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tv   Power Lunch  CNBC  January 14, 2016 1:00pm-3:01pm EST

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>> pete, psychologically, let's hold a bounce. >> let's hold a bounce and jpmorgan is helping out. >> can i come back over there, guys? >> run over. >> quick. >> oil, it's up 2%. >> that does it for us. thanks for watching, a special "power lunch" on the global slowdown begins now. thank you very much, scotty. we do begin this hour with a series of special reports. the threat of a global slowdown, contagion spinning from china to the rest of the world. i'm mandy drury along with tyler mathisen. >> it's good to be with you. despite the threat and the fear, stocks up a little bit today. it has, however, don't need to tell you this, been a terrible start to 2016. we begin, speaking of terrible starts with dominic chu explaining exactly what contagion means -- >> i don't want to be the bearer of bad news. >> -- where it's coming from, and what it could bring.
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>> there's all this talk of contagion. we wanted to put it in context to stage and frame the discussion because we are not necessarily there, but we want to show you what happens when it does actually occur. so let's -- first of all, let's put it this way, a lot of different people have a lot of different definitions for what contagion is going to be here, but there are three general themes. one of them is that they start very local, specific to one economy, geography, or an asset class. that weakness goes to bullet point number two here. it spreads to other locations whether it be geographically or assets, and number three, it could cause some widespread financial distress meaning sales, forced sales, margin calls. does it really lead to that kind of wholesale turmoil that we've seen in the past? now, those three things and others have manifested themselves in recent memory in certain locations. number one of which in some people's minds here is what happened back in the 1997-'98 range for the asian financial
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crisis. it started in thailand with a currency issue and spread to other parts of southeast asia and affected global markets arguably causing the russian financial crisis, the devaluation of the ruble, what happened with defaults on the bonds. that was perhaps a contagion example here. also what happened in 2007-2008 with the subprime mortgage crisis. it started here in the u.s. with a certain part of the market, the mortgage market, and then it kind of billowed out into other parts and had a global effect, and then here is the real concern about what's going to happen here, our big radar spot over on china. it is not yet contagion. however, if it does become worse, does this have the element of perhaps starting to become one and that, guys, is the reason why everybody is paying attention to why china is in the crosshairs so much here. >> it may not be contagion yet as we bring in michelle caruso-cabrera to talk more, but it certainly feels infectious at the very least, and you make the case that this time around if we get to that contagion, it may be even bigger than the one dom just referenced, thailand '98.
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>> that crisis led to a decline of 18% in the s&p 500 in 1998 over a period of three months. it was very, very painful. why could it be even worse this time? china is obviously a lot bigger. we have some graphics we can show you. fla first of all, what percentage of growth did china contribute to the world in 1997. china's contribution to growth in 1997, 17% only. 2014, 43%. when you talk about contagion you're always looking for what is called the transmission mechanism. that's very wonky for how does it get from there to there, for example. how does it get from china to here? dom told you, back in '97-'98 it was the currency markets. now for concern it is the commodity market. why? take a look at china's rising imports. from '95 to 2015, astronomical growth in crude oil imports. if they slow down, what's that going to mean for the world?
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we already know it's painful. iron ore is even worse. in 1998, they didn't import any iron ore at all. they were producing enough locally, but now they're still gobbling it up. i'm telling you things you probably know intuitively but to see it graphically is super important. we're starting to see the contagion already in certain parts of the global economy, the baltic dry index. how much does it cost to ship something around the world? the baltic dry index is below 400 for the first time in the very existence of this. we can go back to 1985 when it started and you would see that there was a huge rise and now it's in territory that we have never seen. so what's going to happen with the chinese economy? ubs says they think 6.2% is what's going to happen with growth for the chinese economy in 2016. that, by the way, folks s below consensus and below the far get of the chinese government. ubs says a worst case scenario they think is unlikely but could
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happen, an increase in growth of only 4%. what would happen if the chinese gdp only grew 4% in 2016? the s&p could decline another 8% to 1750. total decline of almost 18% from the recent highs we've seen. >> yeah. fantastic graphics there. really important to see it laid out like that in an illustration. obviously global markets have been reacting violently to china and the fears in other parts of the world recently, but i'm wondering, bob pisani on the floor of the new york stock exchange, we have a strong rally coming off steep falls so far this year. to what degree are all of these signs of bad news priced into the u.s. market already? >> i think we're dealing with it, but i don't think it's fully priced in. i think it's going to take a little bit of time. we're bouncing today because we have oil rallying and because we've had such oversold indicators for days on end. you're going to get a bounce somewhere. look what's been going on. put/call ratio very, very high. people have been reaching for protection. retail sentiment is terrible. the american association of
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individual investors, their sentiment indicator, hit an 11-year low this afternoon. the vix, that's the volatility index, is in backwardation. the front month contracts are much higher than those further out, a sign of short-term panic. and new lows, we had 700 new lows on the new york stock exchange yesterday. haven't seen that in a long, long time. all this indicates we're dramatically oversold but a bottom? i don't think so. look what we're dealing with. look at what the market is looking for. we're looking for currency stability in china. we're looking for oil to at least stabilize or at least stop going down. we're looking for better guidance on earnings and s&p morgan was a big, big help today. let me tell you, that's a good start to the season. most importantly, we're looking for the federal reserve to start lowering their rate hike expectations. we haven't quite heard that yet but that would be a big help. finally, let me just show you the s&p 500 for the last ten years. we have had a garden variety 10% correction in the last couple weeks. that's not very interesting or very historic. the s&p 500 went from 700 to
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2100 from 2009 to 2015. that is a huge rally. we have simply not dropped enough to really justify where we should be right now. i think a lot of people are pleased we are turning around today. i think a lot of people are not all in at all because they understand given the magnitude of those risks that are out there, this is not the time to do it. so bottom line is, i think we still got to wade through a lot of other issues before we can definitely say we're near a bottom. back to you. >> thank you very much. bob pisani reporting. among other global uncertainty, another terrorist attack today. explosions and gunfire rocking jakarta. at least seven people killed by massive blasts near a popular shopping mall in the indonesian capital. five of those who died were suicide attackers. the other two were bystanders. isis claiming responsibility. these latest attacks come on the back of suicide bomb, in istanbul, turkey, earlier this week. those attacks killed ten.
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so where can investors find sae safety right now amid all these headlines. welcome to "power lunch," ed. it's great of you to join us today. i know a lot of clients have been calling up and saying where can you find safety? >> true safety is very hard to come by and in a world where interest rates are close to zero, if you want to be really safe, you basically earn nothing. it's a question of how much risk you can tolerate because if you want to eastern returns above that 0%, you have to take some degree of risk. so you can start with let's say higher dividend yielding names which are lower beta, less sensitive to the overall market, and then as you go back up to the s&p or some riskier things, you add expected return in the long run but add risk in the short run. >> higher dividend paying names outside of the s&p meaning what? meaning utilities? >> williabasically anything tha group -- >> a yield of 3% or above.
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>> they have smaller exposure to the economic ups and downs. so, for example, you see the utilities sector has been one of the better performers -- >> telecom. >> they're down but they're not down as much as the broad market. they're lower in risk. >> and yet it says here your biggest overweights in your portfolios are in real estate, especially directly in real estate, and also cash. so you're not really in stocks regardless. >> we're still being pretty cautious. we're in a relative game. if we have a 60/40 stock/bond benchmark we're you're usually 55%. i think real estate is a pretty good place to be especially direct real estate. >> in which market? >> in the u.s. but also around the world. in the u.s. you still have pretty good employment growth and a lot of real estate markets are more leveraged to employment growth than they are to economic growth. >> as we look at stocks now touching their highs of this session, it's been quite a year
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so far. we haven't been able to say highs very often there, but there you see it up 1.5% on the dow industrials. what would cause you to move from a highly cautious stance to a more aggressive one, to get up toward or maybe even above that 60%? >> i guess there's two things. you see an improvement in the fundamentals or even lower prices so you start to get some genuine value. i think as we look out into 2016, i think we're going to have another year of pretty weak earnings growth. the consensus on 7%, 8%, that tends to be too optimistic. you are going to see another year of weak earnings growth. >> thank you so much for joining us ed keon. thank you. look at the boards, folks, because as tyler mentioned, we're currently sitting at the highs of the day. something we haven't said terribly often recently but we now have a news alert in the bond market with 30-year bonds up for auction.
