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tv   Power Lunch  CNBC  January 25, 2016 1:00pm-3:01pm EST

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>> same thing. same thing for oil. oil above 30 and a half. that's fine. wednesday, a big day. left out facebook. facebook on wednesday. that's a big one. >> see you soon. >> thank you. >> have a good one. thanks for watching as well. "power lunch" begins right now. scott, gentlemen, thank you very much. along with brian sullivan and michelle caruso cabrera, i'm tyler mathisen. welcome to "power lunch." rally smally, not today. industrials giving back a bit of the faux rally we had from wednesday afternoon on as the dow is down about a third of a percent. the nasdaq and s&p 500 are also up a quarter percent now. the s&p 500 off a little more in percentage terms, nearly a half percent. half of the stocks in the s&p 500, little more than that, are now in bear market territory, meaning they are more than 20% off their most recent highs. >> and even though we saw that rally last week, two days, it
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was so unloved. remember the skepticism we exhibited on set, every guest we had said, look, you can have big moves like this, but as you pointed out, a lot of the worst performers were the ones that were doing the best, perhaps a lot of short covering, even though we theoretically got a lot of help from central bankers, a way to push the market higher. >> i think i called it a garbage rally. >> yes, you did. >> i don't mean waste management was rallying. the best performing stocks, the worst performing stocks in the past year, high short interest names may be margin calls, short covering, what we want to see are the real leaders of maybe the financials, some of the big cap technology companies, i refuse to use the fang stock analogy thing. you want to see high quality names lead the rally. until then, i'm not sure anybody is going to be convinced. even the worst bear markets do have nice rallies. >> they do. >> dom did a story about that last week. >> you don't want it to be predicated on some nice words
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from central banker somewhere. you want it based on fundamentals. if you're in the camp that thinks we have hit a relative bottom in the market, we just pooh-poohed, folks, but is it a good time to buy stocks? some think it is. there are some names wall street analysts think you should look at and dominic chu has some names for you. i'm sorry we undercut you there. >> we shouldn't ever feel bad about presenting multiple viewpoints. we know that's what makes a market. let's talk about the pooh-pooh rally, about why maybe there is a little bit of skepticism here. here's what we look at. we over the past couple of hours or so looked at the s&p 500 index overall, guys. and what we did is we looked for stocks that have shown some decent performance over the short and very long-term. we took a look at the screen and said, hey, how many stocks in the s&p 500 have gained at least 5% or more over the past trading week and are still positive over the last 12 months. to brian's point, right, about the winners, maybe asserting
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some leadership over again. we only found 10 stocks that meet those criteria, believe it or not, and the entire s&p 500. among the names, though, interesting ones, verizon is one that comes to that list as well here. verizon, a telecom giant, it reported earnings last week, did really well, this is a dividend play, some people looking for the dividend income from utility type stocks and also telecom stocks. verizon one of them. also a relative winner in last year's trade that pulled back but rallied strongly. nike stock, consumer products, are they going to be perhaps one of those places that investors want to add at a discount price, nike has a rather high price target if you believe wall street analysts. and then the biggest one of them all, a leader to brian's point, amazon.com, believe it or not, rallied by 5%, 6%, and is still positive, remember, almost doubling last year. so, again, guys, as we talk about what is happening with the markets, there are some places where winners are again starting to win even though we had a pullback in the marketplace
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overall. the more bullish side, i guess. >> that's what to watch for then. >> it is interesting -- >> or tune into cnbc and watch dom chu and you'll do the work for our viewe erers and listene >> there are some folks who believe that if you are going to buy, you would rather buy some of the winners we have seen over the past year that are not trading a little below where they have been and that's where people may nibble. to michelle's point, short covering always plays a part in some rallies because a lot of names have been beaten down, but the ones i presented, they're not the oil and gas or mining names. they're the ones that have done well and pulled back a little bit in the last couple of weeks. >> sell what you can. dom chu, thank you very much. do you want to be buying dips in this market or maybe, maybe sit back and wait for things to calm down a little before putting your hard earned money to work? david lafferty, with natrixis,
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joining us now. steve liesman with us. we'll talk about the central bank impact on the markets. david, first to you. i understand in your business it is -- you want to do something. but are there times where maybe doing nothing is a decent strategy? >> i don't know that doing nothing is typically a great strategy. i think the most important thing that investors have to do is think about their time horizon. you guys covered it already with the uncertainty in the market. i think if you're a trader now, you're a little hesitant. you have a lot of sentiment going against you. if you're a longer term investor, we're seeing values that we haven't seen since late 2013 in terms of pe ratios. so if you're willing to commit some dollars to the equity market and not watch them for a couple of weeks or a couple of months, i think this pullback we had since the beginning of the year is a pretty good opportunity. if you're a short-term trader, i'm a bit more hesitant because as michelle said, i'm not a huge believer in what we saw thursday and friday. a few kind words from draghi
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hasn't fixed everything wrong in the globe. >> not to contradict everything we just said, but if i was listening at home, heard all of us be negative, all the guests be negative, that would be like -- >> go. >> now is the time. >> you're ringing the bell for value investors. across the managers we have, we have all different types of strategies but we lean toward value. that's the way i think about the market. when i see a three week period where forward earnings on the s&p go from 17 1/2 to 15 1/2, that doesn't make them dirt cheap, but makes it better entry point. i feel like we could have thrown out our market outlook which i wrote in the last week in december, i pretty much could have thrown it in the garbage, a heck of a lot more optimistic. >> where would you put money to work if you were to put money to work? >> well, in the stock market, we don't have enormous sector bets on, but i would tend to still lean a little bit towards
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europe. not so much because we think that the dollar is going to continue to rally and we'll get a big currency translation effect, but just the competitive nature, that 20, 25% that the euro is offered relative to the dollar still is a longer term head wind for european-based companies. we -- i would say we lean a little bit towards europe, and we also like japan for some of the same reasons. >> go ahead. >> i was going to say, steve, oftentimes the world looks the darkest in the past, we have seen central bankers come to the rescue. this is not -- let's repeat after me. this is not 2008. this is not 2008. but there are a lot of global problems out there. can we expect central bankers to ride to the rescue once again? >> i think to an extent. what just happened in the last week was a little bit like the john belushi speech in animal house, about pearl harbor, he talks about how -- >> the germans may -- >> we don't know. >> he goes who is with me and goes to run out the room and
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nobody follows him. all the central bankers of import the last week have said they're not following janet yellen. they're going the other way. so kuroda said now is not the time for easing. carney from england said now is not -- tightening. now is not the time for tightening and draghi last week. i like what david is saying that it is not a great reason to build a rally, that because central bankers may come in and either do less tightening or easing, it is not the kind of fundamentals and the way the market has been trading with oil, i don't like that as a fundamental. what i like to see is the market go up or down relative to either the economic data or some profit forecast. when you see the market rally as it did on friday, because oil rally, that tells me there is not a lot of fundamental reasoning behind the movements of the market. >> i think we hear people leaning towards europe, simply because they think europe is going to be draghi -- draghi will be incredibly aggressive relative to the united states. you can still play one central bank off the other.
