tv Power Lunch CNBC January 27, 2016 1:00pm-3:01pm EST
is what they have been saying. >> joe? >> transtory. we need to address that. >> almost got the show without it. >> couldn't do it. we'll see what happens in an hour's time. thank you for being here. "power lunch" begins now. thank you, scott. look at the clock. we're just about one hour away from the big fed decision. welcome to "power lunch." i'm melissa lee with tyler mathisen, michelle caruso ca bair w bairia and brian sullivan. this is an oil driven market we have here. oil, the dow flirting with the flat line. just about flat right there, down by 1.5 points. the s&p 500 up by a third of a percent. the nasdaq weighed down by apple, but weighed down just a half a percent now. >> big move in oil, up almost 4% now. more on all this later. let's start with the fed and steve liesman as we wait for the
decision and more importantly not the decision, but what the fed says. steve? >> hey, tyler, good afternoon. the vote has already taken. the decision has been made. all this probably left is a little last minute mimeographing of the statement to see whether or not the fed will face some new facts and it does face a new set of facts when it comes to the economy and markets. here is a look at some of the things that changed since the last meeting. and with the question of how much they actually address in the statement. stocks obviously have sank. volatility has surged. oil has plunged. the inflation outlook has got to be lower now. the economic data has weakened. for the fourth quarter, between 0 and 1% growth. the dollar strengthened. jobs number, a bit softer after that blowout number we got for december. the claims numbers have come off. the question becomes, guys like jeff gunlack come forward with -- but the fed survey, step forward and say the fed should
see all this as transtory, not weakened to the market or not respond heavily to the mark e the question becomes does the fed flinch here. here is a look at some five areas of the statement that i'll be looking for potential change. you may not get all of these, but here are some things the fed may say. first of all, the fed may note u.s. growth has weakened. the second that global growth presents a drag -- a potential drag on u.s. growth. it may note the market volatility as we talked about, and shows less confidence that inflation is moving up towards 2%. there is a comment in the last statement where it said it was reasonably confident. last thing, does it give an overall impression that it is -- rate hike was off the table for march and how much longer does that linger? >> steve, as you stick around and we talk more about what the fed may say later today, i'm curious how the consensus of the people you talked to has changed with respect to not only the
number of interest rate hikes that may take place this year, 2016, but where we end the year in terms of the fed funds rate. how has it changed? >> let's start off with talking about the idea that the fed and the markets have never been on the same page as to the outlook. the fed came forward with a median forecast of an fomc member of four rate hikes and the market looking for two. we haven't really seen very much change going to the cnbc fed survey, but the futures market changed a bit, it had been looking for a year end fed funds rate of 90 basis points, that's dialed back to 60. so essentially it had been looking for two hikes. now one. the fed survey, guys are a little more stalwart in there, more hawkish in the sense that they don't think the fed should knuckle under to the market pressure and should keep going although they have the next rate hike coming a little bit later, there is a diversity of opinion out there, where really, tyler,
the market guys say listen to the market. the e-con guys are less convinced the market is correct in predicting abysmal outcomes that are baked into the stock prices these days. >> steve, stay there. we have a news alert in the bond market now. five year notes, rick santelli tracking all the action at the cme. what does it look like? >> not so good. it is never really a great idea to move supply during a fed meeting. but especially such an important fed meeting in the context of what happened in december. let's go through it. 35 billion in five year notes, drop in yield, 1.496. here is the question asked, what was the high when issued yield? today, 148. this had a long tail, 2.44 on the bid to cover its close to 10 auction average. 53.55, lower than 58, those are indirects on the 10 auction
average. this one gets a d as in dog. it was all about how far back they had to go on the pricing to move the dutch auction supply. and it really is more of a sign of the day and the times i think than the global demand for these securities in general. tomorrow, the last of 90 billion in supply with seven year notes. back to you. >> rick santelli, thank you so much. back to steve liesman. you were talking about the market's ability to forecast. and the markets are down by about 9%. i know that volatility is being addressed by the fed, do you think the markets decline, straight up declines are on the fed's radar? >> it is on the radar. but it is on the radar in a somewhat different way. i think the fed would rely more on its models for better or worse to predict the economy. but what it would do, the way it would factor in the market is in a tightening of financial conditions. lower stock prices means the cost of capital to companies is higher and they have variety of financial market conditions or
stress indices for financial markets and all of those would show that there is somewhat high, not off the charts high, but they would suggest tighter financial market conditions. look, it is worth thinking about this, melissa, during most of the crisis and the aftermath, the fed relied very heavily on markets. and the markets were major conduit of its policy. that remains the case, but i'm wondering if we're approaching a time where the fed may need to go one way while the market wants it to go another. and perhaps the fed needs the market somewhat less than it did in past. >> steve, related to fed policy, but since 2009, the markets have gone up along with fed easing, right? then when it looked like they would start tightening again, the big hiccup that happened in august, we're seeing the sell-off now, but is something different from january 1st now we're so deeply correlated to oil, has that fed market breakdown happened? i don't know if you know that. i'm wondering as we watch the markets move almost exclusively
with oil and if somehow that pushed the federal reserve to a different place in the investment world. >> so i think this correlation is something that the rational expectations people or those who believe in perfect markets, it makes them very concerned when they see this. the linkage of stocks to oil and divorcing it from fundamental discussion, i was really hardened to watch fast money talk about apples and earnings. when can you remember the last time the focus of the market was on the economic data or on the earnings data. it has been a long time since that happened. and i think a good measure for me -- >> the fed put its big thumb on its scale. steve, we're in total agreement. >> i think it would be back in an era of normalcy when the market goes up or down based on earnings outlooks, up or down based on economic data, but not based on either, a, a quarter point rate hike from the fed,
which is not quite as consequential. >> what you're describing, what you just described in textbook words, and i give you an a plus, is normalization. how can we get back talking on fundamentals? elbow out the fed. how do we talk about apple? apple out the liquidity? how do where do all roads lead? central planners and central banks. is it horrible? they think they averted a depression. we'll never know. but one thing we know, we're not in a crisis. even if we go into recession, we're nowhere near a crisis. that's the discussion, isn't it? >> here's the discussion, rick, you remember this, i know you did, which is the point and time when you let your kid go on the bicycle without the training wheels the first time. there was a little bit of this, and a little bit of that, and ultimately they could have fallen and you could have ended up with the emergency room, or they could have gone on i really think we're in the period where the market is learning to find
its balance in a world where -- >> we need to avoid being a college student with a bicycle with training wheels. >> i think i know what you mean by that. i'm not sure that's suitable for cable television. >> i'm talking about -- i'm talking about old age. >> i thought you meant something college students may do that would cause them to fall off their bicycles. >> no, i love college students. it is very difficult to board up the chimney and say fed's santa claus, draghi santa claus, you can't come down the chimney anymore. >> we have to get back to some form of normalcy and don't believe that anybody believes 25 basis points is normalcy. >> let's talk spread. we're talking about what is normal in the context of what is a crisis. and i think there is a lot of room in between there and that's also a subpart of the discussion. >> all right. we'll leave it there. a lot more time to talk about the fed obviously here in the
next hour and a half, two hours or so, rejoined by you guys in just a bit. meantime, apple under pressure. iphone growth hitting a wall. how do you value the company and the stock? we count down to the latest fed decision. it is less than an hour away. 50 minutes and two, one, seconds. you're watching cnbc, first in business worldwide. all across the state the economy is growing, with creative new business incentives, the lowest taxes in decades, and university partnerships, attracting the talent and companies of tomorrow. like in utica, where a new kind of workforce is being trained. and in albany, the nanotechnology capital of the world. let us help grow your company's tomorrow, today at business.ny.gov
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welcome back to "power lunch." apple one of the big factors weighing on the dow and the nasdaq 100 at this hour. shares down more than 4% on the latest earnings report. tech giant posting the largest quarterly profit ever. how do you now value the stock? steve milenovich, and timothy lesco, great to have you with us. tim, straight to you, your firm owns more than 102,000 shares of apple. are you using the pullback to add the position to the -- to the position because you sound bullish about apple. >> well, you know, apple for us, we're value managers. if a stock is trading at ten times earnings and then 9 1/2, it is an opportunity to make sure you have the position you want in the stock. we'll take a few days to go through the earnings and decide
whether or not to increase our position. but certainly the price action gives you an opportunity if you don't already own it to begin to build into the stock again. >> steve, i want to ask you, you're lowering your price target today, so i'm wondering, at this point, why would apple deserve a higher premium than any other hardware company? what was interesting on the conference call is tim cook spoke about the installed base and reoccurring revenue. but the recurring revenue part had to do with loyalty, people sticking with it, earning revenues from the various services, but not a recurring revenue in the sense that a lot of investors would like to see such as from a software company or services company. >> i think apple's a hybrid of hits and services, annuity streams. they hurt themselves in talking about services. we don't think services ever really becomes a driver of earnings. and frankly companies that start talking about services and annuities often are going x growth. i think what is more important is the installed base last year will grow again this year.
