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tv   Power Lunch  CNBC  January 20, 2016 1:00pm-3:01pm EST

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across europe. >> a great voice to add to the conversation. thank you. pete, last thought. >> keep an eye on that volatility. we talked about the spikes in the vix and ovx. >> doc zbh. >> that flush is hitting in oil, it may hit in the market tomorrow. >> thanks for watching. "power lunch" picks up the story right now. >> and this is "power lunch." i'm michelle caruso-cabrera with tyler mathisen and brian sullivan. stocks are getting absolutely slammed today. they have come off their lows. the dow, the s&p, and nasdaq are all lower by more than 2.5% but they have been down nearly 3.5%. that means 450 appointments for the dow jones, 115 points for the nasdaq. guys, i am on what dr. j was talking about, flush watch. is this the day where it just flashes out, that cataclysmic move you need to see a short-term bottom? kenny polcari said not yet, but the selling has started to accelerate and the number of new lows, highest number since
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august of 2011. that was europe's -- >> one of the characteristics of a flush is a big spike in the vix. we saw that today, up 16%, 17%, above 30 again consistent with what levels -- a little below levels we saw back in september of last year. >> i think people are selling what they can. i think your initials are mcc, i think that's two-thirds of the story. i think mc, margin calls, might be a play. people have -- do you like what i did there? people are having to sell stock to pay what they can. you look at the biotechs. if you're developing a drug for cancer, it has nothing to do with the price of oil or debt levels in suranam. >> this is the time for me as a buy and hold investor who tends to favor index funds where i begin to question whether i'm right or whether i should try and time the market and get in or out. whether active management is better at a time like this than it isn't. today in this hour jack bogle,
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the foremost expert in indexing will join us. at the back half of the hour we'll hear from one expert who says this is the time for active management, and we'll hear from another individual who says he times the market and can do it. the battle is joined. >> with all due respect to any of our ages, i think we have about 50 to 60 years of financial journalist experience right here. when ever has selling into a collapsing tape worked for anybody long term? >> never, never. never does. >> still, you can understand psychologically why people do it and you wake up this morning and you think i have been in this index fund and i could have -- the last two years, i have lost everything. >> 2008 when everybody was thinking the financial system was going to seize up into 2009, i remember i had a lot of ge stock because we were at the time owned by general electric. in my 401(k) ge was trading at 5 or 6 and there was concern that ge might not survive it.
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so what did i do? >> you sold it? >> i sold it. that stock is now 30. i'm not saying i would have made six times my money but i would have been better off riding it through. >> but if you had sold earlier in the crisis you actually would have had a whole year. it wasn't until 2009 -- >> you would have avoided all of it. let's go down to bob pisani who knows everything from the floor of the new york. i'm agnostic on whether to buy or sell. i'm not selling, that's for sure. we're moving in relation to oil. you heard this before. let's show the s&p 500 versus oil because as oil has been moving down, remember, we are rolling into a new contract at the close of trading on oil today at 2:30 and i think that's exacerbating the selling. they match pretty darn closely since the opening of trading. it doesn't really matter to show the sectors. obviously you know energy is leading to the downside but really it doesn't matter. everything is down 3%. financials, consumer discretionary, even telecom, a very defensive sector is down
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almost as much. let's not quibble about a half a percentage point. as for where we are in the middle of the day, we are in like twilight zone area in terms of market internals. the put/call ratio, 1.21. that's very elevated. normally suggestive of at least a short-term market bottom. now lows, i have seen this number since going back to 2008. 1300. there's about 3,000, if you add them all up, everything, stocks on the nyse. so that's about 40% of the nyse. the breadth, 30 to 1. normally 10 to 1 would be considered eyebrow raising. 30 to 1, you have to go back to at least 2008 to see that. here is what i like. the volume, 3 billion shares. that's probably twice normal. we could do 6 billion shares on the nyse, twice normal. so we are getting numbers, breadth and volume numbers, that historically have been suggestive at least of a short-term selling climax. what's bothering stocks? it's useful just to point out that the issues that the markets are dealing with, the
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deflationary economy, the low oil prices, poor cap ex pend tours and they do buybacks, the flat earnings we've been telling you about, and of course, the potential of additional fed rate hikes. there's really no place to go. if you're looking for places to go in the world, s&p 500 is down 10%. the whole world is down 11%, 12%, even if you put in some of the big all world indexes. right across the board they've just been taking down exposure. guys, back to you. >> bob, thank you very much. here now is more on these crazy markets. the nasdaq, like everything else, getting walloped today. it is now on pace for its worst month since october of 2008. tyler, ring those 2008 bells. just eight of the nasdaq 100 are higher. micron tech worst performer, down 10%. oil down again. crude below 28 bucks a barrel. just 12 of the 187 oil and gas
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related stocks i track are higher. hess oil down another 9%. marathon and hess, they can't stop the bleeding. investors searching for some safety in this sell-off. they are piling into bonds. yield on the benchmark 10-year note below 2%. yields at 1.95%, tyler. >> that's a big move in just one day. it was above 2% yesterday as we reported. let's get some perspective now on this sell-off from a market legend. i use the term absolutely honestly. jack bogle, founder of the vanguard group. jack, we have to stop meeting at times like this. >> why are they always these times, tyler? >> we always call you when we need perspective as only you can give us. let's start with the individual investor who is wondering what the heck should i do. if they have a reasonably diversified portfolio of 60% stocks, say, and 40% fixed income, what should they do? something? nothing? >> nothing. the only exception to that, tyler, i think would be, and this is really important, this
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is the most serious piece of advice i could give people, if you're investing in a retirement plan as tens of millions of people are, don't stop investing when the market goes down. the prices are 10% better than they were. keep investing. keep putting money in. just as you would. don't interrupt your savings pattern because you will pay a huge price for it in the long run, but the investor who is complete in his position who is not adding, maybe the retirement investor, if you have a good balance and 60/40 is as good as anything else, just stay the course. don't do something, just stand there. this is speculation that we're seeing out there, and you can't respond to it. >> all right. let's move on to a question we're going to address with another person later this hour, and that is the argument among investors, i know your side of it, of passive versus active management. which works best at times like these when the market is sliding? >> indexing always works best.