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>> i think -- >> recommending japan, kuroda will do more. >> i think it is a bad bet to say the feds having perhaps made a mistake is going to continue that mistake. that would be a bad set of long-term forecast -- >> i think the fed is clearly going to be waiting at this point. i think they're still in the diagnosis phase of what happened when we moved in december. has that really moved markets? has it changed sentiment? steve, you went it a different place with the animal house analogy and said the fed isn't following. what i'm seeing is investors aren't following. so what you really see is, yes, kuroda, and draghi are talking about, you know, throwing everything including the kitchen sink at it, and i think central bank policy really can do a lot at the bottom during the crisis. >> are you -- >> once it is going, i'm not convinced markets still think it will propel it. >> for the last four or five years, every time we had really bad economic news, the market
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would go up because it was a, well, bad news keeps the fed on hold, and therefore stocks rally on anticipation of increased liquidity. what is concerning this time is that if everybody now is saying this will probably put the fed on hold, why aren't we seeing stocks do that yellen put? >> so i would say there was a real seminole moment. they talked about global economic developments keeping the fed on hold. now, normally that should have caused the market to rally and it fell like eight of the next nine days. it was that september fomc meeting for me that was really the defining line between when easy central bank policy, bad news was good news for the market. i think that all changed at the september meeting. >> yeah, markets done rallying on central bank, easing. they're ready to rally on growth. without that, i think it is
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going to be a weak rally at best. >> eighth growth is in question. >> growth isn't there. >> who is going to be the market stork? they got going, who is the market stork? >> you need to put an end to the profit recession we're into and need to get beyond this weak fourth quarter data we had. we're running below 1% in our tracking forecast. that starts it tick up -- >> got to see better data and better growth. >> absolutely. it is hard to find out there in the market right now. but you can't wait for central banks to do all the lifting for you. >> david lafferty, thank you very much. also to our own steve liesman. thank you. if you're interested in emerging markets, the etfs over the past year, europe taking a beating, down 30% over one year. the eem, msci. not all the bricks are equal. we'll speak with macro
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strategist about where he's seeing opportunities.
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caruso-cabrera. welcome back to "power lunch." cas pi caterpillar is down 4%. a $51 price target. goldman expecting lower returns
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ahead, partly due to excess capacity and commodities. stock is at 58 bucks now. whole foods down nearly 5%. bmo cutting the grocer to underperform to market perform. they're saying whole food shares have a premium valuation, despite the risk of weaker comps and increasing competition. stock off more than 4% to $29. dr horton beating estimates but shares down 3%. home building revenue edged up 4.5%, the slowest growth since 2011. 26.31 a share, off by $1.40. melissa is back after a well deserved week off. she comes back from the sunny confines of the inside etf conference in florida. we welcome her back. >> it is great to be back. i'm joined by george iwaniki, equity strategist and portfolio manager. your expertise is in emerging
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markets. you make the argument that valuations are close to panic lows but not screaming right now. what case do you make to investors who may be shy of the volatility to get in right now? >> i look at it this way, it is a volatile asset class and i think people are well aware that the news flow has been difficult on the asset class, stronger dollar, commodity prices, under pressure, slow growth in the -- all of that has contributed to a big pullback. if you look at valuations, getting close, we're not at crisis lows, but getting closer. i'll give you a couple of examples. price book for the asset class, flirting with 1.2 times, that's not quite a crisis level, but i'll remind crisis levels in 1998 or 2008 basically hit one time. so we're getting closer. if you look at what we like to call fundamental pes or cycle adjusted pes, we're flirting with single digit levels. this is what others call shiller pes. bob shiller likes asset classes, equity asset classes. we're getting closer, we're not
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quite there. what i would tell investors, though, is unless you think you can pick the bottom and i think that's a very typical game to play, it is not an unreasonable thing to be looking at pullbacks in the asset class from here as opportunities to start building a position given how close we are to crisis -- >> it sounds like you think there could be more downside in this and we have not reached priceable valuations that were at levels of the crisis. >> it is not quite clear to me we're in an emerging market crisis, but clearly in an environment that is difficult for em. and a lot of that is emanating from china, which is a big piece not only of the global economy. it is an even bigger piece today of the asset class. >> you like northern asia, including china and korea. interestingly, when i look at your top holdings, your top holding is an etf itself. the ishares, correct? >> that has to do with some access issues into india, but nonetheless that is a holding. india is one of the good stories in an otherwise difficult em environment. >> i want to talk to you about
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volatility, talking about this at the break, about whether or not -- you're in an emerging market etf and your top holding is an indian etf in itself. do you think there are other funds out there operating like that? there are hedge funds and mutual funds doing this, that are magnifying the volatility we see in the markets. >> if you look at em relative to developed markets, if you move down the cap scale, you more quickly get to what i would call the tail where you have less liquidity. we structured this strategy and most are structured this way, we try to structure them so we can run large amounts of assets without running into those liquidity issues. even though you're right to highlight that, we have an etf as one of the holdings for access into the indian market. generally speaking what you find is our cap bias is quite small relative to what you call the universe. we haven't moved way down in cap scale. >> you're not worried about the india etf, about hedge funds
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setting a certain level and you're swept up in that because that's your top holding right now? >> not necessarily. i don't see that as the fundamental risk in the portfolio. >> okay. >> it is a portfolio that has over 500 names in it. that being one of the 500 names. there is a fair degree of diversification to put it lightly. >> within your top five, four of them also tech related within china. wondering do you think it is a tech play or simply because these stocks happen to be the most undervalued in the market now and we're talking about china mobile, ten cent, hon hai. >> we just follow two rules. one is let's exclude the names that score poorly on value, valuation, momentum or quality. and then let's include everything else and then let's apply a smart waiting scheme, taking account volatility and positioning at either country or sector level. and those are some of the names not only big pieces of the index, but score well enough to
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be big pieces of the portfolio as well. >> george, thank you for joining us. we appreciate it. george iwanicki. back to you in new york. >> you might want to consider staying there as long as you can. >> not bad, right? back here. >> not bad at all. >> where is the snow? i don't see it. >> sleeveless. >> thanks, melissa. >> sleeveless, nice, sitting outside, lovely, lovely, lovely. is this market out of step? december's santa claus rally really wasn't up to par. where was it? january usually a top performing month for stocks, especially for nasdaq. not so this year. editor in chief of stock traders almanac on the trends he's seeing and what they include portend for the year ahead.
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welcome back to "power lunch." packaging and paper related companies are getting shredded in today's trade. westrock down 13% as of now at a 28% year to date decline. bank of america analysts downgraded it to a neutral on reduced outlook for container board prices. the analyst decreased their price targets for major paper companies trading at or near 52 week lows, dropping westrock. international paper down as well and new price target of $61 on packaging corp. for america. it used to be $69. just one of many city, mcquarry, bearish views on packaging and paper companies. back to you. >> dom, thank you very much.
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if you are invested in bonds, let's find out how your investments are doing. rick santelli in chicago. what is new in the bond market? >> well, little bit of buying, you know, considering that it wasn't that long ago the last fed meeting that we saw our first tightening, the next one is this week, tuesday and wednesday. one day we're down one, two, basis points. two day hovering in a range, brian. and all things considered you're down a bit in bonds, they sell roughly 227, hover now at 203 for the year thus far. open the chart up to may, you see what is going on. 2%. it is just hard to imagine we're going to see any significant violations of 2% until we see what the fed is going to decide to do down the road. the next two charts, dollar index one year, hey, looks like it wants to go higher than 100. i get that. you open the chart up to early 2008, it takes a much different look. many technical traders think it lookstappy, that's a double
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tap. i can't stress this enough. watch 100 on a weekly closing basis. tyler, back to you. >> rick, thank you very much. as we near the end of a wild january, we take a look now at some historical patterns and while january usually brings good news for the market, this year's performance ignored those historical trends. jeff hersh is the editor in chief of the stock traders almanac. good to see you. if this month ends negative, as it certainly appears it will, barring a remarkable turn around, this will be the third january in a row, right, where we had a negative start to the year. the last two years, not such good years. not bad, but not great. >> january has been taking it on the chin, the last 16 years, down nine of them, three in a row, '07, '08, '09 down. january not as good as it used to be. things do change a little bit. a down january is a bad sign for the market, we had a down santa claus rally, down first five
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days. we have a fed tightening, we were concerned about this. i put the almanac to bed in june, i was less than sang wid about the market with the prospects for the year ahead, with economics, the political battles, an eighth year presidential term, the second election year, everyone is all excited about the election year being positive. the election year is no longer -- it is now the worst year of the four year cycle. >> why is that? >> well, we had some nasty election years, a lot of them two term president, lame duck person in there who spent their political capital, and they're sort of the change the party after eight years, and we're seeing that going on here. saw it in '08 and 2000. so that was one of the reasons why we came into this year more cautious than other years. >> it is amazing that last year was the first down year for the dow, one year ahead of a presidential election, since 1939. they make for great cocktail party stats, but do they matter?