apple is not losing shares. that creates an annuity of hardware upgrade. so they still have to have great phones, obviously, but i think they overdid it on the services side. that said, i think things are overdone now and part of the problem is it is shifting hands among investors from growth to value. and that takes time and that's a bit painful for the stock price. >> steve, tyler here. does apple need to come up with a dumber smartphone? one that is cheaper so that they can sell more units, maybe in the emerging markets, where their price point may be a little high? >> i'm not convinced of that. they are probably going to have a new four inch phone, that will be the new low end. a study shows that companies that are successful over long periods of time, they come it a fork in the road, they choose better over cheaper. apple is the poster company for that. i know on the street a few years ago at the 5c, we said you need to go to lower price points and
they didn't. china, saturation of the market is good for apple. it is saturated with android phones and people have aspiration to move up to apple. so i don't think they need to go to dramatic and lower price points. >> tim, you mentioned you're going to wait a few days to see how it all shakes out in terms of whether or not to add to your current position. there was a distinct shift in tone that tim cook had on the conference call, apple sounded a lot more susceptible to macro head winds, particularly out of china, he talked about slowing growth in hong kong early in the month. i'm just wondering, what do you think you'll know in the next few days that could convince you to add when a lot of the things are things that need to play out. these are things that are unknown, even to just general investors, let alone -- and to tim cook for that matter, in terms of how they play out and how these head winds will impact iphone sales. >> well, i think it is to play a little bit about what steve has been saying, is they have such a strong install base, beginning to move into other countries like india. so there is plenty of room for apple to continue to grow for the foreseeable future. we just want to let the market
do what it is going to do for a few days, let it settle out and see where we add to the position. there is really no rush in this business to do anything, we're not short-term traders, we owned this thing for a long time and at this particular point have no plans in not owning it. but if you look at it, you know, you menned w ementioned why doe deserve a premium. >> premium to any other hardware company, not to the market. >> oh, that's right. they earned it. they earned it in computers for years. tyler had mentioned the fact that mac sales were down, mac sales were down a fraction of what pc sales were down. if you look at it from a share standpoint, or a share profitability, apple continues to do really well with their products. so i think we make a lot out of small chains of numbers which, for the long run, don't mean a whole lot to long-term investors like us. >> guys, thank you so much, steve and tim. we're counting down to the fed, most people expect no change in rates, but the
>> fed day, we're getting close. listen, we just had had a five year auction that wasn't very good, probably because it is fed day. look at intraday five, you see a little selling after the auction. move deals to the highs of the session, down the curve, you can see it a little more on the ten-year. hoping the ten-year to the day before the last fed meeting, clearly see one thing jumps out at you, 2% is like hercules down there. 2 index, we had a sell-off today. it is coming back. normal for the dollar index on the fed day. last chart. here is what it has done since the last fed meeting. higher but closer to 99 than 100. dollar index is going to be your first battlefield to watch how the market divides what the fed tells us at 2:15. >> as we count down to the fed decision at the top of the hour, we're joined now for some insight from alan blinder, former vice chair of the federal reserve, and professor of economics at princeton. always great to see you. you were right in september, you
thought they wouldn't do anything. you were right in december, you thought they would. and they did. what is your prediction this time and maybe more importantly what are you expecting them to say or how do you expect them to alter their statement? >> well, today the first part of your question is easy, nobody on earth thinks they're going to change interest rates. today. so i don't hesitate -- >> easy call. >> that's a very easy call. a slightly harder call, but to me it seems easy. a lot of market people disagree with -- i think the fed will issue a very status quo statement, making as little news as they possibly can. and in particular, not giving any signal about what they'll do in march because frankly unless i'm completely wrong they don't know yet. you know, they have been saying their data dependent and they are data dependent. and as you know, tyler, lately some of the data have been coming in not so hot. and that has to be giving some
second thoughts about a march rate hike, which is what i thought would happen in december. i thought they're going december and then in march. that still may happen. but it does depend on the incoming data. >> the data, well, the main unsettling thing has not been data about the economy and the united states, or economies around the world, but rather what has been going on in stock and bond markets. and petroleum markets around the world and the old cliche is that the stock markets predicted nine of the past five recessions. i mean, how vulnerable, you could certainly say that corporate profits are not doing all that well, how vulnerable do you see the american economy right now? >> i think it looks okay. the standard of okay has been the mediocrity of what we have been experiencing for the last several weeks -- years, sorry, of 2%, 2.25% growth rate. some quarters better, some quarters worse than that.
that's sort of the way it looks to me now. i think it is the way it looks to the fed. you're exactly right. and, you know, your viewers should realize this. we're not getting bad news about the economy. we're getting mediocre news. like we have been. we're getting very bad news about the stock market. but, you know, market people have to know that the fed pays less attention, that's not zero attention, but less attention to the stock market than people in the markets do. >> but they have made reference to global risks in the past, and certainly the volatility that we have seen and the decline in the stock market of 9% since the last fed meeting is in part because of the global risks right now. so do you think you -- you mentioned that in the statement, the fed is hoping to make as little news as possible. do you think secretly they're really hoping that the market just simply stabilizes or goes higher at this point. >> yes, i think they are secretly hoping that. but they're not going to say anything like that. you know, you mentioned
correctly that the fed had the sentence about global risk in september. you probably -- that was a mistake. they realize it was a mistake, probably notice it came immediately out at the next meeting and hasn't shown up since. i'll be very surprised if there is such a sentence in this statement, which doesn't mean the fed is not watching global risk. they absolutely are. >> this is an odd question admittedly. and i need a quick answer if you don't mind. who actually writes the statement and who then amends it. is it literally janet yellen there with a pencil, pencilling it or what? >> well, sort of. at the last minute, you are to realize the statements go through many, many drafts, drafts -- early drafts are circulated among the fomc meetings. they send comments into the board where the division of monetary affairs makes adjustments. of course, in conjunction with the chair. so it is -- it goes through many iterations and if they need to change it, it will be janet
yellen's pencil. >> always great to see you. alan blinder. >> you got to wonder how much debate there was around that global risk statement. >> yeah. >> in and out. >> exactly. and back in at the last minute. the countdown, we should add, is on now. 34 minutes, two seconds, until the fed's latest rate decision and the statement. larry kudlow weighs in on what the fed needs to do amid the global market volatility. and positioning your portfolio ahead of the announcement. all of that when we come right back.
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welcome back to "power lunch." i'm melissa lee. let's check on the markets. the dow jones industrial average barely higher as we're awaiting the fed. up 1 point. boeing a huge drag on the index, one of the worst days ever. take a check on apple. concerns about slowing iphone sales, still down by 4.6%. and that, of course, having an impact on the nasdaq 100, down
by three quarters of a percent. >> it is all about oil and the fed. as we define it today. what is the market looking for from janet yellen after last month's liftoff on interest rates? joining us, courtney ratlive, at loop capital and jeff klinetuck at charles schwab. so, courtney, which is more important right now? oil or the fed? >> well, to the markets, it is absolutely oil right now. clearly. and whether it should be or not is up for debate if you will. the fed, i think everyone kind of knows they're probably not going to move today. and the fed should absolutely kind of continue its course, if you will, in evaluating data and making a determination based on the economy as to whether or not rates will continue to rise. >> you know, michelle asked earlier of one of the prior guests, why is oil so one to one correlated right now with the equity markets.
why? >> i don't know if it is because of the fact that there is just not a whole lot of other things going on, is it the fact that oil, is it really the impact that oil is having on the economy as it relates to jobs potentially being lost, is it because of the asset flows, is it because of the fact that, you know, it could be a multitude of thins, affecting commodities, affecting bonds, stocks, affecting prices. i think that's what the impact is, but historically oil has not been correlated this much with the markets and nor should it be. >> could i take the question. i know i'm sort of -- i'll pretend i'm a guest. it is because it is different this time. because the amount of debt, courtney, in this market, is why we have been talking about this for a year and a half. i got oil in my veins at this point. the amount of debt, any other oil cycle that we have talked about, never had this kind of leverage. and it is a little mini housing market. voir. what's that, paul?