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up, down, or sideways. because when you look at active managers, let's say the smart money, the smart money is trading by definition i suppose with the dumb money, but the smart money and the dumb money are even. every buy is a sale. every time an active manager buys a stock another active manager sells it to them. it's a loser's game because of the high cost of trading and the high cost of management fees, and indexing takes those two costs out of the equation so no wonder everybody is flying to indexing in a way that i couldn't even imagine, tyler. last year we did something like $250 billion of inflow here, and the entire industry did $180 billion. that's $70 billion negative for the entire mutual fund industry except for us. industry is a wave and it's a wave because it suits people. it's a way because it works for people and this year index, particularly s&p, is relatively
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very good compared to the actively managed funds. >> jack, it's michelle here. i hope you don't get insulted by this question. i'm asking it to you because you are older, older than me. when i look at the last 15, 20 years, i see the massive dotcom bubble. i see the housing bubble. now i see the collapse of the commodity bubble. is this just the way it is in markets or is there something different over the last 15, 20 years? should people just get used to this? has it always been this way or is this new? >> well, it's basically always been this way, but each bubble for want of a better word, each bubble is different from the previous bubble. i mean, the dotcom bubble, the internet bubble back at the end of 1999 into the beginning of 2000 with a whole lot of ridiculously overpriced new companies, only probably 15% of which made it, maybe only 10% even exist today. the mortgage bubble, another 50% decline, was because a whole lot
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of people that never should have had mortgages had them and weren't able to pay for them and a whole bunch of credit guarantees where everybody thought the guy behind them would make up for their foolishness. i have been in this business for, dare i say, almost 65 years now -- >> that's why i asked, yeah. >> and i have seen probably -- let me just take a guess at maybe 15 declines of more than 10 -- 10% to 15% or more including three of 50% or more. i have never liked one single one of them. they make me nervous, and when i get so nervous i think i better protect myself and go into bonds, i say go back and read bogle on mutual funds. he will straighten you out. so i'm a bogleholic. >> it's brian sullivan. we talk about the economy and we talk about the stock market. i have said they are not the same thing. main street seems to largely be doing okay. do you think the stock market is foretelling something bad for
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main street or is this a market event? >> well, you know, it's a great question, brian, because in the long run the stock market and the economy, the value of stocks and the value of the economy, are very tightly linked. gdp today is i think around 22, i guess maybe more like $18 billion, and the stock market is valued around 22 or 23 -- trillion i should say. trillion in both cases. and they pretty much track. so in the long run, the strength of the economy is the strength of the stock market. in the short run, the economy -- don't tell me our economy -- that our stock market has dropped -- the value of american corporations are worth $2.5 trillion or $3 trillion less than they were on january 1st this year. nothing has happened like that. it's all expectations. so in the short run, listen to the economy. don't listen to the stock market. you've heard me say this before. i know tyler has, but it comes
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right out of shakespeare. these moves in the market are like a tale told by an idiot full of sound and fury signifying nothing. >> so what set it off on january 1, jack? >> well, i think speculators speculating on what other speculators are speculating on. it takes a little -- there's been a lot of bullishness for a long time. the pes are certainly not cheap. i mean, i'm using a 20 price earnings multiple because i'm looking backward at operating earnings. wall street is looking ahead at current operating earnings. i'm looking at past reported earnings, so the pe is 20 times last year's or 16 times this year's. those are not cheap, and so in the long run the market could be doing a slight reevaluation but i wouldn't look for it to be enormous. >> i know you're a big believer in trying to control what you can control, and the market is one thing an investor can't control, but one of the things
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investors can control is what they pay for money management. we're going to hear from an investor later this hour who charges a flat fee of 1% of assets to do what he does and evidently very successfully. do you see any way that an active manager ever justifies a 1% fee as compared with the alternatives which can be as low as, you know, 0.05%? >> well, in the course -- well, actually for an index fund, it's 0.005%. it's tiny. so the answer is anybody can do it for a year, and a few can do it for five years, and few can do it for ten years, but over an investment lifetime, there's about a 3% chance that a money manager can beat the market. so if you own -- if you're using three managers, and a lot of people do in the fund business, the chances are three to the third power, god know what is
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that is, tyler, i can't do it in my head, but it's tiny. the odds are terrible. if you're guaranteed the market return less five basis point, if you're guaranteed that, why go looking for something better? a speculation that has let's say one chance in a thousand of paying off. you're investing for a lifetime. you can't pick managers going in and out. mutual fund managers last seven years and the average mutual fund lasts ten years. it's just a bad bet. >> jack, you elegantly make the case for indexing over active management, but can you help make the case for investing in stocks at all? we have lost probably a generation of investors after the internet bubble, after the housing crisis. forget about active versus passive. what about the importance of just being invested even when, to your point, the down days kind of make you sick? >> well, the reason you invest is because to do nothing is to end up with a retirement account
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worth zero, and you just canted do that. today -- one thing i look at, you might be interested in this. one thing i look at is yields. they're very important, they're very underrated, and we have a little chart down here at our research center that shows the 100-year average yield of a 50/50 stock/bond portfolio and it's around 4%. and the day the yield is around 2% in that portfolio, stocks and bonds, this is using the 10-year treasury note, are around a 2% average yield compared to 4% or 4.5%. but if you look at real yields, the present real yield is about 1% and the long-term real yield is also about 1%. there's not much different. so these yields are low but i think they're low because inflation is so low. on a real basis, what you can spend out of the money you get, those yields, while they look terrible superficially, when you go behind the scenes and look at
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them in real terms after cpi, you are looking at yields that are certainly not generous but that's what you're going to get, and if you don't invest you're going to get zero. >> jack, thank you very much. jack bogle, founder of the vanguard group. appreciated you being with us. >> great to be with you always. >> you bet. big crack in the brics. check out the big etf that tracks those markets, thee em. it's tanking. down 30%. a ton of money flowing out of these regions and it's possible it could get a lot worse. we'll discuss more on "power lunch" and this sell-off. you're watching cnbc, and we're first in business worldwide.
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don't settle for u-verse. x1 from xfinity will change the way you experience tv. caught in the carnage is apple. shares tum geing with the overall market. a new survey by ubs indicating iphone shipments are worse than the firm had initially expected. u bs keeping its buy rating on the stock. one stock higher today, microchip technology. buying rival atmel for $3.5 billion but overall, folks, it is ugly out there. a huge list of new lows, hess, staples, hewlett-packard, game stop and about a thousand others. >> there's hard evidence which shows how much investors have been fleeing the emerging markets. institute of international finance measures the flow of investments in and out of countries and this morning they
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put out a number, $735 billion left the so-called em countries last year and that's a huge number compared to what we've seen in the last few years. the vast majority of that, money fleeing china. $676 billion. and the iif tries to estimate how much money leaves china via cheating. that's my word, not theirs. it's when companies or individuals lie about the size of a transaction so they can get around the rules china has in place about money leaving the country. for example, chinese company says they're going to buy 200,000 widgets from a german company when they're only going to buy 100,000, so they can send out more money out of the country. that number, $216 billion when it comes to capital flows, and those are important because when capital flows move sharply, fall sharply, they pressure a country's currencies, its stock market, and it can have ripple effects on portfolios, pension funds, et cetera that have exposure to those countries. we're seeing it all over the world right now. that explains in part why some countries that still peg their
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kun r currencies are under intense pressure. >> michelle, the pain has been spreading to a very unusual corner of the kour ren si market, hong kong's dollar, dropping to its weakest level in more than eight years. it's strange because hong kong's dollar is pegged to the u.s. dollar going back to 1983. the government there actually tied its currency to a specific rate, $7.80. hong kong dollars for one dollar. it rarely moves far from that because the central bank has kept the link stable. now there are some serious questions as investors, as you just showed, rush to yank money out of hong kong fueled by worries about china. in the more speculative forward market, investors are upping their bets it might get too expensive for the central bank to control it. remember when bill ackman revealed in 2011 that he was betting that this hong kong peg would break? well, it's been a wrong trade for years and although there are stresses now, it may not actually happen because consensus is saying that hong
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kong does have hundreds of billions of dollars of fire power reserves and the determination to keep the peg even under pressure. this is a similar story for saudi arabia. the riyal pegged for decades to the dollar. there is increasing speculation it's just getting too expensive to defend the riyal as oil tanks. the bottom line, oil's collapse, china's slowdown is pressuring economies globally and central banks are being seriously tested just adding to the overall unsercu uncertainty in this market. >> currency pegs, there aren't that many of them left in the world, but those few that remain if and when they break, the moves are so violent because when currencies trade you can see the flows over days. the dollar moves day by day by day, but if a central bank allows something to happen like we saw the swiss franc, the moves are so violent and can set off ripple effects that are completely unpredictable. >> that's true. in terms of the impact of that,
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currency impacts can have an impact on the economy. we're seeing it in the u.s. right now. we saw the dollar surging double digits over the last few years and guess what. manufacturing in this country is in a recession. industrials are in a recession and a lot of them blame the u.s. dollar strength chiefly for that. imagine if that kind of dollar move happened in a matter of minutes and not in a matter of months and even years, and that's what kind of economic pain we're talking about when it comes to pegs breaking. there's also just increased uncertainty that after years and years and years of central banks doing something and being able to maintain it in a stable environment to try to offset some of the shocks like falling oil prices or china's slow downs, if they can't do that, that's a whole other layer of worry. >> let's go back to the chart showing the hong kong currency and the u.s. dollar. and look at how dramatic it makes that move look. how big a move is that really? >> it's a tremendous move, and
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that's because they've had a successful peg in place. it hasn't really fluctuated around the band of that 7.8 to the u.s. dollar, which is why we're seeing -- it's an 8 1/2 year low for the hong kong dollar against the u.s. dollar, and that's the big concern that as michelle was saying the outflows are becoming so strong, so much money if pouring out of hong kong as a proxy for china, as just a general concern because so many inflows poured in over the years and years and years that it's coming out fast. >> help me understand that chart. are we see that central bank give up at least a little bit and letting it move? >> the central bank has let it move, but as you can see, even though it's a very sharp spike, it still goes from 774 to 786 or so. it looks like a ginormous move because it barely moves at all. >> that's my point. >> you haven't seen the major intervention to stop it yet, but the consensus on the street is that they do have the determination and the means to be able to do so if they need
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to. >> got it. >> and they might have to. >> thank you. >> but you wonder where the money is going. something is being sold, something else is being bought, to jack bogle's point. >> u.s. dollars. >> u.s. dollar? >> i like when you boil it down to simple language that even i can understand. >> it's been a long day. sara, thank you. >> another big sell-off on wall street. the dow plunging 2.5%. more than that right now. almost 3%. nasdaq down 2.5%. you see it down 114 points. the dow and s&p down 10% so far this year. the nasdaq down 13% in 2016. why we could see another 8% to 10% drop from here. as we head out, check out the biggest drags in the dow right now. it is all red, folks. this just got interesting. so why pause to take a pill?
