bod yields are wacky around the world. >> two reasons not to cut. since the last might, the economy data has been more positive than negative so maybe they can afford to wait, but the second is the point that eric makes, with interest rates so low and people expecting them to go lower still, are we going to see the financial excesses that let to the instability of the great recession. so if you -- there's a cost. the question really at the federal reserve that the open market exploitee has to decide is, are they willing to take that cost. rosin kranz sounds like he's not. >> you're saying that you're
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also looking to what they signal about further cuts is this a one and done cut or are there more to come >> i think it's going to be -- people always listen carefully to the o cf1 o >> i think it will be -- i guess people always listen care ply to the chair's press conference, this one more than most. we won't have the advantage of the dot. people will be listening carefully. if they cut rates a quarter, what will they be saying is necessary for them to cut rates again this year as the markets anticipate of course it dpen depends on t economy and all that, but is leaning towards that or not. they already said they'll stop shrinking the balance sheet in september. maybe they move it up a month. that doesn't really matter they have to be able to convince us they're doing what they're doing because they believe it's what the economy needs, and they're not bowing to the pressure from president trump.
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>> right >> that's a really unusual situation. we don't usually have these tricky decisions made with so much noise from the white house. >> yeah. you know, one larger point on this, if the issue for the u.s. -- inflation very low -- if it's structural, if it's demographic, it's because of all the things scott minert alluded to, is that something we should look to the fed to solve >> of course not you answered your own question monetary policy can do what it can do we put too much pressure on monetary policy. there's lots of things in the u.s. economy that could be better and their the province of the president, the congress and the state legislators. it's unrealistic for the fed to fix every problem. >> i worry we see where this goes when we look to europe and japan. they brought rates down before now they have to go to more and more extreme measures.
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is there any reason to think that wouldn't happen here? >> yes it's a risk. maybe we should run even bigger budget deficits so the fed doesn't have to carry all the weight that's such a d.c. joke, david >> sorry i've been here too long. >> great to see you. thank you, sir >> you're welcome. >> that does it for "the te."ange afr this commercial break, the fed decision on rates will happen on "power lunch." we'll see you on the other side of this break. es than anyone else in the country. don't miss your gto experience our most advanced safety technology on a full line of vehicles. now, at the lexus golden opportunity sales event. lease the 2019 es 350 for $379 a month, for 36 months, and we'll make your first month's payment. experience amazing.
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welcome to a very special edition of "power lunch. we are moments away now from one of the most highly anticipated fed decisions maybe ever where the federal reserve is expected to cut interest rates for the first time in, yes, a decade i didn't believe it when we said that a couple days ago it's true. let's check where we standed with the markets the industrials basically flat, down 0.04% the s&p is down and the nasdaq is up. let's bring in our guests.
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we have a divergence of opinion here as to what you think they will do and what they should do and why. ladies first what do you think they will do and what should they do? >> i think the 25 basis point cut is already baked into the market and the market expectations the fed signaled that. that's what we expect today. and i think the fed actually should do 50 the reason i think they should do 50 is because the reason the fed are cutting require more attention. so it's the global slowdown. it's the manufacturing slowdown globally it's the rate cutting all over the world and the fact that the dollar that remained so strong these are good enough reasons to cut. if you're cutting why not do 50 now instead of waiting for another six weeks and getting
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the market excited >> if you know that's where you're going to go, do it in one fell swoop david kelly, you think that's the wrong thing to do much >> i think they should leave rates where they are the economy slowed down. of course it slowed down it's supposed to slow down there's no threatened recession. if you start cutting rates now, you will stir up fears, people will anticipate further rate cuts and it will be counter productive i think they shouldn't do anything, but what will they do? 25 basis points. you'll get two or three dissents on the decision and they may put some language in there saying we want to be two and done. we'll look at various decisions to see if there's any reason for further rate cuts. they have to say something hawkish now. if they don't stand their ground now, people will build in more and more rate cuts >> you say not only should they do 50, but they will
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>> right i boil it down into two components one is inflation i put a lot of weight on the fact they're missing their inflation target that's where i differ from david, more so than anything else also the dollar. think about the vicious cycle these two things are in. the dollar and inflation so if they don't deliver a very aggressive cut today, then the dollar starts to strengthen, and that actually starts to lower inflation, so they get further away from the target when you add in other global factors, like what other central banks are doing around the world, that exacerbates the problem with lower and lower inflation. that's the issue the other thing is that effectively we have powell, clarida and williams the question is can they convince the rest of the committee to go 50 >> do we not know enough about their persuasive skills to ascertain that >> that's the bet. if we break it down, the market
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is pricing 25 basis points i totally get that that seems reasonable. do they have those persuasive skills i'm thinking they do >> we have to go to steve in a minute's time. is there any guarantee if you cut by a half point that you will get the inflation it sure hasn't worked if a lot of places around the world >> it's no guarantee you get the inflation, but you work on inflation expectations the expectations component is causing inflation to be so low the other thing is you get in front of the market. right now the fed is following the market signal. by cutting 50 today, the fed can restart the conversation >> it sounds like all of you think the fed needs to get out of this box. >> by doing 25, the box will get bigger and bigger. >> they need to make sure they're continually not in the box. so they have to say there's a limit we can do. there's not enough of an excuse
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to use all your ammunition here. >> let's define success today for the fed. they won't get inflation up today. expectations, for sure do they get a steeper yield curve? i think they do if they go 50. do they get a weaker dollar? yes. that defines success to me >> steve liesman has the fed decision >> the federal reserve cutting interest rates by a quarter point. the federal reserve cutting interest rates bay quarty a qua point. the federal reserve ending its balance sheet reduction two months earlier than planned. instead of september it's now this month the federal reserve citing imply k implications of global development and muted inflation. it says the expansion is likely to continue but says uncertai y uncertainties about the outlook remain on forward guidance and what the fed will


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