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rick santelli at the cme. is this another good auction? >> no, no. you know, i look up at the dow, see up 251. we heard bullard's comments. normalization will be bruising but he might be losing his nerve. i think the difference in today's auction could be as simple as the outlook of equities today is a lot different than yesterday. anyway, "d" plus, "d" as in dog plus is today's 30-year. yield at the auction, 2.905 was really a 29 year 10 month securities, second reopening. that was higher than the one issued, market was trading right towards close. the high yield there was 289. higher yield, lower price. not good. most of the bad marks were there. bid to cover, 2.29. it was weak but only the weakest since the summer of last year. the other metrics, ib directs at 56.5. dealers take a little over 32%. a soft auction. it's all about the psyche of
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investors and what path they think markets and fed will be taking, and that is subject to debate. back to you, mandy. >> okay. thank you very much for that, rick santelli. okay. let's take a look at treasuries, how are they yielding on the back of that soft 30-year auction. the 2-year is still below 1% at 0.915. the 10-year at 2.112% and the 30-year at 2.901%. ty, over to you. >> we go to phil lebeau for a news alert. >> tyler, we've got an outage at jetblue at least with its website. we want to show you if you went on the jetblue website within the last half hour, this is what you would see. nothing at all. they have told us in a statement that they're experiencing network issues due to a data center power outage. we're working to resolve the issue and it should be restored shortly. it's not impacting flights as of yet. i just talked with somebody at jetblue who said all flights are staying on schedule as they are and we expect to resolve this as quickly as possible. so for now it has not impacted
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flights, though you see this picture here from new york of somebody tweeting out there are long lines starting to form. so we'll see what happens over the next hour or so, but again jetblue's website is definitely down, but at this point there is no indication that it's impacting flights for jetble nj. amback's ceo joins us exclusively to discuss his next move. as we head out, a look at some widely held stocks in today's rally. jpmorgan up almost 3% after its earnings beat. you're watching cnbc first in business worldwide. , first in business worldwide.
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welcome back to "power lunch." i'm mandy drury. u.s. bank corp is higher by 2.5% with baird upgrading the bank to outperform from mutual. saying it's one of the highest quality banks and well positioned to withstand a low growth economic environment. boeing reaching a six-year deal with its engineering union. and "the wall street journal" reporting that goldman sachs is planning to cut up to 10% of fixed income jobs this quarter. however, a source tells cnbc, this is speculation and points out that the firm cuts at least 5% of its low performers. the stock is up 1.6%. ty, over to you. >> thanks very much, mandy.
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bond insurers are now suing puerto rico over debt defaults, and ambac is one of them. kate kelly joins us from the ceo and a "power lunch" exclusive. kate? >> tyler, thank you so much. nader tavakoli, new ceo of ambac. thank you for joining us. >> thank you for having me. >> thank you. we want to get to puerto rico. before we do that, overnight some surprising news that some of your top shareholders who are also creditors in some instruments tied to residential mortgage backed securities you insure are frustrated with your handling specifically of some claims on those securities. even calling for your ouster. how do you respond to all that? is this over the top? >> yeah, we're not aware of any shareholders calling for my ouster so it was interesting to read that, but we have a very big balance sheet. we have -- we sit on over $100 billion of secured debt obligations at the insurance subsidiary, and many of those obligations trade in the public markets, so we have people who
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take positions in those bond obligations, and it seems as though one or two of those creditors also happen to own stock, and they've been putting pressure on the company for an acceleration of those payments. we've made it clear this is a decision for the commissioner of insurance, not our decision. we have to act in the best interests -- >> so whether they have called for your ouster or not, you concede that there are points of contention between you and the pace at which you resolve some of the claims that those shareholders hold. >> tyler, it's really not our decision. it's the commissioner's decision -- >> in the state of wisconsin. >> in the state of wisconsin where we're domiciled. our understand something they have also been pressuring the commissioner, and the commissioner has an obligation to the policy holders at large like we do and we have a fiduciary obligation to the shareholders to do the right
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thing for the shareholders at large. we feel our obligations very strongly and that's why we brought the complaint against puerto rico as we did last week, and so we're going to do what's in the best interests of the company to the extent it's in our control and on this issue really it's in the control of the commissioner of insurance. >> okay. speaking of puerto rico and the lawsuit, i know that you filed the suit somewhat reluctantly in taking issue with the way in which really puerto rico has handled the payment or nonpayment in a few cases of its debt obligations, the $70 billion debt load that the governor has seemed unpayable. can you talk a little bit about the mentality about filing suit? i know you're a bit limited on what you can say. how high are the stakes here? what does it matter for ambac? why does it matter for the american investor public? >> unfortunately, i am limited given that it's a lawsuit in what i can say, but, you know, it really -- i'm a former lawyer. lawsuits should be a last resort and we really did this reluctantly. we didn't want to have to do
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this, but puerto rico has done a lot of talking about how they'd like to talk to creditors but there really hasn't been much actual engagement and it's frustrating. again, as i said before, we have an obligation to our stake ho d stakeholders and shareholders and we feel the common wealth has blatantly violated their own laws as well as the constitution of the united states. we have an obligation to enforce their obligations to us and our stake hoelders and so we had to file that lawsuit as we did. >> talk a little bit more about puerto rico's stance. they've said they want to negotiate with creditors. the governor told me in an interview he didn't want to spend dollars defending lawsuits he could be spending to benefit the citizens of the island or make good on their debt. is there a game of brinksmanship here and what does it consist of? >> the governor's making all of his bets and their bankruptcy professionals are making all their bets on getting bankruptcy. and they're endeavoring to do
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that. >> specifically to get a super chapter 9 cape aentd from the u.s. congress. >> i think they would settle for chapter 9, but obviously the administer's proposal around the super chapter 9. we think it's a dreadful idea. it would be a horrible idea for the people of puerto rico. we think it will be very hard for the commonwealth to regain credibility because what they're talking about is applying bankruptcy retroactively to obligations issued with the clear understanding there would not be bankruptcy. it will increase litigation, increase delays, we'll be years down the road and hundreds of millions of dollars in incremental expenses and very little will be resolved. the case of detroit being a perfect example where they spent $180 million and the city still does not have access to the capital markets and it was a big failure. >> let mends t understand two t if i might. your prince pal c
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your principal contention is they diverted revenue streams to pay general obligation bonds. do i have that right? >> part of our contention is they actually didn't do that. they did it to pay other things. >> to pay other things. >> general expenses, and there's a very clear prodescription as to what they can and didn't do? >> what is your company's ex exposu exposure? >> we have $2.2 billion of guarantees in force at net par, what we call net par at original issue amount on underlying bonds that have been issued by various number, five different entities in puerto rico. this is another piece of this fallacy that has been propagated that there's $72 billion of commonwealth debt. that debt is actually issued by 18 different entities on puerto rico. i don't want to get into too much detail on that, but that's an important factor in that the commonwealth and their bankruptcy advisers are trying
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to effectively consolidate all of these entities into one big ball of wax and that's just not the case. each of these entities have their own structure and their own credit qualities. >> we're going to have to run in a second but let me ask you a final question. you don't think chapter 9 is a greaty. what do you think about other measures on the table including the possibility of a control board? >> we think this is a mismanagement issue. you know, the commonwealth was really coming into fiscal balance a couple years ago when the governor came into office. >> even though he says he inherited the crisis. yes, no. the deficit had gone from a substantial amount to less than $500 million and then the governor pivoted to asking for default and bankruptcy. be that as it may, we think that a control board -- look, the control board worked beautifully for washington, d.c., 20 years ago. we had a democratic president. we had a republican congress. they saw their way clear to putting in a powerful control board. four years later, five years later washington was fixed and the rest is history in terms of
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that city's comeback. we've seen this repeatedly, ambac being a very big insurer of municipal debt. we have seen many, many instances of cities and states getting into financial trouble and then working their way out by following fiscal discipline as opposed to following a path of rewriting their contributes and their laws. >> so fair to say you would be in favor of that if that were a possibility? >> we would be in favor of that and we would be willing to work constructively in that process and we would be willing to think about alternatives to lawsuits for sure in that kind of process. >> all right. >> thank you so much, nader tavakoli, ceo of ambac. >> thank you very much. over to you. >> thanks very much, ty. after a brutal sell-off yesterday, we have a big rally on the street today with the biggest gain for the dow since mid-december. currently up 275 points. there is one name, however, that is not participating. what is it? it's right there on the board. best buy is down nearly 9% after cutting its outlook. why some are still bullish on the retailer coming up ahead. don't go away.