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>> i think so. the two years after were pretty nasty. it is an indication that the government is unable to prime the pump like it often does. you see a consistent pattern like that, over many years, many decades and many different types of economies and markets, it is telling you that something is going on there. when it doesn't happen, that's an indication that things are amiss. >> back to your first point, is january as predictive as it once was? >> i think it is as predictive as it always has been since the lame duck amendment of the constitution was passed in 1834, '33, ratified, came into effect in '38, but the thing is, you can't just look at january barometer by itself. i don't look at any one indicator. >> you're making it sound political, but i thought january was so great because that's when new money came in, drove the rally. >> with the lame duck amendment, they moved, new congress is convening from lame ducks from 13 years, 13 months later into december back into january and moved inauguration date to
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january 20th, we have states of the union. we have political agendas. along with financial agendas in january. >> which might prevent money coming into the program. got it. >> jeff, thank you very much. we'll see you. we hope you're wrong. >> that would be nice to, but i'm cautious. smart beta, the hot buzzword now in the investing world. a number of top investors like jeff gunlock in on the trend. what is smart beta? plus, mcdonald's shares are hitting new highs on the back of its latest earnings report after struggling for some time. are we seeing the world's b biggest fast food chain make a comeback?
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welcome back to "power lunch." we have stocks following, dow jones industrial average lower. the nasdaq off by 6 and s&p off by 6 as well, dragged down by oil, down 4%. over to sue herera. >> here's what's happening at
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this hour. secretary of state john kerry arriving in cambodia as part of his regional tour in asia. he's due to meet the country's prime minister and foreign minister tomorrow to discuss an upcoming u.s. asian summit which will be held in california. michigan's attorney general says an independent investigation into the flint water crisis will find out exactly why the city's water supply is still contaminated with lead. the national guard has been distributing clean water to residents who complain their original forests we protests we wild wood, new jersey, one of the towns to be hit hardest by jonas this weekend. that receding water has left behind a muddy mess. heavy machinery has been brought in to help with the cleanup. and this is an interesting story, the former defense secretary donald rumsfeld launched a gaming app called churchill solitaire. it is a variation on solitaire that winston churchill devised. it uses two decks instead of one, ten rows of cards instead
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of seven, rumsfeld says that it is vastly more complex and requires strategic thinking. all proceeds go to military charities. would have been a good game to have over the weekend with all the snow falling. that's the news update. back to you guys. >> thank you very much, sue. >> appreciate it, sue, thank you. gold prices closing now. if you love gold, maybe today is not your day. comex up a little bit, not a huge pop in gold. silver, copper, platinum trading as well. none of them making big moves. exciting report. >> stocks lower as we enter the last trading week in january. the dow is on track for its biggest monthly loss since february of 2009. that was a rough time. should investor be buying stocks at all at these levels. michael jones, chief investment officer and chairman of riverfront investment group. and john buckingham, chief investment officer. good to have you here. why do you think we have seen such a sell-off in the stock
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market, especially when we see oil prices going down, which were supposed to be a big tailwind. why is there some correlation we see going on between the two, it doesn't make sense on the surface. >> it doesn't make economic sense, but it does make supply and demand sense in the equity markets. for the last several years, the sovereign wealth funds of all the big oil producing nations have accumulated hundreds of billions of dollars of equity investments. as oil prices come down, their budget deficits soar, they have to find the money to fill that hole somewhere, so they have been selling pretty aggressively in the equity markets. as a matter of fact, saudi arabia alone, their reserves are down $100 billion in the last six months. that's a lot of selling pressure and equity markets, and ultimately real buyers have to step up and offset it. we think they're starting to. >> so that's my question. if it is sovereign wealth funds trying to fill their budget gaps, that's a very different story than fears about global growth or some kind of explosion
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in china when it comes to their economy. does that make you more sanguine at this point? should we be more relaxed about the market if that's the reason why it has been going down? >> we believe so. ultimately low oil prices are really bad for a handful of states in the united states, and a handful of countries around the world. and they're great for everybody else. so ultimately this is a big wealth transfer from the producers of oil to the consumers of oil and the consumers outnumber the producers. we also need to recognize that demand for oil last year accelerated at the pace that it has been accelerating at for the last five years, despite a fairly significant drop in demand from china. now, that chinese drop was because the restructuring of their economy and also some deliberate oil policies that they put in place, but if you kept growing at the same pace, that means everybody else in the world was buying more oil to make up for china's drop and that says to us the global
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economy is doing fine. >> brian will be heading to one of states of pain, north dakota. but let me turn to you and ask you, if i have a three to five year time horizon, is this a good -- as good a time you think we'll see to be buying in or do you think prices will go lower and i might be paid better to wait? >> nobody has a market timing crystal ball, certainly not us. so generally speaking, the whole idea of investing is to buy low and sell high. and we just had stocks go on sale 10% or even more for individual security. so absolutely i think a long-term investor should be taking advantage of this and buying. >> what have you been seeing that appeals to you? >> well, i can't tell you what we're buying because we're still in the process of buying it, but if you look at things like today, you look at international paper, not a name we own yet, but you have outside reacts to what arguably are relatively minor pieces of news, when you
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think about how far the stocks have come down already. that's the amazing thing in this market, there just doesn't seem to be buyers stepping up as the other guests kind of had mentioned. which creates that opportunity for long-term investors. you want to look at companies that are going to do well over the next, you know, three, five, ten years, and the whole idea is you want to buy them when they're on sale and right now you have stocks that trading at very inexpensive fundamental valuations with generous dividend yields in a low interest rate environment in an economy we think will muddle along. i think that's a great recipe for long-term success. >> all right, guys, thanks so much for joining us. you have the same advice, but one thing to know, i should be buying when things are low and it is hard to do emotionally. thank you so much. go to power lunch.cnbc.com and see the sectors that they're avoiding now. that's powerlunch.cnbc.com. >> seems every year there is a new hot thing in etfs. this year, that hot thing is something called smart beta.
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let's go to bob pisani for more on that. dumb beta would fail as a product. >> exactly, brian. and more importantly, we're seeing a big name getting into etfs and smart beta in general. say had i to michael craneri. why is goldman getting into etfs all of a sudden? >> this is a new business for goldman sachs asset management and it is driven by client demand. our clients are moving towards rules-based strategies, and they really like the etf raptor for the traditional advantages of intraday trading, transparency and tax efficiency. the timing was right for us to get involved. >> helps that money is going in, growing 10% a year, the etf business, that must have attracted your attention too. >> you look at the flows, that is where investors are focusing. and we are very focused on the flows into the etf market.
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>> let's talk about smart beta. you started with three new products, just back in september. already got 850 million in assets under management. that's respectable. tell us about one of the products, the u.s. large cap equity, the symbol is gslc. how do you construct smart beta? it is something more than market cap waiting. how is this constructed? >> we take an approach where we look at four common factors or characteristics of stocks. and those four factors are good value, strong momentum, high quality and low volatility. these are factors that have been proven over time for decades to add value. so we start -- >> your point is those four factors, when you wait them in an index, outperform, that can do better than market cap weighted industries like the s&p 500. >> we think it can. we do it in a very risk aware fashion so we are benchmark aware. we're not straying too far from
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the traditional market cap weighted indices but tilting towards the stocks that have scored most favorably. >> we have only been out since september. the problem i have with smart beta is most haven't been around long enough to make a determination. i'm agnostic on whether smart beta is the right way to go over market cap weighted. is there any evidence, do you see any evidence that smart beta is the right way to go and it outperforms index funds? >> the four characteristics i m mentioned are factors that have proven to outperform over decades, well supported in academic research. so we think that will continue. >> the interesting thing, what i found fascinating about how you did it, was the low cost. you came in at 9 basis points. that's cheap. most active beta funds, 50, 60, 70 basis points, yours is nine. that's what the spider charge is. that's a low cost provider. was that a factor in attracting a farley large amount of assets under management? >> i think it was. we decided to take price out of the equation.
