tv Squawk on the Street CNBC January 15, 2016 9:00am-11:01am EST
>> welcome to "squawk on the street," i'm david faber along with jim cramer. carl quintanilla has the day off. futures are down sharply. markets are selling off around the globe. more on that in a moment. we have a double dose of breaking news. we will start with steve liesman on new york fed president bill dudley. steve? >> david, thanks. bill dudley giving a speech now in new jersey saying future rate hikes depend on the data. he notes that in december further rate hikes were expected in 2016. he doesn't tell us how much he thinks rates will go up. he notes that overseas
economies, weakness there, does pose risk to the u.s. but he says there's been little change in the economic outlook since that december fomc meeting, acknowledges that recent indicators have been on the softer side, but points out that labor markets look strong. 2016, he sees growth to be slightly above 2% and the unemployment rate declining further. core inflation is quite stable despite lower energy prices. here are the strengths dudley sees in the economy, consumer spending, lower oil prices, job gains, better residential investment and higher government spending. on the weakness side, the decline in energy cap x could get worse from here. notes that manufacturing has been soft, and that autos could be at a cyclical peak. a couple more comments. he is concerned about the inflation expectations or the decline in them, and it will concern him if the economy were weaker. i want to make one point here.
dudley is the guy you would think of all the people being the new york fed president who would incorporate into his forecast what is happening into the market and what has happened over the past month. there's almost no mention of it. it's like he's taken a deaf ear to this idea of what's happening in stocks and bonds. unusual for dudley who said sometime last year that the fed would be sensitive to what the market is doing when it comes to raising rates. i'm surprised that he's not talking about this. and i really expected it in the speech. we'll see if in the q & a which we'll be monitoring, if he makes mention of what's happened in the stock market. >> all right, steve. we'll come back to you as you monitor dudley's comments. yesterday we heard from bullard who did make dovish comments in terms of reacting to the decline in oil and talking about deflation or lack thereof. >> what dudley said is bad for
the markets, bullard did say consumer spending peaked in mid 2015. dudley seems out of line with bullard. and is much too, i would say, optimistic about the economy. and he was not going to come to the rescue of the market. >> we will come back to a broader discussion of the market and oil prices. wanted to get to courtney reagan at hq. we have breaking news on walmart and store closings. >> that's right. walmart is closing 154 u.s. and puerto rico stores, that's about 3% of the region's total stores it will impact 10,000 employees who will be given opportunities at area stores or 60 day pays. walmart is closing 115 latin america stores. in the u.s., 102 walmart express stores will be closed. 23 neighborhood markets, 12 super centers, 6 discount centers, 4 sam's clubs and 7
stores in puerto rico. most will close by the end of january. doug mcmillan saying it's more important now fthan ever for th company to evaluate its portfolio. walmart says beginning february 1st it does intend to still open between 135 and 155 u.s. stores and 200 more stores internationally. so growth is still on the outlook separately. the nrf is out with their holiday sales results, up 3% year over year. that is lower than the 3.7% estimate and the lowest number since 2013 when sales increased 2.7%. we know that government retail sales number is part of the reason we're seeing such pressure on the market this morning. back to you. >> thank you. walmart shares, we'll see how they open. they've been a bright spot in a dark market, jim. mcmillan is doing stuff. >> right. obviously anything that is put
out today will have negative spin. the fact is that this is the kind of change we wanted to see. if eddie lampert had done this at sears a long time ago perhaps the forecast would have been better. you have to close the stores that don't work. mcmillan continues to take tough action. appreciate what he's doing. taking tough action. that's welcome. not welcomed today, but it is welcomed. >> you said in the past that you think the long-term plan he has in place conceivably could work. >> yes. >> you do need to have patience. >> yes. he's saying, listen, you got to be patient, but the idea of cutting underperforming stores is not in walmart's dna. every store performs in the old walmart. this is a very realistic approach. i continue to applaud mcmillan for trying to work within the confines of a family that wants that dividend and buyback. this is impressive that he is willing to bite the bullet on stores that should be closed. not impressive today, but impressive long-term.
>> man, do we have a lot to get to. let's start with the broader stock market. gains from yesterday's rally seem to be on track to be wiped out this morning. you heard courtney talk about data showing u.s. retail sales down 0.1% for december. oil sliding back below $30 a barrel. the energy market is bracing for a bigger supply glut. iran, as jim mentioned so many times, is close to preparing to export crude. overnight in china, the shanghai composite fell into bear market territory. it is now down 20% from the highs that it saw in december. and that's where we find ourselves this morning. as i said yesterday, before the rally, jim, many of the money managers i speak with, just getting slaughtered. >> yes. >> and oil is such a key component here. we -- i don't know if we want to start there or where you want to start as we move on this day which has been nine crazy trading days of 2016. >> all that's on anybody's lips, credit issues in the oil patch.
i could sit here and do nothing but talk about them. key levels, s&p opened at 1965 and closed at 1893, lowest was 1867. we will take that out now. that safety blanket level, that goes. the dow, if you want to look at intraday low, 15370. that's where you will see -- the chart will say we didn't hold 15,370, we'll go lower. larry fink this morning saying we could go down 10%. >> let's listen to what fink had to say. he was on "squawk box." larry fink runs blackrock on with the squawk gang this morning talking about the markets. >> when we test the markets lower, it will be a good buying opportunity. >> how much lower? what does capitulation look like? >> another 10% from here. which is nasty. >> another 10%?
>> yeah. you can see that and oil testing 25, 24. my worry about oil prices today, i'm sure nine out of ten of your guests talk about oil is going lower now. it's a very heavy trade. >> yeah. it is a very heavy trade. >> let's take him at face value. first of all, that would take out the flash crash loans for the dow. >> as in -- go back and repeal that day. >> in august. >> the day i sat here and said i don't know what's going on. second, it's perfectly realistic that oil could hit 25. we've been saying -- remember, the u.s. will have exactly almost as much production as they did in 2015. that's daunting. iran is ready to come on. >> talking about 500,000 barrels a day. >> it will be 2 million.
>> my people over there say 2 million. i got good people in iran. >> good people in iran? you say my people over there? >> yes. yes, i do. >> i don't doubt it. >> this is the biggest story of our lifetime it declined from 100 to 25. >> of our lifetime? >> the commodity crash. not the stock market crash but the -- >> no there is no stock market crash. >> no but silver lining, again, we are as oversold as we were in november of 2011. if you go back at that time, that was when italy was going down, 7% bonds. we thought spain -- >> the european debt crisis until we got from draghi said, nope, not going to happen. whatever it takes. >> that level is farcical that was very far from here. >> yes, quite far from here. >> that's worse than fink. that's worse than what fink was saying. >> given the four good years we've had since then, not including last year where we
were flat. let's talk about oil. i had conversations with a number of investment bankers, a lot of them trudging down to houston, shaking hands, saying hello to everybody. the expectation of the wide range of restructuring that will take place there. not every company, but many. many it's interesting, jim, because the reports back i get is there is still a sense of denial on the part of many executives who run these companies that the day is here. it's hard to imagine it's not with 2974 wti now. the day does seem to be very close for these restructurings. not necessarily all bankruptcies, some simply debt for equity. stay out of the bankruptcy proceedings. many will come, it would seem. do we -- once that process begins -- bottom in a sense? >> only if the major oil says we have so much cash, we want to come in. otherwise, no you're right about the optimism. vhp this morning, it took a $4.9
billion impairment charge in u.s. assets. bhp upgraded by two firms this week that was as stupid as wood -- no when i insult wood like that, the trees from lord of the rings get mad at me. in 2011 they bought petrohaul for 15 billion. that's worth about 5 billion, i think. the writeoff is not enough. the dividend is still too high. >> the write off was 7.2 billion on those shale assets. >> they were valued at 24 billion. i could argue they should be worth 6 billion, 7 billion. they bought very good eagle ford assets. >> and permian, too. >> they bought chesapeake, $5 billion in leases from chesapeake. see you later, that's no good. that dividend, 1.24, the guys
who upgraded it this week. i went over their upgrades. >> bhp's yield is up over 11%. that's as unsustainable as other yields. >> as kmi when it was 13%? >> bhp does have fire power. that's the kind of company that will make it. tremendous fire power. but they have iron. iron ore is incredible how low that is. again, this commodity crash is all about houston and our country. but it's all about whole countries in latin america. >> right. i think it is important -- you mention it -- the geopolitical ramifications of $29 oil or 25 if larry fink is right, wherever we may head, whether it's saudi arabia or venezuela or russia. russia -- these are significant implications. >> a lot of oil men come on saying it's a big mistake for saudi arabia to do what they do. people don't understand, saudi arabia and iran are totally at
odds. saudi arabia wants to wipe out production away from it, i including iran. they want to make it so others don't go to iran. the saudis are trying to drive out our marginal barrels, but they can't because we have all of this gulf of mexico oil coming on which was built when we thought things were going to be good. there's too much oil coming on. >> we'll get back to more on that conversation. >> intel's fabulous outlist? i wanted to slit my wrists when i listened to stacy -- >> you did? >> two quarterers ago we thought there might ab silver lining pc bottom. if you're at hp inc. -- >> we should say intel reported quarterly numbers. the guidance was above wall street forecasts. >> listen to the conference call, david. >> the conference call as well, lower than expect the revenue
growth. those shares as jim referenced -- i got them down -- they'll be down -- 30.55. they bought altara, that acquisition people will question. >> you were constructive on intel just this week. >> could i have been more wrong? the quarter no. quarter was great. the outlook, i was wrong. i did not think they could be as negative as they were given that it was a great quarter. it was a great quarter, david. >> you referenced the hpq, which is hp inc., the splitoff of hewlett-packard into hewlett-packard. >> i look at that yield hp. meg did give them a lot of cash. >> she did. >> maybe intel was just too negative on the call given how well the quarter was. when you read through the text
of the conference call, it was like, wow. was this the peak quarter? i thought that they were getting great momentum. the quarter indicated they were getting great momentum. i was hoping stacy smith was being too conservative. he's a conservative good guy. it's possible that is what was happening. i hope so they were much more negative than i was on pcs. >> let's get to industrial production and rick santelli in chicago. >> well, the litany of bad news seems to be continuing, unfortunate unfortunately. our final read of the year on industrial production capacity utilization, it's a december number, down 0.7% on industrial production, 76.5 on utilization. downward revisions on both sides of the number. the minus 0.4 is not the low for the year. the low was last month at minus 0.56. which ends up getting changed to minus 0.9. if we look at utilization, wow,
76.5. that takes us quite a ways back, 76.5, you're probably looking at an area around -- i have to go quite a bit. around march of 2012. as we continue to expect more data, university of michigan sentiment and inventories, obviously the ten-year floating and 2% has captured the imagination of the marketplace because they're not enamored with the level of equities. back to you. >> thank you very much, rick santelli. >> i industrial production. bullard did talk about how he was surprised things had cooled because of oil. he thought that would cause more economic activity. bullard was realistic about what was going on. it seems like dudley is in fantasy land. i like dudley, have known him many years. that's not what you need to hear. capacity utilization okay, but industrial production off.