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welcome back to "power lunch." rick santelli live on the floor of the cme group. we didn't have a very good finish to this week's supply in the form of 30-year, so let's look at that 30-year. you know, sometimes you see a bit of buying after an auction. we're seeing selling here today, and much of it, well, look at how it affected 10s minus 2s. there was a point in the last 24 hours where we were comping back to '08. we're comping back to '12 it's.
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moved a pretty significant amount. when you team it up with the s&p 500, it starts to correlate. that's because bullard's comments pretty much affected not only equities, but the psyche of the curve. that gives you a glimmer of what fed policy may be. mandy, tyler, back to you. >> thank you very much for that, risky. certainly those dovish comments from the fed's bullard helping stocks to rally. a triple digit rally in the dow. fed officials insisting on four hikes this year though, but the market seems to be insisting on no more than two. who will blink first? plus, best buy shares plunging on the latest outlook. that stock is down 13% this year. down more than 30% in the past one year. we'll be speaking with one analyst who is still bullish on that stock. find out why he is holding onto his buy rating as we have a rally on the street. the s&p has now pulled itself marginally out of correction territory.
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hello, everyone. i'm sue herera. here is the cnbc news update this hour. turkey's prime minister says turkish tankses and artillery have attacked islamic state group positions in iraq and syria killing nearly 200 extremists. it's in retaliation for the
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suicide bombing in istanbul on tuesday which killed ten tourists. at a town hall in baton rouge, president obama praised louisiana's new democratic governor for expanding the state's medicaid program to provide health care coverage for thousands of residents. edwards' predecessor, republican bobby jindal, refused to do so. maine lawmakers gathering to discuss their governor's future. possible impeachment for alleged abuse of power. the brutal 1820s revenge thriller "the revenant" landing a leading 12 nominations for the upcoming academy awards. "mad max fury road" followed with the ten nominations and "the martian" was third with seven nominations. all received best picture nods. that's the update this our. >> dicaprio is supposed to be amazing in this movie. >> it's getting amazing buzz.
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>> he eats like raw bear liver and sleeps in the carcass -- and he did it. he really did it. gee did it, absolutely. well, they were saying that it's one of hibest perform performan ever. >> he was good in "wolf of wall street" also. couldn't take your eyes off him. gold prices down more than 1%. $14 an ounce at $1,073.10. been a ruff stretch for gold. siller, copper,palladium, two in the green, two in the red. copper off 1%. palladium down two-thirds of 1 -- excuse me, up. i beg your pardon. green. i'm a little color blind sometimes, mandy. >> it's okay. i forgive you. let's take a look at the markets right now. the dow is only showing one color, so it makes it easy for you, ty. it is currently up by 1.7% with a gain of 271 points, but it really was quite the wild ride because the dow actually early in the day was up 77 points, then dropped down about 77
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points, and came back on a resurgent crude price and also some dovish comments from the fed's bullard as well. the nasdaq is moving higher by 2% but is still in correction territory along with the dow. the s&p has just pulled itself very slightly out of correction territory. the russell 2,000, however, still stuck firmly in correction, if not bear market territory, but it is gaining today. three of the best performing stocks in the s&p 500 were all down big yesterday but look at them today. the williams companies up by 24%. freeport-mcmoran which as of yesterday was down 43% year-to-date. csx is also managing to gain. and then there is twitter. this is a complete flip side of the coin. it's hitting another low today falling to nearly $17 a share early on in trade. coming back a little bit right now. currently up by about 1% at $18.84, but, man, this has been taken out -- back to the woodshed and chopped up. how should investors respond to
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today's rally? joining us a brad mcmillen and rich weiss at american century investments. good to see you both. brad, i asked bob pisani, our wonderful new york stock exchange reporter, earlier, you know, is a lot of the bad news already priced in? and bob just wasn't convinced. what do you think? >> well, if you look at everything that's happened, i think you have to say yes. we've had a chinese market crash. we've had two banks saying get out of the market. i don't remember that ever happening. we've had a slowdown. everything has happened. what else can go wrong? i'm sure there's something but there's a lot of bad news in there. >> does it mean you're buying the dip? >> i think it does make sense to start moving back in now. we don't see this at commonwealth as a 2008 moment. we see this as an adjustment and a healthy adjustment at that. >> i understand you are not simply blindly buying the dip. what would you be doing instead? is there a different tact to
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take right now? >> there is. there's a huge difference in the sector rotation or sector returns after the last few weeks and likely to be over the coming year. so you don't necessarily have to buy in the diplomats. you don't necessarily have to capitulate and get out of stocks, but positioning yourself smartly within the stock market by sector and by that i mean cycling over, rotating to the late cycle sectors, utilities, consumer staples, the sector that is have done well over the last few days, the stock market is clearly a harbinger of what's to come economically. we're in a slowdown if not stagnant economy domestically and internationally. you have to position more defensively for the coming year and that's what we're doing. >> do you think we need to see a bottom in oil before we can see and call a bottom in stocks as well? >> well, they may be coincidental. there's a feedback mechanism here. it's hard to tell which one is causing which or what's the cause and what's the result, but pretty clearly whether or not
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you think oil is bottomed out here, the economy in the u.s. and arguably globally is resting almost solely on the u.s. consumer. we don't have net exports helping us, we don't have the government helping us right now, and the corporate sector is weak and getting weaker. so with the entire global economy and the u.s. economy resting on the consumer, oil aside, it's a pretty tough call to make here. again, we'd advise that whatever sectors have done well over the last year or two, avoid those, get into the more defensive parts of the market. >> and, brad, i understand that you're also in the camp that says don't call out -- you know, don't underestimate americans' willness to spend. you're banking on the consumer discretionary sector. >> that's exactly right. if you look at the way the economy is growing, we're seeing wage growth continue. we're seeing very strong employment growth. the most recent report was an absolute winner. if you add all that up, we're seeing wage income growth growing at about 4% to 5%, and
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we're only seeing spending growth growing at a couple of percent. now, you can say that's bad. i disagree. this is the consumer building up their savings. we're getting to a peak in savings. we should see spending growth accelerate, and if wage growth accelerates, too, which we believe, then you're going to see continued growth in the u.s., accelerateding growk seci. >> thank you. go to "power powerlunch.cnbc.co. >> the s.e.c. is announcing that state street bank has agreed to pay $12 million to settle charges that it participating in a pay to play scheme through its then senior vice president and hired a lobbyist to win contracts to service ohio pension funds. the s.e.c. saying in the release saying that the investigation found that vincent debagus
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entered into an agreement with ohio's deputy treasurer to make illicit cash payments and political campaign contributions. sate street just filed an 8k and in that 8k they say in reaching the settlement, we have not admitted or denied the findings or conduct described in the s.e.c.'s order. >> thank you very much, eamon jave javers. shares of best buy are down after the company lowered the sales outlook for the quarter. the stock's weak performance has asked many to ask whether best buy is still worth buying or if online competitors are too much for the company to handle. we're joined by anthony trcomba and r.j. hatavi, global director of consumer equity research at morningstar. anthony, let me start with you. you have a rather more positive outlook for best buy than r.j. does. why? >> well, when you look at these
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holiday sales results, there's no question they were disappointing but it really kind of came down to one category, mobile. the iphone 6s in particular did not perform as well as we thought it was going to or as well as the company thought it was going to. having said that, best buy picked up market share again in the fourth quarter. they actually increased their operating margin guidance by 10 to 15 basis points and the stock is unbelievably cheap. it's trading at nine times my fiscal year '16 estimate. three times on ebitda basis. i think that today's pullback is overdone and representing a buying opportunity. >> r.j., answer anthony. >> i think i'm a little more cautious to anthony's point it was clearly weak mobile sales that hit the top line this time. but i'm worried there might be an underlying story and that might be the apple iphone upgrade program. certainly sales weren't great but apple is slowly finding ways to get people to come into its stores and not best buy and not
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share that profit on an iphone sale. i think that can be a longer term deterrent to the company. while the company continues to point out it's gaining market share, i think it's misleading on that. you still have amazon taking share from best buy and the overall category. online sales up 13%. that has me concerned. while best buy deserves credit for cost cutting and capital al lation plans. i don't see a lot of ways to get the growth in the story. >> when you psych those revenue numbers for amazon versus best buy, are you talking about amazon's electronics sales, electronics and appliances or their overall sales. they don't compete in best buy in a lot of what they sell from cat litter to fashions sp sn. >> that's the combined media and electronics for north america. >> let me turn back to you, anthony. when i was reporting on best buy some years ago, one of the main issues that they had to deal
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with was their real estate. they've got a lot of expensive long-term leases on very large big box stores. have they tackled that to your satisfaction? >> well, quite frankly, that's a huge opportunity for best buy going forward. i want to say -- call it 50% of the store leases come up for renewal over the next three to five years. they really haven't started to close stores. they will start to do that, particularly as leases come due because if you can -- if you wait until a lease comes due, you can walk away from that lease without paying the landlord a penny. and then hopefully what you can do is transfer some of those sales to your other stores that remain open or online. that's very accretive from a margin opportunity. i don't see that as a problem for best buy. quite frankly, i see it as an opportunity. >> you think it will resolve itself, in other words. those leases will end, they will be able to walk away from the ones they want to walk away from. am i understanding you correctly? >> that's exactly right. and like i said, the key really for best buy will be when a store closes to transfer some
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portion of those sales to another store close by and that's definitely accretive from a profitability perspective. >> very quickly, rr.j., do you see it that way? >> i think that will drive people to amazon. by closing that store it will make best buy more dependent on the online channel. they've done a good job but right now amazon's network affect is so powerful. they've trapped in so many people with amazon prime, it will drive people into the arms of amazon. >> gentlemen, thank you very much. the argument is joined there. takes two to make a market, and you guys just did. thank you very much. we appreciate it. >> a big rally on the street. the dow is up about 257 points, a gain of 1.6%. sage perce same percentage gain for the s&p 500. the nasdaq is gaining nearly 2%. exxon, chevron, and jpmorgan leading the way. note the two big oil companies because certainly it's been crude prices which have helped to bring stocks back up off their lows of this morning. the 10-year note is currently at
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2.114%. where we were sitting basically two days ago and the yield has been falling ever since the fed raised rates. so shouldn't the opposite be true? we're going to discuss that conundrum coming up next. do not go away. you're late for work. you grab your 10-gallon jug of coffee, and back out of the garage. right into your wife's car. with your wife watching. she forgives you... eventually. your insurance company, not so much. they say you only have their basic policy. don't basic policies cover basic accidents? of course, they say... as long as you pay extra for it. with a liberty mutual base policy, new car replacement comes standard.