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of $20. they have taken a beating this year down 25%. so, brian, a little bit of green here in an otherwise red day. of course, twitter down a lot over the course of the last peer. back over to you. >> square is down as well. so jack dorsey coming back, his investments not doing well. he is no longary billionaire. as stocks fall bond yields are moving lower. the 10-year treasury back below 2%. rick santelli is at the cme. aside from the numbers, tame us inside the numbers. are you hearing things about margin calls? we mentioned at the top jeff gundlach saying margin calls might be happening. chaes the mood, what's the feeling, what are people doing? >> i think all of the wild moves we really have had since october are all margin calls, and i think it's all an oversimplification but sometimes that's needed to kind of get your arms wrapped around the macro. i think the one thing i'm hearing here that i don't hear on tv or i don't read enough in
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the newspapers is that there is a margin call liquidation. in other words, if you're fully leveraged, and the world really has been fully leveraged for a long time, when prices fall, the amount you can hold gets smaller. so you need to sell something. the part i don't hear on the floor is, okay, they're selling stocks but they're buying bonds. i don't hear the buying part. when you talk to a trader that has a margin call, you don't hear about, gee, i wonder what i'm going to buy next. that's not the conversation. the conversation is what is it exactly i can sell at the best price that's most liquid to get my portfolio in balance again until the next margin call? just because treasuries are up doesn't mean the same people selling equities are addressing their margin calls or the same people are purchasing treasuries. as a matter of fact, i hear quite the opposite, that many have kept their powder dry. look at how money markets have
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had trills muions of dollars fo many years. there's a certain segment that buys gold and treasuries more aggressively when they see equities falling down the way they are but it's not necessarily the same investors. i think making that distinguished feature of the marketplace is essential to understand that what's going on may continue because prices were too high given the cost of liquidity. the cost of poker has gone up. how much you can hold in a fully leveraged portfolio has gone down. >> rick, thank you very much. rick santelli reporting from the cme. major sell-off on the street as you surely know by now. crude oil dipping below $27 a barrel. who'd have thunk? the s&p hitting its lowest level since way back in october 2014. i think it may now go back to even february of this year. $2 trillion in market cap lost in the s&p 500 so far this year. how much more pain money managers expect when we return.
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let's take a look at the closing trades on the metals, and there you see the gold quote
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higher by $17.60 at $1,106.70. some of that presumably trying to take cover from plunging equity assets. other commodity metals there, silver up just a little bit by about a nickel. copper is down, however. palladium and platinum, much more industrial uses for those metals, they are negative today. >> and stocks are selling off again, tyler. dow down more than 400 points. we were down more than 500 points at the lows of the session. what do you do here? joining us now is christina hooper, u.s. investment strategist. full disclosure, she and i went to college tooth at wellsly and jeff ablin from bmo who couldn't have gone to wellesley because it's a woman's college. >> i went to vassar. does vassar count? >> it was single-sex at one point. good to have you. christina, people waking up, they've seen the sell-off since the start of the year. they're back to levels from
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2013. i mean, they may be thinking, wow, i put all this money in the market and just, poof, two years have disappeared. what do you tell them? >> well, you tell them that what we're experiencing right now is the kind of correction that many have been waiting for for a while. we haven't had a down year in a number of years. we haven't even had a more than 5% correction in several years. >> didn't we have one last august? >> well, we didn't have anything that was very significant last august. we never got to the 10% level, so this may feel very new to us, but it isn't. i mean, it may feel very familiar but it isn't. we haven't gone through something like this anytime recently. so what we're telling clients is not to panic. be cautious but don't panic. we're going to see more volatility. this is a function of multiple things happening at the same time. it's a perfect storm. we're living through extraordinarily expansionary monetary policy coming to an end, and -- >> so we think. >> well, it has begun, right?
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we ended qe and now we have started to tighten just a little bit, and add to that the fact that we have concerns about china where there's never been a lot of transparency, but thousand that's becoming more of an issue because things aren't going well in china and we see a slowdown and we're seeing a transition between an investment-based economy and a consumption based economy. all these forces are working together to create unease in the market, but at the end of the day i think many -- if i asked a room full of people in early december i asked a room full of high net worth advisers, do you expect a 10% or more correction in 2016? virtually everyone in the room raised their hand. a reversion to the mean. we flirted with that in august but we never got -- >> the reason i raise the question about qe is because ray dalio, jack ablin, said he thinks the next move from the fed is qe. if you did have cash right here, should you put it to work now or wait for more selling and then
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put it to work? what do you think? >> we do have cash. just to expand on what kristina said, we did believe that the august downturn was the correction that we were expecting that we're having now, and i think largely it wasn't the correction that we're having now because the fed blinked in september, and so ultimately what happened is we had a premium built into the market. it was just a valuation premium because we were like bowling with gutter guards. you know, and when you bowl with gutter guards, you can take a lot more risk and your scores are a lot higher. now that the fed has reversed course, the gutter guards are gone and we have to be more careful and instead of relying on the fed to back us up, we now have to rely on earnings and revenues. unfortunately, that's still probably another 5%, 6%, 7% lower even from here. >> and how soon does that happen? >> that -- >> is that a first half likelihood? >> i'm hopeful this is just part of a catharsis, we can just get
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it behind us and finally roll up our sleeves and look at fundamental value. so, you know, i'm not in -- bmo is not in the financial crisis camp. if you look at loan loss reserves and the earnings that just came out this week, they're a fraction of what we saw in 2008 and 2009, and i can assure you they're probably the most scrutinized numbers out there given the regulatory environment. so i'm not seeing any indication that this is anything more than just a severe correction. >> when you look around the world, it feels bad in the united states, it's far worse in other parts of the world. is there at least -- you say, okay, don't panic, but is this the time to say, there's going to be some intense pressure building in the emerging markets because things are going so badly for them and it doesn't appear those flows are going to change. is it time to move money to different parts of the world? >> well, for those investors who have exposure to emerging markets, now is not the time to
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get out. it's time to sit and watch and wait. but to add new money now, probably not yet. so sit back. valuations look very attractive in the emerging market space but we need to see a stabilization of capital flows. right now flows are just coming out of the emerging markets. there are a lot of headwinds there, so it's better to have an approach where we wait and see. >> kristina, where is the money going? if people are selling brazil or selling russia or selling wherever, it doesn't appear to be coming here yet, otherwise stocks would be up. >> well, interestingly, there have been some flows into the united states, and some of it has been because of the strong dollar. it just hasn't necessarily gone into equities, right? we've certainly seen pressure on the 10-year yield. money is moving there because it's considered a flight to safety. so money is moving into the u.s. it's not necessarily going where we'd want to see it. but, again, keep in mind, this is a very different environment. we've lived through 1987. that was the start of the greenspan put. then we segued into the bernanke
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put, and this incredible monetary policy that we've never seen before. and now people are starting to question yellen and yellen's fed and saying, hmm, maybe things are changing -- >> i like jack's metaphor with bowling with bumper guards. i think -- >> exactly. >> it's quite apt. >> i'm a really good bowler with those. >> if he raises is good point, if the fed is going to blink again. >> and that's ray dalio's point. it's going to take a lot for them to turn on a dime but perhaps we will hear some rhetoric, perhaps those four tightening moves will come down to two. i think even futures now suggest only about a 60% chance of a september hike. and so, you know, that's really come down. so i do think expectations of aggressive fed action has wound down pretty dramatically, but it would take a lot for the fed to all of a sudden reverse course
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and say, you know what? that was a mistake, we're going to do something else. >> we'll see, won't we? jack, thanks so much for joining us from beautiful -- >> market always looks better from boynton beach. >> come on down. >> kristina, thanks for coming in. >> thank you. >> go to right now to see why jack is betting on the consumer. that's we are getting more clues about a very big question -- what banks have the largest exposure to down oil prices and specifically maybe bad energy company debt. kayla tausche has gotten some answers and she joins us with the details. >> we've gotten some piecemeal data here and there, but banks like to give us very niche numbers to describe what this exposure is. but richard ramsden, the analyst who covers the banks over at goldman sachs, put together a nice snapshot, apples to apples comparisons based on what we know from earnings season about
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what each bank has outstanding. bank of america has the most in debt that it has already funded to the oil and gas sector, about $21.3 billion. citigroup is next, just more than $20 billion. followed by wells fargo, $17 billion. jpmorgan chase $14 billion. we should note goldman sachs' own oil and gas funded debt according to its cfo this morning, $10.6 billion, but as a matter of compliance, goldman does not report on. pnc, u.s. bank corp have about $3 billion a piece. the next number i want to give you is, okay, so now you have the dollar amount, how much is that of the bank's overall portfolio based on all of their auto loans, mortgage loans, and here is what we have. bank of america, it's about 2.5%. citigroup, a little more than 3%. morgan stanley has the highest of this figure, 5% of its loan outstanding are to the oil and gas seconder.