>> we're going to go to -- >> to jeff, those are interesting points, though, and, jeff, from the big banks, we didn't hear it that much. we heard a swipe at it, increase reserves a little bit, but the impact isn't there in terms of the debt. we're seeing it concentrated in the smaller banks, the colin frosts, how big of a problem is this, is the broader market a story? if you look at the financials, is that telling you the story here? >> that's telling you what the connection is, melissa. as oil comes down, inflation expectations have fallen. look at five year forward swap for inflation. that means a more dovish central bank, which is hurting the financials. financials are the worst foruming sector this year. that's important. that's when's pulling the markets down. it is this idea that the fed is maybe not going to be as aggressive, so this idea that the fed hiking rates this year is a bad thing, it is the other way around. it is that they may be too dovish because oil prices are pulling down inflation expectations. >> to brian's point, what if this is another big leverage
pop? right? over and over again. >> always the leverage. that's the point. >> sovereign wealth fund -- >> they're all selling. >> they're all selling. >> saudi arabia decides to turn it back on, then what? >> then the point is that there was piles and piles of money poured into the -- in different parts of the world, parts of russia, doing projects that nobody was ever doing before, everybody leveraged up, and then the leverage is popping and there are ripple effects. you got to be ready for it at this point, no? >> he should be ready for it, but ultimately i don't think it is a great enough as an effect in the u.s. or essentially for our market to actually bring it down. i think that there is a bit of control, you look at earnings, if we go back to fundamentals of what is going on, look at the economy, it is not going to be able to pull it down or at least i don't think -- >> 2008 or 2009 all over again. >> very quickly, jeff, final thought here, how many rate hikes do we get this year and where does fed funds end the
year? >> probably three rate hikes, but maybe two is more likely than four. i think that it is important that the fed maintains this path. i think it is critical. i don't think we're seeing broad economic weakness globally that would cause them to change gears and not do anything this year. so look for some rate hikes, but look for the market to welcome that news on the back of resilient -- >> we'll see. a big one. >> thank you very much. appreciate your time there. brian has thrown his computer away. >> every piece of electronics i touch automatically goes to -- >> three computers don't work. the kind of day it has been. going back to abacus and casio calculator watch. >> go to powerlunch.cnbc.com to see how the large cap names -- that's powerlunch.cnbc.com. >> to sue herera. >> bernie sanders concluding his visit to the white house saying he's meeting with the president went well. and that the president intends to remain neutral in the
democratic race. >> the president and i discussed this morning a number of issues, foreign policy issues, domestic issues, occasionally a little bit of politics. but i enjoyed the meeting and i thought it was a very positive and constructive meeting. roads surrounding an oregon refuge occupied by an armed group have been closed off today after a shootout last night that killed one of the occupiers. eight others were arrested. the fbi and oregon state police establishing a series of checkpoints along key routes in and out of the refuge. fiat chrysler's u.s. unit says it will make profit sharing payments of up to $4,000 to 40,000 eligible employees represented by the uaw. that is a 45% increase from what they received last year. the delorean is back. a recent change in federal law allowing a texas facility to start making the vehicle for the
first time in 30 years. the cars were made famous by the 1985 movie "back to the future." but founder john delohr yohn was arrested on drug charges and subsequently the company went under. the wings make them famous. that's the news. back up to you. >> thank you, sue. donald trump making some news, something he does awfully well. he bowed out of the republican presidential debate. the last one before monday's iowa caucuses on the grounds that fox news, which is co-sponsoring the event, with google, was, quote, playing games with him. trump also at odds with the national review after the conservative media outlet ran a scathing editorial calling the billionaire presidential candidate a menace and much more. let's talk about mr. trump, and the republican field with our friend larry kudlow. this really wasn't a publication with which you have some familiarity, sir.
>> familiarity, my god. one way or another i've been on the -- >> i know you have. a menace to american conservatism. >> i once worked there full time as a senior editor. >> a menace to american conservatism. that's one of the nicest things they said. he knows about as much about national security as he does about the nuclear triad. >> political opportunists who trash -- >> free floating populism, strong man overtones. you agree with your alma mater. >> that was the good news. >> look, i love national review. i truly do. and the people there, senior editors, so forth, are great, dear friends of mine, okay. they make some points that are worth making, okay. they don't trust him as a conservative. they believe he's opportunistic in some respects. they have other issues with him. i think there is some good points there, but on the whole, i'm not with them on this. i think donald trump is -- >> is he conservative?
>> i believe he is. i think he's a different kind of conservative, as a business man, and a dealmaker. i look at the issues, i don't agree with them on every issue, i endorsed his tax cut plan, which i think profoundly conservative. i have my disputes on trade. i have my disputes on immigration. part disputes, by the way. but i think, you know, you don't have to be a conservative for 20 or 30 years necessarily to back conservative policies in government or in the white house. i speak as a former democrat. i want to say that. ronald reagan was a democrat for the first 53 years of his life and voted for fdr four times and harry truman. i think the nr folks are making good points that should be read. just not with them. >> on the republican side, there have been a number of common conservative voices that have come out against positions that trump has taken. on the democratic side, they have a socialist running for
president. the president just met him. right. not a single prominent democrat has come out to say, okay, look, we're a bunch of lefties, but we're not socialists. this was a party that at one point was insulted when sarah palin called barack obama a socialist, i'm not sure they would be anymore. >> they might embrace it. it has become a sandinista party. that's most regrettable, by the way. my book on jfk's tax cuts is coming out this summer. the democrats used to be great on growth, on tax cuts, on foreign policy. so, yeah, but, look, i said this last time i was on, i saw a lot of ashen faces after i said it, right now, knowing what we know, i'll repeat this, from the polls and other things, the two front runners in this race are trump and sanders. may all change after iowa. i get that. but right now trump and sanders are the front-runners and i maintain if that's the case, trump will win easily. >> i know you have more to say. stick with us. we'll get larry's take, his thoughts on the fed and the economy. he's got a lot of thoughts also
on oil and the economy. oil and the markets. right now, we're just about 20 minutes away from the fed decision and the fed's statement. stick with us. you're watching "power lunch." here at td ameritrade, they work hard. wow, that was random. random? no. it's all about understanding patterns. like the mail guy at 3:12pm every day or jerry getting dumped every third tuesday. jerry: every third tuesday. we have pattern recognition technology on any chart plus over 300 customizable studies to help you anticipate potential price movement. there's no way to predict that. td ameritrade. where self-proclaimed ofinancial superstars , pitch you investment opportunities. i've got a fantastic deal for you- gold! with the right pool of investors, there's a lot of money to be made. but first, investors must ask the right questions and use the smartcheck challenge to make the right decisions. you're not even registered; i'm done with you!