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insttel will report after t bell. the stock is up 1.5% but down 11% over the past year. a wild day for shares of web md. it took off this morning on speculation it could be a takeover target. then at 10:45 the company released a press release called web md reports that it is not in negotiations to be acquired. you can see the reaction in the stock. boom, down by 7%. and lending tree is higher by about 10% today. up by nearly 8% now after it said it would add $50 million to its existing stock buyback program. we'll have more on buybacks and whether now is a good time for
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companies to buy back their own stock coming up on "power lunch." ty? >> this camera is exceedingly close. i have to talk to your wife about this. it used to be the markets watched the fed for direction. now the opposite may be happening. look at the yield on the 10-year note. cue the 10-year note. cue. it's been sliding element ever since the fed raised interest rates back in december. the yield right now sitting at 2.108%. let's bring in steve liesman. your thesis here, sir is -- >> the markets have been telling the fed, tyler, that inflation, they're wrong about inflation, they're wrong about the economy and hiking rates. now with 1,000 point drop in the dow the markets are finally screaming it. the fed seems to be here it. jim bullard became the third official in the past two days to hint the fed may be less aggressive in raising interest rates this year. bullard saying i am starting to wonder if my story is the right
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one, about his forecast that oil would stop dropping and inflation would pick up this year. bullard now says the oil decline is substantial and could mean a lower rebound in inflation than he forecast and that could mean fewer rate hikes, of course. other fed officials in recent days have said risk to the u.s. are rising due to weakness and key economies like china. the market has increasingly believed the fed's median forecast. it's a long shot. now the fed seems to think so, too. take a look at something tyler was talking about. i measured the change in basis points since the fed met. you're down ten basis points since the fed hike 25 on the two-year. down 21 on the 5-year and 13 basis points on the 10-year. mortgages are unchanged. that's a sign of the market not believing the fed. this back and forth between markets and the fed will be decided by what? guy the data. if the economy is really weakening and inflation falls, the fed will back off. if oil stabilizes and fourth quarter weakness ends up being
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temporary or overstated then two, three rate hikes is possible by the end of the year. we haven't heard from some key officials. talked to stan fisher last week but that was before what we've had in the last week. >> are the fed folks talking too much and risking confusing investors? >> i think it's -- >> transparency -- >> i think transparency is ultimately good. what should happen in the best of all worlds is data comes in and the fed has talked just enough for us to know what they think. it's interesting that the market needs to hear it from the fed and is not going to make its own conclusions. >> they meet again when? week after next. probably nothing going there. >> i think january has never been on the table. there's now a question about march and i'm hearing probabilities around 30% for a rate hike. >> thanks very much. >> oil is bouncing back today. it's rallying about 3% and that's helping to boost stocks as well along with those dovish comments from the fed as we were mentioning with steve. now, wti crude is currently sitting at $31.50. the major averages are up more
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than 1.5% as well. currently the nasdaq is up nearly 2%. but let's get to brian sullivan for a look at what is coming up on the second hour of "power." >> mandy, thanks very much. coming up at the top of the next hour, more on this late-day surge for the stock market. the dow is up more than 250 points. plus, something big is happening to what could be the world's most important stock right now, and it's probably a name you have never heard of. we'll tell you who it is and why it's important. and a bold buy call on troubled chipotle. the analyst who made that call will join us at the very top of the hour to get into why she is not that concerned about what is happening at chipotle right now. a lot more to do. "power lunch" burrito-style. we'll be right back.
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welcome back to "power lunch." here are this hour's power points with a big rally taking place in the stock market hitting near session highs. energy, health care, and tech are leading the charge. exxon leading the dow. williams company is leading the s&p 500. and alexion pharma leading the nasdaq 100. let's get to dominic chu. >> let's continue the theme about the oil trade. phillips 66, the shares are climbing higher after touching three-month lows earlier this
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week. new regulatory filings show that warren buffett's berkshire hathaway has been buying shares for six straight days, that's through monday. they bought over 5 million shares, almost $400 million worth of stock. that makes the total position over $5 billion. shares are down 4% year-to-date but it looks like buffett has phillips 66 on his shopping list. >> thank you very much. stocks in rally mode, as you see there. look at the nasdaq up 2%. can it hold these gains? dow up 1.66%. we've seen big moves recently and they start at 2:00. it's no accident. we'll explain why the 2:00 p.m. hour has become so crucial for the markets. and tomorrow on "power," a big interview, u.s. attorney preet bharara will speak with andrew ross sorkin tomorrow in the 1:00 p.m. hour right here on
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you could save up to $509 call today at see car insurance in a whole new light. liberty mutual insurance. welcome back to "power lunch." we are coming up on 2:00 p.m. eastern, and this has become quite a crucial hour for the markets. each of the past two days, the dow has made a major move during
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the 2:00 p.m. hour. on tuesday it was up. yesterday it was down, way down. so why has this hour become the most important hour of the trading day? let's get to bob pisani who always has sort of a clue as to what's going on with his ears on the ground at the nyse. >> there's been a lot of questions about what happens late in the afternoon. you often see a lot of volatility occurring around 2:00 or 3:00 p.m. eastern time. let me give you some indications of what happens when this time period comes around in the middle of the day. most important thing that happens is active traders come in and start to close out their positions. think about it, people who are involved in the market all throughout the day have to decide right about 2:00 whether they want to continue to stay in the market or whether they want to sell off and get out immediately. sometimes when the markets are down, people decide simply let's get out early. then, of course, at 2:00 we get the market on close indicators. some of these are mutual funds that are estimating how much they have to buy or sell at the close and sometimes these orders can get very large. people often try to play ahead of them. finally, on days when there's a
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lot of market volatility for days on end, sometimes around 2:30 eastern time we'll get margin calls. these are people calling various individuals whose margins levels have been exceeded. they will be asking for money and those people will be having to sell sometimes in the middle of the day. so there's a lot of potential reasons why the period after 2:00 gets a bit volatile. guys, back to you. >> thu very muank you very much, bob at the nyse. we're coming up on 2:00 p.m. we'll see if there's any reversal in the rally we've been enjoying so far today. we were sort -- we were up, we were down, then, of course, we came back with crude and those dovish comments. but sentiment out there among the individual investor is so bearish right now. going back to i think the cypress banking crisis in spring of 2013. a lot of people say we're oversold. maybe this rally has a couple more days of legs. we don't know. >> several days so far this year we've opened higher and not been able to hold that level and then gone violently down.