i reference mike ward from csx when he used the word freight recession. >> when did mike ward use that term recently? >> two days. freight recession. devastating decline. year over year tremendous decline except in autos. i want -- i want silver linings, those are the bank stocks -- not the stocks, bank earnings. >> yesterday jpmorgan was strong. this morning perhaps more of a mixed picture. >> no as good. >> wells fargo expecting a better than expected fourth quarter profit, revenue below consensus. citi was ahead of street estimates with lower legal costs. on wells, kayla who has been listening to the call, tells me that margins fell because the mortgage business, even though you were hoping net interest margin would increase as a result in the rise of rates,
mortgages are priced off the ten-year, that didn't do much. >> my travel trust sold some of this stock higher. looking to buy it. why are we looking to buy it? if the federal reserve is still hell bent on raising rates, this is a fabulous stock on an asset base. citi, i will do something that is out of sync with city, if they were allowed to buy back stock unlimited, the actual book value, the actual cash is $60.61. you have go back to a situation of the absurd where you have a 20% dislocation between the tangible book value and the actual price of the stock. core bet is doing good job.
net interest dropped. tier one capital, 12%. that's impressive. no one cares today. when i was going back over this city call, what is clear is that there will be great dislocation between what's happening at city and what the stock will do. when you're in a bear market, what you see is that all those things i mentioned are meaningless, meaningless. >> are we in a bear market? >> yes. >> we are. >> yes. very much in a bear market now. you have to call it as you see it when you have these kinds of dislocations where city is trading at that level, you really have -- you're hard pressed to justify how that could be. that doesn't mean we can't be in the tail end. the average stock is down gigantically. >> they are. nine trading days into the new year, with yesterday having been a rare positive day, the s&p is down about 6% as we head into trading this morning. if you're just joining us, as you can see, it looks like we'll have a dramatically lower open on all the major averages.
the nasdaq is already down 7.8% this year. that in part because so many of the leaders last year have been laggards this year with amazon down 12% so far this year. >> right. shooting those stocks, which is positive. >> they have been. that's putting in perspective there. what is going on here because of the price of oil below $30. >> oil -- if oil were to rally, yesterday's oil rally was the biggest since august and that was anemic. if you were to have a rally in oil, which i can't think of why, fwu have but if you were to have it, and dudley's like i see the weakness, you get that spike that you get when you're this oversold. i'm trying to present the other side. when you're positive there tends to be a complacency about being positive. there's a complacency about being negative now. >> "new york times" did a big
take today on morgan stanley. their efforts to shrink the size with their fixed income business, which they tried to before and whether or not it will work that has not been a good performer. morgan stanley looking down in the broader market selloff. and goldman sachs announc announces after the bell yesterday a settlement along the lines of so many other involving mortgage securities. not synthetic ceos when they settled, this is from bank of america a much larger number. a significant number for a -- they were not that large a player in the market for securitized mortgages. the bigger plays were citi. >> right. >> merrill lynch. >> they didn't have their own retail group. $1.8 billion write off. i found the morgan stanley
article to be daunting. the stock has been falling very, very quickly. i think the stock does not act well. when we look at the bank earnings, we come up with the fed needs to raise, but when the fed put through that one increase, the market is still reeling from it. >> yeah. speaking of reeling markets, let's get more on the selloff in asia where we saw significant declines last evening. susan li joins us from hong kong. susan? >> hi, david. i want to point out this china selloff took place on a day when there weren't a whole lot of volume out there, but talking to a few desks across asia this is what they're characterizing as a buyer's strike, meaning there are no buyers in the market. a lot of sellers looking to sell into any rally. that's kind of what happened today. not a big surprise. shanghai drifted lower because we did breach 3,000 earlier this week. technicals telling us we were pointing to a retest of the 2015
low. we've gone below that. the lowest since 2014 people thinking that will drift lower from here. the big concern is also stemming from the chinese currency, the yuan. some are saying people are still shorting the yuan. this is an overcrowded trade still from macro desks from hedge funds, and looking to short insurers commodities and consumer plays. on the other side of the equation, they are hedging bets. there are some longs being put on the market in these blue chips and looking for proven businesses, part of this portfolio repositioning where they're looking for quality as we head into the chinese new year which takes place early next month. expect volatility over the next few weeks.
>> susan li reporting for us. thank you very much. speaking of china, i think it is important to note wynn, unexpectedly came out with preliminary results this morning. >> right. >> let me give you some of what they are. mackow an important part of that. that price down, down, down. the crackdown on corruption -- you think that's a positive -- but corruption created a great deal of wealth in china. the premier has been cracking down on that. net revenues expected to be in the reports of 552 million to 560 million that compares to 761 million a year ago. but the stock looks up. >> it's actually 10% better than what i was looking for. the issue is i urge everyone to go over -- steve wynn is a candid man. if you go over the last
conference call this is not a reason to buy the stock. there are many reasons to buy the stock, because steve wynn is a miracle man, but he needs permission to build the -- have as many tables as he wants. that's what we need to see. the headline numbers, white great, you want to trade after them, i want to know more if he has permission to build what he wants. >> these are preliminary numbers. i'm not sure why they chose to release them at this point. the company is not expected to have full earnings until february, early february. vegas looked okay. they're more or less flat in a gaap basis operating income for fourth quarter '15, up 56 to 64 million compared to 51.6 million a year ago. they're up. >> this stock has come down a lot this is a classic bear market stock. at some point it will bottom. these numbers are bitter. >> vegas has been good. >> vegas has been good. mgm vegas is good.
vegas had the mckacarron airpor numbers i get every month. >> of course you do. >> i do my job. >> do you more than your job. you are talking to those guys in iran getting those mccarron numbers. >> mccarron numbers in december. that is the airport that people come into. >> finally nsh, ge completing t sale of its appliances division to china's hire. hire is an interesting word here, because it was higher than the electrolux deal, 3.3 billion. that deal blown up by e-regulators. they go out and auction the business, which they did not do the first time because they already had a relationship with electrolux. >> let's throw in the breakup fee, and you have a 20 cent gain versus 5 to 7 cent gain.