cut it out. >>see you tomorrow. ♪ we'll get back to larry kudlow who joins us on "power lunch." let's talk about the fed. market volatility can be attributed to the fed. what are your thoughts on that? >> that sounds pretty good to me. jeff gunlock is a smart guy. i think the fed's hostile, militant aggressiveness damaged the stock. i just want to add, profits are turning down. that's a terrible sign for stocks, terrible sign for the economy. profits are the mother's milk of stocks and the life blood of the economy. what do you have here? falling commodity indexes, falling profits, widening risk spreads in the bond market, and
the fed wants to jack up rates every three months or so? that's nuts. that's nuts. >> strengthening dollar. >> one of the big -- if they are maybe the single biggest culprit of this market whack, but profits are really important and if you get another bad quarter profits, watch out. >> so what should they have done? should they have raised earlier, not done it in the first place now going into a recession, what ammunition is there? >> i argue for a long time that they should do nothing. all right. but they did a quarter -- okay, life goes on. what i don't like, and what we need to watch in the statement today is what they're saying. because if their hostile, militant and aggressive again, i think all hell will break loose and it is inappropriate. the fed should look at market price indicators, not just the stock market, but oil and commodities, those credit risk spreads. that's stuff they should look at. markets are smarter than ivy league economist -- >> the fed comes out with almost the same statement as it had the last time, is that also hostile,
militant and aggressive and therefore negative for stocks? >> yes. >> in a word. >> because they were signaling at that point the dots, a quarter point every quarter, for the next three years, actually, that kind of outlook is very hostile, i think, to the economy. and to the marketplace, and i think will do a lot of damage. look, profits are falling and you guys are all talking about lower oil. i happen to disagree with you. i think low oil will be great in the long run. but the reality is it is not just oil. it is all the major commodity indexes are falling. that says there is deflation, and the profit deflation, why should the central bank be jacking up rates under that environment. just leave it alone. leave it alone, you know. can't say anything good -- >> back to michelle's point, something that ray was talking about today, and ray goes to the question of is the fed in a box, thinking of justin timberlake
and andy sandberg, if something bad happens, what do they do? they have got some weapons this he can go back to qe again, i suppose. but it didn't really juice the economy. it juiced asset prices. >> as i argued for about five year. yeah, look, they can buy bonds and have money supply. it is the economy. the question is will the money be used? it really wasn't. not much anyway. want to help the economy, jam down the corporate tax rate to 15% across the board. remove -- >> remove -- >> i was good today. i was really good. i answered most of the questions before i got to that. also, remove the regulatory overburdens. look, i'm sympathetic to the fed in this respect. they are not the engine of growth. the fed is the engine of inflation or price stability or deflation, right? milton friedman taught us that a long time ago. congress should give them a
boost, the president should give them a boost. tight money is -- it is silly. and, and they're not coordinating with other central banks. this is volcker's rule in the brettenwood speech. he said rule based monetary policies and international monetary cooperation. what i see now is international monetary warfare. no -- >> going in opposite directions. >> and that's wrong. that's wrong. get with it. we'll see in a little while what they have to say. if it is hostile and militant, i'm crawling under the table. i am. >> a sight to be seen. >> we're going to run. you're going to come back with us in the next hour. we'll get your reaction from the fed in a second. >> i still love the national review. >> i heard you. >> i love the guy. >> at some point -- >> went to my high school. >> start splitting people into two groups, conservative and liberal. >> at some point. >> stupid the way everybody --
conservative, republican, democrat, it is a big group of -- i had a rant about this last year. >> the dow, let's look at where the dow sits, right now lower. i think lower and then higher and now lower. and there is west texas crude up 36 cents a barrel. the one to watch as we count down to the fed, a lot of numbers there, there is the s&p slightly higher. we'll be right back. 12 minutes before the fed decision. t... the market. but at t. rowe price, we can help guide your investments through good times and bad. for over 75 years, our clients have relied on us to bring our best thinking to their investments so in a variety of market conditions... you can feel confident... ...in our experience. call a t. rowe price retirement specialist or your advisor ...to see how we can help make the most of your retirement savings. t. rowe price. invest with confidence.
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welcome back to "power lunch." i'm melissa lee. we're ten minutes away from the fed decision. no surprise, the markets are going closer to unchanged as we approach that decision. the dow struggling to keep its gains. boeing and apple having an impact on the dow as you see. down 8.5 points. "power lunch" is back in two.
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stuck on an average network? join verizon and we'll cover your costs to switch. welcome. we're just minutes away from the fed's first rate decision of the new year. and, boy, the world has changed since the last time they met. since that december rate hike, look at what happened. the dow down 7.7%. the ten year yield, down 10%. oil down 14%. only two major asset classes up are the u.s. dollar, up just about 1%. and good old gold, up 5%. with us, ahead of this crucial fed decision on what i promised our viewers would be the best
fed show of the year so far, tyler matheson, michelle caruso-cabrera, melissa lee. we have jim caryn, bob doll, 75 other people set to joint us, jan, peter, greg, bobby, cindy and alice. we have a decision coming up. jim, you're the one that runs assets like bob doll. what do you expect? what do you advise your clients to do? >> i don't think today is about a policy change. i think they'll keep the policy rate unchanged. but i do think that today we're going to get the -- the answer to a very, very valuable question, which is what do these asset prices mean to the fed. how is that going to impact their policy reaction function? what does this mean in terms of the march meeting? these are the questions that we need to know and i think we're going to get the answers to this somewhat or going to get a glean into the answer -- >> it seems like, and i know melissa made the point, the market set itself up for some expectation by shifting all
those assets that we just showed to our viewers. what do you want to see? >> well, what i like to see is some clarity in the fed recognizing that there has been a significant tightening of financial conditions. what i would like to see is this expectation for four rate hikes by the fed to be taken down. i don't know that we're going to get that information right now. but i do -- i would like to see that taken down. in my view, it is probably two hikes this year. i would like to see the fed acknowledge that their actions is partly responsible for what is taking place right now. >> do you agree with that, all those stats that brian ran through, did they happen because the fed raised rates? >> i don't think so, i think the oil prices are the key one on that list and obviously we know that made the other four asset classes move the way they have. >> is that your phone, bob? >> the fed has to back off this dot thing that says that rates are going to go up like every
other meeting. they have to acknowledge that we have a whiff of deflation in the system, and back off. otherwise, look, the market has a lot of stuff it is worrying about. china, oil, slow growth, are we going to have a recession? they don't need the fed to be in that mix too. >> don't you think the fed had an impact on the dollar, which had an impact on oil? bob? >> i can't disagree with that. subtly they're part of it, but there is hardly anybody alive that didn't expect the fed to begin the process and so i think some of that was in the market. if the feds with getting ahead of the curve in some way, going from zero to 25 basis points, from 2 to 2.25 or something, different story. at a quarter, i'm not overly worried about them doing damage. it is about what they do from here. >> we heard from -- this is close to debate. this is a decision made, not a very easy decision, i think viewed as a close call. for the fed to come out with a potential for there to be four
rate hikes in 2016, i think it is aggressive. i don't place the blame on the fed for any of this stuff. the feds had a forecast. i think that makes sense and what they put out makes sense. i think what we need to see today is how the fed's reaction function is going to adjust. this is a significant tightening of financial conditions on the order, based on the models that we calculated of about one deviation. that's a pretty significant move. it might be a loose relationship, but that's an estimation in terms of what happened in the markets today is almost the equivalent of us having already have had four rate hikes. >> justified by saying the markets has done the work for us or no. >> that could be the case. i'm not expecting that. i think they do need to have a slow path towards higher rates. i think we need to renormalize, but i think they have to recognize that there are other things going on in the markets that is affecting financial
conditions, that needs to be adjusted. >> who is the donkey and who is the cart? is the market leading the fed or is the fed leading the market? >> great question. in this world, it is some of both, obviously. the fed has one lever and the world has a whole bunch of variables and so the fed can't control everything and they made the decision, which i happen to agree with, normalization makes sense, but because we have been in this bumpy process where deflation shows up every once in a while, they can't go in the face of that. larry kudlow said earlier, profits are under pressure and until that dissipates, it is hard for the fed in my view to do the right thing by raising rates too fast a pace. >> what will make the profits -- the profits turn around and go up again? >> we know a lot of the reason is falling oil and rising dollar. we can arrest those two things, the rest of the economy is doing okay, especially the u.s.