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today it looks like maybe the market is going to be able to hold its early gains and end on the plus side for, what, maybe the second time this year for nasdaq to have a gain and right now a pretty nice one at 2% or better. that will do it for first hour of "power." thanks for watching everybody. >> over to you, brian. >> we will call it a toto market, see if it can hold the line because love isn't always on time. the dow finally getting a big pop. i'm brian sullivan. melissa lee is at the nasdaq. another big show, and coming up, we're going to give you some of the big banks' best drdser idid the year and talk about what might be the most important stock in the world right now, and it is a name you have likely never, ever heard of. we begin with oil. yeah, it's a little higher today but we are still in, what, $31.50 range. oil stocks, as you might have heard, having a rough start to
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the year. the big oil etf, the oih, down 13% this year. that's more than double the drop of the dow. melissa lee, what's going on? >> hey, brian. how are you? we're going to talk about the rally here, the dow is still down 6.5% this year. so as valuations fall will companies continue to binge on their own stock through buybacks? mike santoli is here at the nasdaq with this. we've been in a blackout period ahead of earnings, but should we expect companies to resume with a vengeance once the blackout period has ended? >> the companies still have on the books authorizations to do a tremendous amount of buybacks. in fact, about on par with what they've done for the past two or three years, half a trillion dollars. buying back their own stock. january, goldman stacks pointed that out. january is always the slowest month for buybacks until 3% of
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the annual total gets done in the first month of the year. so it's expected, stocks haven't been weak, they haven't had that support. here is the thing, i wonder if we're really going to have companies be as aggressive because, of course, earnings are flattening out. many, many companies were actually spending more in buybacks than they were earning in net income. about 130 s&p 500 companies in the latest 12-month period were in that situation. and then you have the credit markets which are not as generous as they have been recently. a lot of companies also are net borrowers. they borrow to buy back their stock. even though stocks are cheaper because the prices have been coming down, they're going to have the same appetite out there. >> yet we've heard a number of companies recently announce increases to their buyback programs. general motors most recently. isn't there also a pressure for some companies to offset some headwinds they might be facing from the increasing global and financial engineering their way back? >> tremendous pressure to do it. that's why companies like gm go
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to that well. but what you should keep in mind is the stocks of those companies that have been the most aggressive about buying back their own stock, they did great throughout most of this bull market. in the last six months or so, a couple etfs that track this style, so to speak. one is pkw. these are basically companies with a long record of aggressively buying back stock. they have started to underperform significantly in the last six months. the idea is investors have become spent on this as a strategy. they want to maybe see balance sheet get in better shape or they're just seeking much more organic growth. >> and in recent years you have heard a lot more investors saying financial engineering, are they financial engineering their way to earnings. >> exactly. >> mike, thanks so much. mike santoli. with today's rally, biotech is seeing a nice bounce after a rough start to the year. the ibb is down nearly 16% year-to-date. so despite the steep losses in 2016, mark lelehman, president
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jmp securities, says the sector is a buy. great to have you with us. the bears have been in full force since midlast year and there's a myriad of reasons. the biotech sector has had a huge rally over the past few years. why continue with this? there's going to be an election year, there will be political headwinds as evidenced by the hillary tweet. why do you say get in now? >> like you said, we've had a tremendous correction in the sector from the middle part of last year and especially starting this yisear. we've seen the indexes off between 30% and 50%. the fda is no less accommodative. i think americans and the rest of the world are looking for diseases that are not getting cured. there's -- everybody is as sick as they used to be and more importantly, i think the investor base is looking for huge upside for some of the potential drugs, so that has not changed as far as i can tell. the other thing that hasn't changed is that there's still interest in the sector. last week 13 secondaries priced
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on the street. they were not terrific prices for the issuers, but 13 priced last week, and we were part of six of those at jmp. i will tell you the investors were the type of core fundamental investors you want to see that are still interested in these kind of stocks. >> i think what you said about the secondaries, they priced but didn't do extremely well, isn't that the crux of the matter? yes, you can have an accommodative fda at this point. you can have biotech stocks with tremendous balance sheets, but in an environment in which the market and investors specifically are really critically looking at valuations and risk/reward as it seems like things are slowing down and there's a lot more volatility, is that the environment in which biotechs will do well? >> you know, in the short run that's probably not -- it's not going to be the most healthy sector, but when you look at where the stocks are trading. you look at the large caps that are trading at the cheapest multiple since -- >> a celgene is what you like. >> correct. celgene which has multiple programs which are going to be reading out in the next couple years where you could see data
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coming out in huge indications like anemia and colitis and crohn's disease. that's not going to change. when the news comes out for some of these stocks, we have upside like we saw a couple years ago. people will forget how cheap the stocks were because the kind of fundamental conclusions these companies are going to have are going to drive these stocks a lot higher. you're going to get another -- you're also going to get one test next week. we have not had an ipo in the sector in about 90 days. you're going to have several companies try to launch next week their ipos. that will be a real test for the sector and you're going to see that starting on tuesday. >> insight is down 25% year-to-date. a couple drugs in the pipeline now including one being tested in combination with merck's ketruda for the treatment of metastatic melanoma. with the stock seeming to have terrible momentum, what do you like aut this? >> it's got two programs, like you just said. one with america, one on pancreatic cancer and one in breast cancer.
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you have nine or ten announcements coming this year that will have important ramifications for the stock. we have a 35% higher price target and i think we're going to hit that this year at some point. >> mark, it's great to speak with you. thank you. mark lehman of jmp securities. on deck, the company that just might be the most important stock in the world right now. a name you may never have heard of before. we'll tell you who and why. plus, rbc is out with not one, not two, but 20 stocks that are among their best ideas for the year. we are going to bring you that list coming up. and while the big indexes are up nicely today, the world not out of the woods yet. coming up, the four big reasons why stocks have stunk this year. they don't stirng right n-- stik right now though. you have williams company, freeport-mcmoran, nrg, all the names that have been crushed at the beginning of the year, are the best performers today. i believe they'd call that a
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low-quality rally. glass always half empty on thursdays. we're back right after this. evey understands the life behind it. for those who've served and the families who've supported them, we offer our best service in return. ♪ usaa. we know what it means to serve. get an insurance quote and see why 92% of our members plan to stay for life. ♪
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we are watching the markets and they are in rally mode recovering much of yesterday's losses. look at the dow, up by 247 points right now. the s&p 500 up 1.7%. really finding some footing because oil stocks are finding a footing. the xle, the etf that tracks the oil stocks, up 4%. we're seeing a number of
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integrated days like exxonmobil having a very nice day. exxon is up by 5%. >> on that note oil stocks having a rough start to the year. we talked about the oih being down twice as much as the drop in the dow this year. that's after coming off a pretty lousy 2015 but at some point some of the stocks will stop going down. that could be a huge name you know. john eid oversees the firm's energy coverage. we have been talking for years. you have been in this market for a long time. what do you make of today's bounce? do you think this is a real turn? i kind of have snarkly said it seems like a low quality rally to me. what do you make of it zbh. >> i think we're ready to start moving up. it's been an irrational move to the downside. correction is fine but to get a bear market and to go further down, we need a weaker u.s. economy or some kind of bubble popping, and we don't see that
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now. we think we're going to be turning around and heading up through the year. >> okay. so maybe this is just a buying op longer term if things go down. let's talk about energy. again, with all due respect to you and everybody else in your industry, our viewers, because i hear from them, are likely getting a little frustrated by the bullish calls on oil and gas names because they keep going down. you and are a gus are very confident about chevron. why is it worth betting on right now? a couple things. you're right, stocks have been going down. oil is down 70% over the past year. the sector as part of the market is down from 12% to about 6%. it doesn't go below 5%. this is the time to start to buy, all right? if you're going to buy, you want to buy strong balance sheets and you want to buy good dividends, and chevron gives you both of those. >> you know, listen, we interviewed the ceo of chevron about a month ago. he looked at all of our viewers on camera and said they are not going to cut the dividend. do you believe that?
