tv Power Lunch CNBC April 8, 2016 1:00pm-3:01pm EDT
unfortunately nobody -- the effective tax rate versus cash is what everybody has to focus on. >> we're talking jpmorgan, big week next week, earnings on wednesday, as that season gets hot and heavy. can't wait for that. have a great weekend. great to see you. >> privilege. pleasure. and learning about van dell. >> mario gabelli. "power lunch" starts now. and welcome to "power lunch" where we are following three big stories for you. oil rallying. stocks are losing a bit of steam. meantime, shares of the gap are deep, deep in the red. oh, hi, everybody. tyler off today. we're glad you're here. and hope you're having a great end to your workweek. all right, let us start with oil. if you're in the oil business, or invested in oil names, does indeed look like a good end to your week because crude oil is soaring, both u.s. and internationally traded crude oil up more than 5%. that is giving a lift to names
like exxon, chevron, and pretty much nearly every other oil stock out there. let's find out the reason and get to jackie deangelis at the nymex. >> that's exactly right. near 7% increase in oil prices on the day today. remember, this is after the seesaw week here and, of course, we are near session highs at this point. some buying the dip here, some technical buying, driving the price higher, but there is fundamental strength to because traders are looking at numbers out there, not just from the u.s., but also in europe and taking them with a positive tone. look at u.s. production over the month of march. i've got the numbers for you. a million barrel per day decline here in the united states, we're just over 9 million as of april 1st. next week could be that inflexion point where we drop under that level. remember, this is down from 9.6 million barrels june last year, so significant drop here. those rig count declines that we're going to hear about later in the hour starting to maybe have an impact here.
baker hughes has said this week that for the month of march alone we're down another 11% in terms of rigs. meantime, goldman sachs saying yesterday that $35 a barrel could be the goldilocks number for oil. consider that because you could see the price go up, production go up with it, and then slam the price back down. that's the danger here right now, brian. >> all right, jackie, thank you very much. you reference the rig counts. we're waiting for the weekly rig count numbers to cross. could happen at any moment. let us bring in john kingston. you heard jackie. is this a fundamental trade? is something shifting in oil supply and demand to create this or is this more of a trading trade and simply the way the hedge funds and computers are working out the oil contract? >> there is nothing that shifted in the last 24 hours, that's for sure. jackie said it was an up and down week. no news that would have justified a 7% rise over the last 24 hours. so, you know, let's say -- there seems to be a consensus there is some significant short covering
going on today. if you are looking for some bullish news, you have the keystone pipeline, not the one controversial, that was keystone xl but keystone pipeline went down last saturday. that's almost 600,000 barrels a day, not expected back until next week. so you had that. you've got very strong run numbers in the u.s. for this time of year. you got refineries running at well over 16 million barrels a day. that tends to be like a summer number, rather than a march or april number. so that's been considered positive. >> and, john, by the way, we got the rig count numbers just now, according it baker hughes. another 8 oil rigs are off. 8 rigs last week, down to 354 nationwide. we had more than 2,000 operating drilling rigs in the united states in 2008, john. these are the lowest numbers since baker hughes began calculating this. when do we really see this production slowdown because no new oil is being gone after. >> i think you've seen the production slowdown.
jackie -- >> 100,000 a day, out of 9 million. >> you started around 9.6 and now down to 9. no doubt about it in 2015 the numbers stayed elevated for longer than they were supposed to, maybe a lot longer than they were supposed to because the hedging perhaps continue the programs to continue to operate. those hedges are mostly off. so that's why you're going to see a lot more of this around 2016 going on. i would say that the ben tech unit continues to hold to its prediction that prices will be sticky and hit over $40, consistently on wti basis over the summer maybe rising about 42 by the end of the year. but you still got the frac log, as it has been referred to, all the oil wells drilled but not fracked. there is some signs in the outpart of the curve that producers may be hedging at 44, $45, which in my view is a very bearish sign because it means they looked over their economics
and they think they can make a go of it at $45. you had some -- you have had a significant drop. you probably got several hundred thousand more barrels a day to add to that total. at the same time as one of your guests earlier noted, you got iran coming back as well. >> john, thanks so much. as we said that bump in oil helping big oil companies. why are stocks overall rallying too? let's get to michelle down on the floor of the new york stock exchange. >> stocks are well off the session highs. bob pisani is here with me. why is this rally fading? >> i'm a little disappointed. normally we got oil flying, we got the dollar down. there doesn't seem to be a lot of enthusiasm. i think the story is the fed put a bit of a floor under the market with the yellen put. the perception of the yellen put. people are not very enthusiastic about buying right here. they're not sure about how much more upside there is to the market because they're still not sure about the earnings picture. what i'm hoping is you'll get a little more clarity and little more bullishness from some of the companies going forward. look at the s&p, though.