consume, we can have acceptable earnings. we have to curtail the pace of that devastation in oil and the rise in the dollar. >> i'm curious, in your financial model what are the levers in that model that would alleviate the tightening of conditions the most? is it the dollar and is it oil? >> i think bob is hitting on a good point. he mentioned the pace. the pace of the dollar rise, the pace of the dollar -- of oil's decline. i do expect that to dissipate. the pace has been very, very fast. so i would say that today, you know, first and foremost, in our model, it would show that equity price is falling is one of the biggest factors tightening financial conditions and that's driven by oil. there is a connection there. the other is credit. credit spreads widendned a lot january. i would say that, you know, if i were to look at the markets today and put my odds on a recession, i would say there are five components to a recession. >> jim, can you -- that's an excellent thought. it is a list segment, we love those. we'll save it, because we have the fed decision in 15 seconds.
so sit tight. here we go, folks, before we get to steve, the dow is up 12, the dollar index down slightly, crude oil 32.05, solid production numbers coming down. and u.s. ten year yield at 0.25%. here is to steve liesman with the fed statement. >> the federal reserve leaving interest rates unchanged, leaving them at an interest rate of 25 to 50 basis points. the fed funds rate unchanged. saying from the meeting it is no longer assessing the risk to the outlook as a balance. doesn't say it is not balanced either way, saying it is no longer assessing that risk. it now said it is, quote, closely monitoring global economic and financial developments and assessing implications on the labor market and inflation and for the balance of risk to the outlook. no balance of risk, had said the risks were balanced before, no longer saying that. labor market conditions, the fed says have improved, but economic growth slowed last year.
it is saying the fed removed the phrase that it is reasonably confident that inflation is moving up towards 2%. it says it expects future rate hikes to be gradual. on the economy, said they were solid, now saying there is modest growth. it said net exports were soft and added in there this time that inventory investment had slowed. it says there were strong job gains but downgraded jobs somewhat in terms of how much they diminished labor rey source slack in the economy. before this thing, i had a checklist, guys, as to five things i was looking for in this statement. pretty much got all of them in terms of the outlook. it did mention weaker u.s. growth, did talk about a global drag on the u.s. through saying it was closely monitoring global developments. same thing with volatile markets where it said it was monitoring financial developments. on the fourth thing, it said less confidence than inflation. yes, more so than i thought by
saying that it is no longer reasonably confident that inflation is moving towards 2% and talked about other factors affecting inflation. finally, is in a rate hike pause here? i think yes. that's a closer call, a judgment call on my part right there. essentially when they say there is no balance of risks out there, and they can't assess it, it would be very difficult to see the fed justify i rate hike. >> couple of different things here, you do the checkchecklist. you take the old one and the new one. economic activity to moderate pace, to improve further and including ongoing job gains in the december notice, they changed that to strong job gains. they made it more hawkish here and, again, i think it is clear -- i think it is clear, steve, the federal reserve is not worried about oil, they kept the sentence in, to me this is important, the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. there is the fed saying oil doesn't matter to them long-term, at least right now.
>> it is their assessment, brian, i think that import prices which have been low and oil prices which have been low and the dragging on inflation that those are going to dissipate, that they used the word transitory. but if you look at what happened to their confidence to 2% inflation, what is clear the fed backed off a little bit from the confidence as to when this is going to happen. i think the thinking was this is something that is going to happen earlier this year and right now what i think they're doing is pushing back their expectation for when they get that -- in inflation. >> you probably can't see the intraday charts, but you would see that a little bit of a pop in the stock market. the dow and s&p 500 are moving higher. i wouldn't say the high of the session, but a line upwards, where you see it is in the two-year note, a drop in the yield, pretty obvious there. we're seeing people buying treasuries here and pushing the yield lower at this point and stocks going slightly higher.
but i wouldn't call them dramatic moves that the point. >> not at all. >> i point out, guys, it was my checklist that i made earlier today, if i can think it -- think of it, i think the market can think of it. really you get down to the question, did the market think the fed was going to make a mistake? and close its eyes and hold its nose and tell the markets that it would be hiking interest rates? i don't think any reasonable market participant thought that would happen. i would say that this is a very neutral statement as to the expectation that the fed would tilt dovish on the back side of this meeting. >> all right, steve, steve, thank you very much. we appreciate that. we still have our market guests on for you folks to make sense of what the fed just said. more importantly, what to do about it, morgan stanley's jim karen and bob doll. your initial reaction to the fed, which used the word global, exactly one time, in the statement, not that concerned about what it is seeing around the world. >> their job is primarily domestic. remember, 13% of our economy's
foreign trade, we are an insulated, isolated economy. i think this statement is what we should have expected. remember the fed has staked their reputation on avoiding the deflation. and they're not going to risk that in my view in any way. if the fed makes a mistake in my judgment, it still will be raising rates too slowly, not too quickly. they're going to be very careful not to get in the way of whatever improvement we can find and there are flies in the ointment, they pointed it out. another subpoint i want to make is remember fiscal policy is beginning to kick in a bit. we had the government being neutral or negative for real growth as fiscal austerity has been the case. the government will spend some more money this year, so they're going to aid gdp and our guests by .4%. that will be a bit of a help as the fed becomes more neutral. >> what was last time they didn't assess -- no comment, we will not assess what the risks are to the balance of risk? that's always such a staple for years, waiting to see that one
line. how significant is it that they don't want to say? >> i think it is pretty significant. it is a -- i think it is to me pretty clear they're trying to take march off the table lightly. so we're not going to probably have the four rate hikes they have been forecasting, maybe three. i think this statement on balance of risk is a way for them to say, hey, there is a lot of things very confusing going on in the markets, but i want to go back to oil and talk about inflation. this is key as well. we have to remember, go back to the december statement, that meant a lot to us in the sense that what they need to see is evidence of inflation in order for them to actually start to -- not a forecast of inflation. instead of saying oil price is going down is transitory, won't mat matter, that's not good enough. they have to see delivered inflation into the market, and if they don't, they're going to pause. i think these -- the prices that have come down in oil and the impact it is having on inflation now really tells us that they're probably going to slower pace to
higher rates, which is good news for fixed income and fixed income investing. anybody worried the fed was going to as you said hold their nose and continue to go on -- >> do you do anything as a result of this statement? do you go back to your office in 45 minutes and say let's move this way or that way? >> for us, we have been pretty well positioned. this is as expected, that they would acknowledge the risks, what it does is say that for some of the markets, particularly in the high yield sectors and particularly in sectors that aren't really oil and commodity related, you know, people may search for a yield. maybe the fed is in a position where they're just not going to hike as fast as we thought, so that hunt for yield starts to come back. people start to look at these sectors that, you know, take a second look. >> all right, the dow now reacting. we appreciate it. best fed day show of 2016, by far. >> just starting.
>> understood that. >> the dow turned negative at this point, lower by 35 points and in the wake of the fed decision. more market reaction now. courtney reagan on the floor. let's start with rick santelli. what is the movement in the sho short end of the curve there, rick. >> let's start with the dollar index. it spiked beforehand, makes sense. it is down. we're talking small numbers. the two year, at 85, yeah, it is down, but i still think even if it goes down further, not giving me a lot of information. fives at 143. 140 is the key level. tens, still a 201, probably test 2%. we had two closes since october, yesterday one of them. no great shakes 30 year either. what is the big market, i can't show you. your dollar futures, the 90 day forward rate, not the currency, one of the most amazing
contracts and whether you're looking at 2015 or as we say down here, the front, which is the 16s, the reds are the 17s, the greens are the 18s, the blues are the 19s, these are short rates that converge to libor. they were all down, all the bundles were down, i would say, 6, 7, 8 basis points. now as i look at that entire spread, they're down anywhere from down 1 to down 2. so they have cut their losses dramatically. what that tells me is that the investors are looking at the statement, they were expecting less dovish. that's not what they had or received. so i think the market is making the appropriate response. now, if viewers or listeners want to connect the dots to less dovish to no tightening, that's another bit of a leap of faith, kind of the next derivative, but that's what the markets are saying. that this statement wasn't exactly as they expected. >> all right, rick santelli, giving us the run on the bond markets. more decisive move in the stock
market. courtney reagan, the dow is off another -- is it 85 points now? >> yeah, it is. you're right, about 86 points here. we're slightly positive before the statement now. we lost some steam. if you look at the sectors, energy, financials, materials, consumer staples, those sectors are higher. energy, materials, they were higher ahead of time as well. what a lot of traders told me, we just want to know that janet yellen is paying attention to us, that janet yellen is paying attention to what is go on in global markets. and so that is exactly what they got, but now we are losing some steam. the dow is down about 100 points, so perhaps the traders are taking time to parse through exactly the words in this stateme statement. back to you. >> thank you very much. do appreciate it. let's get more reaction now and more importantly actionable advice, brian velski, and anika
caan. host a financial tv show, i'm supposed to be like what a major announcement by the fed, but all i can think is they didn't do anything. you agree? >> well, this particular statement is -- wasn't altogether too surprising. they changed or downshifted the language for economic conditions. and if we look at what we're expecting for friday, overall gdp growth in the fourth quarter will likely come down below 1%. if we look overall at what we think also is going to happen on friday, wage and salary greowth is also going to come out. i don't think the fed has changed their playbook. labor market conditions are still solid. and if we continue to see improvement, the fed will still consider a rate hike. look at where we think market -- >> here is what i don't understand. i think the statement was generally leaning toward dovish.