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and price our etfs at the same or lower prices as the traditional market cap weighted indices. gslc, for example, is priced at nine basis points, right in line with the largest s&p 500. >> more active management this year? are we going to see more types of active management coming in? >> absolutely. we're focused on rounding out our suite of active beta strategies, launching active beta europe, japan and u.s. large cap in the first quarter. but i also think you'll see development in etf space with more actively managed strategies across the board. >> the hot debate, whether we need active management or not, it is coming for sure. thank you very much for joining us. we'll hear more from goldman sachs, more products in the near future. i'll be here for next two days. investment professionals talking about the hot topics. next hour, we talk about smart beta products in addition to that. and, of course, high and low volatility products. a big, big topic here as well. >> sounds great. i'm jealous.
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thanks, bob. shares of mcdonald's up 34% in the past year. since it was announced that steve easter brook will take over as ceo. does he deserve all the credit? can one person at the top really make such a difference? plus, three of the blue chip stocks are facing challenges. walmart, american express and disney. major eikons. what can be done to turn them around? ckons. what can be done to turn them around? ons. what can be done to turn them around? ♪
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sometimes they just drop in. always obvious. cme group can help you navigate risks and capture opportunities. we enable you to reach global markets and drive forward with broader possibilities. cme group: how the world advances. welcome back to "power lunch." johnson controls and tyco, getting together in a $3.9 billion deal. the company will be domiciled in ireland, making this a tax inversion deal. shares of grubhub are pulling back after rising more than 10% at the open. the food delivery company announced a positive outlook for fourth quarter earnings and an additional $100 million to its share buyback program. they say it is going to add two new directors to the board. and finally, biotech
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disaster, oncomed losing nearly half its value. a gaggle of the world's biggest companies in focus lately. first up, mcdonald's. same store sales posting a huge rebound, as the golden arches really turned things around, sid finkelstein at the dartmouth school of business. welcome. do you believe mcdonald's turned or is this a one or two quarter return to breakfast bounce? >> mcdonald's has made a big shift and a lot of credit goes to the new ceo, steve easter brook there for one year. made a move, all day breakfast, people talking about that. he did it and maybe he executed on it. one thing to have a good idea. another thing to execute on. i think he deserves credit.
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>> what surprised me about this is it took mcdonald's this long. remember the scene from the movie falling down where he -- michael douglas wants to order breakfast but he's two minutes late. people have been talking about this for years. sometimes do ceos just not listen to some of the obvious things and is it that simple this time around? >> you know, what happens often with ceos is this they get surrounded with all kinds of people that like to tell them how smart they are. like to reinforce things that they're already thinking. and sometimes they lose track of some of what is going on in the field that is going on in the real world. and i always think that ceos should spend less time in their office and much more time talking to customers, visiting with partners and suppliers and just being out there seeing for themselves what is going on. >> what is walmart's biggest challenge? >> walmart is struggling. they built this gigantic machine and how do you grow? you have giant walmarts all over the place. they kim out wicame out with th
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a smaller store, express stores. they don't have the same scale economies and efficiencies and is a little bit different. that's a tough area to beat. think about tesla. tesla had the british supermarket chain, had huge write-offs from this area as well from that type of business as well. now target is going after it. not a very good track record there. >> another company that we're all starting to see, the stock getting hit so hard, american express, an incredible icon. analysts citing an increase in competitive landscape, their inability to execute in some areas. what can be done there? >> they hit some pretty big speed bumps, lost that costco deal, competition is coming in. and then things like apple pay and other electronic methods of paying that are potential challenges to what they're doing. but, you know, they have one of the savviest ceos around, ken
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shino, he has a great management team. so from what i know about their management and their leadership, i have a lot of confidence in them. how are they going to fix that? i think it is time to do maybe a few more experiments. and by that i mean moving more into e-commerce and maybe some different ways. and shino kept them at the top or near the top for a long, long time. >> the fact he's been there so long, could that be one reason why people might say, you know what, maybe there is time for new blood that needs to look at the industry in a different way because it is changing so rapidly? >> i am a believer in bringing in new talent in any organization. not only at the ceo level. but who knows more about this business than he does. really hard to imagine. i think -- i'm not sure, maybe they have done this already, whether they brought in senior executives in the experience in e-commerce and electronic pay and come from silicon valley
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world, i think that type of ski skill sect would be a great complement. >> or make the membership rewards worth something. you get 100,000 of them, i can get a toaster or waffle iron for 100,000 amex points. i stopped using american express because of that. disney, everyone is lauding "star wars." espn starting to sag. do you think anyone there can reverse that? >> bob iger, look at the moves the guy has made. not just lucas film but pixiar and marvel and it fits disney really well. now espn, i remember when it first came out, we were watching "sportscenter" and everybody thought it was the best thing ever and now there is twitter and bleacher and other thins out
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there. they have to catapult what espn is doing into more streaming, more online, and maybe look for some unusual partnerships. >> not to mention, as you point out, the changes in the cable universe, something with which we're very familiar here, of course, are certainly pressuring the viewership there. let me ask you a broad question. american business is littered with brands and franchises that have disappeared. howard johnson, kodak, go on and on and on. what does history tell you about the ability of a smart ceo or of a company whose brand is facing these kinds of major challenges. what does history tell you about the success rate? >> i studied that and looked at that for decades. and the number one thing if i were to pin it down that way, that causes the types of breakdowns and failures is an inability, unwillingness to learn new things.
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and how do you fix that? that's a cultural thing and a leadership thing. sometimes you can do it in house. sometimes bring somebody else from the outside. very famous story when ibm struggled in the '90s. so it could be done internally. often you need an outsider. >> i do love breakfast all day. >> yes, i do too. >> i love an egg mcmuffin for lunch. one of the greatest innovations of the year. >> how about you, sidney? >> well, you know, i've got noon greek yogurt lately. so i think that's what i'm going to do. sorry. >> i do too. fruit, honey grar, granola, it good. thank you. oils rally hitting the skids today. let's look at west texas, down 5%. or thereabouts. what a wild ride it has been for oil in the past week. more concerns about oversupply. that seems to be the problem and that is helping to drag down stocks as you see there. the industrials off a third of a percent. the nasdaq off half a percent
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and the s&p 500 more than half a percent. there is the russell at 1005, down 1.5%. "power lunch" will be right back. i'm only in my 60's. i've got a nice long life ahead. big plans. so when i found out medicare doesn't pay all my medical expenses, i got a medicare supplement insurance plan. [ male announcer ] if you're eligible for medicare, you may know it only covers about 80% of your part b medical expenses. the rest is up to you. call now and find out about an aarp medicare supplement insurance plan, insured by unitedhealthcare insurance company. like all standardized medicare supplement insurance plans, it could save you in out-of-pocket medical costs. call now to request your free decision guide. i've been with my doctor for 12 years. now i know i'll be able to stick with him. [ male announcer ] you'll be able to visit any doctor or hospital that accepts medicare patients. plus, there are no networks, and virtually no referrals needed.
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do not blink. you'll miss what we're about to show you. a robot solving a rubiks cube in one second. engineers with four web cams, six motors, one motor makes it each side of the cube. lets it move much faster than a human can do it. the fastest time recorded by a person is about five seconds. watch it. that's good. >> amazing. >> man. i want to invest with those guys. >> good idea. so here are this hour's power points. stocks are lower, but steady. dow down 60 points now. telecom and health care leading sectors now. tyco, wind resort, mining, those are the stocks leading the s&p 500. shares of twitter foll eter again today. the company announcing a major executive shake-up. will it help? we'll discuss that when "power lunch" returns.
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welcome back to "power lunch." i'm heading off to warm weather, chicago. we'll talk to fund managers who were the best in their category over the past year.
