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tv   Power Lunch  CNBC  May 5, 2010 12:00pm-2:00pm EDT

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step with europe and you could see that on the euro dollar relationship. we hit $1.28 earlier this morning, but as that low put up the chart for the euro dollar. that chart, as we hit the lows, just as our market was opening, things started to turn around. there's the euro and we have been essentially moving in lock step. that is a very unusual thing that doesn't happen that often. the high beta names are back again. you know what a roller coaster it has been. i mean stocks like financial stocks and i don't mean the european stocks. regional banks are high beta names and they trade very frequently and a high wide range here. they were the first ones to come off of the bottom here and leading the move forward in the stock market. else where, high beta commodity names like freeport-mcmoran have been moving up rather progressively in the middle of the day. those stocks hit hard and not just on the market weakness but on the dollar strength recently.
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same situation with the high beta coal names. those stocks also frequently traded and they're all in positive territory and finally same situation with some of the big retail names trade often in frequency, there's macy's tradertalk.cnbc.com. how are we looking at the nasdaq? >> bob, better than we were earlier today. the nasdaq still the only one of the three major indices that hawse not gone green yet. but inching closer. right now down 3.3 points. i know it's cliche to call it the tech heavy nasdaq but it is a fact and that is honestly what led this market so much lower yesterday. look at what is going on today. a bit of a bounce back. google up 1% and yahoo! up better than 2%. the philly semiconductor index took a 4.5% hit yesterday and barely above water at this point. even apple is heading up towards the flat line at this moment and on the earnings front a few
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stocks trading significantly lower and news corp down 6% and garmindown 6.5%. let's go to the nymex. >> i think i'll take it from there big guy. interesting to watch how the dollar is affecting everything so differently. if you look at the first chart, dollar index. still up on the day. well off its best levels but time we were up a half a cent is huge. gold has managed not only to come back, but, obviously, sitting on fresh highs made a few moments ago. contrast that and i don't know if we have the chart. nickel is down about 10% today. you know, a lot of pain in the commodity sector with this dollar moving and it really is getting intolerable in certain markets with the order flow being so one sided and now let's look at the fixed income markets. if you look at tens year to date. these are the lowest yields in march, that's important. if you look at the longer run in tens. these are the lowest yields
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since december. if you look at the 20-year chart, congratulations. i don't know if i've seen an intra day yield lower than 2.84 ever. fallout from greece's debt crisis that's what we're talking about. obviously, intensifying. unrest in the streets of athens today as tens of thousanded marched to protest. the demonstrations turned deadly. cnbc simon hobbs is here with more details on what's going on. simon? >> michelle, today the human cost of what financial markets have agonized over for weeks under the banner sovereign risk death on tv screens around the world. in athens a march by 30,000 private and public sector workers turned violent. throwing petrol bombs and pelting police with missiles. a bank in the center of athens set on fire. as a result, three people burning to death. police repeatedly beating off
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attempts to storm parliament as inside the ruling socialist party started to enact deep cuts in wages and pensions. hiking the sales tax to 23% in return for that eu and imf cash. in germany, chancellor angela merkel telling her own parliament it was a fault in the road and this is about nothing less than the future of europe. while warning that other countries across the euro zone will be hit unless berlin votes through its share of the bailout. investors, again, fled banking stocks in athens on news of the debts. moody's announcing the likelihood it will downgrade lisbon's credit rating or at least the risk of that for the moment is rising. cannot prevent madrid's market from being hit again. deutch in germany still sue
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under pressure the selling of the euro becomes really for days now a one-way bet for foreign exchange players and normally see the cost of borrowing beginning to rise, an indication the crisis is slowly eating away at confidence for the moment in europe. >> absolutely, simon, thank you very much. let's talk more about this now with our power lunch market insiders. joining us on the set david c cotot and author of "invest in europe now" also in our studio jim silver just came back from asia because china is also a part of what is going on in this picture. welcome, gentlemen. nice to have you here. david, let me start with you. moody's saying that they may, indeed, move on portugal's debt two notches.
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the risk of contagion spreading at this point with violence on the street in greece through the rest of europe, what is your take? >> southern europe, stay away from it as an investor. we are in a major test of the euro as a currency. >> do they both survive? >> in my view, yes. what a time to write a book about europe. we wrote the book a year ago and i didn't know anything about greece. if i did, i would have written the book differently. >> or changed the title. >> could you invest in germany? >> we're overweight in germany because we think when you have blood, i don't mean it literally, when you have turmoil and you have markets under durs, you have opportunity. the opportunity is in northern europe because the euro has 15% valuation against the u.s. dollar. a german machine tool manufacturer now exports to china, competes against the u.s. company, has a distinct price
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improvement in advantage and we think in northern europe we will see robust recovery. >> make the point there the euro zone itself staying together. when we have new entrance to the euro zone that are still expected and now there's talk that perhaps their entrance might be delayed because of what's going on and do you feel that the contagion will spread to portugal and to spain and then there's italy and there's ireland. >> well, i think as you expand the euro zone you get into different cultures and societies and i think what we're seeing now is part of the german /greek conflict is not two countries, but two different views on how you conduct yourself and how you save and how you invest. >> can we be specific about that? in germany you have to work until you're 65 minimum and in greece you don't. if you're a german worker, you are being asked to put up money for people who retire earlier than you and put up pensions. >> you talk about volatility earlier and the challenge is,
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what are our expectations for european economic growth and the implication for earnings. historically since world war ii the u.s. has been a huge investor in europe and as europe restrains itself and cuts its spending and raises taxes and all of a sudden that slower economic growth expectation impacts. >> are. the markets vastly overreacting to a greece or portugal threat? greece has a gdp the size of connecticut. if connecticut went bust on the state bonds i don't think the u.s. economy should topple nor do i think europe needs to topple because greece or portugal has a problem. >> they're extrapulating to all the euro area. >> 16 of the 27. >> so, if you were an investor, david and john, you know, and you're sitting at home and you're saying, why should i really, not why should i care, but what are the implications for my portfolio?
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john, you just put your finger on it. you may be investing in are relying on sales and earnings from that part of the world. >> exactly. always that volatility in the marketplace has created when you have expectations or results different from expectations. >> do you act on that? do you sell a coca-cola because they sell a lot in europe? what does an investor do? >> i don't think you sell a coca-cola because they sell coca-cola in europe. >> i didn't think so either. it's one thing to understand the situation. >> so you back away and say the euro is 25% of the world's currencies. the u.s. dollar is 65% of the u.s. dollar currency and all the rest are 10%. that's banking system and financial intermediation and co-integration worldwide and we have the second largest economic mass, the european union, population 500 million people in the middle of the turmoil. that means you have to back away from turmoil. >> john, you just came back from
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asia and we will bring you back in a little bit to talk about that. the big question with europe and specifically germany dragging their feet and taking care of this problem. if, indeed, europe does not recover and if, indeed, china is dampening down growth. can the u.s. recovery continue? >> oh, yes, the u.s. recovery can continue, but probably not at the pace that a lot of people had expected. again, i'll give you an economic number. since june of 2009, the u.s. economy and gdp is up 2.7%. in a typical economic recovery, it's up 3.8%. we are a sub par recovery and that will be hampered exactly by what you're talking about. >> we'll give you a little break, but then we'll come back. tiger woods falling apart at last week's pga event. is tynike worried that their sur star is melting down? we'll talk to the company's president. plus -- >> he owns the charlotte
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bobcats, banks and auto dealerships. tyler sits down with cnbc contributor and robert johnson at the business council. then power on in today's off the charts calpine surging more than 180% since the march lows. and after reporting a narrower loss keeping the improvements coming. plus, a picasso sells for more than $106 million at auction. a new record is ultraluxury spending really back or another bubble brewing? all that plus the fast money halftime business report.