now the market reaction right now, is that because it wasn't dovish enough or is it not good that they're dovish and the markets are upset about it? what is the market telling us at this point. >> just overall the statement was very dovish. and if we look at the timing and the magnitude of the hikes that we're expecting, the overall market continues to expect just one rate hike for the year. and if you look at overall what the fed is expecting, still four rate hikes, i don't think it was dovish -- i don't think it was dovish enough. >> i want to go to you on that point. they didn't take a march hike off the table. seems like the pace could continue according to what they telegraphed before. is that in and of itself the problem for the markets? >> i think so. at the end of the day, the porridge from the fed wasn't too hot, wasn't too cold. traders we talked to have been doing marketing, seeing our institutional accounts. and most people wanted more
dovish action. i think this deviation event from the fed today to either tell them that they're going to raise rates or stop raising rates here is just facetious to see anything like that happen. so the bottom line is the fed has a bit of a credibility problem, because they probably waited too long to raise rates in first place and now have it stay on course for a while. but clearly if you look at their talk about inflation, and energy, if you look at cpix energy, we're on track and, remember, what bob doll said was very keen. what he said is the fed's job is to worry about what is happening in america. and u.s. economy continues to improve slowly, albeit i think to think that the fed is going to come out and say one and done today, it is what most of the bulls wanted, was not reality. >> let's also be clear about this market right now, brian, okay, which is this. number one, crude oil is about to turn negative. as oil has gone, so have gone stocks. if apple and boeing were not down as much as they are today,
the dow would be higher. apple and boeing are basically the reason why we're showing a dow down 130. half the dow stocks are higher today. this is a head fake market where you got one or two big names, apple, you know, price weighted -- this is the reason. price weighted indexes stink. you got an index being dragging down the market, and oil is about to turn negative, brian. you're still in your bull camp. >> yeah, thank you for pointing that out in terms of price weighted index. i think probably a lot of your viewers don't understand that. earnings have been pretty good. i remember if you take out energy from earnings, we're looking for a slight positive fourth quarter earnings and earnings as the year proceeds will continue to improve. the fed is very aware, i think most people with common sense this oil prices have been going down for 14 months. the price of the stock market has tripled since 2009. we're down 10% from the high. and so for all intents and
purposes, what we have seen from stock markets are pretty normalized correction, remember, we came on your show and said the market was going to hit 1800 on a correction. it did that. we think 2016 will be still positive from these levels, but choppier as investors still try to navigate through all the fed changes and other issues. >> brian, you remain bullish. this is still -- the market is telling us, this is the market where you buy bonds, buy gold, buy stocks like walmart, buy high dividend payers, that's the defensive tilt we're seeing now. you're saying, no, it is time to be constructive on the markets. >> i think from a longer term perspective, remember, dividend growth is a very important part, we think, of asset allocation going forward and a fundamental growth property with respect to investing, that's number one. we're overweight technology, consumer discretionary staples and financials because those from a three to five year basis are best position sectors. and, remember, 70% of the u.s. economy is the consumer. we all sit and worry about a recession coming because of the
industrial sector. the industrial sector is down for a year. industrial sector earnings, but 12% of the economy. and, remember, lower oil prices and, remember, still, at historically low interest rates, housing starts are coming back, mortgage is coming back, and wages are coming back. we think things are a little better than most people think and we have to sift through the noise to think that american stocks, u.s. stocks still look very, very good. >> thanks, guys. >> brian, thank you, both. appreciate it. well, we are just getting started here on "power lunch." hard to believe considering we're an hour and 15 minutes into an two hour show. you'll hear from that guy, bill gross, he'll give us his take on the feds, stocks, bonds and where he's finding opportunity now. the dow is now down more than it was, but boeing and apple dragging the market down. oil barely up right now. ten-year yield at 2.013%. we're back after this.
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stocks are lower. nasdaq off by more than 1%. decline of 49 points. one of the weakest sectors if you look at the biotech stocks, all of them down sharply. if you look at the biotech, the ibb, ishares, lower by 1%, decline of more than two points. >> so bizarre. if there was one group that you could point to and say what is the least correlative to the
federal reserve, that fighting cancer has nothing to do with interest rates, it would be the biotechs. >> i wouldn'ter if it is a momo sector, a sector that was so hot at one point. a trading equivalent of the fangs. >> i'm so angry at scott wapner and the halftime team for coining the deng stocks. i wanted it. >> something to be proud of. >> you know the news, let's get down to the important stuff. what to do. bill gross, portfolio manager at janis global. not the first rate hike fed of 9 1/2 years like we had had on our last fed show. but, you know, kind of a modest statement. we're seeing gold on the move. your take on what the fed did or maybe did not say. >> i think it is a little confusing, brian, like a male driver, myself included, that refuses to ask for directions and winds up, you know, at a gas
station after five or ten needless miles down the road. they basically said they can't assess the direction of the future economy and, you know, to me that is not only disheartening, but confusing and suggests that it is beginning to lose its benchmarks as opposed to a fed that is confident in terms of where we're going. >> what do you make of the move in the market. now that we had a few minutes to digest, we see the stock markets are lower. we see people buying treasuries, the yield curve steepened, the two-year in particular, we see the intraday charts, where you see the yield dropping. gold is climbing. and we have seen the dollar move lower. what does that all say? >> well, short-term rates will stay low. the fact is that they're low already and that two-year treasury is not historically low, but certainly significantly low and the forward markets that
rick santelli just talked about in terms of forward euro dollars or forward fed funds. only blend in 25 basis point hike and the next 12 months and 25 basis points there after. there is not really much in terms of a capital reward to continue to bet on low short-term interest rates, though i think that's where they will be. the fact is that investors are getting their pockets picked, markets go up and down, around and aroundby earning. it is a financial repression event that we have been seeing for the last five, six, seven years. >> feels like the stock market is saying it wanted more of that, though. stocks are disappointed in what they did here. >> yeah, i think they are. of course, you know, stocks are leading or leaning, you know,
towards the impression that growth is slowing, atlanta fed has half a percent number, you know, for this particular quarter and if the gdp grows by half a percent and profits don't grow, it may go down. stocks are beginning to reflect out. they reflect oil. they reflect the damage that is being done in terms of the very highly levered global economy, which affects the currency prices and basically leads to positions by portfolio managers, hedge fund managers and the like in terms of high volatility and trying to balance, you know, future returns versus future risks. so that's what we're seeing on a daily basis, stocks up or down 1%. interest rates moving and high yield spreads moving in and out, based upon positioning by levered investors. >> bill, you're smart, almost too smart, okay. i'm going to create a new segment right now on live tv, going to be called have a beer
with bill. i'm going to ask you, like, two or three just random questions, you know, short answers and, like, just you and i were sitting here gulf stream fashion island in new port beach having a drink. will the u.s. economy be in recession 12 months from today. >> no, but in a near recession. >> will the u.s. economy be in recession in 24 months from today? >> i think between now and then the u.s. will experience a recession. it has been a long time. i think that the u.s. not necessarily on the consumer sector but corporate sector is relatively highly levered, leverage increased. and the defaults we're seeing on the energy sector will ultimately lead to lower investment, to lower housing starts and to, you know, the consumer pulling back. at some point, mild recession, the u.s., it is hard to avoid when the rest of the world certainly the emerging world is significantly depressed. ultimately that lends a flavor to what we experience here in the united states.