>> the earnings picture, people are very concerned about earnings being down. do we know to what degree that is priced? >> it is priced in. we have known this for weeks now. i think the risk is to the upside. i think more optimistic with the dollar on the weak side and maybe, maybe improving economic health in the united states. we'll see. point out here, the energy stocks are flying today. you should get -- we have 4 to 1 advancing to declining stocks. energy, materials, industrials, all the groups that do up on the weak dollar. there is your energy stocks with devon, apache, diamond offshore, even big oil, conoco, big oil on the upside nicely. i do think there is concerns about how much more upside there is to the market. meantime, all the consumer discretionary are getting hit because gap had just not good commentary. inventory levels are high. a lot of concern out there it is not a gap specific problem that there may be an issue with consumers and of course -- >> retail in general.
>> they got to preprice the inventory out there. >> thank you, bob. christina hooper is u.s. investment strategist for aleon. she's joining us on the floor. and co-manager of the small hodges small cap fund. what do you do? >> we would be tactically moving. what we expect is to see shifts in sector leadership, shifts in investment leadership because there is uncertainty. they should be buffeting different areas of the stock market at different times. >> are you concerned about the earnings season in particular? is that why you -- >> well, we have seen a pretty significant run-up in stocks and we know that earnings are going to be relatively disappointing. so we can certainly look out to the back half of the year in the hopes we see some positive surprise, but right now we just don't see a catalyst to move stocks up materially. >> eric what do you think?
is she right? >> well, i think heading into earnings season here there is definitely a lot of negative sentiment built into the market. everybody is expecting a very lackluster first quarter earnings. and we think that the reality is is probably not going to be as bad as everyone thinks, just like it is never as good as anybody thinks. we think really now is not the time to buy the market, but focus on individual companies that have unique secular growth stories. >> for example. >> for example, we like -- there is three small cap companies we like here. one would be a company called u.s. concrete. and they are reinvesting in their business, they're in the ready mix business in high density metropolitan areas, where there is really a high barrier to entry. we also like a company called horizon pharma. they're reinvesting into orphan
drugs, we think that they have been beaten up with all the specialty pharma companies here. here is a company that will see tremendous earnings growth over the next few years. not necessarily sensitive to what is going on in the economy or the market. you can buy that at very low ip multiple here. we look a company called national general, which is a specialty insurance company, about half their business is in auto. they also are the leader in insuring things like rvs and stuff like that. they generate a 15% roe. there is a secular growth story here where they're, you know, growing organically as well as making some small acquisitions. not necessarily sensitive to what is going on in the broader economy. but there is a secular growth opportunity. each of these small caps, and that's really what we're doing at the hodges fund is really going in, focusing in on individuals. >> like those ideas. you don't like the overall market, but you have to pick and
choose what would you pick? >> i would be tactually moving. i favor technology and to a certain extent i look for opportunities to buy health care. because we are seeing growth there. but we have to worry about the presidential election, potentially impacting. >> they have all gotten so hammered because of the campaign rhetoric that we have heard in particular. what if you get somebody who says that we're going to go to, you know, one payer system here or we're going to start imposing price controls on drugs. big risk there, no? >> scary to hear that but let's think about the potential composition of congress and how likely a scenario like that really is. it is scary, so it sends stocks down. but it doesn't necessarily mean there is anything to truly be worried about. the other thing i would say is we need to be worried about inflation now. the fed holding back, sitting on its hands, being more accommodative opens the door for inflation. i don't think it is a likely scenario, but it is a potential scenario that we have to worry about. >> all right, christina, thanks so much. eric, thanks so much.