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we're monitoring the hearing ongoing on capitol hill. former bear stearns ceo jimmy cayne and mr. schwartz right behind him. they arrived just a short time ago at that hearing. mary thompson is down at capitol hill for us. michelle? a coast guard spokesman confirms the valve installed by bp has successfully capped one of the three leaks, but adds this will not stem the flow of oil. up to 5,000 gallons of oil are spilling into the gulf still and the environment and public works committee plans to hold a hearing focusesed on the impact on the economy and the environment. officials from bp, halliburton and transare talking today.
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crude oil for delivery just next month is 81 bucks but if you want it in july of next year, it will cost you 91 bucks. often a bearish signal when you price it more expensively out in the future. sharon epperson is standing by with the latest on the oil market. >> you are right, michelle. a lot of traders are watching that curve very carefully and while we're watching what is happening in the gulf, it's not having an impact here on oil pri prices, as you can tell. what is happening in europe. and as that situation ebbs and flows, we're watching the euro very carefully. we did see the euro drop to a 14-month low earlier and that's when you saw food prices fall below $80 a barrel. the fears that the greek debt crisis will spread and the fact that moody's is going to review portugal's debt rating and all that is factoring in to what is happening to oils and commodities prices. we are looking at the fact that we have another u.s. petroleum and products, as well. even though demand has picked up
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here in the u.s., dennis, we are not seeing that reflected in prices. those prices are lower, as well. the euro and the euro zone seems to be the biggest factor impacting oil today. >> thanks very much, sharon. these guys tend to be every bit as secretive as the guys at apple and microsoft. nike is holding its first investor conference in three years. darren rovell is standing by. >> nike continues to deal with new numbers coming out today including a new revenue target for 2015. nike says they're going to do $27 billion by 2015 and joining me now is nike brand president charlie denson. that's a pretty nice number there. obviously, other numbers coming out. $1.7 billion in soccer. you call it football. world cup coming up. you have ten of the 32 teams. tell me how big that is going to
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be? obviously, adidas and puma have raised guidance on that alone. >> the world cup is one of the biggest and greatest events and happens every four years and it has been our biggest single event and campaign worldwide. we're excited about what we're doing this year in south africa and the one english team and our biggest footprint at the world cup ever and we're looking at the new products we're going to introduce over the next several weeks. >> not a lot of talk about tiger woods this morning. you're standing by him and he still continues to use -- >> darren, i have to interrupt you, hold that thought. we have to go back to capitol hill where former bear stearns ceo jimmy cayne is about to be sworn in by the head of this particular commission. let's listen in. >> and we'd like to ask each of you today or the opportunity to make opening verbal statement of no more than five minutes so,
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mr. cayne, we'd like to start with you. by the way, there will be a monitor and when that light goes to yellow, that's one minute and when it goes to red the time is up. with no further ado, mr. cayne. can you turn your microphone on, mr. cayne and pull it towards you. >> obviously, mr. cayne has been sworn in and he will read prepared testimony and when the headlines come out about that, we'll bring it to you. let's go back to darren rovell and his interview with the head of nike. darren? >> thanks, sue. talking about tiger woods. what is his future? do you worry at all, obviously, he missed the cut and when do you decide to kind of reengage in advertising? we had that one ad but really putting him out there. >> i think with tiger great to see him back on the golf course and great to see him pursuing jack nicklaus record as hoping
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to become the greatest golfer of all time. we're very excited about that. as he continues to get back into his routine on the golf course, we'll look at how we use him in the future with the nike golf brand. >> dennis, you have a question on that? >> is it more important for tiger to win to hold on to his endorsement deal with nike? is there something he has to make up for? >> yeah, dennis, i think it's important for him to win. right now it's important for him and his family to take the time that they need to take to get everything organized and back to some semblance of normality. we're excited to see him back on the golf course and pursue the 18-win record that jack nicklaus holds and it will be an exciting year for tiger woods still to come. >> also challenge on the ben roethlisberger front. what is the status with nike and ben roethlisberger? >> he continues to be a nike athlete and part of the nike family and, again, we'll look
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forward to ben getting back on the field. >> another question out there? >> yeah, actually, darren, i have a question. at what point though, sir, given the issues surrounding tiger woods and given the issues surrounding ben roethlisberger, do you decide perhaps not to pursue relationships with those two athletes? >> well, i think we're always looking at these types of situations and understanding exactly what they mean and how they impact both our brand and our consumers. so, as long as we continue to evaluate this and deal with it as it comes, we will always give the athlete a benefit of the doubt in the early stages and then let the due process take its course. but we're very excited for both these guys to get back to their careers on the athletic field and the golf course. >> we talked a lot about the euro and its decline. often when you announce your earnings, you talk about currency and often that means
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maybe 1.5 or 2% of your growth. how is the challenge with the euro affected your business when you consider that most of your business is done outside the u.s.? >> well, i think your point is well made. and the factt that we're doing much more business outside the u.s. today. 65 plus percent than we're doing inside. currency has an effect on the overall result. we have a very sophisticated approach to it and i think it's not something we control, but it's certainly something we have to deal with. i think we've been pretty good at it so far and we don't see it as continuing to be any type of impact or overall ability to grow. >> charlie, thanks so much for joining us. not only is the soccer business a $1.7 billion business, nike also announcing today that nike basketball is also a $1.7 billion business. sue, back to you. >> thank you very much, gentlemen. up next, he is the billionaire founder and ceo of b.e.t. and runs a diversified group of companies from financial service to film and sports properties. >> we are talking about robert
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johnson and he is standing by live getting ready to go in an exclusive interview with tyler mathisen.
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on capitol hill the hearing into the demise of bear stearns
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continues now. alan schwartz, former bear stearns executive speaking right now. jimmy cayne the former ceo just finished his remarks. we will monitor them and bring you the headlines as news warrants. tyler? >> all right, thanks very much, sue. welcome back to "power lunch" our next guest has a hand in diverse economies including banking, real estate, autos, hotel, travel, the whole thing. here with me exclusively from the business council is robert johnson. mr. johnson, welcome back. good to have you. >> tyler, thank you very much. >> we'll talk about the business council survey which was just out, but you have heard over the past 36 hours from the president and the chairman of the federal reserve and the head of the omb and the treasury secretary, what is your sense of where they see the country right now economically? >> well, they both see, all of the above see the economy as
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growing and becoming very positive in all the indicators. the same thing is shared by members of the business council. they see jobs beginning to increase, they see inflation staying down and interest rates are down and the overall feeling is that the consumer confidence is growing and when consumer confidence grows, people will start to spend which will be attra attractive to the economy. >> are you seeing the same things in your businesses? your company is the largest franchisee of marriott hotels, you have 100 auto dealerships. those are two economically sensitive parts of the economy. are you seeing the same things? >> we are one of the largest owners of marriott franchise and we are $1 million in auto sales. in the hotel business we're seeic occupancy stabilize and rates are beginning to come back, but the pricing power is not quite there.