this deal will go through. ge is looking down pore rend dousely. ge did touch $23 in the flash crash low. ge is one to worth watching. it's a much better stock than in august. >> had a good 2015 after trian became involved, underlying the value it felt was there as a result of the sell offof all of -- most of ge capital's assets. selling it at ten times ebita. that's not bad multiple. >> the profitability of the business did improve from during the period they were going to sell it to electrolux. sometimes it's good to check the market before do you a deal. >> we have to talk about
cerepta. they had a drug, and the efficacy data is unconvincing. i know it seems odd that a stock could be down 53%. but this is basically the product that sarepta has, and it ain't working. the safety of the drug looks good, but it may not be enough. that's a panel. someone might want to speculate on a bounce. not me. >> not you. >> no. >> biomarin got shot down, and j.j. had unbelievable data. >> a lot of these things are sort of -- they're binary. which is why you need multiple shots on goal. when a celgene crosses through at 100, you might want to look at that we're still reeling from bob hugen stepping up to being chairman and not ceo. the negatives keep popping up in areas. the jpmorgan healthcare
conference has historically been a carnival of fun, now it's been a funeral dirge. >> and of m&a, or future merger and acquisition activity in a sect their has been seeing so much of it. you mentioned $100 on celgene, not that far. >> it's not. they have a good buyback, the stock is cheap, and the patent litigation is -- it's etched in stone. but it doesn't matter. david, we have not mentioned two big cap stocks. disney, barclays goes hold to sell, david what is that about? is that about the espn business model? >> it's about espn. >> not about "star wars." is it about espn's business model depends on the cross subsidy of the pay tv bundle? >> i was going read that, too. i got it all highlighted. >> we came to play today, my friend. this is the playoffs. >> this is an important day, of course, in a year so far that
has seen the s&p down 6%. yesterday with that significant rally we are seemingly going to wipe that away. oil below 30 bucks. china down. as we head into trading here with -- the futures certainly looking not good. we will see what the day holds, and what might turn us this morning. >> yeah. >> as we look at realtime exchange. >> it has a way of fooling you. i just spark the flame, i don't have it yet. it's not what analog devices read through for apple, which is negative. >> i want to get to so many different stocks. goods for goods, a non-profit helping orphans and vulnerable children in africa ringing the opening bell. and at the nasdaq, regi, developer of renewable chemicals. as we anticipated, a broadly
lower open. the s&p looking down about 1.5%. >> not bad. not bad. honestly, not bad. >> the nasdaq comp down over 3%. >> that's bad. very bad. >> the apple read through, analog devices, key supplier to apple. people saying they basically put down production for apple mobile devices. we don't know who is producing for apple. apple is cagey. i always caution, remember, you don't know who apple is using. but avago and nxpi, here we go again, skyworks solutions and corvo, i confuse that with cuer cuervo. >> constellations brands, where we sell a lot of modello and corona, watch that. that was the best quarter of the
year. will it give back that gain, that's the place you might want to go if you're a bull and looking for a bounce. let's say we use an august, november 2011 study. when we had the crisis in europe, where before draghi said he was going to use the malcolm x by any means necessary. you had a similar pattern. try to buy a bottom, get oversold. the difference was we were much higher valuation. when you see stocks like intel down this badly, off the forecast, what you have to say to yourself is okay, are they going to repeal most stocks like entell. >> let's get to intel now. i wants to circle back to disney. we didn't mention it fully. down 8.7%. $154 billion, big impact on the nasdaq. >> enterprise they forecast
weaker. forecast weaker teleco. weaker personal computer. said there was inventory in the system. i thought they were too hard on themselves. this quarter was good quarter. they could have had a totally different coloration, but when you see that, you start thinking how is dell doing? you think about how hewlett-packard is doing, how emc is doing. you see the read-throughs, those are incredibly negative. microsoft will be taken down. microsoft is up dramatically from the august low. microsoft is the one to watch. i don't think microsoft will have a bad quarter. i'm trying to put a spin on. there's always opportunities in days like today. i know it's the head of a three-day weekend, the tenor of the market is as negative as we've seen in some time. as we look around for the -- >> i'm looking around because, frankly, it's rare to see a lot of activity on the floor here, but there it is. >> can i talk to you about something that's been bothering me that you know the answer for.
>> you know you can talk to me whenever you're bothered. >> any time we see a serious m&a activity that looks great -- remember when we spoke to martin franklin, the darden deal? >> of course. >> it's been a disaster. that's wrong that it's been disastrous. i'm glad that wells said the 15% decline in newell might be a great entry point. i'm watching newell. i'm trying to find positives on a bad day. >> market action that we've had for the first two weeks of this year would curtail those who would engage in m&a. we'll see where things shake out. it has that impact. not to mention your point of the performance of acquirer stock prices has changed dramatically from what had been almost uniformly positive to almost uniformly negative. haven't had a chance to look at shire since they announced the baxalta deal. >> upgraded by merrill, hold to buy. that's important. guys are looking for -- ubs is
saying time to buy lennar. if you think there's going to be multiple fed hikes, you don't want to buy lennar. you don't want to do it. you mentioned hp inc., which is printing and pcs, down about 3%. one would expect the yield may be helping to support the stock. >> yes. >> at 4.8 plus percent. you also brought up dell which is in the midst of buying emc, enormous debt needs to be raised there. >> what happens here? >> the credit market so far has been hanging in there. listen, bud placed all those bonds, they did it fast. >> i have to tell you -- i cannot tell you how many people bought those bud bonds. they went like this. >> that's with the purchase of sab. dell has to enter the market. it's not fully investment grade. a little different. a little dicier. hard to imagine there won't be demand there for that deal.
with the pc market that seems to be described by intel you have to wonder whether there's more risk. >> mattress firm was able to do the deal. they are so overstored after a series of acquisitions. they were able to get financing. looking for situations that don't make sense if things are that bad. >> right. >> there are a series of a piece of paper involving the steel industry that we don't talk about that is horrendous. the steel industry is being wiped out by south korea. and brazil who admitted they are dumping. it will be a presidential issue when the major steel companies are not able to, let's say, we'll look like the 1980s. >> we are broadly lower on all the markets, down 2.2% on the s&p. the comp actually opened up down over 3%. but it's come back a bit that being the nasdaq. all 30 components of the dow
industrials are down, including disney still in there. >> yes. >> we didn't mention it fully. coming back to that downgrade from barclays. >> devastating downgrade. >> you read the key thing. >> i know. >> given espn's fixed cost structure and revenue model subscriber losses are likely to have a disproportionate impact on the business model in our opinion espn account foors disproportionate share of disney's cash flow, and that points to the pressure from subscriber losses. disney has already suffered from this concern. >> traded 93 on the flash crash low. intraday 93. if oil turns around, we will miss -- i know it sounds like i'm being pollyanna. i've been negative. so i have to talk about things that could work.
bullard's comments, oil going up yesterday. exxon stock is not down enough for me to think they won't try to make a stand here. exxon stock acted very well yesterday. not repaealing gains. keep an eye on exxon and oil, on a terrible die where citi, just down horrendously. and jpmorgan has repealed all of its gain. >> speaking of banks, let's get to kayla tausche. city and fargo releasing earnings. give us insight into the numbers. >> every quarter the cfo at citi bank holds calls with reporters, and if this were any other day, we would talk about how citi is doing regarding 2013, whittling
down holdings, give than citi has the most international footprint of any other bank and the last time we heard about it the exposure to the oil sector was $60 billion in total exposure, it's important to hear the comments he had to say. the company put away about $600 million. half of that is for energy companies. he did not go further on his outlook for oil. he said he would save that for a call with analysts in a couple hours time, but analysts will be pressing him to know where citi's exposure lies, what they're reserving and looking at in terms of risk profile. he went country by country when asked about asia, the price of oil, the ripple effects across the globe. he said there is a slowdown in china. city has about 50 retail branches. he knows what he's talking about he has exposure on the ground.