let's go to powerlunch.cnbc.com and see the three things that christina says will move the markets in the coming months. that's powerlunch .cnbc.com. you mentioned the shares of the gap, they are down after the retailer reported another drop in same store sales. gap's move lower weighing on the entire retail sector. the xrt is on track for the worst week since the start of the year. joining us on the cnbc news line is roxanne myer, with mkm partners. they have terrible same store sales numbers in march. entering april with more than expected inventory levels, which will pressure gross margins. can the gap turn this around? >> hi, yeah. you know, this is a company that is absolutely in the middle of transition right now. i think we have the opportunity to meet with the ceo and cfo early in march as did others. and we did hear some encouraging signs as it related to gap and
old navy starting to get a little bit of mojo back. that said, back half of march was a disaster. and that's when traffic fell off in the key weeks of easter and there after. so the question right now we have is is this a gap specific issue or is it macro? either way, i would say that, you know, whether or not this turn can happen, it has been pushed off. one cue you mentioned, gross margins are going to be down or hit. >> is gap dead money now? >> i think it is until we see evidence that they're starting to get traction and unfortunately we're not going to see that in the month of april. >> let's look at the macro issue. the gap isn't the first retailer we have heard. lulu saying they were having difficulty in march. i'm wondering if you think there is a problem more broadly when it comes to consumer spending, retail in general? >> yeah, we're certainly trying to put together all the pieces. lulu had a comp in 4q and
they're expecting it to fall. that took the market by surprise. we're hearing gap with a sharp decline in traffic in the back half of march. i would tell you in our weekly promotional checks we noticed this past week that retailers in general were more promotional this week than last year when they anniversaried easter. that's something that took us off guard. >> you're concerned about your space now? >> i am concerned. there is incrementally a little more reason to be concerned and as it relates to stocks, i say after being way underweight in 2015, the setup seemed really good. you got a low bar, weather compares are easy, anniversarying some west coast port issues and inventory is in the specialty channel are relatively healthy. this is really taking the group by surprise and that's why you see it down as much as it is. now we're extrapolating that maybe something is wrong here. >> thanks for phoning in. appreciate it. roxanne myer of mkm. straight ahead, live to panama city, the co-founder of the law firm at the center of the panama papers financial scandal speaks out.
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look at this video, former cuban president fidel castro making a rare appearance on cuban state television on thursday speaking to an audience of schoolchildren. this is rare because lately the cuban government only released photos and/or silent video of the former leader of the country. but he could be heard talking on this piece of tape.
he was there to honor a fellow cuban revolutionary, fidel castro is 89. he told the children this type of school is getting close to a kind of dream. brian and melissa, look at this as just like proof of life, you know, when somebody is kidnapped and they send out a photo and somebody is holding up a newspaper with the date on it, cuban government does this on occasion to prove that fidel castro is still alive because there are frequently rumers he's not alive or he is so befuddled he can't speak anymore. >> for a few cigars a day, 89 is not a bad -- there you go. thank you. one of the most secretive law firms in the world is secret no more. after the leak of more than 11 million documents, the panamanian law firm of mossack fonseca became a household name. eamon javers, what have you
learned? >> reporter: hi, brian. we're sitting here inside the law firm mossack fonseca. this is probably one of the most scrutinized law firms anywhere in the world now, given the breaking news around the world of the panama paper scandal that broke on sunday, last week. i had a chance recently to sit down with jurgen mossack, the co-founder of this law firm. i asked him if he says he's done nothing wrong, which he does say, and says this firm has done nothing wrong, i ask him if that's the case, why did you think all the clients from all around the world are coming here to panama to do business? here's what he said. >> there is another misconception here. they were not coming to panama. they were coming to jurisdictions all over the world. in fact, you have many from were coming to places like delaware and the united states. who also incorporate companies in very same fashion as we incorporate them here. but panama is just our base.
we incorporate companies in many jurisdictions all over the world. in fact, the minority of these are from panama. >> have you received any requests yet for information from international authorities, interpol, the fbi and the u.s.? >> not directly. when we get -- when we get a request, it normally comes from government to government. and the government would -- so we would be contacted by the relevant authority in this country or in any other country. when and if that happens, then we provide information to the authority and the information would be in the hands of the proper authorities anywhere. >> one of the big questions in this scandal in the united states is how come we're not seeing more prominent american names, we're seeing political figures all around the world, but no americans involved in this scandal in a big way just yet. does this firm have american clients? >> no. no. i mean, there may be a few.