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on the automobile sale side, march was one of our best months. so, we look forward to a continued growth in the auto motive sector as the economy comes back and consumer confidence comes back and the housing problems get resolved and more people are adding jobs. >> let me turn back to e you an see if any of you want to ask mr. johnson a question. >> when you look at everything the congress has done and the white house has done over the last year or so to try to help the economy, is it helping or hurting your businesses? >> michelle, i think on the balance, it's helping the business. we're getting some certainty in what the government policies are. regulations are beginning to be more focused on growing the economy. the big concern i think of all the members of the business council is the deficit and the
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debt. and unless at some point the congress and the administration begin to address the growing deficit, we're going to face a very serious crisis in the country and that deficit is driven mainly by a growing commitment to entitlement. >> yeah, does that strike you as ironic on this day we're seeing greece. i don't know if you saw the video out of greece. they are strike because they promised many entitlements which the government is now not going to be able to deliver. >> i think that's going to be the issue the u.s. is going to have to address. because we have to balance out how do we increase savings, how do we increase investments, how do we reduce taxes and at the same time focus on meeting the needs of the entitlements. and that's a problem that we have to go at. by having a bipartisan dialogue and maybe the fact that what's
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happening in greece is a wake-up call for us here in this country but ultimately unless we reduce the deficit, we will face serious problems in the next five to ten years and beyond. >> robert johnson, we'll wrap it here. i don't want you to go without your prediction for who is going to win ithe nba. >> i like kobe at all times. >> way to slip at in, ty. >> i like kobe at all times, too. off the charts to the high flier, hold on -- we're not doing that. all right. >> i understand. >> going to go to washington now. >> we're going to monitor this particular hearing that is phil who is running the conference. let's listen in to what he has to say. as of november 30th, 200$2007, billion exposure to mortgages and other asset-backed securities. you had level three assets that were 269% of tangible common
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equity and you combine that with extraordinarily short term funding and you have to roll over each night. i want to ask you the same question that i asked the other folks from bear stearns who were here. >> that was really industry practice in retrospect and hindsight, i would say leverage was too high. >> succinct. let me ask this question. that is, leverage was too high. was the funding model on the other side a flawed model giving the lack of any kind of backstop like access to the discount
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window or any form of insurance on the funding? >> well, we didn't have access to the discount window. >> correct, i'll ask you about it in a little while. in other words, was the model exacerbated bye-bye the nature of the firm. was it also exacerbated by the bank business over time where the firm held more and more assets for its own account? >> i believe that's accurate. i believe that analysis is correct. >> okay. mr. schwartz, very good succinct answers. mr. schwartz, do you want to comment on my question. >> both questions or take both questions or which question? >> the questions about level of leverage -- >> and funding. >> and combined. the extraordinary risk profile from the combined extraordinarily high leverage. these are, of course, my characterizations and the
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short-term funding. $50 billion, $60 billion you have a rollover each night. >> i would like to comment on that. >> the leverage was high but the way you characterized it i would disagree. the implication is that we had exposure that a small drop in the value of the assets on the balance sheet would expose us to great loss and the answer to that is, i don't believe that's true because a number of the assets on our balance sheet were assets that we were lending against securities that other people had exposure to. so, i think, i've always believed that gross leverage is one of the most misleading statistics you could look at. >> so, could i ask you. i want to ask you very quickly on that, what kind of, given -- why don't you finish and then i have a follow up. >> no problem. >> i think the way that risk tends to be looked at and financial institutions and
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certainly by all of the regulators is to look at capital requirements for the types of assets that you have on your balance sheets and different assets have different levels of risk and should have different amounts of kaptd held against those assets. by those measures, which i think are the measures we were most looked at by agencies and regulators, bear stearns had very strong capital ratios. as it relates to the fundal model, i think that the reliance on the amount of our funding that had to roll overnight is not something that we entered into consciously. i think that was something that occurred over a period of time as the markets in the repo business, as you went, as you took on term repo as the repo matured counterparties increasingly decided that they'd rather just go overnight. since there were no alternatives
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starting maybe i would say fall of '07 into the spring of '08, you become increasingly reliant on overnight funding and i think that, you know, the model for noncommercial banking had always been to make sure you had a lot of collateral to borrow against. so, i don't know another model that we could have pursued. >> all right. mr. cayne, back to you. you said you thought leverage on reflection was too high. were there any significant steps made to adjust that through 2007? were there ample discussions around that? what were the nature of discussions around in terms of increasing the amount of equity? >> well, there were conversations about it and i would add to alan's comment about the short-term funding. the short-term rolling which you've described as sort of hand
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them out and you hope they're there the next day. we made a conscious decision to go to short-term funding as opposed to commercial paper, even though it was more costly because we felt it was more safe. excuse me, more secure for our investors. the idea we didn't have enough equity, there was discussion. to raise equity at the level that we would have had to go to to raise that equity was, in my opinion, far lower than what the company was worth. "a." "b," i didn't see what raising equity, unless it was an enormous amount of equity or in other words sell yourself to somebody else would change the picture. >> let me press this equity point. you had about $11 billion, 11.9
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in equity at the close of '07 against assets of $309 billion. but more on average like $450 billion because bring down your ratio average at year end and even taking into account about what you said about different types of assets you know, too, the notion of having that thin an equity base seems on the aggregate basis would be a 2% asset value and you're wiped out. so, i want to press this. you didn't see going into the turbulent waters that it would be necessary to build a high hi? >> correct. >> obviously, the more highly leverage you were, it would affect compensation? >> absolutely not. >> all right. let me talk a little bit and i'll ask you both to comment on this. some of the internal debates because as you may have listened this morning, if you did, which would have been a good thing
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probably. one of the items that i think we're grappling with is the extent to which the very investment bank business model and as it was practicesed was unsustainable model or the extent to which firms could have put themselves in the position to survive the tsunami, which often people know is coming. there tend to be warning signs. there appears to have been some debate internally about what ought to be done. folks like wendy, ace greenburg, bobby steinberg all urged reduction, apparently, according to the interviews that have been given to our staff of mortgage-related positions in the fall of '07. in fact, the former treasurer mr. upton quoted mr. greenburg as saying the best hedge is a sale. when you get to your september 18th board of directors meeting, there's a note, which i like to
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enter for the record, by the way. mr. mayor focused on the turbulence that occurred in the fixed income markets by highlighting the rising delinquency rates and reduced home prices in the market for mortgage securities and the general crisis of confidence impacting clo and the commercial paper markets. there was a report, which i'd also like to enter for the record which is a merrill lynch report of november 7, '07, which i'm not sure you would have seen. but it was about the bear stearns asset management situation. called bear stearns asset management and what wept wrong. they were affected and seized $8 million worth of collateral. bear stearns did too little too late. assumed wall street creditors would hold off on margin calls and failed to move quickly to back the less troubled high-grade fund. and i guess what i would ask you
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is, was there enough internal debate and could you have done more to position yourself for that week in march or was it simply a run fueled by unsubstantiated rumors? mr. cayne? mr. schwartz? >> again, i don't think that equity would have changed the picture at all. you're talking about a run on a bank where historically equity will save you, but it would have been an amount of capital far more than the company itself. so, my point is first of all on the report that merrill lynch gave, i believe they might have said little too late as far as us hording some of the materials. is that accurate? i just want to be sure i got that reported because i don't remember specifically the report itself. >> it was called crisis
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management, bear stearns did too little too late. it was their document about their position. so, i'm not sure you would have seen it, mr. cayne. >> did that concern the funds? >> the funds and your reaction to the funds. which, i know you refused the infusion of the 1.6. >> yes, i did. >> so, your view is the higher levy wouldn't have mattered. >> right. >> so, it was, in your view, rumors, people trying to bring the firm down. i'm not trying to be nefarious here, but how would you character it? rumors or people who had an interest in bringing the firm down? >> i tried to avoid when i've been asked that question about conspiracies and rumors and i really tried to avoid answering it for this panel i'll be happy to answer it. i was enthusiastic about the response that the sec had when mr. cox looked at it and said
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there might be something here. i heard the same rumors everybody heard that hedge funds have gathered and ganged up and there was an uptick rule and that was all part of the picture of the big fat goose walking down the lane that is about to get eaten up alive. whether it's competitors or people angry at it or whatever, i don't know. but regardless of whether there's a conspiracy or not, the bottom line was that the firm came under attack. we feel that if there was a conspiracy and the sec was going to find that conspiracy, that would be a miracle. i'm not an expert on conspiracy. >> did they attempt to find one to your knowledge? >> to my knowledge, no. >> your comment about being enthusiastic when mr. cox said it, you hoped there would be an inquiry. >> correct. >> to your knowledge, there has not been. >> if there has been, there has
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been no conspiracy. the answer is i don't know. >> i want to keep on this for a minute because i know some other commissioners would like to talk about those end days. but in the panel earlier today, i cited some e-mails between hayman advisors and goldman. that moment on march 11th and maybe i should address it to both of you where initially goldman did not consent to bear stepping in the shoes of hamen and the e-mail said we don't want to face bear. i believe you were being interviewed on cnbc when those rumors were right. how damaging were those rumors? >> you're asking me? >> i'll start with you since you were the interviewee. >> i wasn't there. i had left in january. >> you were the nonexecutive chair. were you watching any of this? >> i watched on television. >> you were in detroit, right? >> correct. >> maybe since you watched on tv i will ask you, though.