he said there are effect force other countries but you can't look at asia as a bucket story. india is a bright spot in asia. that was a silver lining for him. for brazil, politically, economically, it's cyclical. he's treating what's happening in brazil as a cycle for that country. he dsaid mexico where they have immense exposure he feels good about the prospects there. he says they're still on tap for modest growth. across the board, citi's clients he called them top tier multinational clients and are able to repay the debts. the overall portfolio, 75% of the debt in citi corp's portfolio sin investment grade. interesting comments force a bank that had a better quarter than wells fargo but is selling
off more because of that footprint because of the exposure to oil. you can be sure that the comments on the conference call will be closely watched. >> my background with citi is that china is highly affluent. that's who they are going after. those customers are doing well. i was surprised mexico is so good. they had a lot of problems there. it looks like they transcended those. the capital build is amazing. dividend, they're held up. it doesn't matter. everything good i said it meaningless verse the fact that the stock is going down. if they can do -- the return on equity would have been back to that 10% level that was set as a goal. they are limited in how much stock they can buy back. that's important. david, i got the baltic freight index. now 373. >> okay. what does that mean? i was looking -- at 1,000 you
would think chinese imports are tepid. 373, just really extraordinary. china just -- that's why copper is down. iron. you will question the solvency of almost every iron company in the world. >> which always leads us back to, for example, freeport which we have not hit today. down another 9%, 3.81 a share. given copper, not just oil. we talked about bhp billiton, took a writedown as a result of onshore energy assets in the united states. >> just terrible. stat oil has to reconcile it's progressive positions up in the williston area. in the balkan. harold hamm is bullish. >> says it is going back to 60. >> bus the major problem with that is u.s. production has not come down. that's something that no one
thought. u.s. production of natural gas up wildly, up wildly. natural gas increased 12% because the coal fleet, the u.s. coal fleet for utilities down 38% to 34%. that's a saving grace for natural gas. i would tell you natural gas is actual actually -- any company in that biz as soon as losing money right now. handful of companies can make it at that price. it went down to 1.80. nobody makes money there. >> wti down about 4.4%, 29.83. >> that not as bad as i thought. >> right above 30. >> 30.02. >> that's an important level, i see no demand at that level. good article about canadian crude selling much lower. that should be lower oil. surprising it is hanging in there. >> it is. hard to say markets are hanging in there. the s&p down 8.2% for 2016.
low. with prices stabilized, today no surprise that energy stocks are taking it worse. this follows that counter trend rally we've been seeing where energy stocks performed the best. energy still a focal point for traders, financials given the fact that we're in earnings season. if you look at other themes that traders have been talking about. talking about the bigger macro picture as well. look at what's happening with ten-year yields. you have ten-year yields now tip beg low that 2% level. now it's at 2.03. this is a significant point because, yes, it does mean people are buying safety. it also doesn't look like panic just yet. just yet. though we are watching those yields, traders watching that. the safety bid in gold as well,
near the $1100 per ounce mark in gold futures, 1092. cramping up there again. that's a big concern. another theme we're talking about, yes, we do see broad based selling, but jim pointed out we're holding around the levels that we saw in the august turmoil lows. near. there the cboe volatility index is around 27. it's elevated today, as you can see. let's show you what it's looked like over the past year. because when we saw the stock market selloff, possible capitulation in august, the vix got above 50. we are near halfway in terms of the stock market volatility as measured by this particular index. we are near halfway to the volatility point that we were back in the august turmoil low. so there's not a sense here this is yet capitulation. i will also point out something that we've been saying all morning, many traders we've been speaking to today have used the
words three-day weekend a lot in explaining some of this action and maybe risk aversion, trying to sell some of that stuff off on the long side, what they say they will be looking for possibly is towards the after part of the -- afternoon part of our session, if we do see a rally off of lows, it may mean that shorts are covering ahead of a long weekend as well. david, that's going to be a real telltale sign for whether or not this is that panic or washout. some are still waiting to see if that's the case. we don't see all of the signs just yet. paying close attention. >> 1886, the level 1878. we're not there. there's some technicians who would say this is good action. i know that seems insane. >> i would mention listening to dom, hedge funds had a particularly tough year last year. many did not get the amount of redemptions they anticipated in the fourth quarter given lack of performance. there's been a good deal of selling to put it simply
recently in anticipation of first quarter redemptions and also because they have been getting crushed again. 3 trillion of a much larger market, hedge funds, but not insignificant. >> where do you think they were that this is happening? were they overweighted oil? if you're in the clorox segment, it's not been a bad year. >> it's been hard to hide. >> extremely hard to hide. that's a very good point. technology, the so called f.a.n.g. which i have been saying has to come down, facebook, amazon, netflix, google they still hold up strong. we are off the morning lows. s&p down 1.9%. was down 2.5% in its low, thereabouts. we have come back in the last ten minutes or so. keep an eye on oil that seems to dictate our trading.
though not completely. oh. he's going to the -- going to the backpack. >> i'm looking at things like campbells. campbells got downgraded. this is cpb. i like to key in on certain stocks. campbells this week, you got the fresh brewed soup. this is -- guys, can you focus on this for a second? this is one of those things that campbells is innovating. doing a lot of right things. people think it's a takeover target that stock is down a dollar. general mills, campbells soup, people are huddling in these stocks again that does matter. people are trying to hide. you say there are no hiding places? united health, stock is barely down. jpmorgan has come back from the bottom. people say jpmorgan is not nearly as bad. electronic arts, trying to hold a stand on an upgrade. and activision blizzard is a buy here given how low it's trading on a 2017 number which is
extraordinary number. so you're looking for situations where people say i want to make a stand. against that, it's so early on a friday, you can come in at 2:45, the witching hour of when you want to watch. if you -- >> 2:45, think of making a stand and news from walmart in terms of store closings worldwide. that stock one of the few that is up for the year. still holding a slight gain for the year. it is down, as you see, 2% at walmart. >> retail very mixed. i was disappointed by best buy yesterday. plus 2% comp the year before. this year delivered a bad comp number. that made everyone say where can we hide? that is related to gopro and cell phones. too early to buy gopro, in case you are thinking this is the level. >> i wasn't, but thanks for pointing that out. >> walmart not down nearly as much. kroger trying to hold. kroger will probably have best in show numbers. one other to watch is there's a
call from boeing -- from bernstein saying boeing margins will be good on the 787. i've been concerned about the 787, not making much money. boeing is important. >> every day jim puts together a list of things he's watching. and, you know, i usually take a quick look at it. today you only have 22 on it. i think you hit every one. >> you have to we try to be as rigorous possible. did you see gilliad sell to hold? >> no, i didn't. >> i'm trying to give you stocks to watch about what could make a bottom or a bounce. again, the timing of this show is wrong. it is -- this is about margin calls between 12:00 and 2:00, having worked as margin clerk. i have taken peoples homes, the keys to houses when it was necessary. >> that's very sad to hear. >> not my fault. i would have been far more forgiving. it was not up to me. >> understood. >> i was so much nicer then.
it was scary. >> you're pretty nice now. >> let's get to oil prices. get a closer look there, such an important component of our market. jackie deangelis joins us. >> a bit of a black eye for crude prices today. yesterday we is a a rally. people were hopeful maybe we were washing out, got a bottom here. 29.28 was the intraday low, session day low, coming off of that low. we have not seen that level since november of 2003. this is all reaction to iran. everybody is speculating the sanctions will be lifted potentially this weekend. iranians champing at the bit to put their oil back on the line. we're not sure how much we could see if and right away. right now the number in the marketplace is 500 million barrels a day. this comes back to the supply and demand story. we're awash in oil now and this will not help. oil prices, 5% move to the down side on the day today.
more than 10% move lower on the week. more than 20% move lower on the month. there was a lot of conversation in the market about whether we are were bottoming. it doesn't look like we are just yet. recount numbers will be out this afternoon. i'm guessing traders will not pay attention to them. even if rigs come offline, production actually went up this week for the fifth week in a row. the other thing is the point that dom brought up, this notion of a three-day weekend. traders like to cover shorts, they don't necessarily like to be short going into a long weekend. so the action for oil is going to be key. this is taking the market down, the equity market and the pressure is expected to continue. i think we could break that trend this afternoon, and not necessarily rally. >> jackie, thank you. >> oil is key. if you look at chesapeake or freeport, which is the ones where the stocks are in a meaningless moment. >> are they options at this
point, the stocks? >> yes. very similar to the option i played, disappointing earlier in the week. >> the powerball. >> the 200 bucks i dropped on powerball. you said something important. there are assets that can be sold and there are ways to restructure debt so it's not as devastating as the $700 million ebita that we're talking about that people are saying is it risk on the williams deal? >> we have not even gotten to the williams deal. your point is well taken. freeport with a market cap of less than 5 billion, but $20 billion worth of debt. markets like this you have to keep an eye on what we call leverage. speaking of debt, let's get to rick santelli at the cme group in chicago. rick? >> good morning, david. what do you think of when you think of data dependent? there should be only one answer, treasury yields. they have been consistently divining the strength of the data. today it was glaring.
yields dropped dramatically and all the weak data that we've had. twos, you have go back to the 5th of november to find lower closing yields. five year, october 27th of last year to find lower closing yield. october 14th of last year on the tens. august 25th of last year on 30-year. i'd also like to point out that the curve, yesterday a brief steepening on bullard's comments, but that didn't last very long. currencies, when you say currencies today, there should be one word that comes into your mind. the carry. carry trade has some strange anom lis whether you'al anomalies. when things get dicey, the carry trade currency gets traded higher because of short covering. one-year chart of the dollar/yen.
dollar at the disadvantage going back to january of last year. april 15th for the euro/yen. on the ruble, i thought i would throw it in not doing well against anybody, but that's no exception over pretty much a 20-year chart. you won't find a better yen relationship because it's historic like it is against the green back. we still have more data to go. many, of course, looking at the psychological level of 2%. last year we closed at 227, year before, 217. david, back to you. >> thank you. couple of stocks that are interesting -- >> we have stooif stohave five up. >> mcdonald's most ahead, barely coming down. i'm told the com comparable sto sales are good.