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>> we do believe that. chevron is one of those that have said that. conocophillips is another one. these companies have low debt levels, they have access to credit. we think oil prices are going to be bottoming here around $30. they should be able to cover their payouts. the financially strong one, that's not across the board, but chevron is one we think will. >> one oak, much less of a known name. why is one oak one of those names you're saying may be protected here or at least searching and finding a bottom. >> this is a riskier one to be sure. dividend yield is twice the chevron yield. it's over 10% but we like a couple things that management has done. they've changed their contracts to fee based so they're not as exposed to volatile oil prices. plus, they have announced they're not going to be issuing equity to cover the payout, and, in fact, their cash coverage of the payout has increased quarter to quarter. management isn't increasing the
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payout this year. we think that's a good sign. it yields 10%, a good value. >> yields 10% for now. we'll watch oneok now. thank you for joining us. we have mentioned what might be the single most important stock in the world. this is noble group. this is exposed to most major commodities. it is based in hong kong, huge exposure to china, and it's got significant leverage to boot, so noble group may be a tell for nearly everything that is on the radar right now. it trades overseas, melissa, as everybody knows. we don't talk about it too much. it's kind of -- i don't want to call it asia's glen core, but these are two names not widely traded, not widely known here that may be the most important tells of a lot of things going on right now. all right. america's second biggest
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coal producer, arch coal firing for bankruptcy protection earlier this week. arch coal might be the canary in the goal mine for other energy producers. michelle caruso-cabrera is here now to explain why. michelle? >> okay, brian. we've been talking about oil on your show for weeks and there's been so much concern about which companies are vulnerable if you own stock, and one of the lesser known oil companies, should you be worried about what's going to happen to it? we decided to do an anatomy of a bankruptcy in a company, commodity company, that's already gone bankrupt, and we chose arch coal, even though it's a coal company and not an oil company, because it's so huge. it had a tremendous number of assets. it was really inconceivable at one point this company could go bankrupt. but look at this chart which is a ten-year chart. this stock hit $744 back in 2008. if you are new to the investing world or new to the markets and you have never experienced a commodity collapse, know this, the history of wall street is
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littered with commodity charts like this of companies that were exposed to commodities that plummeted and went from sky high prices like this to almost zero at this point because of bankruptcy. was there anything you could have seen coming when it comes to arch olcoal? true for arch coal and nearly any other energy company that you want to look at, look is how their debt is training. let's look at an issue that arch coal put out almost back in 2011. they issued $1 billion worth of notes due in 2021, yield of 7.25%. that note traded at par for a couple years and then look what started to happen. in january of 2014, starts to trade to 78 cents a dollar. the yield rises to 12%. 90s months late -- nine monthsr cents, and today, zero. that rarely happens.
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if you have been in the market for a long time, you know a lot of what i'm going to tell you about if you are knew to a commodity collapse, this bears repeating. when a company's debt starts trade between 50 krements cents and 75 cents, that's a big red warning sign you should be worried about what's going to happen with the company. if they restructure, go into bankruptcy, you, the stockholder, are dead last. the debt gets satisfied before the equity and they often say to the people who own the loans, they say we can't pay you back so you know what we're going to do? we're going to create a new company and you will get shares in that company, your debt will become equity and the old equity zero. you get wiped out. that's what happened with arch coal. so when you've got energy companies within your portfolio, this is something you want to do. brian, of course, not true of any of the big names. exxon's debt is trading at par. nobody is worried about that, but the smaller names are the things you need to be worried about. >> there are at least 30 companies i track their debt that are trading below 75 cents on the dollar, michelle, and some of them are at 30 cents and
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40 cents on the dollar. >> you should be worried. >> thank you. gershon distinfeld joins us now. that's your world right now, gershon. that's a default by any other name. do you think that people are overly or under concerned about the state of high yield especially not just because of what michelle talked about but because of the blowup of the third avenue high yield fund? >> well, i think by now most people recognize third avenue was investing exclusively in distressed debt. it's different from funds like ours and most of the other funds in the industry. i think in terms of what people are concerned about, look, we know what's in the headlines, energy, coal, et cetera. this looks very much to us like 2002. it was different sectors back then. it was the telecom sector, the airlines, but the baby got thrown out with the bath water. the rest of the sector sold off in sympathy and then performed well in '03 and '04. >> when prices go down, yields go up. and i'm looking at these bonds in oil every single day.
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even as a skeptic, you're looking at it going it's now yielding 28%. why don't i take a flyer because that's a pretty damn good return if they pay the money back. how tempting is it right now in the market to look at some of these big numbers and think, it's worth a shot. >> it's very tempting but you just saw the chart on the screen of what could happen. your recovery could be zero. active managers have to figure out those that are going to recover to par and those that will default and go to zero. that's why the etfs aren't really a great solution. they had to own a lot of energy bonds because energy went from 5% to 20% in the u.s. held indices. >> with the bonds trading at 40 cents, 50 cents, 60 cents on the dollar, they're either going to recover, issue some new debt, or go away. what's going to be the outcome here? >> that's what happened in -- it happened in '02. we all remember the names that -- the telecom names that no longer exists, windstar --
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>> it happened in oil in '86. >> there's definitely going to be some that will default and some will recover. there's a middle ground. you mentioned chesapeake. we call it a distressed exchange where companies offer new debt that's senior to the existing debt and try and get investors to take a haircut, and they're able to do that because when -- >> it's bumping you up in the creditor line. >> here is the thing. usually you have covenants that don't allow companies to do that. when the market was hot -- that arch coal bond a great example in 2011, the covenants were written in such a way that companies can do what they're going to be doing now which is layer more debt on top of you. >> make the case for your fund, make the case for high yield against equities this year because equities have stunk. >> we consistently tell people they shouldn't think of high yield as -- people get scared about going into junk because they don't like when fixed income loses value.
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we think if you look at equity valueses, you look at where earnings growth is likely to come in, most strategists are thinking midsingle digit returns. we think high yield after two years of very poor returns are likely going to have high single digit returns. >> gershon, it's a pleasure. thank you very much. >> thanks. >> big, bold call on chipotle sending those shares higher. we'll speak to the analyst who made that call ahead. plus a picture perfect disaster du jour to tell you about. that name ahead. but it is far from a disaster in the markets. the nasdaq right now up nearly 2%. much more on this rally when "power lunch" returns. i've been called a control freak... i like to think of myself as more of a control... enthusiast. mmm, a perfect 177-degrees. and that's why this road warrior rents from national.
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there is a huge interview coming up tomorrow on "power lunch." u.s. attorney preet bharara will sit down with andrew ross sorkin. you can catch that hard-hitting interview tomorrow at 1:00 eastern time right here again on "power lunch." melissa? >> best buy says same-store sales fell 1.2% over the holiday. pointing to softer mobile phone
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sales. bank corp getting an outperform. they are said to be one of the highest quality banks out there. there are a few stock out there hitting new 52-week lows in today's rally including advance auto parts, borg warner, and harmon international. it has been a while since we have an a disaster desqulu jour this program. what is happening to gopro means we have to bring it back at least today. the company is down 14%. they slashed their forecast. they laid off 7% of their staff. goldman sachs basically halving their target on gopro bringing it to $15 from $29 maybe a little late. stock hasn't traded at $29 since october. 18 analysts cover it. only two sells. it will be a big topic on "fast money." what's your take on gopro. >> the call is a little late. we have seen the stock in free fall for quite some time. the problem is there are really no catalysts. we spoke to oppenheimer yesterday on "fast" about gopro after they gave this
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preannouncement and he said there's no catalyst until the fall, until they get a new camera out on the market because at the end of the day, brian, despite what a lot of hopeful investors had thought, it is a hardware company. there's not a new piece of hardware until the fall. >> they want to say they're a lifestyle company, and i'm a heavy gopro user. as a car racer i have three gopros. marc andreessen, the venture capitalist, he called this i think last year. he said basically in a series of tweets or an article, i can't remember, that don't get sucked into consumer companies because they say they're lifestyle companies if they make hardware. hardware gets commoditized, moore's laws kick in, prices fall, and people get agnostic. as a gopro user i'm agnostic. whatever works best around is the cheapest is what's going to go on the car. i think gopro is facing that
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quandar quandary. >> they don't have that stickiness yet. maybe they will never have that but at this point it is a hardware company, as we mentioned and that's where you get down 13%. >> they need to merge with red bull. a news alert with dominic chu. >> goldman sachs, the s.e.c. has announced goldman sachs and the s.e.c. have settled allegations their securities lending department violated federal regulations. as a result the s.e.c. says goldman sachs has agreed to pay $15 million in fiennes to settle charges. it's with regard, brian and melissa, to something called securities lending. if you want to short something, you have to actually have it in your possession and sell it short or have your broker say they've located that security for you, something called a locate. if they do not go through that rigorous process of making sure they can get it for you, it violates federal laws. this is what's happened here and that's the reason why goldman
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sachs is paying $15 million in fines. we wanted to bring it to your attention because enforcement actions of this size are grabbing a lot of attention on wall street. >> thank you. we are counting you down to yet another oil close. we're headed live to the nymex. where will oil finish? stay tuned to "power lunch" to find out.