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go ahead, mr. schwartz. >> so, in terms of any particular one rumor, it's hard to know which rumor different people want to listen to. in the days of that week of march 10th, each day that went by there were new rumors and the only thing that i can tell you i remember, for example, one of the reasons we decided we decided to be interviewed that day was there seemed to be a widespread rumor that bear stearns had lost a lot of money in the first quarter. upon reflection, i think i realized that the most vulnerable time for a financial institution or, frankly, any public company, is probably in the period between when a quarter ends and before they report it publicly because starting rumors about what's going to come out oin that quarter can get people nervous because there's an announcement coming and they want to get out in front of it. so, one of the things we wanted
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to do was we couldn't report the quarter until the books were closed, but we could make some public comment about the general tone of the quarter, which we hoped would calm people down. to say, okay, gee, if they didn't lose a lot of money, sounds like they made money and let's wait for the quarter and we'll get more information about the company. a couple hours after that interview, i heard from several people there was a new set of rumors going around that, okay, bear stearns actually hadn't lost money in the first quarter, but the rumor was they took a horrendous loss in the first week of the second quarter. so, the types of rumors that were running around is impossible to say, that's the one rumor that people responded to. >> all right. but it was a rumor of concern. >> there were a lot of rumors of concern. you have a comment, mr. cayne? having watched. >> i thought alan handled himself pretty well. >> all right.
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let me ask you before i reserve the balance of my time, but let me ask you both one other question which is just on a slightly different point. i want to ask your opinion of it. you may or may not know of the specific conversations ortransactions. john paulson was one of bear stearns top ten institutional clients, per an e-mail in january of 2008 looking back at 2006, 2007 from gentlemen named david raulings to mr. mayor and apparently mr. paulson approached and we interviewed mr. wagoner and had three meetings with him and at the second meeting he asked to structure a synthetic ceo that mr. paulson can short and mr. ikal told us that he was uncomfortable with the transaction and turned it down and according to mr. wagoner, mr. wagner also said that he was involved in it being turned down
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because it was a fundamental conflict of interest. were you aware of this decision and whether or you were or not do you think you made the right decision and goldman made the wrong decision to make that transaction? >> i wasn't aware of it at all. >> do you think you made the right decision and goldman made the wrong decision? >> no. >> mr. schwartz? >> i wasn't aware of it and it's not enough detail to know whether it was the right or wrong decision. >> thank you, gentlemen. all right. mr. vice chairman. >> thank you, mr. chairman. again, i want to thank both of you for coming. as the case study, given -- >> we will take a quick break on "power lunch." we continue to monitor the hearings on capitol hill.
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you just heard from two former top bear stearns executives. the markets holding in there after triple-digit losses yesterday. we've got plenty to talk about today. the liquidator, brian kelly, and jeremy, and hillary kramer. the last question that we heard was very interesting. fill ang lead es asking both executives by the fact they were
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approached by john paulson to short. did you make the right decision by turning this yield down, he was asked. this is all sort of a reminder that goldman sachs is looming in the background and the financial regulation is on the forefront. >> i actually thought that was a really fascinating question. and kind of a skirting answer to it. you know, that could break something loose here for goldman sachs. on the negative side. if somebody else in the industry says, yes, this was unethical. you know, it's very, very interesting. >> jud, you have been at the forefront about being cautious on the financials. we're holding in there across the board, even goldman sachs is still trading higher ahead of that big conference call that's going to get under way in about eight minutes' time. >> well, fundamentally positive for financials is the steep yield curve trade. they still have the favor that looks at that -- that remains in place for a while. goldman sachs took the bad
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medicine in d.c. they're going to get a pep rally. i think when you look at goldman sachs, what financial regulation gets past, that's when you want to own it. >> inside a preview of that conference call. we'll bring in gary could min ski who is on the fast line. gary, why is it they're holding this conference call? it seems perhaps they're scared of losing clients. >> melissa, let me tell you what i think and what i know. what i think they're doing with this call is as alan schwartz just told you, you've got to be naive if you don't think jpmorgan is going to go after their clients using the issues to try to lure some business. they've got to get in front of this. that's why they're doing the call. let me tell you what i know. the corporate institutional banking clients continue to be extremely supportive and business as normal in the institutional and investment banking side. let's just bottom line it. this call has gotten a lot of hype. i don't think lloyd blankfein is going to say much. so if you're trading this stock and you think there's going to be some revelation about
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management change or s.e.c. settlement, you're going to be disappointed. there's not going to be any revelations. >> gary, thanks for phoning in. hillary, you have come on our show saying goldman based on fundamentals is a buy. this was probably about a week ago, hillary. doesn't this conference call highlight the fact that goldman is scared of the possibility of losing clients? it's real enough to get lloyd on the phone talking to them. >> melissa, goldman sachs has to talk to their clients. they have to give disclosure and calm them down. look at the technicals. look at the strength goldman has had in really bad market action. that tells me goldman is a buy here. >> jared, what are you seeing in the options market? j one of the ways that options traders are taking advantage of this, the volatility we've seen, the ability to sell out of the money puts, catch secured puts. it gives you the obligation, to buy that stock.
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>> let's get straight to the markets here. because the markets pretty much hanging in here. let's get to our chart of the day. hilary, the charts there, what are you seeing? >> well, in terms of the s&p, it's looking much better now but it's at an 11.50 level. as long as we stay above that, we're still fine. >> jared, do you want to jump in there? >> i actually disagree. i like the 50-day moving average. some other things to talk about volatility, the vix at 24%. a move of about 1.5%. the thing is, i don't think the s&p maintains it, i'm a buy here of the s&p overall. >> looks like the risk trade is back on a lot of the mining and metal stocks, higher today. you have been vocally against some of them, short some of them. are the fears about that that people have a level of comfort to get in? j i think what you're seeing is a lot of short covering. i might be a part of it today. there are a lot of head winds
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out there. the market seems pretty stretched on the downside here. i would not be surprised to see a snapback. >> we want to touch on oil. joe, how are you playing this? >> well, you have significant volume today. we're approaching 400,000, the spot market right now. institutional selling has been here throughout the session today. and what that tells me is that the big players have basically made a decision to step to the sidelines temporarily in the oil market. the same thing happened in february. doesn't mean the long-term bull trend is broken, it just means that the run higher takes a pause. >> got it. we should note a lot of the fear stocks, bp, massey, they're higher today. hilary, kick it off. >> what i'm looking at is apple and goldman sachs, for us traders. >> jared? >> $11.70. above it, buy it. >> sell the rips in this market. >> i think the focus is where we are friday afternoon. >> that does it here for halftime. here's what's coming up tonight on "fast money."
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blankfein on the defensive once again. the street's most outspoken financial forecaster reacts to the latest out of lloyd. the street's love affair with google continues, but the feelings aren't mutual. they've tanked 20% in 2010. that's tonight at 5:00 p.m. eastern on cnbc.
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first on cnbc, caterpillar ceo jim oh weapons, the stock taking a hit yesterday due to investors' fierce. can the construction giant keep digging up profits? the greek debt disaster, riots roaring in the streets of athens as the government cuts spending. will the unrest spread across europe? how do you protect your portfolio? sold. a new world record set at christie's, picasso's most famous paintings.