>> with dividend yields moving higher as a result of the stocks moving lower, mcdonald's has a 3% yield, and that stock performed well. you mentioned hewlett-packard earlier. >> that one could be suspect. at&t i don't think so at 5.6. and not -- having a decent -- you're concerned. >> no i'm not. verizon at 5.09. >> these are places. >> those are big yields. yeah. >> some stocks should be down more. analog devices, that was a very bad pre-announcement. they did say other parts of the business are good. some stocks you have to question, sarepta now down 13. this shows you the fear -- biotech is the worst possible group to buy in this. but when they all love biotech, it's the top. now they're all giving it away. don't forget, big pharma needs
to own some biotechs. >> some biotechs we talk about are bigger than big pharma. you mentioned gilliead, still a $131 billion market cap, just to put it into perspective, around the size of america. gilead had been larger last year in market cap than merck. the largest amount of balance sheet capacity of any of these companies out there given how much cash flow it produces and how little debt it has. >> you want to see interesting things? go back to morgan stanley. a stock that's repealed much of the gains since 2013. that is somewhat devastating people to see that kind of big decline. ruth porat not there anymore. >> the declines in the banks alone whether it's jpmorgan down 14%. morgan stanley down 18%. citi down 17%. goldman down 13% this is 2016
numbers i'm talking about, it's extraordinary. >> fixed income -- trading at citi, not bad. still waiting to see who did not do well in trading. goldman sachs, you talk about goldman sachs book value, you're get nothing situations where they can stand there and buy. if you think there's not going to be rate hikes, you say wait a second, the margin will not go up for jpmorgan. >> they don't ring a bell at the bottom what do i want to look for? >> i think you want to -- at this particular point, you need go back totally to this 18 1893 1867 touch stones. these are touch stones. that was a hideous home, people laughed at that moment. >> this august we're talking about. not the -- >> the intraday at that day, you know, you had 1867 level, which we all thought was completely
absurd. we're at 1878. we had that dow level -- people like the dow, 15370. so we'll have to watch those levels. >> okay. >> they're aggregate levels. >> jim, i don't know if you're tearing up the playbook for "mad money" tonight. >> whatever the show s i'm ripping it up. whole show will be devoted to this. >> it is. all right. >> who cares about what i was going to do. i'll have a positive piece about some companies that did amazing things in spinoffs. we're not allowed to talk about what's on the show. i'll do game plan and give you what i think has to go right again. it's not now. we don't have what has go right now. i'm looking at the nosew york - empire statements. i know bill dudley. business conditions at their worst since the great recession. come on, you're a homework driven guy. you're better than that.
>> nobody is better than you, buddy. have a great weekend. >> have a great weekend. >> we're just getting started. >> we'll go to rick santelli who has breaking news on business sentiment and inventories. >> a lot of data today. november business inventories, still fourth quarter comes in down 0.2%. you have last week was revised unchanged to down 0.1. january university of michigan sentiment preliminary, we'll compare this to final reads that number is 93.3. that is actually -- out of all the data today, the one bright spot. it's better than anticipated. it's better than the final read of 92.6. though it's preliminary. and should it turn into a final it will be the best read since june of last year. steve liesman, back to you.
>> thanks, rick. the story here again is weaker than expected data on the inventories number. it will affect and influence the gdp number for the fourth quarter. to the extent we're reducing inventories faster, that's getting ahead of the problems. bill dudley earlier stuck to his 2016 forecast and said overseas economies pose risk to the united states, but for some observers dudley was not nearly as dovish as some expected especially given the data today. retail sales down 0.1%. ex-autos down 0.1%. there's the data, most of it worse than expected. empire state down 19 points. that's something the new york fed does. he did not incorporate this stuff in his forecast. industrial production falling 0.4 with capacity utilization,
another sign of bad inflation falling by 0.4. i want to get into the details. the only positive meaningful mentioned was construction supplies. up 0.6%. autos, that decline is worriso e worrisome. mining is down nearly 1%. consumer goods also down. here's some commentary on retail. ian shepherdson has been on the idea of not adjusting, yet again forecas forecasts -- jeffries looks at this data. the retail data and finds broad based weakness in details. i'm surprised by dudley not
incorporating the market and what's happened in the market into his forecast as suggesting at least partially it would give the fed some pause going forward. maybe he's waiting for what's happening to show up in the economic data. it did not show up in the consumer sentiment data. simon? >> but the silence is deafening on that. this is the third most important member of the fed. new york fed president the closest to wall street and he has chosen to give the markets nothing. i think it's important. >> i agree with you on that, simon. especially because it was in the summer when dudley said specifically that the extent to which the fed moves will be tied to the markets. the idea that dudley is the closest of all of the fed members to what's happening in markets, would have expected something. in december the new york fed was one of two banks not to request an increase in the discount rate. that made him more dovish.
we don't know where he stands. he could be one of those guys calling for two, but he doesn't say that. >> steve, thank you very much. steve liesman on dudley and i data. the end of the first two weeks of trade for 2016 culminating much as we started with heavy losses. the s&p 500 is down now over 8% since the start of the year. led by financials, consumer discretionary and tech stocks. despite the headlines that you may be seeing, energy is, in fact, only the sixth worst performing sector. for many oil remains the eye of the storm. crude is now down 20% in just the two weeks, dropping, as you can see, below $30 a barrel. let's get more from david balion from citi private bank and we have the global economic adviser of pimco. this has been a long two weeks for a lot of people, david. how has your analysis of what
has happened changed during that time? >> we just finished having our global investment committee and looking at all of the data. and i think that we have heightened concerns about what could happen in china specifically as it regards to the depreciation of their currency. we are seeing a small weakening, a lot of the data you talked about today in the united states indicates. we don't see the fundamental changes that would indicate that we have the level of concern that the market thinks we do. when we had our committee meetings and thought about asset allocation we left it largely unchang unchanged. over the last four months we have been concerned about upgrading the quaility of portfolios, and there's a chance to buy stocks that are much cheaper with good earnings prospects. it's been a difficult time. clients need real hand holding and advice. we're holding constant on our outlook. >> yet -- i think it would be fair to quote the old adage who wants to clutch at a falling
knife. larry fink was on "squawk box" earlier today. he said that we have more pain to come. take a listen. >> i think when we test the markets lower, it will be a good buying opportunity. >> how much lower? >> another 10% from year. which is nasty. >> how much lower? what does capitulation look like? >> another 10% from here. which is nasty. >> another 10%? >> yeah. you can see that and oil testing 25, 24. my worry about oil prices today, i'm sure nine out of ten of your guests talk about oil is going lower now. it's a very heavy trade. >> there's been 12 instances in the last 20 years where the markets have gone down by 20%. it's possible. the issue s as larry was talking about, what does the client do? what do you do in the portfolio? for discretionary clients we'll be rebalancing and buying
equities. my view is it's possible. the question is does the fund fundamental view for the that? we think it doesn't. >> the case was always the u.s. is not in recision and the mantra went that the u.s. stocks will come back and correct from the overseas prices and the falling price in oil. today retail sales report, the industrial production numbers, is it starting to impact u.s. growth? can we count on the u.s. consumer prous up? >> i think this was always going to be a triple b financial economy. clearly the economy has lost momentum in the fourth quarter that was already visible before today's data. yes, manufacturing is in recession. i think what's going on is an inventory correction and get some spillover from that manufacturing recession into the broader economy. having said that, i still think the economy is going to reaccelerate. we have decent job growth.
the consumer is actually benefiting from lower oil prices. initially they save the windfall gains, eventually they will spend some of it. the construction is strong. residential sector is doing well. so i think we can still see something like 2% growth in the u.s. this year. and therefore i think the markets are now clearly exaggerated. >> just to update people particularly listening on the radio. we're bouncing all over the place. down 374 on the dow. basically around 16,000. so we regained 60 points, but then give it up really rapidly. david, let me pick up the point about residential being strong. if you look at actually what's lost in terms of the sectors on the market most recently, consumer discretionary is interesting. the house builders, horton and leonard, down 18%, 19%.