>> how many rate hikes this year? as beer with bill continues. >> i don't think they should raise any. but i think, you know, the fed is focused on historic models which stress employment pressures. heard that in the statement today, which, over time, in their view, led to rising wages and therefore rising inflation. i think they're using the wrong road map. 2016 levels of global leverage make it very hard in my opinion to emphasize 5% unemployment, when oil and commodity prices are deflating by 50% year over year. and inflation and inflationary expectations are very low. less than 1.5% according to fed's own measure. if they continue to try to raise to normalize interest rates in this environment, i think they're making a big mistake. >> investment advice you would give, anything different today as a result of this fed statement? >> well, continue to invest. we're in this type of environment when interest rates
will stay low, it pays to borrow at that low interest rate as opposed to invest in it. how do you do that? you can do that through closed end funds that are mildly levered, that borrow at half a basis point and extend that leverage to higher yields. one investment would be utg, that's a utility fund that yields over 7%. just your standard utilities like southern company and american electric power and so on . but the yield is levered up for 7% type of yield. investors need to take advantage of these low interest rates by borr borrowing and closed in arena where discounts to net asset value are 10 to 15%. >> bill, we appreciate it. by the way, next time i'm out west, maybe you can do that. if you don't drink, you can do bill will buy a beer for brian segment. bill gross, thank you. >> thank you. >> thank you very much. see you soon.
coming up next, break out your post fed playbook with stocks that are currently sitting in the red. we're minutes away from the oil market, closing for the day. we'll take you live to the new york mercantile exchange when "power lunch" returns. i'm only . i've got a nice long life ahead. big plans. so when i found out medicare doesn't pay all my medical expenses, i looked at my options. then 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 helps pick up some of what medicare doesn't pay. and could save you in out-of-pocket medical costs. to me, relationships matter. i've been with my doctor for 12 years.
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welcome back to "power lunch." the final oil trades crossing now, wow, what a session, we started in negative territory this morning, hitting peaks of $32.84 coming off the highs now. but still in positive territory. big build in oil and gas this morning, but traders not disturbed by it. inventory is now set to be the highest since the 1930s. why did we move higher today? several reasons. the builds weren't as bearish as the api. kushing drew so that took us up higher. u.s. production down slightly, but still over 9.2 million barrels a day. and refinery runs, they're dropping. we expect them to be higher. combine all of that with the speculation that the russians are considering working with opec, talking about production cuts potentially, and that is why oil went up. probably a lot of short covering mixed in with that as well. >> if oil rose on talk, it would be $100 a barrel.
thank you very much. more now on the fed with the trading nation team. larry mcdonald, david seeburg. larry, i don't know if you heard the interview we did with bill gross. i asked him will we be in recession in 12 months, said, no, but potentially close. if you believe that, you're going to alter the way you trade and invest. do you agree with him? >> i think the chances have risen from 10, 15% up to 40%. i'm kind of in the -- i'm in the jeff gunlock camp. i think today if you look at the move in the ten-year, ten year rallied on the fed statement, gold rallied on the fed statement, so-so far the markets is viewing the fed statement as more dovish, but it is not getting a lot of people excited on the equities side because the beast in the equity market needs to high -- it needs more dovishness to get excited. >> viewers tune in, the dow is down 75. the dow would be higher right now if it wasn't for apple and
boeing. i would be in the nba if i had a jump shot and could dribble. dave, how, if at all, does the fed statement impact your trading strategy? >> look, you can -- we talked about it on the show, i heard other viewers mention, this was a pricing event. people expected a dovish commentary from the fed, much more dovish commentary. it is a sell in the news. saw a big move yesterday. these are traders taking profits. i look at it and say, if you got a long-term time horizon and you've done your homework and jumping in, and finding the stocks that you find value in, they're going to provide you long-term growth. so we're in that market of market of stocks, not a stock market, picking the winners. i think people that are gravitating, looking at the biojens of the world, earnings statement, phenomenal. >> my aichelle and i were talki about the biotechs earlier. >> they're not a fed play. this is a sentiment driven market now, right? there is a lot of concerns within that sector about, you
know, drug pricing or when have you, investors going from an overweight to an equal weight rating, we have seen that, complete, you know, dismantling of the space. this is a market -- this market is driven by sentiment, is the fed going to raise -- is it not going to raise. oil prices, whatever it may be, china, you know, michelle and i had the debate, whether or not china would have the impact it is going to have long-term. i'll tell you what, ultimately, it is all about sentiment now and the traders will bang around in that sentiment, but long-term, you got to look for the stocks you view as great investments, bayed edbased on rate, and earnings potential. look at the large cap biotechs, i challenge you to find another company or other sectors that can offer you that kind of growth in this environment. you can't find it. therefore, it is an absolute buy at these levels. >> absolute buy at these levels. couldn't be more appropriate. larry mcdonald says there is a 40% chance of recession in 12
months. thank you. we'll see you soon. for more, we have trading nation. i hope every night you tune in to trading nation. >> i do. >> every single night. >> helps to fall asleep. >> no. we're doing a show together now. >> oil rallied today. lower production, higher demand, some beaten down energy names having a great day today. southwestern, chesapeake, console, hess, all trading in the green. those percentage numbers look good because they're hitting so hard. coming up next, we move off of energy and talk to -- talk luaus and lazy boys. some people say buy and hold investing is dead, but there is nothing wrong with buy and hold as long as you don't buy and forget about it. it is important to make sure your portfolio doesn't become overconcentrated in one sector due to market appreciation. be sure you check your portfolio at least every six to 12 months
of more than 1%. the russell is lower as well. this is in the wake of the fed's statement after making the decision on interest rates. sue herera standing by with the cnbc news update. >> here is the update this hour. several syrian opposition groups meeting in switzerland with the aim of forming a democratic delegation. but one opposition official says they're actually waiting for the united nations to respond to their demands before deciding whether to attend peace talks in geneva on friday. toyota posting results showing it once again to be the world's top automaker fourth straight year in fact. officiales say sales last year came in at about 10.5 million vehicle, but that was .8% due to slowing markets in russia and emerging countries. the massachusetts attorney general office is investigating whether the makers of sovaldi, a hepatitis c treatment, are violating state laws by pricing the drug too high. gilead science says the treatment costs $84,000, or a
thousand dollars a pill. d.c. snow emergency will remain in effect until tomorrow and the city wants drivers to know there it is serious about enforcing parking bans. since the blizzard on friday, the district has issued more than a million dollars worth of parking tickets. and it towed 656 cars. that's the news update this hour. back to you guys. michelle, d.c. is bad in one inch of snow. i can't imagine it in a blizzard. >> the place barely functions when they're all in office, imagine when they can't get there. >> thanks, sue. >> you're welcome, michelle. >> larry kudlow. >> she said it. >> you thought it. you thought it. larry kudlow back. kudlow report. what do you think of what the fed did or didn't do or didn't say, did say. what did they say? >> bill gross said it was confusing. you called it opaque. i think you are correct. i just -- as a -- i think the fed is freaked out by what has happened in markets since the
last tightening and since the aggressive statements. i think they're completely freaked out. so when the new york giants were really good football team, their coach bill parcells used to have something called the prevent defense. and that means they all drop back to stop any touchdown. the fed is going to prevent defense right now. they won't tell us what they're going to do they don't want to take any actions, they got 100 indicators, we don't know, they don't know, and nothing is going to happen. >> they acknowledge the economy has slowed. it seems like it is flat. >> right. agree. but manufacturing may be dipping into recession. we talked about lower profits before. one thing they mentioned that i liked, inflation expectations have come down. they continue to fall. exactly the opposite of what the fed wants to see. so -- >> why do you like that? >> i love that. >> aren't you worried about deflation? >> no, i want price stability, helps consumer pocketbooks, makes everything cheaper, makes the dollar stronger. >> price stability is different than inflation, right? deflation would be a problem. >> we're impressed.