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is ultra-luxury making a comeback? the next hour of "power lunch" starts right now. and welcome to the second hour of "power lunch." i'm sue herera. about an hour after basically a 100-point swing up from the lows, the dow's given back a little bit. >> i'm michelle caruso-cabrera. lloyd blankfein holding a conference call right now with wealth management clients. we'll bring you any relevant headlines. >> i'm dennis neal. we're still monitoring the bear stearns hearing in washington. we'll bring you any of the sexy stuff as it happens. >> there's still no answer. you're not answering. >> i'm tyler matheson in washington. at the annual meeting here in washington, d.c. president boemg talked abo-- ob with ceo of caterpillar.
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annual revenue in sales of $32 billion. let's get his take now on how business has been impacted by the big events around the globe. let's start, if we might, mr. owens -- welcome, first of all. >> thank you. nice to be here. >> an interesting couple of days with meetings with the president, ben bernanke and geithner. yours is strong, coming back. talk to me about europe and what's going on there. one of the things in the business council survey was america okay, but much less optimism about europe and its economic prospects. >> well, we're talking about two things. we're talking about briefly about the business council and caterpillar. in our quarterly release, we emphasized that the real strength of the global economy for us is the exports, principally to the emerging markets. so we've got basically asia, china, india, indonesia, all doing extraordinarily well. brazil, latin america, very strong, record numbers there.
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and then you move over to the middle east, pretty well south africa, because of the strength of mining, and russia, same strength of mining. so globally, the commodities and oil and gas markets, which are being heavily driven by this, you know, growth in the very populist asian countries, particularly china and india. >> let's talk a little bit about the debt crisis in europe. one thing that the business council is most concerned about long term in the united states is solving the federal deficit issues. what's going on in europe right now? is it all about government spending and deficits? talk to me about what the business council believes it needs to do to help change the conversation domestically here in the united states, so we actually do make progress on the deficit, and can we make progress on it without a crisis? that's what we seem to -- makes us move.
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>> a great point. let me first go back to the business council. it's about 120 of the leading company ceos in the country. we get together three times a year. it's principally about education of our members, each other. and to help us better participate and give advice to the administration. but we're not a lobby organization. we're a learning organization. in the last couple of years, we've really tried to focus our meetings on having a very deep dive into a specific subject. this meeting, the subject was the deficit, because we all have a growing concern about the magnitude of the deficit. and then how to address fixing that long term. so part of the education, first off, is to understand, there's a short-term problem driven by the cyclical recession that we've just been going through. in the face of the recession, there are a lot of automatic stabilizers, if you will. revenues dropped significantly.
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expenditures go up with unemployment insurance and things. so we have this year a horrific, almost 10% of gdp in the deficit. clearly not a sustainable circumstance. but as the economy recovers over the next three or four years, you should see that number, roughly 10% of gdp, cut more than in half. but -- >> because of growth? >> because of growth. >> absent any policies? >> absent any policy change. as we are. you'll see it cut in about half coming out of the recession. >> you made the point in a very good, what you self-described, as a centrist piece in the "wall street journal." i recommend anyone who wants to go back and read it on monday, it was very good. very well thought through. >> thank you. >> you made the point, you're not one of these balanced budget wild guys, you say balance the budget over a business cycle. not every year, because you have to have that kind of flexibility. >> we need the stability. >> make the case on taxes, and
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what you proposed in that article. because i thought it was very interesting. >> tyler, let me finish this one thought. we've got the short-term cyclical deficit problem that will self-correct partially. but then, let's say three or four years, you've got 3%, 4% of gdp deficit, too large. and a baby boom generation retiring, and entitlement programs of social security, medicare, medicaid, that with current policy in place, if you project out, we have a totally unsustainable deficit crisis staring at us. we wanted our members in the business council to understand that. because we need to begin oh to communicate that to our constituents. and help them understand it. because without public understanding, we're not going to be able to address the problem. the thing that encourages me about it is, it really comes down to the entitlement programs of medicaid, medicare, coupled with the baby boom generation. that yields a growing deficit
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and growing debt that we have to service that's unsustainable. but the basic underlying assumption there is that health care costs grow 2% per an um faster than gdp growth for the indefinite future. >> all right. >> so as the ceo, i would say that's the problem we've got to attack. if we can get health care costs growing slower than the rate of gdp growth, you don't have this horrific problem. >> thank you very much. we're out of time on that. >> thank you. >> we didn't solve the deficit, but we gave it a good try. >> we had a great discussion. i think the administration and business community better understands the issue following the meeting. >> thanks very much, jim. appreciate your being with us. back to you in englewood. >> thank you very much, tyler. joings us here on set as he often does is bob wisenstein. the greek debt crisis, whether or not it's going to spread to other countries. bob is fairly optimistic, despite the pall cast over the
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overall markets. good to see you. >> thank you. >> we're off the lows today. but still lower after the big sell-off yesterday. is what's happening in yrp goeu going to lead to a big correction here? what should we expect right now? >> tangibly the greek situation is not a big deal on its own. it's a small part of the european economy. this is a psychological overhang and spillover. will it go into the other markets, into the u.s. markets? at the margin, it's an excuse to hold the markets down. but the reality is, earnings are coming in and that is what drives stock prices ultimately and coming in way above expectation. >> your baseline assumption is the market can go higher from here in liquid equities? >> we really do feel that way. there's a differentiation that's more significant between europe and the u.s. and the emerging markets, which are doing so well and we just heard about in the interview. i think that becomes more distinct as time goes on.
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we were significantly underweight europe coming into this year. this is more of a reason to keep those relative -- >> would you list your allocation to u.s. equities, lift your percentage assignment? >> we were already well overweight. i think we just maintain that overweight right now. we keep an eye on it. i think the dollar certainly has been stronger than you might have expected in the short time based on the safety trade coming into play. >> volatility, last six out of seven days, triple-digit moves. are your clients calling you up? because they have the same fear in the stomach when things were really bad last year. what are they doing in response to the volatility? >> there's not a big change yet. if that continued, i think you would see a different reaction from our clients. now, don't forget, we're not over all of the psychological impact from last year. it has carried through. >> the flashbacks. >> yeah. they're really significant flashbacks. >> we're monitoring the hearing on capitol hill that bear stearns. but that does, as we look at
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allen schwartz, with his testimony right now, it does bring back the memories of one year ago. but at the same time that we have, robert, this contagion aspect, perhaps in europe, we also have china tamping down growth a little bit. and that, on its own, absent europe, would be a major story. and it's gotten pushed to the sidelines a little bit. but how significant is it if china slows things down to the global growth and recovery story? >> well, it's an issue at the margin. but remember, the growth rates that they're tamping down from, significantly above anything that would be considered average or even above average. >> but is that a good sign there is growth there? >> absolutely. the other side is that means they're holding back inflationary pressures by doing that. and that is a concern as we go into the later part of this year, if you see price increases continue, their wage cost pressures that are there.