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pnc, usb, a little more than 1%. wells fargo is about 2%. this number is a little wonky but perhaps the most important going forward. this is how much money based on how much exposure they have to oil and gas. the banks are beginning to set aside for the day, if or when, some of those loans go bad. bank of america is setting aside 2% of its oil and gas portfolio. citigroup, morgan stanley,p nc, about 3%. jpmorgan 4%. we've heard jpmorgan jamie dimon saying he would set aside more if accounting rules would let him. wells fargo setting aside more than 7% of the portfolio for a rainy day if, in fact, those loans go bad. guys, i know it's a lot of data, a lot of numbers to parse through, but perhaps those are the most important figures in thinking about investing in the banking sector as we watch the price of oil decline. >> those are very, very
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important numbers, kayla. goldman sachs, that was their report, so they didn't list themselves on there. mary thompson said that goldman apparently said they've $10.5 billion in energy debt exposure, although we don't know what percentage of their book that is. and i know the numbers don't sound that big, 2%, 4%, but if everybody sort of tightens their credit by 2% to 4%, that could get somewhat big somewhat quickly. >> it could get somewhat big somewhat quickly, and, of course, brian, the amount that banks set aside in these so-called reserves for parts of the portfolio going bad, there are a bunch of factors that go into determining how much they're going to set aside like how much of that debt is junk debt versus really high-grade quality investment grade debt? that's a big factor there as well. some of the regional locations of where the companies are located. we've heard all the executives saying they're going through the portfolio name by name to see these different qualities of these loans. but it's certainly interesting. of course, we'll call around to
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some analysts to see exactly what goldman's own exposure is. it doesn't have as big a loan portfolio as some of the big banking models do. but 10.6 is their total exposure but we don't have the percentage. >> when you think back to 2008 and obviously the situations are different because the mortgage business was all securitized and there were transition mechanisms through the system that aren't necessarily there with petroleum-based loans, but it's interesting to note that the default rates that caused so much dislocation in the mortgage market were very low. it was like 6%, 7% of them were going bad so says my viewing of the big short. but it tells you that it doesn't take a big dislocation to cause a big dislocation. >> that's true, but i'll give you two important statistics, tyler, that some of these executives are using to discuss this. first of all, wells fargo, for instance.
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they have said, okay, less than 2% of our overall loan book is oil and gas loans. that compares to 30% in the residential mortgage market, and, of course, wells fargo is the nation's biggest mortgage provider so they have a bigger share of that market. but it's similar across the street. mortgages are such a huge percentage of these loan portfolios that, of course, there is going to be an outsized effect there. the second thing is a lot of executives are pointing out the oil and gas loans are securitized by assets. even if a company goes bankrupt, it doesn't mean the loan goes back. it just means the bank has access so some of the assets. so it's not like they just go to zero automatically. there are assets to back them up which is a key difference between some of these very esoteric synthetic securities -- >> but none of those banks are looking forward to owning oil -- >> oil drill bits. >> they might. hey, guys, speaking of oil, gots
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some breaking news. chesapeake energy, one of the most hard hit of the midmajor oil companies, that stock just halted moments ago. so chesapeake is halted. it's a single circuit breaker, that's what i'm seeing here. it's not a news halt that we know of. chesapeake actually was up about 4% prior -- >> i was looking at that intraday chart. >> something went on with chesapeake. so many of these companies, and chesapeake is down 61% in three months. you talk about debt. chesapeake's bonds have been walloped. they did an exchange about a month ago, maybe 45 days ago, 57 on the dollar exchange, but it wasn't tendered very well. not a lot of people took the exchange. chesapeake stock halted right now. the moment is starts trading again, assuming it does today, we're going to bring you the next price. >> what's so funny is when you said it's halted, i said, oh, and then i looked at the stock, it's up. we are so bearish in the mentality. i was assuming you were -- i'm
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going to get very wonky for a second. clayton williams, a smaller company, cwei is the ticker, based in midland, texas, they're a big player out there. they yesterday made a deal with another company where they basically sold off some assets and they said their strategic review is jound going. so these are not the hesses of the world, not the household names you know, but in their fields they're big enough we're starting to see some asset sales of a larger scale. more to come. listen, and it doesn't matter, no offense to our network, if oil goes back to $35, that won't matter. $25 or $35 is the same thing for most companies. i'm interested in that move in chesapeake because it mirrors what we're seeing in the entire stock market right now. stocks are coming off their lows. biotechs seeing a big turnaround along with the rest of the market. bertha coombs is at the nasdaq. bertha? having a little bit of trouble -- there it is. >> do you got it? here we go. biotechs leading the reversal right now really moving to the
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highs of the session after hitting a new low this morning. bear in mind biotechs are among the worst performers of the year. they're off 30% from their all-time high last july. down 17% year-to-date, even with this move off of the lows of the session today. talking to traders and they were saying we were seeing a little bit of exhaustion on the sell side of biotechs, not a whole lot of sellers today, not huge volume. we've already traded a full day's average volume but not that kind you normally associate with capitulation. nonetheless, some traders starting to say maybe we're starting to see a little bit of fatigue when it comes to selling the biotechs. look at some of the names moving higher. they are some of the large cap names leading this move to the upside at the moment, and that is lifting the nasdaq composite off of the lows. the russell 2000 which today was the worst performer at one point off more than 3.5%. i don't know if we can put up the nasdaq 100 heat map, but
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this is the most green i have seen within the nasdaq 100 today all day and really over the last several hours. so we're starting to see a little movement. we'll see if that reversal holds. back to you. >> thanks very much, bertha, and as bertha pointed out, some bounce back for equities. we'll follow it all for you when "power lunch" returns. but not every insurance company 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. ♪ they are. do i look smarter? yeah, a little. you're making money now, are you investing? well, i've been doing some research. let me introduce you to our broker.