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hello, everyone. i'm sue herera. secretary of state john kerry meeting with top saudi diplomats in london amid heightened tensions between saudi arabia and iran. kerry saying that countries in the middle east should not interfere in the affairs of others. candles have been lit outside a leon, france, high school after two of its students died when an avalanche in the french alps hit a group of students on a field trip. they were skiing on a closed slope. the teacher who led that group has been taken into custody. jeb bush's campaign unveiling a new tv ad set to rurun in new hampshire. it highlights bush's work on behalf of people with disabilities and it shows bush attacking trump on that issue. and a rare litter of three
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white lion cubs were shown off in a ukrainian zoo. look how cute they are. they were born last month. obviously in good health there, and they're being cared for by their mother ivana. no word on how their daddy is doing. his name is ludwig. there's nothing cuter than baby lion cubs. >> until they're about a year old and chasing the dog around the yard with more than love in their eyes. >> there you go. >> never own a tiger. >> no, never own a tiger. >> sue herera, thank you. the oil market set to close for the day. let's go to jackie deangelis at the nymex. >> good afternoon to you, brian. for everyone on twitter that says i'm the bearer of bad news, i have a little good news today. oil closing up 72 cents. $31.20 is where wti finished. due for a bounce for sure. a lot of traders said. but interesting enough we were bucking the trend of the stronger dollar today. definitely some short covering happening here as well in this trade. could we test $34? possibly at this point, although
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we're still a little ways off that. on the flip side, there are those who still say this is what happens, we don't go down in a straight line. you see these kind of bounces. people buy those dips. these are shorter term trades and we could still see that two handle. lots to watch when it comes to oil. >> don't worry about the twitter machine, jackie. they should change the name to what it is, the anger aer machi. time for "street talk." a double call on the airline stocks, spirit airlines and virgin america. jpmorgan loves one, hates the other. they love spirit. start coverage with overeducawe. the target is pretty fat, implies 40% upside. john morgan doesn't like virgin america. they started with an underweight and a $31 target. when you have new planes, everything is great, but as your planes get older, labor costs go up because the planes need more repairs. the next stock blackrock.
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interesting call from credit suisse reiterating the outperform rating and expects them to post strong net inflows. they're getting cautious because blackrock has outperformed peers over the past six months. they're also 25% more expensive than peers. the rating doesn't change but the analyst says there may be more attractive opportunities in something like a wisdomtree. stock three, the real f.a.n.g. diamondback energy. the only oil company anybody loves. cowan and company upgrading diamondback to an outperform. $74 from $71. they say the stock offering yesterday, full year guidance reduced risk significantly. not a lot of debt. company has the highest prehedge margins in their coverage universe. >> marriott and extended stay. both stocks hitting fresh 52-week lows on down grades from
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mkm. this is a broader call here. it's a downgrade overall of the lodging sector. the analyst says even though lodging stocks are down 20% over the past 12 months, there could be more down side in 2016 because mkm's chief economist is getting more cautious on the macro environment. finally, how about microsemi. california semi-conductor company closing a deal to buy pmc sierra. suntrust starting coverage with a buy and a $49 target. the stock is at $32. huge upside seen. crt capital also named this a top pick. it's a big auto play, melissa. they make a bunch of sensors that go into things like driver assist and power management technology. with that we wrap up. seven names form the price of five. you're welcome, america. another market flash. >> quite a bit of volume for the "street talk." let's talk about shares of one that's not so under the radar. social media giant facebook catching a bid you can see in that chart for today's trade after setting a fresh intraday
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low for 2016 today earlier this morning. the stock's rallied sharply. up 2.5%. facebook was one of the best performing stocks remember in the s&p 500 last year up by 28% over the last 12 months. now, this is one of those momentum stocks that traders will be keeping a close eye on to see if any bounce in the overall market can be sustained. facebook certainly a focus. >> isn't that the "f" in fang? >> it is. >> we need a "d" for dang. dom chew, you're the "d." time for trading nation because traders trade better together. only one of the ten main s&p sectors is positive on the year and that's the lowly utilities. is it time to buy the so-called boring stocks. he have eddie and rich ross. eddie, utilities may be boring but since they're higher this year, it makes them pretty darn sexy in a lot of people's box. >> boring is good with investing. the utilities had a really bad year last year. particularly the early part of the year.
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a lot of investors were scared out by -- they thought the fed was going to continue raising interest rates. now we see it's probably -- the fed is going to take a pretty slow path towards raising interest rates so you're seeing investors come back into utilities and they see a lot of good dividends are good values right now, particularly in a market like this. when people get scared, they seek out stability and that's what is happening to utilities right now. >> all right. eddy, thank you. >> rich ross, how does the xlu look to you? >> we know coming into the year the utilities were underowned which is to be expected as the specter of stronger employment and stronger economy and higher interest rates weighed on those utilities. but fortunately, thanks to the great start in the s&p, we don't have to worry about either one of those right now which puts utilities right back on the radar screen. look at this daily chart. it's not classically bullish but you see that nice ten-month base
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of supports whereas many stocks are breaking down from multimonth and multiyear charts. 18% pullback to that 150-week moving average at the 42 level. that very well defined multiyear up trend still intact. as long as we hold that 150 week and the 42 level, you want to be a buyer of the utilities down here. at the end of the year those yields will look very attractive in what we consider to be a cyclical bear market decline within the context of an ongoing structural bull market. >> said a lot but basically buy the utilities. thank you, guys. see you online. go to tradingnation.cnbc.com anytime of day or night because we do a couple extra segments every day. >> and we continue in rally mode with the s&p now up just off session highs. same for the nasdaq up 2.2%. take a look at the dow. most notably the two dow stocks
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not participating in gains, nike and home depot. no coincidence they were among the top performers in the dow in 2015. nike up 25% over the past 12 months. investors though taking profits here, at least for today with them both down on an up day. much more "power lunch" right after this.
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months.
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the american job market is stronger than it's been in years, wages finally on the rise, the value of your home has probably gone up, gas is cheap, and roads and airplanes are filled with people traveling. so why is the stock market off to its worst ever start to a year? that is the question stumping nearly everybody. the problem is that there probably isn't just one easy answer. rather, there are a number of big challenges rocking the economic globe and your investments right now. here are your big four. number one, china.