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you've got to keep that in mind. so there's a positive to this that they're being very proactive in their policy. growth is a lot better than the one we faced last year. >> the whole sell-off is afraidy cat thing? >> you've got to remember that investors do not embrace risk yet. that has not happened. it's just another story for all of the markets. but fundamentals will certainly prevail as go forward. >> bob's going to stay -- >> so stay there. let's take a look at the markets and check with bob pisani at the new york stock exchange. >> thank you, dennis. as we -- the euro has come off its lows, the stock market here in the united states has responded. i keep getting calls, could you short the euro? great time to ask this question. yeah, you could short the euro. heck, do it with an exchange traded fund. there is an inverse euro, there it is, the pro shares, so you get twice the inverse. so if the -- if the euro, you go up here, if the euro goes up, you lose money. if the euro drops, that's what
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they mean ultra short there. that has twice the normal volume in the last couple of days. you can also play the opposite side and go long the dollar. there's an exchange traded fund that's widely traded, the bull dollar. also a bear dollar as well here. that's had four times the normal volume in the last several days. we were let off of the lows by financial stocks, not just the european banks, but even the big regional banks. i keep noting here they haven't had much move up here lately. they've all moved off of their highs. rick, we are at two-month highs on the ten-year. >> yes. exactly. high price, low yield. actually, you know, sitting where we are now, you could argue that at the lowest yields of the day, we were just a whisker above 3.5%, those were the lowest yields since a couple of weeks before, or a week before christmas of last year. indeed, we are all watching a huge bounce, the volatility today in the euro to the down
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side. close to 128. a bounce close to 129. pretty much unheard of. we're outside of the european time zone now. now it's a waiting game to some extent. commodities have been fun. you have gold going one way, things like nickel going the other. lots of liquidation and question marks in the commodity complex. at the end of the day, supply next week, the may refunding. will it be affected by greece? most likely. will it be able to hold these low yields which investors might shy away from? that should be the game for next week. sue, back to you. >> that is the perfect segway for what's coming up. as you know, there have been some very deadly riots in greece. the meltdown of the euro. it crashed at 129, touched down to 128. how do you play the currency markets. we're going to talk about that. picture this, a bull market in art. a picasso selling for more than
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$106 million at auction last night. what does it say about the health of the economy in the luxury market in particular. whwh
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welcome back to "power lunch." i'm mary thompson in washington, d.c. we're monitoring the hearings of the financial crisis inquiry commission, which is exploring the reasons behind the financial crisis. today the star witness is on the stand. that being the former ceo of
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bear stearns, jimmy cayne. this is his first public appearance, we should note, since the firm that he ran for 15 years collapsed in march of 2008. and true to his reputation, mr. keen is keeping his answer short, and his voice low. here he responds whether bear's business high concentration in mortgages and over-reliance on short-term funding set it up to fail in march of '08. >> that was the business. that was really industry practice. in retrospect, in hindsight, i would say the leverage was too high. >> the first and smallest of the investment banks to fail, cayne says for time he bought the conspiracy theory that short sellers contributed to bear's demise. >> i heard the same rumors that everybody heard, that the hedge funds gathered together and there was an uptick rule. and that was all part of a picture of a big fat goose
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walking down the lane that's about to get eaten up alive. >> cayne said he was encouraged when former s.e.c. chairman said he wanted to look into this conspiracy theory. but given there was no follow-up probe by the s.e.c., cayne concluded there was no conspiracy. cayne also said securing an equity investment as some people had suggested would not have saved the 85-year-old firm. >> i don't think that it would have changed the picture at all. i mean, you're talking about a run on a bank where historically, equity will save you, but it would have been an inordinate amount of capital, far more than the company itself. >> cayne also spoke about jpmorgan's acquisition which saved the firm from having to file bankruptcy. he said it was a marriage of convenience, brokered by the regulators. he also said in the end it's turned out to be a very good
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acquisition for jpmorgan. >> thank you very much, mary. the other story we are monitoring at this hour, still developing is the goldman call. and bertha coombs is at the breaking newsdesk with details on that. >> this is a call, lloyd blankfein is talking to the firm's private wealth management clingts. he said the one silver lining in all of this sha he is reaching out and does want to reach out to the clients who are very important to the firm personally. he says that goldman acknowledges -- is introspective right now about all its businesses. we're embarking on a process of self-examination right now, he says. we have to acknowledge we put ourselves in this position. and we have to examine how we got here essentially. but he does reassure the clients that they are focused on client business. he says the firm is not distracted by this. and we're renewing our focus on clients. he wishes he had reached out before. one of the things that they are
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answering is what was going on with that abacus deal. and he's pointing out there is a distinction in each of their businesses, how they served their clients. he says basically our market-making activity is not in an advisory role. this is one of the issues that did come up in that congressional hearing that kept saying, didn't you have an obligation to advise the folks who were investing in the abacus deal that other people were on the other side of it. and he says this is a different type of deal than an advisory role. that call still going on. i'm going to jump right back on. >> thank you, bertha. the difference in interpretation of fiduciary duty. the euro hits oh one-year low on the fear that the debt problems might spread further. down 3% for the week. lowest level since 2009. how do you play the risk of contagion. michael joins us, and robert
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weissenstein with us as well. nice to have you here, michael. i'm going to start with you. the short -- the move to short the euro, or sell the euro has been in the market for some time now. we've heard that it's a crowded trade. but now that we see that there has been violence on the street and death on the street of greece, does that convince you that there might be more down side for the euro at this point? >> i think that certainly in the short term, you don't want to get in the way of those who want to -- continually sell the euro here. but i think that there are probably other ways to play this crisis that are going to be more profitable. >> such as? >> as much of a down side move in the euro, as we've seen the last two sessions, which has been driven by the market changing from this being more of a localized regional risk factor, to more broad-based contagion and risk aversion.
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that has hit aussie yen. it has fallen 2.5% yesterday. the yen actually strengthened more than the dollar did yesterday across the board. aussie/yen is still at a level of 85.4. still, very, very high level, reflecting risk appetite in the marketplace. a nice barometer. >> michael, a buck 28 for the euro. >> that's right. >> what's next? >> well, we're going to have something of a correction. but by the end of the week, we're likely going to be a bit lower. by the end of this year -- >> what's a bit? >> we could see 1.27, i think without any difficulty. but there will be a pullback. >> by the end of the year? >> we're going to see a bounceback perhaps towards stability. 1.28, i think year end. 1.10 by the end of next year. we're headed to parility. >> really? >> it seemed like only weeks ago, we were worried about a weak dollar, as long as the fears are on the u.s. dollar on the sideline. >> they're diminished
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dramatically at this point. the u.s. dollar is the one safety trade in the currency markets. the significant one is the reserve currency on a global basis. it's just showing itself to be that more so right now. >> if michael is right, though, and he's saying, which -- >> one to one on the yur to to the dollar. >> to you think that's possible? what are the implications for businesses here in the united states, that rely on this? >> summer in paris? >> well, depends if you're going over to buy some things. that could be pretty cheap for us. but in reality, that's -- we've learned that anything is possible over the last year. so parity, that certainly could happen. in the near term you've got to expect further slippage on the euro. this is a psychological trade at this point. and it's not diminishing. it's going to build on itself. >> can i jump in with a question for michael? michael, would you put odds in percentage terms on the possibility that five years from now, the euro, as a single
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currency for the euro zone, dissolves? it doesn't exist anymore. what do you think the odds of that happening, number one? and number two, if it doesn't happen, what is the likely sort of equilibrium value over the long term euro versus u.s. dollar? >> i think over the next five years, the likelihood of there not being a euro is probably less than 5%. however, there's a 95% probability that there will be a back door exit for those that don't comply with the growth and stability pact. the euro zone does not want to stand up to that just right now. there's not the political will for that. but i think eventually this year we're going to have to come to that conclusion. the alternative is politically unpalatable, which is political union. i don't think anyone wants to see that. >> that's the problem, is it not, robert, the fact that there has been no political will to address the fact that greece is now under the control of what germany decides to do?
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different cultures, different social structure, different economic structure. how can that -- i mean, are we going to look at, to michael's point, the defection of the greece, the portugals and italys? >> or being forced out? >> the big question out there is the european union going to be able to survive all of this. >> are they union? >> are they union. you're talking about, as you mentioned, the cultures are so different. you think about spain and germany being in the same family, that's quite a stretch from a cultural standpoint and economic standpoint. it's a real challenge to manage that. you've got a union that's been in place for a relatively short time, relative to history, and they're coming into this with a long history of policies and independence, cultures that don't reconcile themselves in ten years. i think it's going to be a challenge over the next couple of years to deal with the second and third level countries that are part of the union, relative to what's expected. >> but it's a matter of there are 16 nations that benefit enough, that they'll stay together. >> i think that's it. and they'll be giving it up with
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great difficulty. you won't see this unravel in two days. >> michael, thank you very much. bold pre tickdictionpredictions. >> we'll talk about volatility. it is soaring. the vix jumping 20%. this morning doing it. markets breaking through key support levels. >> what are the technicals telling us? run away. a major correction on the way here or are the bulls just taking a breather? the tale of the charts on the other side of the break.