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stocks are off their lows. i want to draw your attention to something jack bogle said about 30 minutes ago right here on "power lunch" in defense of indexing over active management. take a listen. >> indexing always works best, up, down, or sideways, because when you look at active managers, let's say the smart money, the smart money is trading by definition i suppose with the dumb money. but the smart money and the dumb money are even. every buy is a sale. every time an active manager buys a stock, another active manager sells it to him. it's a loser's game. >> a loser's game. bob pisani sanding by with a man
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who does not see eye to eye with the vanguard founder. blair hull, an actively managed fund. >> mr. hull says that he can do better than the overall market. thank you very much for joining us. you are an active manager. you're a market timer. can you explain to us what you do and why your fund, the etf you run, is up fractionally for the year? >> well, jack bogle i think was right, but the stigma market timing has gone on too long. we've had some significant changes that have occurred since 2000. we've had that explosion of data and at the same time we have predictive analytics that are actually running and permeate our lives. we have credit scoring, cars that drive themselves, we have police that then use predictive analytics to find out where crimes are going to be committed. so it's ironic that we can't use predictive analytics in our portfolios. just as we have our cars being
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driven now by machine learning techniques, we should have our portfolios being driven by predictive analytics. >> can you explain what you do to us and what is in your fund and why you're up fractionally for the year? i guess that's the question. what are you doing that's giving you the outperformance this year? >> we have a paper that describes our model. i should say there are models. there's long-term model and a short-term model. we have a short-term adjustment every day, but we knew equities, the odds did not favor equities going into this summer, and so as a result, our models have said right now we're slightly short the market, and we can go anywhere from 100% short to 200% long in the fund. >> when you say slightly short, what percentage of the portfolio is in cash versus stocks versus bonds? can you just give us a breakdown? >> right now there are only two assets in the portfolio.
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either spdrs or cash and right now we're something -- i believe it's 7% short the market. >> i'm sorry, say that again. you're what percentage in cash? >> we're 93% in cash and we're actually short spdrs, so that's why we're up today, because our fund is actually short the market today. >> all right. we're going to have to leave it there, mr. hull. unfortunate unfortunately, markets are moving aggressively. anybody wants more information, the symbol htus for your fund and you can look that up and do some more investigation on it. thanks very much, mr. hull, for joining us. and, of course, "power lunch" will be back in two minutes. got a modest market rally in the middle of the day. believe it or not. more on that. don't go away.
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it is now 2:00 on wall street. it is an ugly day out there, although hi, camera, less ugly than it was. we are off the lows. the dow down 360 points. at one point we were down 550 on the dow. depending what contract you're looking at, crude oil breaking below $27 a barrel. remember, today is the rollover of the contracts, so keep that in mind. sometimes on those rollover days
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screwy things do happen. west texas intermediate at the lowest level since may of 2003, but even further than that if you adjust for inflation as you always should. well, that huge drop in oil is not just impacting us here at home. it is putting major pressures on the economies around the globe. look at the stock performance of some of the world's biggest economies over the past year. america, which you will likely care about the most because that's probably where your noushg is, we are down on the s&p 2.3%. china down 3.2%. the dax in germany down 3.4% and the toronto stock exchange down 3.17%. canada not one of the biggest, but, guys, we put it up there because, a, we like them, and, b, it is an oil-related economy. let's bring in joseph lupten. thank you very much for joining us. i guess the big question everybody has is, is this stock market rout that we have seen
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this year sort of portending bad things for the economy? is a recession coming? >> i think that's certainly the right question to be asking and there's lots of things that you could point to that the market is going to be scared of. you know, growth in the fourth quart quarter globally looks to be one of the weakest in the expansion. there's some inventory stuff. no doubt it was a weak quarter. i think there are concerns around china that are certainly legitimate and those aren't going to be going away anytime soon. the collapse in oil prices is another reason that some people are looking at as a signal for something that is kind of more nefarious over the coming couple quarters here. i think in terms of how we're interpreting it is we're cautious but i think when we look at the fundamentals, it doesn't feel like something that is really breaking down into something that would be portending a recession which i think some people are talking about. i think thing gots got a little
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bit soft in the fourth quarter. >> let me ask another highly technical question, joseph. what the hell is going on? what's changed in the last two weeks besides the calendar? >> look, i think issues around china certainly not people concerned and the inability of policymakers to really provide a clear signal there. i think we started getting more rhetoric out of the fed and markets started believing that the fed may be moving as many as four hikes this year and that got people scared about whether they were going to be able to do that and the data in the fourth quarter is tracking on the soft side. i would just caution people to at least recognize that the fall in oil prices we've seen will provide a fairly powerful purchasing power lift. we want to be mindful that that is in the pipeline. >> when is that going to happen? >> th that was my question. the mystery has been, huge decline in gasoline prices, 47 cents in one state, it's been crazy, and yet we don't see that same subsequent push into consumer spending.
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macy's stock is down 40%. >> that's absolutely right. i think i would say the real puzzle has been the second half of last year. if you go back to the start of the oil price decline, mid-2014, super spending through the initial phase of it actually was ramping up fairly strongly. early 2015 it seemed like things were kind of track wing where y were getting a purchasing power lift. the second half of 2015 seems like where things got off track. the u.s. savings rate is up. we are puzzled, but the magnitude of this is large. households consume 365 billion gallons of gasoline a year. that's roughly $220 billion tax cut in terms of the price -- the oil price fall. if we were talking about a tax cut like that, we'd be feeling pretty good about the consumer. >> yeah. but no recession, bottom line, joe? >> that's right. >> okay. joseph lupton at jpmorgan. thank you for coming on the program. >> thanks. >> a lot of red on that wall
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over there. probably only about 50 stocks in the s&p 500, a little less than that, are in the green right now but the stocks are off their lows. another rough day for your money. 88% to be precise of the stocks in the s&p 500 are now in a correction or worse. the question is what should you do with your investments right now? you got to put money to work somewhere. where -- you run big family offices, foundation money. where are you seeking shelter today? >> what we're talking about today is that you need to stay active and for a billionaire family offices who have the time line and who have the capital, we're saying think about the illiquid space as a home. >> meaning private equity, real estate. >> infrastructure. >> infrastructure. >> yes. all part of that. if you think about it, everyone is hoarding liquidity today and there's a big illiquidity premium which you could capture.
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to be in something like infrastructure or real estate today can make a lot of sense especially for those people who are saying i have a lot of risk in my business. i need something which isn't correlated to equity markets which goes up when they go down. that used to be bonds. where is that now and where can i find that yield and noncorrelation. >> so buy apartments and things like that? if you need to -- >> buy the debt? >> -- liquidate, you are stuck. >> that is part of it. you want to take a long-term time horizon when you're getting into this unless you're getting into something in the public markets which you can like reits. if you think about it, you could capture yields which are far above that of treasuries in things like we'll take apartments, for example. you have some momentum where millennials are getting jobs for the first time. their wages are increasing, and they're moving out into their first home. that's not going to be a single family home laden with debt.
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it will be the apartment market. so in kind of structurally supply constrained markets, could you see some value in moving into that space. >> you're also recommending wind and solar power in this market when oil is so low, it sounds so uneconomic to me. that's the whole point? >> you are absolutely right. but think about this, the technology has improved so much in wind and solar. that is a free resource. it's not political. there's no tensions politically associated with that. and the margins are good. even into this period of very low oil prices, you've seen the energy -- or electricity from renewables come in at something like about 45% of new -- new electrical creation. in that sense these can be very interesting investments, especially when you enter into long-term contracts with stable investment grade utilities paying you something like 6% to 7%, which, you know, for something which is
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noncorrelated, those are returns i'm not even sure many people are predicting for equity markets. >> thank you very much. we appreciate it. a call for illiquidity in portfolios. heather tighe of blackrock. some of wall street's biggest power players weighing in from davos, switzerland. listen to what some of them said right here on cnbc. >> china is actually slowing, but it's not collapsing, and i think there's like an overreaction to what's going on there. the problem just generally and the reason why there's so much negative perception around china is the management of their stock market and the management of their currency, both of which looks somewhat erratic. >> we're having slow growth.
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i wish it was more. china, i think they have the wherewithal to grow at 5% or 6%. europe is going to grow a little bit. yeah, it's going to be worse than we thought, but it's possible, i'm hopeful this is all a big adjustment and in a couple weeks we'll take a deep breath and say thank god that's over. >> i think the risks are asymmetric on the downside. that's why i said before that i think the next major move in fed policy will be toward a quantitative easing, not toward a tightening. >> ray dalio says more quez something coming. let's bring in ron insana as well as steve liesman. steve, will the fed's next move be a cut? >> no. >> ron, will the fed's next move be a cut? >> a cut not necessarily. i think the fed's next move may be a pause in which they have to outline reasons why they will assess incoming data maybe a little bit more intensely than they promised before, but a cut is maybe two steps off. i do think the fed will reverse itself this year.