you could count on probably with fingers of two hands, but when we accept an american plan, it is only if and when they produce a legal opinion from an american lawyer or tax adviser who certifies to us that the american client has complied with all laws and regulations of the united states. >> are any of your american clients political figures? >> no. definitely not. >> are you proud of the business you have run here? >> i'm very proud. >> why? >> because it is a business that contributes to the international financial community in matters where people want privacy and i think one needs to confirm -- one needs to know that privacy is a human right. >> even for dictators? >> it is a human right for every
person. no matter what -- >> even gangsters? >> gangsters should not -- should be dealt with by the authorities. and are being dealt with by authorities. we do not deal with gangsters. never have dealt with any, never have dealt with any -- as i said, we have always dealt with professional clients all over the world, only. >> do you think that your law firm will be able to survive this scandal? >> i'm sure we will survive it. certainly what has happened has not been helpful. but survive, yes. >> what is next in this story. at one point many people made is this is just the inner workings of one law firm and one jurisdiction and one part of the world. where do you think this story goes innext? where should people be looking? >> i think we are one of many firms who does this service. mostly out of -- oecd countries.
we happen to be based here. but there are many firms, not only law firms, many firms where you don't even have to be an attorney who are company providers in the united kingdom, in the united states, in many european countries, and they all do the same business as we do. we just happen to have been hacked. >> you're the ones who got caught. >> i wouldn't say we have been caught because we haven't done anything illegal. that means we haven't been caught. we have been hacked. >> michelle, jurgen mossack told me he believes the firm has been hacked by a sophisticated computer hacker, but says they don't have any idea yet despite the forensics they have done to figure out where the attack came from. they don't have any idea who did this to them or why they did it. >> let's delve into this a little bit more between the trade-off of secrecy and who gets secrecy.
very interesting line, because a lot of people out there justify banking secrecy because they live in places where they have to be worried about what the government will take from them. but at the same time, the trade-off is who do you end up doing business with when you ask them about kidictators, for example? >> that's right. i've been covering this for a while now. you talk to swiss bankers for a while, talk to folks in panama, they talk about banking secrecy and legal secrecy. the same way americans talk about freedom of speech and freedom of religion. they view it as a fundamental right for all people. and that gets you into the question you just raised. for who? for who gets the benefit of all that. that's what we're trying to get at in the interview with mossack. >> he seemed to come down on the side that everybody should get it regardless of what kind of person they were. >> right. absolutely. that's going to be the debate around the world because there are other jurisdictions as he pointed out that do this, including in the united states. similar amounts of secrecy in terms of the legal structure of these various corporate entities and the question is do
governments around the world do the -- does the public around the world have an ability to get into that, should they be able to see all that. >> thanks. >> aymeamon javers, thank you. could jpmorgan actually exit the mortgage business? jamie diamond's shocking response to a question about just that. a fair price, quality service, and that horrible smells are really good at hiding. oh, boy. there it is. ♪ ohh. ooh. [ gags ] so when you need a house cleaner or an exterminator, we can help you get the job done right, guaranteed. get started today at angie's list, because your home is where our heart is. ♪
lunch." stocks sharply in the green today. stocks are following this week's rally in oil. crude up more than 6% today, just under 40 bucks per barrel. "power lunch," more back in two minutes after the break. one of millions of orders on this company's servers. accessible by thousands of suppliers and employees globally. but with cyber threats on the rise, mary's data could be under attack. with the help of the at&t network, a network that senses and mitigates cyber threats, their critical data is safer than ever. giving them the agility to be open & secure. because no one knows & like at&t.