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four of them tomorrow. domestic stock, international, fixed income and alternatives. and all of these fund managers beat their respective benchmarks and usually very handily, including one i'm interested to talk to down in baltimore, small company, microcap companies, they posted a very nice gain, about 7%, 8% in a year when the s&p 500 -- not the s&p 500, flat to negative, but russell struggled. these people figured out how to do it, good stewards of their shareholders money and we'll talk to four of them tomorrow from morning star. >> i hope you go to randolph. there for a while. original place. and boca in lincoln park. chicago, better dining scene than new york city by far. l.a. is better than new york. new york is third or fourth. chicago fantastic. athletic association. >> try to stay warm. >> can't be that much colder than here. >> live shot outside of joliet,
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in illinois. >> i love chicago. >> i'll see you tomorrow. >> see you later. >> safe travels. so we are coming up on 2:00 on wall street. 1:00 p.m. in midland, texas. much to do today on the markets. oil and the potential, one of the biggest oil companies bankruptcies we have seen this year. we're going to get to all that. we have to begin with twitter. shares tumbling after four executives unexpectedly leaving the company, this adds another layer of uncertainty to a stock nothing but investor pain for a-long tia long time. let's bring in herb greenberg, cnbc contributor and jason ware, a relatively new twitter shareholder, ceo of albeon financial. welcome. we have talked about this since you worked with us here in inglewood cliffs. you argued that twitter should not have been a public company. i would imagine you're doubling down on that position now. what do you make of today's news? >> well, i think today's news confirms that.
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and that is that this is a company that, you know, is having to in public, you know, bare its soul. that's a significant issue with a company whose model is not proven. we have seen a variety of companies grow when they're private. but twitter is different. i think twitter could have done all of this, has a great service, i think periscope is a potential disrupter on the broadcasting side. but i think in the end, this is a company that ultimately will be acquired and the question right now is, i don't care what anybody says, i think it is stand alone independent company, acquired at a higher price or lower price. that remains to be seen. >> if you're a buyer of twitter, maybe google or whoever else is rumored to take it and watching the price go down, unless you feel like there is a secondary buyer, you're going to kind of sit on your hands. you're not going to put in a high bid now. it won't happen. >> no, you're going to wait and see what happens. people will see whether the new team that comes in really can
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make a go of it. there are good people involved with this company. this is not some trash little company out there. it hasn't been able to get bust out. this is not facebook. it is not the same model as facebook. all social media is not created equally. tremendous value. those of us who use it, we have seen the tremendous value in twitter. but when we see someone, you know, jason rascof on earlier, earlier show, from zillow, and the same thing we talked about forever, how do i get my mother to use this thing, how do i convince people there is value here? they still have that challenge. we were talking about that years ago. and they're still talking about it today. >> twitter did not take your advice. they did go public. jason, you bought shares of twitter in december. your first time, right? why did you buy twitter and do you think they'll be bought at some point or real fundamental value there, that they'll be able to monetize what they have got? >> we think that the value of the platform speaks for itself
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when you look at the number of users on it. user growth slowed. but it is a very unique platform we think has a lot of long run potential. i hear what herb is saying about some of the negatives that are out there. but pushback there is that those negatives are well understood and, yes, there could be a counterargument that says, okay, but people said that at 25 and here we are down here. we're not trying to call the bottom on twitter. i don't think anybody will be able to do that. what we are saying in our -- by taking a position on twitter is we think the long run value of the platform has more upside than downside. it might go a couple of bucks lower before it goes higher. we think we look back in 12 months, 24 months time as a longer term investor, someone who wants to own the business, not just rent the stock, we're looking at a company that we think has relative value down here. our numbers for 2016, trading at sub 30 times earnings and it is growing revenues north of 60% over the last four quarters. jack dorsey is back in the fold. he brought with him a man with
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google, well respected guy, silicon valley and wall street. we think as we look at the value proposition, there is a lot to like, understanding there is negatives too. >> that's why you bought in december and january. when you saw the management shake-up, did you think, oh, gosh? you didn't think twice at least and think, gosh, what do we do here? was this a mistake? >> no, the reason why is we look at it as a net inflow and outflow. two recent developments in terms of leadership at twitter. one has been jack dorsey coming back and now we had four executives. granted talented folks that have left recently, we learned on sunday. four people no one knew about until yesterday. and now all the bears want to pile on and say, this means that twitter is just in really bad shape while ignoring the positive inflow from jack dorsey. and we think the net effect -- i would rather have -- go ahead. >> i wouldn't say people didn't know who these people were. people in silicon valley knew who they were.
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and they were considered very critical to the company. they were critical to the team. they were significant to the team. so you see clearly -- >> you would argue that when you see any exit of people like that, even if they were not brand names, what it suggests is just, you know, a difference opinion with the leadership and the company, not, you know, for whatever reason, the tension there is they're exiting stage left. now the challenge for dorsey -- >> you can't help but say rats abandoning a sinking ship. that's the way -- that's how it comes forward. >> yeah, but can't just -- look, i agree with jason, can't just say things like that because there is more to it than that. but you do have to see there has been a change of major people that have to start from scratch with some of the people, to get the strategy, going in the right direction. i would bet if you sat down with some of the people privately, they would be telling you they're leaving because they don't agree with the strategy, going forward.
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>> they had five -- in six years. hold on. want to push back on the revenue comment you made. all the bulls point to revenue growth. but cost of goods sold have gone up not at the same rate, but pretty close. and if advertisers -- they're always behind. advertisers are a couple of quarters behind. you get the people, and advertisers move slowly and start to advertise. if they realize it is not working or feel like they're not getting value for their money, that revenue line could, it may not, but it could drop off dramatically. >> i agree with that. we have seen it slow. it was triple digit growth when you go back to four quarters prior to that. with the stock at 50, i agree with you, slowing revenue growth down to 60% or maybe 40% going forward is a cause for concern. but down at $11.5 billion market cap, stock trading at 17ish, one has to say where does that value start to but rees the downside and you start to look out two and three and five years and can build into pretty good organic
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case for why the stock can go high and you get optionality, i don't know who that would be, i don't want to speculate, but a number that could come in here. >> that's hard to -- >> i know that's hard to imagine with the quarterly to quarterly, you know, focus on wall street, but the reality is you have to be a long-term investor sometimes. we're monitoring this in real time. you have to take a longer view than what will happen next month. >> yeah. >> what i would argue is one thing i would say, i have to say one thing, one thing twitter should definitely do, stop giving guidance, stop having this comeback in your face. get down to business. take the bitter pill. stop trying to play to wall street. run the business. and then let's see what happens. i think that would be a good starting point going forward. >> i think twitter needs to figure out what it is. we love it. we broadcast on it. i've never given twitter a dollar of revenue, never seen an ad. if i have, i haven't acknowledged it. i wonder where that -- i started to move more to my facebook page because i view that as the
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long-term future of social media. google plus didn't make it. we'll find out. jason, if you are right and you may be right, you'll get rich. and your investors will get rich and we'll all be happy. thank you very much. >> thank you. >> herb greenberg, thank you. shares of dr horton under pressure after the home builder reported its slowest revenue growth in four years. diana olick joins us. the company's ceo made interesting comments today about what is and what isn't selling. what did he say? >> michelle, cheap works, plain and simple. revenue growth may have been slower, but david alt couldn't say enough about the company's entry level express homes brand. he said it is the driver of market share gains at dr horton, expanding the brand rapidly to southern california. strong in texas, the carolinas and florida. express was launched in early 2014 as others like palte focused on high end. express touts a no option, no frills house for between $100,000 and $200,000 depending
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on location. this is below the national median price. and he said dr horton is seeing slower movement on its luxury emerald brand and even its midlevel core horton brand not seeing as much demand as express. steven east said on squawk on the street this morning that dr horton is way ahead of the other builders on the entry level. and said his research shows others are starting to move toward entry level, given the demand of nearly 2 million newly formed households that will eventually go from renting to owning over the next decade. it is harder to make money on a cheaper home. but horton execs seem very bullish on 2016 overall, even on texas, with the exception of houston. >> that doesn't surprise me considering what we have seen energy markets and impact on the city. so when you talk about entry level homes doing better, does that mean all this concern about millennials not buying houses and preferring to rent, is that
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changing? are we seeing them come into the market? >> it is changing very slowly. it will change as they age, as they get married, have children, the biggest drivers. the biggest problem is there is so little on the low end, investors bought the existing homes at low prices and there is not a lot of moving up going on because people aren't selling. they're afraid they won't find something to buy. we need entry level new homes that, you know, these first time buyers can afford. at dr horton, they're seeing that demand. >> got it. all right, thanks, diana. we have egg mcmust haffins, mcdonald's investors were loving all day breakfast. the ceo of taser will join us. he'll lay out the one place in the world where he's seeing a lot of opportunity right now. later on, an energy stock we warned you about last month. now coming under some serious pressure and is it in risk of bankruptcy? that name when "power lunch" returns.