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the index of fear.
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the volatility index surging again today, after soaring more than 20% yesterday. it's up almost 40% in the mast month. are we facing a major market correction. we'll find out what the technicals are telling us. bill is partner and chief market strategist at bell curve trading. we've got a second guy there, but i don't have it in the prompter. right here on -- so start us off, bill. what are the charts telling you. i know all you chart guys can often look at the exact same thing and have two opposite conclusions. >> okay, dennis, first of all, when we look at the big picture in the s&p, i think it's instructive to do that, because i think it's easy to get lost sometimes in the day-to-day events, whether it's the latest debt crisis or earnings report, piece of economic data. if you look at the long-term chart here, i think it's pretty easy to see that there's a real pattern and rhythm to the market. you go back to the late '90s. you can see that the markets bottomed several times in the 800, 700 area.
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if you look at the latest rally off the march lows, that began right around the same place where the market rallied after the dot-com bust. if you take that as a measured move, no surprise. it's trying to sho going back to 1,500, the highs in 2000, and 2007. i think it's a little premature to play that. >> you want to wait until it hits 1,200 or 1,275 before you play it? >> we've been on the long-term basis up to this area. i want to see how the market reacts around 1,200, and 1,275. if we can clear the next hurdle, i think we're on our way to another major move higher. >> let's look at your chart going back to october 2009. where you say you have a number of longs trapped above the market. what's that mean? >> right. well, first of all, the rally off the march lows has been a great rally. just some modest corrections. 7% to 10% corrections. right now we're at -- in the midst of one of those where
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basically you have to go back to early february to see another point in time where we had some people caught above the market. you can see all the long activity, buying activity from 1180 to 1220. this gives us a chance to narrow the range down. we have our resistance around 1180, and the first support comes in around 1150, the january high. 1150 to 1180. >> 1150 i should get or get in? >> or wait and see. >> you can trade that range. we'll trade it on a short-term basis. we'll get long down there. i think you can sell in front of 1180 and play that short term a range for somebody who's got a one, two, or three-daytime horizon. bigger picture, we get above 1180, that takes the pressure off the longs from liquidating. break below 1150 -- >> we've got to move on. we've got two minutes left and we still have to get through the financials and retail sector. a lot of people feel as go the financials goes the rest of the
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market. and if that is indeed the case, we seem to be in some of these financials testing some key support levels. >> i totally agree, sue. the financials have been a great area to watch. because not only are they critical sector, but they've been a great tell for the market as a whole. we've been in this range from 14 to 16 and the xlf for eight, nine months. we broke out in late march, early april. we're testing that around the 16 area. what we're telling our clients is, first red flag we start to trade below 16. we close below 1540. we'll get out of those long positions. >> quickly on the retail index? >> if the market's going to make another major move to the upside, break above 108, that's going to be obviously very good for the sector, but also good for the broader market. >> you made the point that we're watching financials and retail stocks, which many have done very well. when last year this time we had written them all off. >> both industries were not supposed to exist at this point based on the fundamentals a year ago. the reality is things have
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settled out. the earnings are coming through. in fact, financials and consumer discretionary is surprising across the board. >> we've gone from one extreme, now pretty much in the middle, do you think? people are feeling a little more confident? >> feeling more confident. you're coming off such lows in terms of expectations, earnings, the whole environment, that this kind of a move is part compensation for the sell-off we had. it's not a straightforward move going into the future. when people look at what the market's done overall and the huge rally we had off the lows, remember where we came down from. i think that's what we have to keep in mind. there's a restabilization of those industries in terms of stock prices. >> bill, thanks so much for joining us. it's been great having you for a full half hour. >> great being here. >> we could get used to this. >> appreciate it. coming up next, we have a lot more on our plate. we're monitoring two major and still developing stories for you. as you know, the bear stearns hearing continues on capitol hill. that is mr. schwartz continuing
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the q & a there. as well, goldman sachs, lloyd blankfe blankfein, his conference call continues. the stock up 150% since the bottom. your teenagers will love this one. stick around. we'll have the name on the other side of the break.
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the question and answer session continues live on capitol hill right now. and the two gentlemen who have been subject to those questions are former ceo of bear stearns, jimmy cayne, and allen schr warts. any headlines that come out of it, we will pass along to you. to a name that might be off your radar but well known to your teenagers. shares of abercrombie & fitch up by more than 160% since the march lows. morgan stanley recently added them to their quote for their formidable four list. jones new york and yum brands knocked off the list.
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joining us is michelle clark, retail analyst with morgan stanley. good to see you. >> thanks for having me on. >> it's had a huge run. you recently added it to the formidable force. how much more can you get out tf? >> it's had a nice run in here but actually an underperformer in the group over the past couple of years. we upgraded it yesterday. our base case price target is $56. that implies 25 upside from current levels. we actually think that's conservative, if anything. >> one thing about abercrombie, to me i get it confused with the other a-name teenager brands. it's all cargo pants. do they really differentiate themselves to 14-year-olds? >> it's a great question but they actually do. abercrombie & fitch and aero pos tail is a higher priced point. during the downturn, saw the biggest deterioration in their operating margins, given the fact that they were the premium priced player. teens were really trade i away
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from abercrombie & fitch and towards the lower price alternatives. again, both american eagle as well as aero pos tam. >> is it a story based on the economy or do they have more leverage now based on their brands compared to -- the quality of their brands compared to the other stores? >> that's a great question, and i'm glad you asked it, because it's an important point of the call. it's not predicated on any further improvement in the macroeconomy whether it be domestic or national. this has company-specific levers to drive sales margins and earnings higher over the next several years. we think ahead of street expectations. the notable three would be, one is we're starting to see early signs of a turn-around in the domestic business. second, they're starting to open international stores at an accelerated pace. we've seen very positive signs out of the international business thus far. the third key lever is we'll start to see store closures in
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the u.s. basically they'll close underperforming stores. those three levers we think will drive the earnings in the next few years. >> michelle, thank you. see you later. >> thank you. pointing a finger at 401(k)s fees. the supreme court enforced industry standards defining excessive fees. the ruling could mean more legal battles. but you could avoid trouble by keeping an eye on the fees you're paying. sharon epperson tells you how in this week's "new retirement." >> reporter: more than one-third of employers are automatically opting their employees into the company's retirement plans. but not all 401(k) plans are a good deal. mutual fund and 401(k) fees can really add up. >> certainly if you're holding an account for 20 years or more, those fees will really add up and take a bite out of your take-home return. >> reporter: fee differences of just 1% can tut it by 17% over a 20-year period. find out the fees you're paying
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on your 401(k) plan and get a projection of how much those fees may eat into your potential returns at brightscope.com, a site that offers free reports on 30,000 plans. you could also request the summary plan description from the human resources department, or plan administrator. >> if you see overall expenses of more than 2%, i think alarm bells should go off that you're in a very high cost plan. 1.5% is pushing it, too. so you maybe want -- you may want to be on the lookout for other options once you're above that threshold. >> reporter: try to find the low cost options within your 401(k). including index funds, exchange rated funds and collective trusts. and ben says if you think your 401(k) fees are too high, you may want to invest that money elsewhere. sharon epperson, cnbc business news. more often than not, the value of the matching funds from your company will outweigh any fees in your 401(k). the first rule of thumb is still to make sure you're maxing out
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your company match, to get the maximum company match. up next, we've got three gs and a j. all big stories. on friday, investors are going to focus on the j. jobs. >> indeed. will the debt contagion in europe and china cool off inflation? will it put a damper on job growth here at home.