best buy down 16. trip adviser, expedia down by a similar amount. the big bet going into this year is that we would be saved where we could be saved by the u.s. consumer. consumer discretionary was what people bought last year. clearly now, david, they're selling it. do you think that's wise? >> not really. i think it is an overstatement, an overshooting of what actually the fundamentals are. as our other guest just said, the data doesn't support the level of selloff we've had. the benefit of oil has not been counted into how the consumer will behave. we think it's softer now, but not much. in terms of what interest rates will do for residential real estate it will be positive. >> david, forgive me -- forgive me for interrupting, but this idea that lower gasoline prices would save the u.s. consumer is clearly not the case in the light of the data we have. with the health insurance premiums rising, rents rising, with the feeling of great
uncertainty if you look at campaign for 2016 and how angry people are. their propensity to save is rising. the assumptions we made about the consumer in this country are not accurate as a group of people, sir, are they? >> well, again, the -- the point of what you're saying is correct, the amount of benefit that the u.s. economy has had by lower fuel prices has clearly been less than what we expected it to be. if you look at spending data, some of which came up a few minutes ago the question you have to ask is the market movement today indicative of what is going to happen in the foo future? is resident initial construction going to turn down significantly and stay there? our view is that's not the case, and this is a significant move lower that will have, as larry fink said, present us with a buying opportunity sometime over the course of the next weeks or months, but when the market finally does stabilize. >> even if that is your view, this whole fed situation is
making people nervous. the fact that fischer a few weeks ago and dudley today are continuing a more aggressive stance towards raising interest rates and saying everything is okay when the data is not. what is going on at the fed? aren't they data dependent? what data is new york fed president bill dudley looking at? >> i think they're looking at the same data we're looking at but the fed does not want to fuel the pessimism that is out there. i think they want to assess the situation when they get together later this month for the next fomc meeting. so the fed will react to the data. i think it's difficult to see the four rate hikes they penc pencilled in this year. the one rate hike only in september or october, that's probably not enough. so i think we'll be somewhere in between. i think the fed can squeeze in two to three rate hikes this year, but clearly we have to see an easing of financial
conditions or put differently some rebound in the markets, which i think we will get. >> guys, thank you both for your analysis. have a great weekend. >> let's get some more details now on the continued selloff in asia. shenzhen down 22% thus far this year. let's bring in susan li who joins us live from hong kong. susan? >> david, that's right. we saw the net selling continuing this week. $1.3 billion in foreign outflows, and no one is buying out here but there are a lot to of sellers. we've seen continued outflows in equity. in bond funds. but there have been inflows into money market trades. that may be a reason why we're looking at ten-year yields at close to 2%. shanghai drifted lower into bear market territory, it did breach and quietly breach 3,000 this week.
technicals were already pointing that we would retest the 2015 lows, and there was a big gap below that low. not a big surprise that we continue to drift down. off of some disappointing credit numbers this morning. i guess that impacted the investor sentiment, because there is a sharp -- i mean a sharp deceleration, 50% down month on month when it comes to new loans. also bad dead has gone up during that time. the yuan, people are watching closely where the yuan is fixed each and every morning at 9:15 a.m. it's a big event on trading floors. when luyou look at the levels o onshore and offshore, people are wondering will the authorities continue to intervene and try to pop up the offshore yuan rates? they are failing at that. and we have an overcrowded shorting of the yuan. that's still a prevalent trade. i should point out that investors are also short on consumer names, insurers,
commodities. when it comes to fund flows, the longs have sold out last week. some are telling me this week has been more retail selling. back to you guys. >> susan li, thank you very much. that bear market correction ending the chinese stock market this week. shares sharply. financials are the weorst performer mists for the s&p rig now. >> after such a good year, executives hoped the focus of the investor community would be on the fact they met that return on asset target that they set in 2013. they saw the best annual profit in nearly a decade. saw expenses fall 24%, the bank is shrinking and it's becoming more profitable in the process. all anyone is focused on today is the economy's exposure to the xh
energy sector. there were $60 billion in total energy exposure, about 20 millimil billion of that was funded exposure. we look at what the bank has set aside to cover losses this quarter. he said about $300 million of the company's 590 million lone also a reserve was because of the energy portfolio and crack there'sin. those reserves were on the end of expectatioexpectations. the bank did see $1.6 billion that was a 30% increase in the non-accrual loans from north america energy portfolios. that's $1.6 billion in loans where the principle and interest, the company has not paid it in 09 days or more. the company will give an outlook on energy on the call that begins at 11:30 a.m.
especially as we've seen the cratering in the oil price, the ripple effects across the globe and city's global exposure, it's the most international bank. that will be an important focus. i want to quickly touch on wells fargo. we have not mentioned it much. it did see a beat on the bottom line. revenue a slight miss. they did see good loan growth. expenses were not where analysts expected. but they saw some weakness from energy and that's going to get talked about the analysts call is just beginning now. just a bit of information about what wells did. they didn't see a net reserve build because they had some other things offsetting that. they had to set aside $709 million in a community bank for credit provisions. though saw the oil and gas portfolio have losses of 118 million. that's an increase of four times from just the last quarter. so they are seeing some weakness from energy, too. we'll have to go into a lot more
detail to see how these companies are exposed and how they're hedged. for now, back to you. >> kayla, thank you very much. as we continue to look at big banks especially wells fargo, with us now is paul miller from fbr capital markets. the concern about the margins that kayla brought up, actually these banks which were supposed to be the big beneficiary of fed interest rate hikes happening in december are not feeling that with the 10-year yield slipping again. this will continue to haunt welwell wells fargo. >> it will continue to haunt all the banks. just getting one rate hike maybe two rate hikes will not do a lot for these institutions. they need significant material rate hikes. one reason why you're seeing the financials more so than the market is people were pulling those expectations out of the market. with all this volatility people
are saying we will not get those rate hike, and you are seeing the selloff in the financials. >> talk about how wells fargo is being hit by the energy story. losses had risen because of their energy exposure, yet it's still a small chunk of the business. >> wells fargo is a $1.2 trillion institution. the energy book will not kill wells fargo or any of these institutions. i think the investor community is too focused on this energy book. these guys have reserves, there are vreserves coming out of the crisis. >> finals are down 3.4%. the worst performer in this s&p 500 selloff. yesterday we spoke to girard cassidy who said this is a great buying opportunity. do you agree? >> i definitely agree.
some institutions like zion's are trading below book. their energy exposure is closer to 10% of their portfolio. anybody that has that material energy exposure, everybody is kicking out. we love those names trading below book. i don't think they'll release numbers on the negative side but nobody wants to touch them until they find out where the bottom of oil is. >> paul, back to that central question to the degree of which interest rates will rise and margins will rise on loans, which is the center of the business, we're not talking about a one-off effect. if the fed does not raise rates this year, cumulatively over an entire cycle, which could be six or seven or eight years interest rates will be lower and therefore margins will be lower through that entire period of time. each rate rise this year has a
cumulative effect moving forward. >> it does. it dose back to where does the economic growth justify the rate hikes. with 2% gdp growth you won't see a lot of top line growth at these institutions. that's what we're seeing. that's why the guys are having flat earnings. you really need economic growth for this banking sector to really take off. until we get that, you will see more of the same. with this selloff you are seeing buying opportunities. but what you're not seeing is solid earnings growth from the one factor, a steep yield dhauf will help out the margin and top line growth on the loan portfolios. >> so are the buying opportunities in the smaller banks? is that what you would prefer on earnings quality? >> you have to look at every individual bank and what they're exposed to. bigger banks are getting
thrown -- giving a lot of opportunity. even the smaller regionals trading below book, zions or co-america, we like them at these levels also. >> the dow is now down 325 points. we have cut some losses, just poised above 16,000. in the meantime, intel kicking off earnings season for the chipmakers in less than a stellar way. down sharply, down almost 8% in the wake of fourth quarter results. i earn unlimited 2% cash back on everything i buy for my studio. ♪ and that unlimited 2% cash back from spark means thousands of dollars each year going back into my business... that's huge for my bottom line. what's in your wallet?
the dow is back to september lows, down 342. intel is the biggest percentage loser after reporting a fourth quarter earnings beat after the bell but the stock reacting negatively. jon fortt joining us. a lot of people concerned about the data business? >> that is the concern. intel did beat on the top and bottom lines, it's the disappointing growth in the data business. pc business looked better than many expected with revenue above analyst expectations thanks to a strong mix of intel's new chips.
those chips are based on a new manufacturing process, expected to take full and vantage of windows 10. but nobody is expecting much from pcs in terms of plotting intel's future. intel not counting on pc, smartphones. now it is data center, internet and memory. data center, the news wasn't so bad. revenue at 4.3 billion. short of the 4.4 billion expected. but because that is expected to be a growth catalyst, analysts were unsure about what that means for the rest of the year. intel pointed to that slowdown in asia and other emerging markets as part of the reason and cloud providers are not buying as much in q4 because that's when they got the biggest crush of customers. heading into this year, intel also pointing to 3d cross point
memory, the new storage that is supposed to sit between flash and d-ram. internet of things is squishy. we know what a pc is, intel had arguably a monopoly in that space. >> we hear it from call come also as being part of their growth plan. i don't know when it comes. so mobility, they're saying we don't see smartphone growth anymore? >> intel was burning a lot of cash trying to get into tablets and smartphones, and the growth has come out of tablets and smartphones. when intel is trying to tell a growth story, they're looking at the sophia chip, the thing is we don't know what killer app for that stuff is going to be. intel has to give the keynotes with follow many drones, bmx bikes with chips on them.