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all right, welcome back to "power lunch." all day breakfast paying off for mcdonald's. same stores sales jumped last quarter. shares hitting an all time high in today's session. goldman sachs adding to its conviction buy list. citing increased confidence that mattel is at an inflexion point.
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there are a couple of stocks hitting new 52 week loews today including bank of america, sea gate and fertilizer maker mosaic. former new york city mayor michael bloomberg reportedly considering a white house run. if he announces he'll be the second billionaire seeking the highest office in the land come this november. cnbc wealth editor robert frank joins with us more on what is -- could be a battle of billionaires. >> great race for wealth reporters. bernie sanders calling it the contest between billionaires. if miami bloke bloomberg joins race, he'll be a bigger billionaire than trump. net worth estimated to be 36 and $42 billion depending on the estimate. trump says he's worth over $10 billion. independent estimates put his worth somewhere between $2.9 billion and $4.5 billion. let's call it a little over $3.5 billion. that means that it takes more than 9 trumps to equal one
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bloomberg. bloomberg likes to spend big on campaigns. we know he spent more than $260 million on his three mayoral campaigns and $380 million on charities and pet projects once elected. over 650 million during his mayoral term. trump said when he announced that he would spend up to $1 billion of his own money. he's promised now to spend $2 million a week in ads leading up to new hampshire and iowa. but he said his campaign right now is $35 million under budget because of all of the free publicity. hasn't had to spend much money. bloomberg would be the richest man ever to run for president. ross perot currently holds that title, worth around $3 billion when he ran in 1992. we just figured this out. inflation adjusted terms, he would be worth around $5 billion today. a little bit more than trump. >> who would he -- which side would he disrupt more? you argue he was fiscally conservative in new york city, right?
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so in theory, a republican would like him. yet he's pro gun control, very big on climate change, nanny state, 32 ounce sodas. he attracts democrats. >> i think conventional wisdom, which has been wrong throughout this whole race, is that he would take away from hillary or bernie sanders if bernie sanders gets elected. people don't think he would run if hillary gets the nomination. really only if bernie gets the nomination that clinton -- that trump would say -- >> the idea would be that the sort of middle of the road educated democrat might go with mike over bernie. he would do more damage to bernie than he would do to donald trump, even though the initial reaction would be, well, they're both billionaires, we pick between the billionaire, no, pick mike over bernie if you're a centrist and worried about bernie and his other positions. >> the fact he's a socialist. >> the battle of the billionaires, maybe the billionaires should say the battle of the nonbillionaire. >> the battle of the people who don't have to accept lobbyist money because they can fund
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their own campaign. i go with the guy with the most money. that's how i pick -- >> you are the wealth editor. i would expect. it is amazing trump hasn't had to spend that much money because he gets -- >> ironic because he can spend the most and he hasn't had to. he spent probably the least. >> all right, robert, thanks. >> thank you, guys. >> fun to watch. up next, the five big stock calls that need to be on your radar right now. street talk is on deck. and later, if you're interested in etfs, stick around. we'll tell you about the dark side of the $2 trillion industry when "power lunch" returns. ♪jake reese, "day to feel alive"♪ ♪jake reese, "day to feel alive"♪ ♪jake reese, "day to feel alive"♪
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you thought trekking through the snow was exhausting, check this out. four women from australia, arguably superheroes, rode their way to the record books by crossing the pacific ocean on a four person row boat. it began their journey in san francisco last april. they ended in australia today. it took them 257 days to complete the trek. looks like they are exhausted and stiff as you might imagine. the first power person team to row across the pacific, which every landmass just finished a book about this guy that floated
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at sea, 437 days the name of the book. a fisherman who got washed out. he basically just floated from mexico to the marshall islands. every landmass in the world could fit into the pacific ocean with room to spare around it. they rode across it. >> incredible feat. is it really girlie to say i like their pink t-shirts? >> no. it is cool. you can say that. i can't. street talk. five big analyst calls of the day we think you need to know about. first up, home depot. deutsche bank upgrading it a buy from hold. they think overall home centers have the best fundamentals in hard-line retail, known as best, not just bust. they say home depot is the market leader on sales, sales growth and profitability. they know the recent 12% drop from the high is like everything else, michelle, so they upgrade it to a buy with $135 target, 10% upside, but in this market, 10%, sounds good. >> doesn't sound so bad.
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the second stock is yahoo!. upgraded to buy from hold. pivotal research. the firm believes the continued deterioration of the company's situation raises the likelihood it will undertake changes or initiatives to help unlook shareholder value. it might actually do something about it. i don't know. >> if they knew how to unlock shareholder value, they would have done it. >> the target -- the target was decreased, 36 bucks from 37. that's still about a 20% upside from here where it is at 29, almost 30 bucks a share. >> twitter and yahoo! in a race as to who has the most restructuring/changes over the last 12 months. i think yahoo! might be slightly ahead. third stock, schwab. a better risk rewarden this a competitor like raymond james. schwab is not immune to a bearish case impact. s a they like the future earnings potential, their target is 34 on
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schwab, about 32% upside. >> fourth stock, sandisk, downgraded to underperform from outperform at clsa. firm citing the company's deteriorating fundamentals as well as the increasing concerns around completion of the deal with western digital. that target cut to 70 bucks from 86, $10 higher than where it is right now. >> there was a day when memory ruled the world. now it is on the cloud. today's under the radar name, quality systems, qsii, california based health care automation company, part of the big move to the digitization of health records. upgraded from overweight to neutral. they think new management moves will stabilize the business. they boosted from 25 to 13, blew by the old target. but it is on the upside. >> rough year, but a comeback. >> yeah. july was not kind. >> no, certainly wasn't. >> there we go. the final oil trades are beginning to cross for the
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session. jackie deangelis, another weak start to the week. how are we looking? >> good afternoon to you, brian. well, easy come, easy go as they say, giving back some gains we saw late last week. why oil traders are saying not so fast and what has them nervous in the oil pits when "power lunch" comes back.