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take a look at your screens and pictures coming into the studio. an oil refinery southeast of downtown san antonio is on fire. it started at the age refinery following an explosion. this refinery refines light swede crude, primarily into jet fuel and also into diesel fuel. it's a small refinery, about 12,000 barrels a day. details are still stechy. we have early reports two people are injured. approximately 50 people work at the plant. that is all we know at the moment. as soon as we know more, we'll bring it to you. obviously the pictures are compelling. considering the situation in the gulf, a lot of these situations with refineries are going to take on a lot more interest here. >> absolutely. back to the story of europe. and if europe continues to slow down, and china is trying to cool off its economy, can the u.s. grow the economy by itself. and what does that mean for jobs here at home. let's return to our experts on
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set with us, once again david kotak and john sylvia. gentlemen, pleasure to have you here. john, what are the issues that you brought up was multinational corporations doing business in europe. >> sure. >> doing business in china. they need people to do that business. is it possible to -- that if we have a slowdown in china and europe that we get a slowdown in job growth here at home? >> almost certainly. and that will be associated with u.s. exports going into europe. and that shows up, of course, in economic growth through the trade balance. which will become more negative. >> you agree, david? >> i agree. the world is globely integrated. anything that happens in one place, affects the other places. we're a big economy, china's a big economy. those are the big three. and we have activities that are negative in each one and they're affecting each other. >> you guys are assuming that the local government react rationally to financial hardship. and begin cutting back on
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spending, et cetera. in greece, people are protesting in the streets, upset over getting two and three-month bonuses cut. are you making the wrong call here? >> we don't know outcomes. we guess at outcomes. what do we know? we know that when you have democracies where people have freedom, the political systems are reactive. they are not proactive. they don't look forward. they don't think ahead. they respond to crisis pressures. when you have dictatorships, you can have proactive policy, but you may not like living in that place. we had the benefit in europe of convergence. greece benefited, portugal benefited, spain benefited. they all did. now we're getting divergence. some countries toed the line. other countries failed. >> which is why you invest in europe. exploding the more emergent markets. >> what about the jobs report
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this friday? what's it going to tell us about the u.s. economy? >> we estimate 200,000, a significant percentage of that -- >> new jobs created? >> net new jobs created. net new jobs. >> is that enough? >> it's going to be disappointing. i think one of the great challenges at this point in the business cycle is, we're going to get jobs, we're going to get growth, but is it going to be enough to satisfy the expectations of voters, the expectations of households in the united states. my feeling is, no, we're not going to get enough. >> the size of our economy and our population, how many new jobs do we have to create every month just in normal times in order to employ everybody? >> 120,000 more or less every single month to stay even with the demographics. >> is that disappointing? >> no, no, no -- >> we lost so many jobs. we're still trying to get back up to even. >> the census is -- my number's lower than his. i'm at 150. 75 of them in the census. 75,000 nonfarm, noncensus.
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that doesn't keep pace with the demographics, let alone make up with 8 million net jobs lost through the crisis. >> the character of the jobs is quite different. what you'll see on friday morning, look at unemployment by education and you'll see the job creation is primarily in the service sector, especially the professional service sector. continued weakness. obviously declines in construction and weakness in manufacturing. the high-quality manufacturing jobs. >> consumers spending more than experts expected. would it be enough to offset a slower europe? >> what you're seeing is income growth of 3%, 3.5%. but ex-transfer payments from the federal government? it's flat. that's a challenge we have. >> we don't have enough rising labor income in the united states to turn the consumption story strongly. the income is not there. it's not there with college graduates in the labor force. >> but the spirit of dennis'
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question, you both sound very bearish on the u.s. economy. is that how we should -- >> my view is, we had a big v down. we're coming back on the inventory recovery. now we go flat, very slow growth. we've got a long stretch of it. >> i would say bearish relative to what people expected in california, new jersey, florida. we have growth. you have a sustained economic expansi expansion. but probably not going to be enough to get us back to the america people envisioned three to five years ago. >> thank you both. >> on that happy note, invest in europe now. thank you, guys. >> thank you. >> appreciate it. up next, they say there's always a bull market somewhere. jim cramer says that. looks like the bull market is running in the art world. >> art history made at christie's last night. more than $106 million for a picasso.
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art market history in the making this week at christie's, where a picasso sold for a record $106.5 million. she's not even hot. after a fierce war over the painting, known as nude green leaves and bust, the bust is not referring to her, the gavel came down at 7:32 p.m. last night on behalf of an unidentified bidder on the phone. the next guest is hearing rumors about who that deep-pocketed buyer might be. here now, eileen. give us a couple of suspects. >> there's a sort of small list of usual suspects that comes up a lot when works of this caliber sells for this price. there's only a handful of people in this world that can afford to spend $100 million on this painting. some of the names i'm hearing are roman, a russian billionaire known to have bought multimillion dollar works by francis bacon. and bernard arnault, known to be
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an active buyer. i'm also hearing as a possibility that lily safra, she's spending at that price level, she might be willing to look at a picasso. the other name which i've heard a couple of times that's come up is hedge fund manager steve cohen. >> i thought steve has been selling some of his art collection rather than buying? >> i haven't heard that. i heard he's still an active collector. i don't know if you're familiar with the story about how he inked a deal with steve winn to buy his picasso for $135 million, but steve winn poked his elbow through it and the deal fell apart. if you look at this, this picasso is actually cheaper, a better deal. >> how about joseph lau of hong kong. he bought the portrait for $17 million. you could actually probably call him. when he bought that, he was very open about it. he wasn't secretive like the other guys. he actually came on cnbc and talked about it. >> some people are just willing to go public with their
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high-profile purchases. they know it will get them noticed and other people will offer them the masterpieces that are hard to come by. >> the $100 million deals, does the seller have to be identified? does the buyer have to be identified to each other through the middle man broker? >> no. but in this case, it was -- >> no exposure there? >> it was a well-known private collection. people think that that's what accounts for some of the stellar prices we saw last night. it's the brody collection. they're well-known philanthropists. and that just adds to the cache of these works. that picasso was off the market for about 50 years. >> you say that piece had been off the market for 50 years. is there another piece in some collection somewhere that you know of, or that the art world knows of, that if it came to market, would blow this number away? >> you know, it's hard to say, because at this point, people have a pretty good idea that the major pieces like this are in important private collections.
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increasingly in museums who usually take the opportunity to snap them up when they see something like this come along. if it is, it would be a big surprise. i would imagine this is the last one of this series in private hands. >> we've shown some folks a print that went for $135 million. but that was not at auction. that's why last night was a record. >> that's correct. that's the reported number that anybody knows of as the high. >> thank you. that will be it for us. "street signs" is next. see you tomorrow. with expedia, when you book your flight and hotel
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it is 2:00 on wall street where the trading warriors beat down fears about greece and fighting right now to put stocks into the green. one of the most well-known money men are with us with their trades. bear stearns executives, including former ceo jimmy caynee taking questions. we're back from louisiana. but the oil getting closer to the couldn't. a special report coming live later this hour. welcome to "street signs." i'm erin burr nets at the new york stock exchange. in adpigs to the bear stearns, we're also listening to the goldman sachs call to clients at this hour.
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bertha coombs is on that call. she'll be along momentarily to tell you what happened. meantime, it's been a very volatile on wall street. started down north of 100 and only down about 38. market focused on europe. but maybe starting to shift. and focus on some better than expected news today out of treasury and maybe a big number coming on american jobs this week. bob pisani, the big board, sal with cantor fits gerald. dennis jacoby for gallup.com with an interesting take on employment. let's start with you, mr. pisani. a roller coaster day. >> i think a lot of the trading has been rational. by the way, 6-1 declining to advance in stocks. big caps some of them doing well. by and large, we're mostly to the down side, the vast majority of stocks here. remember, this was very rational. when you get big-time event risks, lighten up on your positions and wait until things get clearer. we're going to get april retail

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