>> you're not buying it by the sounds of it. >> nobody is buying it yet because the chips are just beginning to sample. so we don't know what people will buy. people are buying data center. >> thanks, jon. jon fortt looking at intel. straight ahead, crude oil may be tumbling today, trading below $30 a barrel, goldman sacks is still forecasting a new bull market for commodities. the head of commodities, jeff currie will be joining us when we come back. equals great rates. it's a fact. kind of like reunions equal blatant lying. the company is actually doing really well on, on social media. oh that's interesting. i - i started social media. oh! it was my...baby.
good morning, i'm sue herera, here is your cnbc news update. a tennessee couple with one of the three winning powerball tickets appearing on the "today" show this morning. john and lisa robinson along with their daughter and attorney explaining their good fortune. >> i was on my way home from work. >> okay. >> she called me and said are you going to stop and get a couple lottery tickets? i said i didn't feel like stopping that night. i said, yeah, i'll stop and get them. >> >> it's a good thing he did walmart saying they are pulling their plug on the smartest store formats, including 154 in the united states. that will affect 16,000 workers. the retailer says the move will
reduce diluted earnings by 20 cents to 22 cents per share. jakarta residents holding a vigil at the site of an attack on that city that killed two civilians. foreign ambassadors joined the vigil. a blast that hit oil pipelines in yemen's port sid of aden filling the sky with flames and smoke. the refineries produce 150,000 barrels of oil a day. simon, down to you. the dow down 318 points. oil is sitting at around $30 a barrel. goldman sachs has a big call out today on commodities saying that despite the new lows that we've seen in oil and the metals, this year will bring a new bull market for commodities. jeff currie is head of commodities research at goldman.
kate, take it away. >> jeff, interesting note. thanks for joining us today. you're saying that q1, we could hit $20, but your base case you're main taping a $40 target, which seems high today. can you tell us what is coming near-term in oil? >> when you look at prices they have come down but we have not seen a follow-through with fundamentals, you have not seen a substantial rebound in demand or contraction in supply. another way to see it, we've seen a lot of financial volatility but we have to the seen volatility in fundfundamen. you had bp yesterday, pet prpet. >> we're seeing diversified commodity companies at a jump for downgrades, there's a
concern for that with freeport, glenco glencor glencore. there's a lot of concern about chinese demand. you're saying the latter may be overblown? >> when we look at base metals, the correction process is more difficult than it is for energy. there's no such thing as storage capacity for mets, because you can stack it as high as you want. the problem with these assets, they are long- lived. the cost of shutting down a plant is substantial. the other issue, nobody wants to buy these assets. what is going on in china is hitting the metal markets rather than the rest of the commodity. >> let's go back to the idea that oil will rebound this year because demand and supply will react to the price. isn't demand stuck in a trough
and if anything demand will increase because the saudis need to sell as much as they can because the prices are so low and iran is about to come on? isn't the opposite happening? >> absolutely. there's no evidence of a fundamental shift here. we're not bullish now. but i'm not tripping over myself to be the most bearish guy in the room anymore. are you calling a major bull market in commodities this year? >> no, the question is what are the signals to go out and buy commodities what we're looking for is a substantial reduction in supply. we're seeing the makings of that happening. you're seeing production in the u.s., it's down 150,000 barrels year over year, but it's not sufficient to call a bull market now. the key point of the note is the material price declines are behind us if we move from 30 to 20, yes, that's a 33% decline in prices, that's significant. but from an economic perspective, it's not.
take colombia, 20% in revenues in 2013 were from oil, last year, 7% this year it will be 1. >> tell us about the bags what are the lags? >> absolutely. >> the price comes down, we basically bottom, we've had the decline. how long do we wait for demand and supply to adjust? that could be -- >> towards the end of the year. >> and then it takes time for the price to react. >> absolutely. when you talk about the birth of a new bull market, it's when the forward curve flattens out, the front end rolls up. i'm giving that at bear minimum another nine months. >> what is a bull market for energy? is it a spike back up to highs that we have seen? talking about higher? >> in commodities, it's the shape of the forward curve. you get a positive carry from being long. if you're long oil right now, even at these levels, you will get a negative carry.
will you lose money trying to be long. when we talk about a bull market in commodities, the forward curve announcing now longer have a negative carry for being long. that's the birth of a bull market. >> i was looking at a tweet with you and john arnold, he is remembering continental resources at the end of 2014 taking off hedges for oil at $80 thinking it didn't make sense and we would recover. a lot of people have been overly bullish in the last year or two and paid the price for it with returns. it sounds like you think we're getting to the point where the inflection may happen and we'll see companies shutting down, selling assets, restructuring. you didn't mention bankruptcy in the note that has to be something we'll see more of. >> absolutely. >> talk us through what this means for investors, private equity or future investors. >> when you look at the two commodity sectors, energy and
metals, they are going into the emergency room. do some get saved or die in the emergency room? the question is the influx of capital. we had a lot of private equity, nearly $100 billions that can come in and fix these issues, either optimize the assets or shutter them. in energy we think there will be buyers to the assets that will make them profitable further out. when we think about the metal side, given the fact that the core reduction in demand in china is on the metal side, it will be tough to find a buyer and optimize some of those assets. some of those assets need to be shuttered on a longer term basis. >> to work at a big investment bank like goldman sachs, to have energy clients whose stocks are on average 20% over the last 12 months. what is the tenor of the conversation. it's electric, isn't it? >> i think there was initial shock value when we first came
down, but now at these levels people are focused on what will the birth of the new bull market look like? what are the signals that we'll see to show we're getting out of this? >> so clients are saying to you, give me an idea on when the bull market starts? you come out with a time frame. >> i don't think people are focused on the bull market as much as how do i position myself, whether it's if capital structure, strategy from a management perspective to weather the low prices. one thing that happens when you get into the transitions, volatility explodes this could be bouncing between 25 and 35 and going up to 45 on a high frequency basis over the next six months as the market makes this transition. ultimately there will be winners and losers. we'll figure out who the winners are looking forward. >> sounds like a lot of angry people to me. >> some happy people as well. >> could it be a washout? will we see a lot of dead bodies
to use your hospital analogy? >> in energy it's different than metals in the sense that we won't see so many dead bodies because you will stop investment in the unprofitable types of assets, such as deep water, oil, sand. in the shale assets, they're good assets. nobody will blow them up and make them go away. somebody will buy them, optimize them and retool them for a stronger market. >> one other thought. you were talking about china with me before the discussion here. you said there are a couple places you might want to be, coffee, gasoline. touch on that. >> when we think about commodities, it's important to put them in two buckets, capex commodities, commodities used to build the market, and opex commodities, things like gasoline, coffee. another way to say it is you build the building with capex and heat it and cool it the with
the opex. so coffee, gasoline, kerosene for jet fuel, there are commodities that have a positive output but they have to be focused on the consumer in china not the manufacturing sector. >> one last question to return to oil which is the eye of the storm for many people. at no point have you mentioned the saudis in this, very often the conversation with analysts resolves around when do the saudis cave. you have not mentioned that. is that bhau it's necause it isy to happen? >> one of the new tenants of the new oil order going back to last october, october two years ago, is they'll changed the competitive landscape of the market so you cannot operate a cartel anymore. so the strategy that opec pursued was being forced upon them by the new market that shale creates. the fast cycle nature of shale means they can bring production
on if prices pop back up. opec is base load production. shale oil is the marginal production that balances the market. >> the view was the saudis would pump more and more and cut prices to knock out production in this country. however, given that the price continues to fall, the belief is that the saudis can't afford to do that indefinitely under the huge pressure they're under internationally and domestically. and at some point they go, guys, let's cut supply. >> a couple things. in terms of who will get knocked out of it, high cost deep water oil sands that nets knocked out. shale will be that marginal one swinging in and out of the market. back to the saudis, and think being their long-term strategy, they created a huge surplus over the course of the last several years. >> you mean financial surplus.