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welcome back to "power lunch." look at the markets. all the major averages are lower. the dow, the s&p 500 and nasdaq with russell as well. dow off 88 points. look at the weakest movers in the s&p 500, a lot of energy names. chesapeake, simerex, devin, hess. sue herera is standing by with a news alert. >> layoffs to tell you about, michelle, at this point. layoffs and cutbacks at sprint corporation. about 2500 jobs. it is about six customer care centers according to customer and company officials. but this latest wave of layoffs is basically part of a cost cutting plan and sprint wants to eliminate about $2.5 billion in spending over a number of
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operations. so it is more of a company wide move. this in particular affects certain customer care centers. but it is part of a larger effort for the company to cut costs. and it will affect about six call centers, 2500 jobs. so sprint has put forward in the past that it wants to cut its costs. you can see the stock reacting, now down sharply, about 4.3%. brian and michelle, it is part of their effort to cut costs. but it is coming at the cost of this time around, 2500 jobs. >> this has been a difficult company. sprint had a lot of problems for a number of years. it is a race to the bottom in pricing. we all see the commercials on tv, free data, everything is coming down, and when you go back and look, as i got some friends that worked or worked at sprint, when you look at the nextel deal, the different in the systems the two had, the cost synergies, a lot of them did not work out. many people describe that deal
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as an utter failure, some people call it a success. especially with the management they got paid on the way out. the point is is that it is a high cost business in a race to the bottom in pricing. >> and it is going to affect cities all over the country, denver, arapahoe county, colorado, then last week, it was kansas city, so the company is really trying to spread it across the company and across the country and expect more because they're not finished, they haven't achieved the $2.5 billion target yet. >> is this moving the stock? >> this is moving the stock. i would say sprint at one point was as high as $3.05 on an intraday basis overall. in positive territory. it was just in the last maybe half hour or so that we saw the stock take that dip down to where it is toward the worst levels today. it did get down as low as $2.70 at its low so far. again, brian, and sue, and michelle, to put those moves in context, sprint has been struggling. one of those telecom companies struggling. it is down 24% just so far in
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2016. down 35% over the course of the past 12 months. sprint has a lot of work to do. but like sue said, very much a concern for a lot of people, especially in that kansas city metro area because of sprint is based this that area. >> exactly. the interesting part is they are closing the customer care centers, but what they're going to do is they're going to rely on customer care sites run by vendors. so now you got to wonder whether the customer care will be the same as if it was at a sprint designated site, another issue. do they start losing customers. i don't know, but that's a risk. >> one could argue that customer care and wireless sort of -- >> pretty bad in general. >> that's true. in general, not very good. >> you can say that about any industry in america. here is the thing. how about revenue ? the end of 2012, sprint did $35.3 billion in revenue. at the end of last year, it did 33.2. revenue is coming down. >> do you think the doj might
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sit back. they were against consolidation in the industry. when you start to see what is happening here, you wonder if it would have been better to have stronger players to compete. because right now if you -- depending on what kind of buyer you are, still at the top there is verizon and at&t. >> it is very much a duopley. >> i think it is a very valid point. we'll see how it all pans out. >> of course, t-mobile usa, that's going to be the big one, what kind of reaction will they have? what is happening here now. they have been trying to jockey for market position and share from the likes of sprint. it is very hard to go up against verizon and at&t with their kind of size. >> the stock is up 1.5%. >> thanks, guys. >> sure. >> we'll get more on sprint throughout the day on cnbc. let's get back to your top story for the last 15 months. jackie deangelis and oil. >> 5% decline a little more than
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that on the close today. $30.39. supply and demand back in focus today. you know how fickle this market is. one day focused on one thing, and next day to the fundamentals. iraq supply at record volumes now. the u.s. still pumping. you reported rig counts down on friday. if the number -- production numbers here continue to go up. that is the concern when it comes to this story. also on the demand side, china continues to be a problem, concerns that we're not going to see the demand there that we were expecting and overall this year, it could be flat when it comes to demand. the other piece of this is the fed meeting, kick off tomorrow. we have to watch what the fed does and how that impacts the dollar had it comes to the crude oil trade. >> thank you very much. here is another quick rundown of some oil and energy related headlines now. cost cuts helping halliburton revenue. earnings okay because of cost cuts. investors not fooled. that stock is down. partners saying it will cut its plan by a third.
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and reuters reporting that shale driller sandridge energy is exploring debt reinstructioning options, according to unnamed sources. they were delisted on january 6th, a name we talked about, michelle, a while back. sandridge could be the first energy related failure of the year. there will be more coming. let's bring in mike kelly of seaport global securities. mike, sandridge, one name in many. if oil -- forget about a rebound. everybody talks about oil like it is binary, goes down, goes up. what if it stays around the levels for next 12 months. what happens? >> it is a disaster, brian. thanks for having me on the program. around $30 for 12 months, you know, that's -- nobody predicted that a year ago. 30 was not in the cards for any long period of time. so right now the bond market really kind of is, in my opinion, almost predicting that, though. we -- at seaport we track 69
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companies on the high yield side. and over half of those names are actually trading at less than 40 cents on the dollar. so the bond market is really predicting a pretty dire outcome here over the next 12 months. >> is it overdoing it? >> in some cases, yes. there is some instances, you know, we look at sanchez oil and gas, you know, close to $900 million in liquidity, great hedges, that's a name that shouldn't be traded at 30 cents on the dollar on its bonds. i think we have great opportunities there, but, you know, with -- if you run the numbers through, on our numbers we put out a big report two weeks ago and said that the average company will be over five times levered. and the numbers are bad if you run a $30 price through for the next 12 months. >> should -- how about some macro advice. should anybody out there invest in oil or oil and gas stocks because of an expected turn
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around in price? why? they're ultimately guessing. nobody -- nobody has been right on the price of oil nobody. >> you're right. and i think that if you look at it right now, brian, just look at the rig count, we continue to see a giant slide here. ultimately that catches up with us here. you'll hear with fourth quarter earnings that all the producers here in the u.s., we had a little conversation in l.a. last week, the big theme was constraint. you'll see guys just slash budgets left and right, and that ultimately will put the market back in to balance, ultimately we think undersupplied market. that tells you that, you know, the real long-term price is more like 50 plus. not $30. real high class guys, you can make really good money on buying right now. >> so let's talk about that high yield bond that you mentioned, trading at 30 cents on the dollar. what assumptions are you making? the way to think about that is
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you got a few extra bucks and want to throw a flyer at it and you can white knuckle it for a while. if oil returns, it goes back up to 50 cents, 60 cents. or you think it was just fundamentally overdone and still can survive at this point? >> i think that -- on the high yield, i'm no high yield expert here. we like the equity of sanchez. we upgraded it after the analyst day. we think there are returns they're getting in the eagleford, back to $50 environment, that's the big assumption, ultimately we get there. really by the end of 2017, going into 2018. at that point, these guys have a viable business. it is all good. if that's the case, bonds trade up closer to par. so that's what we're thinking. >> that would be a huge move if it happened. >> it would be. i love houston. been there, done the show there a number of times. just there a couple of weeks ago. what is the talk you go out for dinner or drinks or meet with
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oil and gas executives, talk to people you deal with or maybe your neighbors, what is the increasing mood there in houston? the feeling? >> we're all bulls down here. and, brian, you're down here a year ago and called this and said, listen, this restaurant, in a nice stick joint that will be -- will be empty a year from now. we're starting to get to the point where guys start to get spooked. >> i have to say the restaurant is not empty, thank god. i don't want any restaurants to be empty. i was very negative at the dinner. but, you any, you think there will be a turn? >> i'll give you a couple of -- more antidotes quick. shopping over christmas here at macy's and having the guy there to say, boy, online shopping has killed us, december sales might be down 50%. i said i don't think that's online shopping. we had the chance to go and buy thins on the internet last year. car dealerships, extremely hard
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to move product. you're starting to see home prices, start to crack a little bit too. so commercial real estate is supposed to be the worst market in the country now. we're starting to see it. >> makes sense when you're so reliant on one big commodity like houston can be. >> yep. >> all right, mike kelly, seaport global securities. we appreciate you coming on and sharing the stories and ideas for us. thank you. >> thank you for having me. plufrni iplufrn plunging oi continue to fall. it is $1.83. i did something i don't think i've done in a while. ill fill i filled up my jeep. it was not empty. 20 bucks. i gave the guy $20 in cash but $1.57. >> didn't that feel great? >> it felt great but i got scared for the industry. my dad and grandfather both own gas stations, my dad got wiped out in the gas station business during the oil crunch, gas station on whittier boulevard,
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harvard boulevard in la habre, california. tough business. it is hard. a huge event on tap for tomorrow. not tyler morning star. that's big too. when apple set to report they are earnings, that is a big day. what is best way to position yourself ahead of the numbers? let's ask erin gibbs and ari wall with oppenheimer. erin, buyer or seller of apple ahead of earnings? >> so apple rarely disappoints and so we're a buyer ahead of earnings. this quarter is particularly important. it is their first fiscal -- first quarter for fiscal year. about 50% more than all the other quarters when it comes to earpings. and we note same concerns have been ongoing, concern about price in china, lengthening cell phone use. but it is still a wall street favorite. it is a very -- an average of a strong buy and we have it in our
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portfolios, we like it. the iphone 7 is supposed it release later this year. the big thing is it is such a great value, it is actually outperformed the s&p 500 year to date because it is more of a defensive stock and is -- does hold that value . and so going forward from a long-term investment we still like apple. >> all right. ari, how do the charts on apple look? >> charts aren't as rosy here. we're a seller into the report. what it reminds us of is late 2012 when investors are trying to pick the bottom and apple all the way down, rather than just letting price stabilize. and price hasn't stabilized here. in fact, we're seeing it the other way around, prices breaking down, along with the breakdown below the october low, it is being confirmed with this falling 200 day moving average. you tend to want to trade in the direction of that. that's a great proxy for the trend. we think the higher conviction move here is to sell strength. that breakdown point tends to be
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resistance, if you do get a little bit of a pop, that level is at 106. we're selling into 106 resistan resistance. >> fundamental and technical. erin likes it, based on apple history in part. ari zmdoes not like it based on the charts. thank you very much. for more trading nation, go to trading nation.cnbc.com. it is a $2 trillion industry and it is growing by leaps and bounds. etfs, they're playing a bigger part of people's portfolios. regulators asking whether some funds should be banned. the dark side of investing in etfs straight ahead. you're watching is ining cnbc, first in business worldwide. now the latest from trading nation.cnbc.com and a word from our sponsor. >> buy low, sell high, a basic tenet of investing but doesn't have to be done in that order. since markets go up and down, why in the use a strategy that allows you to make money during
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this is the pursuit of perfection. e*trade is all about seizing opportunity. so i'm going to take this opportunity to go off script. so if i wanna go to jersey and check out shotsy tuccerelli's portfolio, what's it to you? or i'm a scottish mason whose assets are made of stone like me heart. papa! you're no son of mine! or perhaps it's time to seize the day. don't just see opportunity, seize it! (applause) welcome back to "power lunch." i'm bob by sau pisani in florid.