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slowdown scaring the world. even shaving just a couple points off economic growth can crush demand for nearly everything. china is the world's biggest consumer of most commodities so it's slowdown has set prices for copper, steel, wood, everything else all tumbling. as the commodities crash so do the stock prices of the companies that mine or make those commodities. the biggest of all those, oil. that's reason number two the markets have been sagging. yes, low oil means low gas prices, we get it, but it also means the collapse of energy company earnings and the oil and gas stocks make up a fairly large, albeit smaller part of the major stock indexes. it makes it more difficult if not impossible for the overall market to rise even when we fill up cheaply at the gas pump. challenge number three, the almighty buck. the u.s. dollar strengthening against most of the major world currencies means american companies get crushed when they convert sales overseas back into dollars. the earnings we have seen so
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far, u.s. dollar strength has been a major theme. bottom line, it's not a great time to be a global company based in america. reason four, it's been a you have to year for terrorism. last night's bombing in jakarta proving we live in a dangerous world, folks, and as the risks go up, stock prices must often come down to compensate for the human and economic toll of extremism. valuations cannot be high when the world is on edge. those are obviously not the only four reasons stocks are sagging. we did a pretty good run for most of the past five years, but that's a pretty good starting point in understanding why it has been a tough year for the stock market. green capital's roberto friedlander is with us here. glad to see you on set. >> thank you, brian. >> what do you make of that? anything we overstated, understatemented, left out? >> on china, you have to take everything from china with a grain of salt. every economic decision and market decision must be approved by the state council which is the communist party, and so last time i checked the communists certainly aren't the ones for
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expertise on macroeconomics. seco secondly, you saw verbiage from the chinese premiere who said the economic numbers are manmade. whether it's 6.5% or 7%, he said what's the difference? how can you really trade off what may be nonfiction or fiction for the numbers there in itself. >> so why -- okay, so when china was going up, very rarely did we have a guest on who said, buy american stocks because china is going up. but now we've got all kinds of people who say sell american stocks because china is going down. it can't be one without the other. >> no, it can't. but the chinese stock market isn't necessarily a reflection on the chinese economy. the pblc is learning as they go. there's kind of a crisis of confidence as they go along. the slide of the currency much faster than they expected and tried to control it. that turned out to be a disaster. a lot of the implementations in economy are turning out to not work in their favor, but the deliberate slowdown of the chinese economy, they have to move away from this heavy
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intensive real estate capital intensive in more service industry. >> you and i talk about oil all the time. you're the head of energy trading there but what do you make of point two, which is the overall market, and these are my points, right, so they -- it's what you hear from guests and everything like this, aggregate them, the overall market can't do well if oil and energy stocks don't recover. true or false? >> that's true. it's much like the '07-'08 financial crisis. >> when you're a trading, it's got to be the group that's killing you that brings you back. >> right. because that's going to signal the bottom is in. the last guy has thrown in the towel. it doesn't take a lot for the market to go up once the capitulation is in when the last seller is done selling. you look at energy and crude, we are in much, much oversupplied environment domestically and globally but there's a lot of factor there is which are being overblown. >> if crude turns, the market could turn with it on the
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upside. >> 100%. >> roberto friedlander, thank you for making the long trek. appreciate that. >> let's take a look at the markets as we head towards the close. all major indices up sharply. in fact, the nasdaq is sitting at session highs. it is doing the best of the major three indices, up by 2.3%. pretty sizable moves on the parts of amazon up 3% and apple is up 2.6%. but still despite today's rally, it's been a volatile start to 2016 on wall street. there is still value out there if you know where to look though. the head of research at rbc capital is giving us his top 20 stocks for 2016. that's just two minutes away, so stick with us. ic ic why pause to take a pill? or stop to find a bathroom? cialis for daily use is approved to treat both erectile dysfunction and the urinary symptoms of bph, like needing to go frequently, day or night. tell your doctor about all your medical conditions and medicines, and ask if your heart is healthy enough for sex. do not take cialis if you take nitrates for chest pain, as it may cause an unsafe drop in blood pressure.
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pinot noir, which means peanut of the night. pretty sizable moves on the stocks for 2016.
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unless you're betting that stocks will fall it's been a lousy year for your investments so far, but it's early and even in the worst markets there are usually opportunities. rbc capital markets recently out with its list of names that they like, there's 20 names that trade in the u.s., 30 names total, 20 trade here. there's a look on our screen, but we are going to welcome in mark harris, head of research at rbc just so talk about a couple specific names. >> do you want to go through all of them?
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>> aramark, i didn't know the ticker, i don't think i've ever talked about this company, you told me something really fascinating about them. >> so what we try to do is group these into buckets. this is in the transformative bucket story, this is a company that has action they can take, put aside what's going on in the economy and oil and everything else, they can do something. here is a company that's going through their own transform program, this is a company that only six months ago hardly had technology managing 200,000 plus employees and their scheduling. these are efficiencies that could have max preliminary impact. >> they are a food and drank vendor. almost any stadium in america, you have a big new strayed numb in l.a. being built. >> this is an eps doubling story over the next couple years. it's the kind fd story you want to own in this department. >> mark, i'm curious, how did
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2015's list do? i'm taking a look at 2016's list, a lot of momentum stocks are not on this list except for alphabet which was then known as goog google. did you have a netflix or amazon in 2015? >> against last year's market indices we outperformed so we did pretty well. i think it's hard to find a list anywhere of any portfolio that isn't challenged year to date but even at that we are matched up to the indices. over a longer period we have had some really, really fantastic quarters. this has been a list we have put together every year going back to 2012 i think which was the first year we did it, every year we have ended the year of out performance versus the index. >> dollar tree closing the family dollar deal that puts it on your radar. >> absolutely. this is a couple hundred million dollars in synergies as well. and again this is the kind of story we don't need a robust or not robust economic environment
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to make it work. items for a dollar, we know the way that works and it's good. tons of money to take out of a badly managed asset that they bought. things that weren't managed efficiently. >> finally, newel rubber made finalizing their deal for jarden. the ceo is well known to our viewers here. you like the combined company. >> i love this one. it's a fantastic three-phase story. they can take out costs, they can get revenue synergy out of company and there is another phase of synergy that can come out of it that i feel is truly underappreciated in the company. you put these two assets together it's great brands, great brand awareness that we think can continue to build over time. >> three names out of the 30. i'm going to post the 30 names on facebook.com/sully, cnbc and all the other stuff. >> for all of rbc's top stock picks go to cnbc.com, twitter,
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facebook, probably not snap chat yet. make sure too tune into "power lunch" tomorrow. preet bharara talking to uls on confronting the evolving cyber threat. that's 1:00 p.m. tomorrow on "power lunch." >> stocks right now are sitting at session miles, it looks like we are making a push higher into the final hour of trade. the s&p 500 is up by more than 2% right now, that's 39 points. among some of the many stocks higher, chipotle which got a big upgrade today. we will be speaking with the analyst. that's next.
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and the rally continues as we head into the final hour of trade. the dow jones industrial average is higher by 307 points. it is worth noting within the past 15 minutes or so home depot went from down as much as 1.25% to down .25%. it is the only dow stock right now trading to the negative. >> tonight on "fast money" at 5:00 we've got a man who is very closely followed by the hedge fund community because of the accuracy of his calls, including his prediction for the august swoon. marco kolanovic will join us tonight 5:00 on "fast money." take a look at the turn around for chipotle. chipotle -- that's not a misquote. chipotle stock up $31 right now, that's about 7.2%. remember, the stock down about 36% in the past three months, largely on concerns of an e.coli
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outbreak. diane, the main reason for your upgrade is? >> we really had three catalysts for the stock, one clear indication that the e.coli outbreak was over, two, more clarity on the incremental costs from food safety initiatives and three a rail more clarity on the trajectory of comps. i think the company's presentation yesterday at a conference gave us a better feeling on two of those three, one the e.coli outbreak, no new cases. it sounds as if we're closing to the end of the trouble period thaen we were even a month ago. secondly, the company giving a little more clarity on the restaurant margin hit from some of the redundancies that they've built into their systems here on the food safety issue. so clearly we will have to watch
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comps through fiscal '16. the company seems like they are going to go with an enhanced marketing program, et cetera, and try to get the traffic back in. i think what we're looking for is recovery as we move through 2016 and back to where we need to be in 2017 and beyond. >> diane, the company yesterday was cautious about the ability to bring back the customers. they said something like hopefully we will get all the customers back by 2017. are you comfortable with the hit that its taken to its reputation? >> well, clearly you never want to have a food safety issue, i've followed the protein industry in particular for a very long time and that's where you see a lot of food borne pathogens because of the nature of the business there. i've worked through some of these cases through the large meat companies now that in the initial hit it's always very scary when you have a food safety issue. generally speaking consumers do come back to the brands, particularly if you have sound
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messaging, an indication of what we're doing differently today than six months ago and why, you should feel more confident. i do think they will be coming back to the brand. >> diane, thanks so much. >> thank you. >> thank you everybody for watching "power lunch." >> a big power of "closing bell," the dow up 300 starting right now. welcome to the "closing bell," everybody, i'm kelly evans here at the new york stock exchange. >> yes, i'm bill griffeth. we've been waiting here patiently for you. >> ages. >> we've got a rally on our hands today. some are calling this the bull lard bounce, st. louis fed president james bull lard hinting that another rate hike in the near term could be tough to justify. economic data has not exactly impressed and the decline in oil lowers expectations. >> we also have bulls coming out on wall street. we will have somebody who says this is the time to buy biotech

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