cpi, but what they're saying here is we're not going to do anything. we did something. we made some statements, the whole world went crazy, and that's it, no more. we're not going to -- >> why is the dow off 152 points because of that? >> i have no idea. >> apple and boeing. >> i have no idea. >> 150 points not good but -- >> one thing, worth noting, they continue to say that they are reinvesting, the proceeds of mortgage-back eed bonds and treasury bonds. that's an accommodative position. if they ever change that, all hell will break loose, a tightening signal. >> that means all the stuff they bought in qe, once it rolls off -- >> reinvest the proceeds, that's essentially accommodative action. i don't want tight money. there is a recession threat. larry mcdonald puts it at 40%. he's a real smart guy. manufacturing, commodities are
deflating and so are profits. that's not good and the fed is stepping back. >> i take that back -- >> let's step back. because, you know, traders watch us, most of our audience aren't professionals. the doctor in des moines is our -- >> i'm going to des moines next monday. >> i had no idea. >> you're going to vote? >> i'm going to cover the caucus. >> wherever the doctor -- you get my point. when they listen to the federal reserve saying stuff like they said today, what should they think, what should they do in. >> no idea. >> the professionals have no idea. >> that's my point. >> you heard bill gross. he called it confusing. mcc called it opaque. >> this is why i argued -- >> look, here, sully, either you're raising rates which is tightening, or you're lowering rates, which is easing. i believe that's how the general public sees things.
it is not all wrong, by the way, and all the stuff that we do and the analysis we do, which is useful, i think goes over the public's head. >> we'll keep them where they are. >> that's what i hear. that's what i hear. >> you're a football fan. i believe you are a washington redskins fan. >> i have been, yes. >> apologies on that. do you remember that for most of football's existence, the referees were anonymous. >> right. >> they were important parts of the game, but anonymous. >> and now they're central. >> now it is, like, ed hockley is in the middle of the field and they have a guy that analyzes the refs. i kind of feel like the fed has become the refs. they're important, we need them there. but maybe i'm not going to -- >> they're influencing the game. >> what do you think? >> i think that's true about the nfl. i think it is absolutely true about the nfl. make good calls. true about the nfl. i think we have become so dependent on the fed and our eye has been taken off the ball of what harry comes back to all the
time, the centrality of profits. >> main street dislikes the fed. it comes out in the polls. they blame the fed for bailing out wall street. they blame the fed for essentially controlling the economy. don't like it. sounds like all the big guys, all rigged in favor of the big people, they hate that stuff. but they know, you know, rates go up or rates go down. today's message, nothing. >> the rate is flat. >> i don't know what that means. i'll say this, the fed could be a little clearer, but maybe right now because they're freaked out over what happened, they're freaked out over what happened the last few weeks, just stop yapping. don't talk. >> exactly. shut up. >> shut up. >> unless you're in a twitter fight with kanye west or wiz khalifa, don't want to hear from you. >> no throwing the red flag. to use your football -- i'm trying to help you on the football thing. >> probably made no sense. >> it didn't take. tyler is trying to help you.
i don't know what to do here. prevent defense. the fed wants to prevent a federal catastrophe. that's a good way to look at it. >> thanks, larry. >> i did my best. i did my best. >> larry, thank you very much. five analyst calls you need to know about. it is called street talk. it is yeezy waves. straight ahead on power lunch.
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five analyst recommendings every day on stocks we believe you need to know about. armstrong worldwide, the floorg and ceiling company. upgraded to buy from hold, stock crushed on 73% in three months. matt mccall things concerns over a new competitor in the ceilings market and whether global concerns will bleed into the u.s. are, quote, more than priced into the stock. his target 50 buck, about 28% upside. in the same call, downgraded lazy boy, armstrong earnings out february 22nd. >> crushed, down 25%. most people think about this stock as a flooring company, but ceilings are critical here. new construction. second stock, ralph lauren, more cautious and price target 115 from 135. the analyst says consensus seems to be getting too aggressive
given the macro backdrop we have been seeing across apparel and accessories. rav the street modeled, so in the stock they're saying it prefers pbh over ralph lauren giving the improving trends at calvin klein. >> eyes and ears sometimes may be always your best investing thing, the peter lynch model, bought a flannel shirt, $154, marked down to $32. i got it for $32. >> that would be a bad trend. >> bad. >> they're saying calvin klein is a good thing. >> no, ralph lauren. >> oh, oh. ralph lauren, sorry. >> give stuff away because the weather was so warm, nobody was buying anything. next up, speaking of warm weather, melissa, hawaiian holdings, didn't you just get back from hawaii. deutsche bank upgrading it. it soars 40 from 35. pleasantly surprised by the
revenue prevailable seat model forecast from hawaiian air. and believe it or not, the stabilization of the japanese yen added because people come from japan to hawaii, their earnings topped by a penny. and they saved penny, and they saved ten cents a gallon on jet fuel. >> this has been an outperformer compared to the etf that tracks the index. that index has hit turbulence, as more people are concerned that savings will be used to expand capacity, which is what we have seen in some cases with the airline to be. >> dulles ricker t.c. >> i don't know what you're talking about. >> "magnum p.i." open haimer today upgrading the stock. they say the stock is up by 1.5%. the analyst says the network is getting better. m. & a is getting better.
>> stock is down 70% since its high. gee whiz. >> because of market performance, you know. >> i know. it's sort of massaging the table. underthe radar name of the day, chemical financial, a michigan based bank, upgrading, the analyst there says the bank has addressed some of the big strategic concerns through a buyout of a smaller bank. he called the stoke, quote cheap even after the deal. target on chemical financial hold, chfc. >> interesting name for a financial company. >> chemical financial? >> it's based in midland where dow chemical is based. i have a feeling -- >> you're so smart, brian. >> no, i just read that. we'll be right back after this short break. what are you working on? let me show you. okay.
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have earned the very best service in return. ♪ usaa. we know what it means to serve. get an auto insurance quote and see why 92% of our members plan to stay for life. sglooz facebook is a key stock to watch. jeff killburn has a short-term bearish outlook. rob is a buy rating and $130 price target. pretty high from where it is right now. jeff, why a short-term bearish call. what does that mean? >> look at the emotion of is the market. when emotion comes in the way it has, technicals take over. as you know, stocks are rotating out of growth into value. we tested it three times.
i want to see a breakthrough 93. only about 11% lower, but going into earnings, like you said, we are sight heightened implied volatility. typically the average price movement is about 4.5%. today we've seen about a 6.2% price implied volatility priced into the move. -- i like zuckerberg long term. >> well, but let me push back against that. if we are seeing a wholesale shift that can often happen where we go from growth back to value. stocks can go out of favors. >> facebook is the anti-twitter, the low they put in in august, i think that's financial support. i'm helping rob with his bullish case, so i'll stop talking.
>> rob, i imagine you agree, and what else? >> on the technical analysis? >> no, on the fundamentals that he's talking about that he likes long term. >> the fundamentals at facebook are among the strongest in the media sector. there's a large redefinition of the way marketers can reach consumers, and facebook is in the center of so much of the good things that are happening. valuation is, you know, it's rich, but growing really fast, so in a growth-adjusted basis, valuation is actually pretty reasonable. a p.e. to growth rate of close do 1. that doesn't happen that one with the big agents of change. >> what if we are at one of those moments, and they happen, where suddenly all those momentum stocks just, bang, go out of favors. we're asking whether apple is now a value play at this point? you can't do anything about that as an analyst, can you? >> there's a few things that are
different. when they fall out of favorite it's when the addressable market is full. not necessarily when we head into a macroeconomic dissipation. >> thank you, guys. thanks so much for wraching "power lunch." "closing bell" starts right now on a fed day. see you tomorrow. >> welcome to "closing bell", everybody. i'm kelly evans of the new york stock exchange. >> i'm bill griffeth. the fed is out with this statement. i love doing that. here it is. >> and there is a disagreement already about what they're saying about the possibility of a rate hike in the month of march, some say it's taken off the table, others say it's still very much on the table. we'll take a look at that, and here's some of the intra-day moves in the market since the statement came out. you can see the stutter step that happened with the s&p, above 2:00, now we're at the lo