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>> my thinking is the fed has a long way to go before reversing course. i think it's going to look at what's happening here. it's going to take a step back and take a deep breath and say markets need to find an equilibrium rate. once they find that rate, i need to assess what the economic damage is because it's not immediate and not one for one parallel, and i think the view at the fed was, hey, we're probably going to do 2% consumer spending growth in the fourth quarter with a big inventory adjustment in there and some other stuff. so the idea that the economy is suddenly in some form of a shape where it's near recession, as chris just wrote, we just hit full employment as far as the fed is concerned. >> maybe my analysis is too simple. they blinked in august. why wouldn't they blink again? >> what do you mean by blink? i'll let ron answer that. all along they were saying we're going to assess the situation as we go. they're going to wait. >> we have another big sell-off many think related to global turmoil, so the pattern seems
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the same. >> pattern is the same and it's intensifying. unlike japan blowing up in the early 1990s, china has more of a pronounced impact on the rest of the world. blinking i don't think is necessarily the correct way to look at it. i think what's happening is that things have changed. the fed started to tighten when manufacturing was in recession or contraction. the economy is slowing, and i think there is a negative feedback loop that could be created here if no one pays attention. scott meinert was on from davos and said we had 1987, 1994, 1997 and it didn't affect main street but the fed also responded in policy terms which kept a financial development from becoming an economic development and that may ultimately be what's required. this won't be over until the fed lady sings. >> pass me the sweet potatoes, would you? >> i think the fed is going to consider it's wide open still, that the quarter point it raised does not fundamentally change the dynamic of the stimulus they
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have in the system, of a $4 trillion balance sheet, and a real interest rate that's effectively negative. >> but they certainly did -- to your point, michelle, they certainly did hold off in raising rates in september. >> yeah. >> in the wake of the august decline. >> right. >> and what was going on there. this feels mag ni tuds rigger than that. >> i have no duoubt they're goig to hold off. >> what do you think they will say on sfwhens. >> i think they'll mention the market volatility. i think they don't do anything in january. they probably don't do anything in march. and so the next time they really have to make a decision is probably not until june. just a very long way to go until then to say sungz t, you know - >> does anybody take yoga here. >> i try. >> namaste. let's take a breath for a second. let's separate the stock --
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that's a stock ticker. separate the market from the economy. that's what scott meinert has done and he's as good as anybody. >> that's exactly what i was just doing. >> and i would not. >> but the fed to your point looks at the economy. home sales are strong. nobody has been more negative on oil's impact than i have and i think oil matters -- >> i have a $20 target. >> i mean about how it's going to -- >> in terms of the macro impact. >> but let's be clear, the rest of america is sill doing okay, and i think the federal reserve, they're going to have to maybe put the stock market on the back burner. >> look, here is the thing. you don't drive the economy looking through the rear-view mirror, and markets are forward looking indicators, and it's not just the stock market. economist paul samuelson many years ago famously said the stock market predicted nine of the last five recessions. if you look at what's happening in commodities, what's happening in bonds, yield curves, forwards, all these different market-base the indicators, they are all pointing to a slowdown, not a pickup, and full employment, by the way, happens at the end of a cycle, not the beginning of one.
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>> okay. >> all right. >> that was a -- you know. >> wrapped it up. >> i was trying -- the reason i pause, normally i just talk because whatever, but i was trying to think of a good nickname now for ron because he is officially now -- i just saw the "the revenant." maybe you're the revenant. the bear attack. >> i wouldn't go that far. i think you have a cyclical bear market and a slowdown without the world ending. >> the revenant insana. we have a headline. i think this is news. gellen wi janet yellen will testify in front of a house committee -- i have no idea if it was new. >> that was not on the schedule. >> why would they call her to testify. >> they have been talking about the leak. >> it wouldn't be about the volatility. >> if i can know what committee it was, i could tell you. this could be the banking and financial services committee.
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it could be the joint economic committee. >> it is the house financial services committee. >> she'll answer questions about the leak but she'll also answer questions on the economy. this is i would assume a very normal course of action. >> and you will be heading to d.c. j >> i will be perched there listening to every word she says. >> thanks, guys. >> still ahead, you have got questions. we have got answers. we're not talking about radio shack's slogan. we're talking about your money. up next, we'll attempt to answer the five biggest and most pressing questions about the markets and your money right now, but as we head out, a look at the sheer depth of the sell-off, but a lot more green than it was. we're still down big on the dow. the s&p is off 2%. but more stocks are higher than had been. you're watching cnbc. we're back right after this. ♪ okay, so you launched your bank's app.
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here is your stat of the day. since the beginning of the year, the s&p 500 has lost more than $2 trillion in market cap. all right. well in the 20 years we've been covering the markets, or at least i have, i have not seen such a horrible start to any year ever. the data backs it up. if you're watching at home you're likely worried about your money, right? you have every right to be but that's exactly why we are here. so we have come up with what we think are the five most pressing questions for your investments
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right now and hopefully some answers. joining us, jon najarian, aka the options guru. larry mcdonald from societe generale. they have been doing this for a long time. let's get right to it. question one is the one i asked to the jpmorgan economist as well, what changed on january 1st to turn the world upside down? larry? >> well, the fed governors right now are in a quiet period, so the serpent in the market knows, the market participants know they can really have their way on the short side, and going in the fed governors also were very hawkish early on in the year before the quiet period, so that put everybody kind of in the backseat in terms of expectations of any kind of dovishness to save the situation, but most of all, it's the situation in china and the speed of the devaluation is much, much, much faster than anybody expected. >> that happened in that first
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week, yeah. >> yes. >> and the reiteration by fisher that there were going to be four -- that he saw four rate increase this is year. nobody else sees that but the fed with the dot plots is projecting that, and a lot of people are wondering, okay, so when do either we start pricing that in because we're down 40 basis points, brian, from when the fed raised rates in december. that was 231. today we hit, what? 193 for the 10-year? that's a big drop in the opposite direction that the fed would imply. >> question number who, who is doing all the selling. everybody i talk to, i'm not selling stocks. is it the computer? hedge funds, sovereign wealth funds? >> all of the above. the biggest impact are the sovereign wealth funds. their budgets are the same even though the commodity they're relying on to fund these budgets is half the price that it was
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last year at this time. so what would you do, brian? everything but private equity and real estate is being sold right now unfortunately -- >> tyler, you sell what's easy to sell. >> you sell what's easy to sell. they're liquid. right. but i'll tell you who i think is not selling. i don't think the individual investor is selling. i think the individual investor, as bogle pointed out, is probably a net buyer through their 401(k) plans right now, and if you do believe in dollar co averaging, and i do, you're buying more shares today at lower prices. >> and they would be dip buyers. >> the ft reports -- the rumor is $3 billion to $10 billion worth of selling among sovereign wealth funds in the last three or four days. >> and the credit markets are so illiqu illiquid, our analysts have been talking about you can sell stocks short, you can sell commodities because your bond in the commodity space are not as easy to sell.