>> $7 $750 million that will sustain them. they're taking efforts to sure up, owning refineries, building a much larger downstream network. in terms of strategy, they played this perfectly in terms of economics, and they're in position to go further. yes, it will be difficult financially. but they don >> but they don't fold. >> they don't fold. >> terms of overseas supplies, you a iranian barrels coming online this year, and you're saying in lieu of the absence of a civil war -- that would be an international war, between saudi and iran, we will not see a supply shock. >> geopolitical risk has never been higher but oil suppliesupp risk has never been lower. the potential for aruptio
is f less todaynt has been historically. >> all right. jeff, thank you. >> thank you for inviting me. >> that was great. >> kate, if we don't see you for a while g luck. >> thank you. >> the selloff we're seeing is not limited to europe, asia, the enpy entire western hemisphere is shelling off. with more of a global look, we have michelle caruso-cabrera. >> canada, argentina brazil, mexico, these are the other big markets, not as big as the united states. they are sharply lower today. if you look at the one-week charts, if you're in a place like argentina you are worried about a slowdown in china because you've been selling them soybeans and agriculture commodities for decades. you can see a year to date chart, 7%, 12%, 12% for brazil,
mexico as well. all are reliant on commodities in some way, selling them abroad, bringing in revenue when it comes to the government in mexico. let's go to currencies. showing you the fragile five. these countries are reliant on for win capital being in the country to fund the economy. we could only fit four on the bode. board. i'm showing you some of the more reliant currencies that are reliant on oil. nigeria has just gotten continuously hammered. at one point the central bank there tried uncle and saying we can't defend it falling to record lows. canada at multi-year lows. the ruble getting hit again. for old-times sake i put on the tie pop to remind us of '87.
>> the financial crisis. the emerging markets with the commodi commodities. >> we are in the midst of another sharp selloff today as we come towards the second week of trading. major indices down 2%. year to date in the first two weeks of 2016 the s&p has lost 8%. 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. i can bypass the counter and go straight to my car. and i don't have to talk to any humans, unless i want to. and i don't. and national lets me choose any car in the aisle. control. it's so, what's the word?... sexy. go national. go like a pro.
a lot of action and buying in treasuries today. let's go over to the cme group and rick santelli. good morning, rick. >> good morning, sara. peter bookvar thanks for being the guest on this wild friday. >> y es, indeed. >> peter, if i asked you to summarize 2015 with regard to the post-crisis years in terms of how well the economy did in general metrics, fundamental metrics of the economy, how would rank 2015? >> mediocre is the word that i continue to use for the u.s.
economy. we'll potentially get more than mediocre on the down side as we will have a one handle on gdp in 2015. 2016 is not looking any better. >> now, if >> it were to prioritize it, was it the best year in the last six? >> it's more of the sluggish economic activity we've seen in the last six years. >> why did the fed tight news 10 december? >> the fed is unfortunately living their lives by these models that shows a tightening labor market and unemployment rate that could have a four handle and on the inflation side, where he, they have license to continue to do whatever they want to do, but they are living life by these models. they're not looking at what's going on in the world, and that's one reason where they haven't raised rates up until december and why they are now raising rates in the face of massive economic headwinds that continue to grow. confusing, i know it is. >> let's take the price
argument. okay? in the days we used to have 4% growth, 2% pricing model seemed to make sense. >> right. >> let's play a game. let's say we had an 8% economy, would it be realistic to see a pricing pressure at 4%. i guess ideally -- i think theoretically yes. you want low inflation and -- >> we have a 2% economy. does it make sense we have basically 1% plus pricing pressures? doesn't that make sense? >> thee rettly you should have low inflation and stronger growth. you don't necessarily have to have higher inflation and higher growth. as we saw in certainly the late 1990s we saw the low inflation and strong growth. the problem is that -- >> my point is i hate to interrupt, but i want to -- you're so smart. so recalibration, away wasn't quantified correctly by the fed. if they're recalibrating to normal in a 2% economy, you can make concessions based on that growth on the pricing pressure that always goes hat in hand with it.
your final thoughts? >> g. >> everything you raise is spot on, and it points to, again, that the fed should not number the business of trying to pick what the right rate is. how many booms and busts does our economy need to have before they're out of the business of price fixing the cost of money? >> peter, thank you for your thoughts. sorry to interrupt so much. i wanted to get a lot in. we're going to go back to the squawk on the street crew. >> thank you very much. rick santelli. all right. let's bring in cnbc senior contributor larry kudlow for his take on the market environment and, of course, the fed, you know, larry, this morning dudley speaks. doesn't really say much in terms of relating what's going on in the markets to his viewpoint at all. your thoughts? >> one thought is the s&p 500 is down almost 10% since the december 16th rate hike.
declining profits and declining commodities and near zero inflation. you have to ask why are they doing this? the profits alone -- you can bet on top of that. you have a bigger problem. it's going to run its course. >> i wonder what's happening beneath the surface, larry, in terms of the real economy. i mean, there's a serious debate right now about how much the u.s. is slowing. we know the fourth quarter wasn't great, but the expectation is that there will be a rebound during this quarter in the u.s., that the consumer and the housing market and there are other bright spots that are holding up. are you convinced of that? >> no. no. what's the other bright spot? tell me what it is. >> auto sales.
>> let me -- >> i hear this every quarter, okay? every single quarter. you and i should do a paper on this. let's go back and look at the quarterly estimates following a allows where i quarter. there's a revamp. it's a revamp. i don't see it. the only thing holding up the economy now if falling gasoline prices are helping consumer spending. fair enough. other than that, investments, no good. profits, no good. i don't know. i don't see it. stwloo you know, larry, there are many people who do believe that the fed made a mistake. in trying to explain why they did what they did and the important point here today, of course, is that the third most important member of the fomc, dudley, has decided not to walk one iota of it back. not to walk back what stanley fisher said ten days ago when he said there could be full rate rises this year.
there's no deputies in the armor from the fed this morning. that's clearly written large on the wall. one reason why they may have raised rates is a realization that low interest rates aren't going to boost inflation. that gain, that should be sailed because of what commodity prices are doing. in the absence of zero rates doing anything really for the economy, why risk having them so low when they're just increasing the risks and the ballooning of certain asset bubbles? you know, it would be inevitable if they said actually we're going to raise rates, and there's no floor under the market wraen more that those risk assets might sell off, and essentially only a relatively modest sell-off in that environment. isn't it? >> simon, there's a we if will. what's the question? >> the question -- the question is does that explain why the fed might have done that? >> the fed is making a huge mistake. i think peter put his finger on it talking to rick santelli. the fed is operating off a model that hasn't worked in, wron, 30,
40 years. they are saying unemployment is coming down. by the way, that's not a really accurate number, if you ask me. underemployment is really not coming down much. twice the unemployment rate. but the key point is they believe unemployment falls, employment rises. inflation is not. i would argue there's more deflationary pressures than inflationary pressures, and, by the way, that's a global event. not just a u.s. dollar event. in that environment, simon, all right, they got their one quarter of a point. maybe that saves their manhood or whatever, womanhood or credibility. why did go out on a limb and saying we're going to raise rates every quarter for the next three years? that's what they're saying. your point about dudley is a
very important point. the market is off 367 points right now. does that have something to do with dudley's aggressiveness? it might. it might. i would argue -- i would argue if your profits are falling, that's economic stress. if your commodities are falling, that's an economic stress. this is not the time to raise rates. if we were in a normal period, let's say, where the fed fund rate was 3 to 4, i say they should ease right now. >> who knew that normality would be so attractive. thank you for your time. larry kudlow there, senior contributor. meantime, it is still rough. the dow down 367 points. the s&p in percentage terms down 2.1%. now let's see cnbc continues after this. 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, or adempas for pulmonary hypertension, as it may cause an unsafe drop in blood pressure. do not drink alcohol in excess. side effects may include headache, upset stomach, delayed backache or muscle ache. to avoid long-term injury, get medical help right away for an erection lasting more than four hours. if you have any sudden decrease or loss in hearing or vision, or any symptoms of an allergic reaction, stop taking cialis and get medical help right away. ask your doctor about cialis and a $200 savings card