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melissa lee with me. simeon heimens joins us for pro shares. we want to talk about hot investment products. but before we get to that, the s.e.c. recently announced they're looking into suitability of certain etf products including leveraged and inverse etfs, pro share active. can you tell us what your response is to that announcement and will that affect your business at all? >> there is two things going on now. one is the suitability issue, more focused on advisers and broker dealers and how they make sure that the things that their clients are holding are suitable, appropriate for their investment strategy. and that's one issue and of course we think there is nothing wrong with making sure that investments are suitable. clients should know what they own, why they own them and monitor their continued relevance for the portfolio. the other piece that i'm sure you're also aware of is the s.e.c. looking at the usage of derivatives in etfs.
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>> and talking about restricting the amount of leverage you may be able to have. instead of three times leverage or three times inverse, maybe won't be able to do that. is that going to affect your business model. >> we're looking at the proposal as it is. it can change over time. but as it is currently proposed, we see a lot of comfort in our ability to continue to offer our 2 x and minus 2 x etfs. >> are most self-directed investors or broker dealers? even if there was a new rule, it wouldn't necessarily be effective because their individual retail investors were going on various platforms executing their own trades. >> there isn't any one profile, but they are important tools for investors of different stripes to manage risk. for example, in this volatility and downturn we have seen in the high yield bond market as an example, we have seen flows into sjb, our inverse high yield bond etf. they're important tools to a wide variety of investors. >> what about in terms of the
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volatility we have seen this month? you have product out there that offer people ways to invest. >> on the sort of innovative side, always looking for innovative ways to manage risk. we recently launched s&p funds that have a sector stripped out, x sector funds and spxe, x energy, has gotten a lot of attention. because even if the energy prices start to stabilize, or even rise just a bit, the pnls could be compromised for a long time. we have seen beginnings of flows. but we are starting to get interest in the space because we invented this one on the sector front. on the more established side, we recently passed a billion dollars in ticker nobl, the s&p 500 dividend aristocrat fund, a simple strategy, high dividend yield, but it has a very strong defensive quality. back in august, very low participation, 50% to 70%
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participation on the downside and does well on the upside. people looking for more quality approach. >> for the newer products, there is -- they end to to be smaller now because they're in the beginning stages. is it a good thing or bad thing if hedge funds use these as tools. we have seen time and time again in the etf market. >> you know, volume is good. but the best thing or one of the best things about the etf structure is the create and redeem cycle allows you to invest in etfs regardless of their size and be comfortable that you'll be able to trade in and out of them or create -- >> it doesn't matter in your view if hedge funds start using these as trading vehicles. >> they say the volume is a welcome thing and the interest is regardless of the type of investor, hedge fund or individual. >> one thing that will surprise you in 2016 in etfs? >> surprise in 2016? i think we're going to even be surprised on the upside as the
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market shares from mutual funds to etfs. >> nice prediction. thank you for joining us. we'll be here. melissa and i will be here both days talking about etfs, professionals talking about the hot products and hot topics. all about active management and about smart beta as well. back to you. >> looking forward to it. thanks. still to come on "power lunch," the ceo of taser about his company and its future with law enforcement. "power lunch" will be right back.
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we have a huge show on tap tomorrow, tyler mathison is at the fund manager of the year awards. he'll speak with four of the best performing money managers on "power lunch", ranging from domestic to fixed income funds, a lot of high powered advice you can all use this the market right now. that's tomorrow on "power lunch". >> as we head into the final hour of trading, the dow is down triple digits and s&p and nasdaq are lower, another bad day. last week a couple little rallies but markets selling them off. "power lunch" welcome back in
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series of cases where police are accused of using excessive force have ignited protest across the country and pressure grows for police to use body cameras and nonlethal force. baltimore county is outfitting its police with body cameras. will taser be the beneficiary? the stock though is down about 50% since summer. rick smith is the co-founder and
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ceo of taser international. good to have you here. >> great to be here. >> when you hear about the push for body cameras and general media say you need the body cameras to prove all of the things that police are doing wrong. when i look at your website, the way you try to sell them to police, when you wear these, more often than not you'll be proving you're doing something right, correct? >> it's a chance to show all of the guy and women in blue doing a great job every day. >> the statistics you put on the website, how much of reports of abuse go down? >> well, we see typically anywhere from 60 to 90% in reduction in complaints against police. >> it would seem like such a logical thing to do but your stock is coming down a lot and estimates are coming down for your company. why is that? >> you know the pair doxiccal thing, the more success we're seeing in our video business,
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the more short therm expenses there will be and that's going to take profits out of the short term. but we're building a power house long-term business. cameras are not what's interesting, we built a service, evidence.com, the only major online cloud platform in public safety. we have 31 of the major cities in the united states on that platteform today. because it's great recurring revenue and highly defensive long-term business but in the short term the more money you spend on sales and marketing and revenues get deferred over time. as we work through this transition, short-term investors tend to punch out because they see the company is spending more money but it's because sales bookings growing over 100%. >> this is a cloud based video system. if i'm an officer, i brought the camera back in. what does it do for me? >> absolutely. think of it like itunes for
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police. the real challenge, if you have a thousand overs or several thousand like baltimore, you have to bring the cams ra and get the dimg cal evidence off and get it somewhere safe. we automate that work flow so the police officer drop in the dock and they are done. no one has to manually copy file. and without our system you have people burning disks every day. and we automate that whole process. >> how long before it pays off? right now it's a drag on earnings. >> it will take a few years. the interesting thing as long as the sales curve is really steep you're going to see a short-term hit to profitability because you're paying for that growth, it also means the most profitable the business is in the long term. we can see profitability in a big way in a 2018, 2019 but we're hoping that sales curve continues to grow in 100% plus range so long as we can sustain
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it. >> rake, i don't know if you remember this, the first time we interviewed was 1998 and some hedge fund manager were short your stock. you're still heavily short but how frustrating is it to be you running this company where you're constantly fighting short sellers. this is going on for 15 years. >> it lights a fire in my bely y taser is a bit of a polarizing brand. people have opinions, some people love us and some feel negativively about us. and to be honest, the video business we're in now, i don't know if we could have done it if it weren't from the controversy from the shorts and public media about taser weapons ten years ago. what doesn't kill you makes you stronger. >> why do people doubt your company constantly? >> i think it's because we're going after really controversial issues. we're trying to solve things like making the bullet obsolete.
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trying to solve things like police brutality. when you do that, it tends to get people interested in both sides of the issue. >> we'll see how it goes. thanks for coming on. good luck with that. >> we appreciate it. >> thank you all for watching "power lunch." "closing bell" starts right now. >> hi, everybody, welcome to "closing bell". >> i'm in for bill griffith, this is the last hour of the trading day, stocks kicking off in the red. oil is dragging on the market yet again. chesapeake, hess and marathon, just a few of the stocks getting hit hard in today's session. >> look at those declines anywhere from 6, 11% in chesapeake's case and goldman sack's commodity chief will join us for w

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