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>> there you go. question three, very simple, larry to you, what are you advising clients to do? >> this is -- we have many moments in our lives and through our careers in terms of the markets, but this for the last couple years represents a real hallmark buying opportunity in emergency because the capitulation -- >> you believe that? >> yes. for the next -- i think for the next three, four months, the capitulation model that we have at socgen that we use is measuring category five here. category five storms are not sustainable. the level of selling just simply is not possibly sustainable over long periods of time. too many people, they're running out of the theater, they're hanging by the chandeliers, trying to get out through the bathroom window and that's when i want to get in. >> when you're seeing hess and conocophillips, two big energy names down double digits in a single day, down 30% year-to-date, that's a sign of exactly that. that's that capitulation he's talking about. >> marathon -- the credit
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default swaps are elevated massively. i'm just going to put it like this. everybody may not make it through, michelle. that's all i'm saying. not going to say anything more than that, but the market is saying some of these may not be good buys. >> that's true. >> a lot of distressed bonds out there signaling trouble. >> something can go from 110 doesn't mean -- >> very true. >> question four, is there anybody out there making money right now? larry, there's always somebody making money. who is making money? >> we have a number of hedge fund accounts that we're short the commodity space, so they're doing very well. and if you look at anybody that's been long currencies, dollar, so these futures accounts that are ctas, these commodity trading advisers, they do typically very well in these periods because of dislocations and i would say hedge funds that are short commodities and ctas are doing pretty well. >> last year at this time we saw wholesale all the big investment
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banks were making money hand over fist because it was such a one-way trade. that is that the fx trades, everybody was just coming in trying to hedge that fx as the euro was dropping like a rock. this year everybody was set up for that and it didn't happen and that's why goldman and all the reports you've heard, the trading on that side is not good. >> but, michelle and tyler, there's also the inverse etfs, too, that mom and pop can play if they've got some guts. >> yeah. >> and some money to lose potentially. >> those are recommended for a small percentage of your portfolio for moments like this, right? when everything sells going down, correlation moves to one, you have that little pocket there. your black swan play that, you know, you can balance out -- >> sco -- >> that's your mad money. >> boo-yah. the fifth question. who is to blame for all this? we've heard a lot about saudi arabia with oil. is saudi arabia responsible in some way, not entirely, but largely for also the stock swoon? you kind of talked about this
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earlier, john. >> yeah. and i would put norway in that same group because they're, of course, a sovereign wealth fund with a lot of obligations, a lot of social responsibility up in norway they have to meet and they're not meeting it through crude oil either. it's singapore, it's kuwait, qatar, it's saudi, it's all over. >> i think i heard a hedge fund refer to all those countries as petrostan. if you're petrostan, you need money right now. venezuela, michelle? >> i thought you meant though was saudi arabia to blame because they just keep pumping. >> keep pumping and pushing the price down? >> they're pumping oil. they say we're the swing producer. i think most people agree they still have. probably 11 million barrels a day. because they don't have the money, they also then have to sell equities out of their giant sovereign wealth fund. >> it's a double hit. >> a double whammy coming from saudi arabia. >> i think they not only want to hurt marginal producers or the frackers in this country, they
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want to hurt iran. >> and they get great pleasure knowing iran comes to market when oil prices are at their weakest in years. >> let's not forget number one, central bankers, as mr. einhorn has pointed out, mr. dalio has pointed out, they've kept rates low too long. there was money that into energy cap and bonds that shouldn't be there. >> guys, thank you. real questions, real advice, real answers. we do appreciate it. the dow is down 379. don't worry, "street talk," finding you some opportunities in equities coming up. and that is still ahead. stick around. ♪jake reese, "day to feel alive"♪
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you're not even registered; i'm done with you! i can...i can... savvy investors check their financial pro's background by visiting welcome back to "power lunch." if markets have managed to come off their intraday lows, a number of stocks have staged significant rallies. 20 members of the s&p 500 are 5% higher than they were at each's respective intraday lows. among them shares of computer flash memory maker micron which are managing a small rally, off of their intraday lows. also airline stocks like united and delta managing to cover some
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ground here as well, back to the upside here. also check out shares of netflix, casino operator wynn, both better at around 6% higher than their respective intraday lows. the one thing that many of these sp intraday mini rallies, all the stocks are down significantly year-to-date. so short covering playing a role perhaps in some of the moves, but overall the s&p 500 you can see there off of its lows. the dow is down 565 at one point. now down 385, 390. we'll see if the gains hold at least towards the close. back over to you,b ri. >> thank you very much. 90 minutes left in the trading day but the oil markets are closing for the day. let's go down to jackie d. >> that's right. the bell jst rang. session low for february wti, a 7% decline. february going off the board today and if it was just volatility in february, people wouldn't be as worried but we did see the march contract
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seeing steep selling pressure as well so you can see the trend is really continuing here in oil. really moving very far, very fast here. part of the problem, of course, we're going to get some inventory numbers. we think we're going to see builds across the board. also the risk off trade, it's not really in favor right now. people want to sit in cash. they want to see what's going to happen with the market and how much more it washes out here. a lot of worries on the table when it comes to crude oil. i will just recap them for you. it's not just supply and demand but a price war between the saudis and iran. it's fears about china, global growth fears as well and then when you see equity declines like this, too, the crude oil market gets spooked. people are expecting to see maybe 25 from here, maybe $22. those are the kinds of numbers being talked about in the marketplace. back to you. >> jackie, thank you very much. more "power lunch" on this big down day right after this short break. stick around. tting away acorns. you know, to show the importance of saving for the future. so you're sort of like a spokes person?
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all right. it's a question we've been asking all day, really almost all year. what is the market sell-off telling us, you, about the american economy? let us ask our "trading nation" team. max wolf with manhattan venture
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parseschlossberg. if you look at the stocks, you might think the economy is collapsing but auto is near records. >> the economy doesn't look as bad as the stock market but that's the flip side of the fact that the stock market has looked better than the economy for six years. we do not think it's 2008. we do not think it's 2009 but we do think the markets got way out in front of the macro fundamentals and they're in a volatile manner recorrecting back closer to where they should be. we don't think we're done with the process and we do think the macro economy is weaker than a lot of folks say but nowhere near as scary as the tape or the numbers come out from the market today. nowhere near that scary. >> boris, would you agree? is the market at ttelling a bad story but not a scary story? >> if tomorrow the build comes
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out and it's negative and oil doesn't make fresh lows i think maybe, just maybe, we see the first sign of stabilization. of course, oil is really the story driving all of this behind the scenes because that's what the market is reacting to. even the most liberal of economists are starting to admit that super low oil prices like we've had now are just having such a negative impact on investment, on capital investment, that's dragging the whole economy down. plus the other hidden aspect of low oil is the deflationary impact it's having across the board. we're having jobs but no income specifically because of that. that's having a big macro impact. sort of agree we don't have 2008 scenario, but we definitely have a very serious slow dourn in front of us and i think the market is looking at it and it doesn't like it at all. >> boris making kind of a call on oil. thank you. max wolff, thank you. for your "trading nation" check out michelle? >> the tech sector trading lower by 11% in year. mark covers the tech and
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internet sector at rbc capital markets. mark, good to have you here. you're like a lot of analysts on wall street, the majority of your coverage list down for the year. but for the internet, the average loss is 20%. true car is down 39%. pandora is off sharply, down by 30%. is this -- i mean, these were all these mom stoco stocks, mom. do we start seeing people saying maybe i'll just go back to microsoft because it pays a dividend instead of trying to hang with the f.a.n.g.s? >> i'm going to give you a different interpretations. last year you had a bifurcation in internet stocks, the highest names. all dramatically outperformed aened the poor quality names underperformed like twitter. you're seeing that same thing. netflix is outperforming year-to-date. google, outperforming
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year-to-date. we like amazon, it's our second favorite long. we think fundamentals of those high quality internet names, we think those are intact and the stock market reaction seems to agree with that. >> go ahead. >> what do you think about netflix? it's move today? >> we describe netflix as a push quarter. domestic subs came in weaker than expected. weaker than the company expected, too. that's important. so is the outlook. international subs came in materially better than expected. we still think there's a scenario here for $10 in earnings, $200 stock and we think this stock will hold this level because at that level you can get a double off this in a reasonable two to three year time frame. the fundamentals are largely inta intact. we're not more enthusiastic or less. it's not one of the top three stocks though. >> there's been so much concern about china. what about alibaba and baidu. ? do you treat them like an
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internet stock or a chinese stock? >> we tried to coin a new acronym, bagel. >> bagel like you he'd? >> bagel. baba, amazon, google, expedia, and linked in. an investor in baba went fed first into this buzz saw which is the chinese currency and the chinese macro tapering off maybe dramatically. it's very hard to stick with baba but we'll do it. we'll be patient on it. the best ways to play the internet growth remain alphabet, second amazon, third, linked in. >> alphabet/google, would be your biggest bet of the bagel bin. i'm, trying, buddy. >> you're playing along well. i like that. i think you got it right. a near-term catalyst coming up. new segment disclosure from this company. it's a relatively defensible
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valuation. you're paying 20 times earnings for a 20% revenue grower. they're actually returning cash to shareholders. that's a sea change in the internet and you've got a cfo who is finding cost efficiencies out of that business. this is a safer, better growth portfolio. and the core business is showing accelerating revenue growth. google to us is the best stock. >> it's tough inventing an acronym. you can't try too hard on those things. i think brics just came about naturally. i'm not sure f.a.n.g. is all that good but good to have you here. >> think of all the baked muffin, microsoft, under armour, facebook, fan duel. >> if you're watching technology stocks in particular, you cannot afford to miss "mad money" tonight at 6:00 p.m. eastern time. jim cramer will be sitting down for an exclusive interview with oracle ceo mark hurd tonight at 6:00 p.m. on cnbc. >> let's take a look at somewid
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have in your portfolio. google, apple off 1%, microsoft a half percent or thereabouts and jpmorgan chase heading way lower, down 3%. stay with "power lunch" for more on this sell-off. you're watching cnbc, first in business worldwide.
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welcome back to "power lunch." we had some breaking news on deutsche bank releasing its preliminary fourth quarter and full year results. the company says the number of charges are going to result in a loss of 2.1 billion euro this is the fourth quarter. that includes $1.2 billion in litigation charges as well as an $800 million -- or million euro charge for restructuring. for the full year the company is
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expected to louise lose 6$6.7 billion. it was expected to post revenue of about $7.8 billion, but again it says market conditions, of course, are contributing to that lowered revenue outlook. once again in a preliminary statement deutsche bank said it is expecting to lose 2.1 billion euro in the fourth quarter, revenue expected to be below expectations as well at $6.6 billion. again, these numbers are preliminary and could change. the stock immediately dropping a little bit more on the news and then coming back a bit. still under pressure today. back to you, tyler. >> i was just going to say, the litigation charges, it's so emblematic of the entire sector. all these banks are trading below book value. yeah, because they can't get a return on equity and the regulators are just pounding them consistently. >> well, keep in mind as well,
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michelle, deutsche bank was exposed to almost every possible questionable activity in the wake of the financial crisis. they have had a number of things on their book and are finally starting to settle. they were exposed in currency and libor manipulation, et cetera. it was expected and is the primary reason the company is reporting such a big loss. >> they have been the poster boy of a lot of those issues for sure. >> mary, thank you very much. as we head now into the final hour of trading on a big down day for the markets, let's get another look at some of the widely held stocks you may have in your portfolio. we looked at a couple of these a moment ago all in the red led down by jpmorgan chase down 3.5%. more on the markets straight ahead when "power lunch" returns in two minutes.
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thanks. ♪ [ male announcer ] fedex® has solutions to enable global commerce that can help your company grow steadily and quickly. great job. (mandarin) ♪ cut it out. >>see you tomorrow. ♪ here at the td ameritrade they work all the time. sup jj, working hard? working 24/7 on mobile trader, rated #1 trading app on the app store. it lets you trade stocks, options, futures... even advanced orders. and it offers more charts than a lot of other competitors do on desktop. you work so late. i guess you don't see your family very much? i see them all the time. did you finish your derivatives pricing model, honey?
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td ameritrade.
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tand that's what we're doings to chat xfinity.rself, we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment, we'll credit your account $20. it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around. all right. time now for "street talk." because even in the worst markets you've got to think long term and look for companies that may eventually weather the storm and grow your money. here are a few stock calls that caught our collective eye. number one, jack-in-the-box. bank of america, merrill lynch
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adding it to their u.s. one focus list, their top picks list. the price target 95 bucks. that's about 35% upside. kind of interesting because guggenheim securities just lowered their estimates on jack a couple couple days ago. concerned about higher interest expenses. most of the market loves jack in the box. the average price target is a fat 91 per share. >> the analysts have an impact in this down market. second stock. wayfair. the pullback that's seen recently provides opportunities, they like to repeat customer behavior and something called marketing leverage. wayfair could raise guidance. free cash flow, positive target is 5 which would be a 30% -- 30% upside from where it is right now. >> we picked the only couple companies that are higher today. >> 7% on this. holy smokes. >> stop number three. e-bay.
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they see possible upside as currency headwinds slow down. they see 5% constant currency growth rate. management of e-bay starting to make some smarter moves, especially with the catalog and the categorized inventory. the analyst also notes the strengthening of the balance sheet. reiterates a buy. that's about $19 upside. >> next stock is sherwin williams. goldman sachs upgrading to buy from neutral. the target boosted to $287 from 260. trading at 240 right now. $47 of upside. the analyst thinks the paint maker is going to get a boost. lower input cost. and that means the gross margin should expand because the pricing on the paint is sticky. >> so is paint if it's not dry. lastly, our smaller cap under the radar name is jenesco. they own johnson and murphy shoes and a bunch of others.
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$83 price target in part because they just sold a hat division and that division was about 5% of revenues. but now that it's gone, management is more free to focus on the corn businesses that perhaps janesco does a little bit better. it also helps fund a $100 million stock buyback. that's about 50% upside from here. >> hats could not be part of their core competency, right? >> shoes and hats, and nothing else. you can leave your hat on. what's that song? anyway. merle saunders is the best version. that is street talk. we're going to set you up for a big and important and volatile final hour of trading, coming up next.
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the s&p 500 off 1.75%. nasdaq down just .8 of 1%. the small company shares have been where so much of the damage has been in recent weeks. stocks off the lows. but a large drop nonetheless. where can one find opportunities? jana barton joins us with some growth picks.
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patrick kaiser is a portfolio manager, he favors value. jana, where are you going to find the underlying growth of profits and revenues to power growth shares this year? >> well, thanks for having me. i think what you're seeing right now is the pendulum swinging toward the risk side of the equation. that's risk versus reward. and right now, what we're finding is this indiscriminate selling that is presenting opportunities with some of the higher growth areas of the market supported by both fundamentals as well as secular growth stories. and by the way, russell 1,000 growth as a sector, as an index right now is selling at a discount value. so you're paying a multiple for some level of growth, and for russell 1,000 growth in aggregate, it continues to be higher than that of the s&p 500 and russell 1000. >> give me the name of a company
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in your portfolio that today represents one of those opportunities. >> there's so many. it's like your kids. every single one of them is populating. but the one i will flag -- >> forgive me, jana. i'm going to need to come back to you. we have a market flash with dominic chu. >> here's what we're watching. shares of sinynaptics, the shar were up 9% before being halted for volatility. on the heels of bloomberg reporting the company is moving possibly closer to a deal with a china-backed investor. the company previously rejected a $110 proposal, adding that an announcement is possible maybe in march following the chinese new year. those shares up by about 29% on this bit of news. just calling your attention to what's been happening. overall, with what's going on in
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these particular shares. >> dominic, thank you very much. >> thank you very much. jana, do you own synaptics? >> unfortunately, we don't. we own palo alto networks. this is a very simple story. that is security continues to be top of the mind for ceos. and palo alto network is the leader because of the products they provide. again, it's next gen fire wall. they still have less than 10% market share. >> patrick, we're a little tight on time. let me ask you why you think value is the better opportunity this year. and where specifically in that very broad universe do you find the best values now? >> value, this is actually a fun time to be a value investor
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because there's so many ideas. it's the baby, the bath water, the towels. everything has been thrown out the window. devon energy is trading at a very low price based on reserves. kkr, people are acting like they're just a high yield bond fund. they're not. and micron. this time, micron comes into the cycle with a much better balance sheet. much better cash flow characteristics. so that's three ideas that are very hated right now. but if you've got a timeframe that's longer than a month, say two, three years, those are going to be great opportunities for value investors right now. pretty exciting, actually, to look around. >> patrick, thank you very much for being with us. we appreciate your indulgence as we went to some breaking news. jana barton, thank you as well. >> the next hour is going to be pretty intense, i think. we have to see if this rally off the bottom holds.
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>> we'll find out. >> we'll find out. >> thanks for watching. "the closing bell" starts right now. hi, everybody. welcome to "the closing bell." is i'm kelly evans. >> and i'm bill griffeth. there have been plenty of days early this year where we've had an early rally and it failed and went south. not today. stocks got slammed on the open. there was no question we were beginning to have a selloff today after we saw a selloff overnight in asia and in europe this morning. at the lows, the dow was down 566 points and then it has started a comeback this afternoon. the s&p has lost $2 trillion in market cap since the beginning of the year. that's a fun statistic that's been bandied about wall street all day. you probably have heard by now,


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