hi, everybody. i'm sue herera. here is your cnbc news update this hour. democratic presidential candidate bernie sanders paid a visit to the today show plaza this morning, downplaying his feud with rival hillary clinton. >> i've known hillary clinton for 25 years. i respect hillary clinton. we were colleagues in the senate. and on her worst day she will be -- she would be an infinitely better president than either of the republican candidates. >> a cease-fire in the break away region of karaba is at risk of being fractured as russia leaves diplomatic efforts to resolve the conflict. the armenian side accused azerbaijan of shelling its positions. saudi arabian king solomon announcing a bilateral agreement
to build a bridge connecting his country with egypt in order to boost commerce between the two nations. he spoke at a joint news conference with egyptian president el sisi on the second day of his visit. syrian troops retook palmyra from militants. you're up to date. that's the news update this hour. back to you. >> thank you so much. gold prices, gold is closing right now. so what we have here, this is really a reflection of the intraday chart of what is going on in the equities market. uptick in the price of gold starting at 10:00. that's when the gains on the s&p 500 started to dissipate. gold at 1243.90 an ounce, up by half a percent. taking a look at the rest of the metals complex, we have a green day across the board with silver one of the biggest gainers right
now, up by 1.4% with platinum, copper and palladium up just fractionally. let's get to the bond market, check in with rick santelli at the cme. >> if you look at intraday of 10s, we're down a couple of basis points. we had weak inventories in sales data on the wholesale side for february. taking away from gdp, now only .1. .1%. one week of 10s shows we're down half a dozen basis points on the week. maybe more important is the relationship with other interest rates and sovereigns like the bund. look at one week of the bund. look at how many times we knocked at the door getting close to the all time low yield close of 7. down four basis points on the week. when you're down four basis points in the week and you're selling in '09, you don't want to look at the percentages, a little aggressive there, dollar yen, today was supposed to be the day we break the five day streak of the dollar not improving against the yen. the yen doing better against the
dollar. it is really getting close now to be the six day as the yen is making a comeback as you see on the chart. the last chart, i'll tell you what, if everything is so rosy, mario draghi has it figured out, why is the dax backing away from the 10,000 mark? michelle, back to you and have a good weekend. >> all good questions. let's bring bob pisani to talk more. the yen appears to be perhaps once again getting the point where it may strengthen again and can you explain really basically why somebody at home should care about whether or not the yen strengthens and why it would move u.s. stock market? >> what happens in the yen carry trade is you go out and you essentially rely on the fact that you're flat to negative interest rates in japan. you can borrow dirt cheap. >> i go over to japan as a trader and borrow a ton of stuff because it costs nothing. >> you take that money and you go overseas and buy stuff.
you buy equities. you buy european stocks and buy u.s. stocks. this is great as long as the yen stays weak. but if the trade reverses, the yen starts to strengthen -- >> i get nervous, i think i got to cover my shorts, how do i do that? >> you got to sell equities. the european stocks and u.s. stocks, financials, when are a favorite of these guys who play this -- the yen carry trade, they sell that. and that's what's been happening in the last couple of weeks as the yen has been strengthening. >> super interesting also. i'm looking at oil. reproaching 40 here for wti. since january 1, most days if oil is sharply higher, stocks are sharply high, we wait for the correlation to break. is this maybe a sign of -- stocks are still up, we should point out. >> i find this disappointing today. we talked about this earlier. dollar down, oil up sharply, in the past, it has been normally we would be up 150, 200, 250 points today. the stocks that would be up on the day with the dollar week are
up. energy is up, materials up, industrials are up. those are the ones who benefit the most from the weak dollar. the problem now is they're not sure how much upside there is to the markets. we know there is a bit of a floor. janet yellen being dovish. there is a floor there, we don't know how much upside is. i think that is making people reticent. i think we're going to hear a little more optimism than people think for earnings. that's why i'm modestly bullish. i call the market a solid hold. i've been saying that for with weeks now. >> thank you, bob. check out this incredible video from one of america's largest refineries. a massive fire broke out at the bay town facility late yesterday. that aerial footage shows large flames, thick black smoke from the factory, which is located near the houston ship channel. firefighters using large water canons to try to extinguish the flames, they did. exxonmobil says the fire posed no threat to residents nearby, no injuries, still waiting on word of any reduction in
capacity at bay town, which is 3400 acres and the second biggest chemical and gasoline refinery in the united states. >> what is so amazing is that there is another fire in houston at the bazell refinery. >> the swiss chemical? >> yes. >> huge fire. >> bad day for houston. >> the entire oil and gas industry has been a dumpster fire for the past 12 months. now you actually have fire. coming up, the shocking question in jamie diamond's letter to investors. what it may mean for your ability to get a mortgage loan. that ahead when "power lunch" returns. the new york times
where board members are unable to find a suitable replacement or at least claim they can't. what is the issue here? should board members be more open to successors or ceo setting too high of a standard. let's bring in jeff sonnenfeld, and gordon bethune, former continental airlines chairman and ceo who knows a little something about board room drama. jeff, we'll start with this, thomas stags seemed like an heir apparent, literally saved bob iger's life 13 years ago by giving him the heimlich maneuver. that gets you 13 years on the board. what do you think happened at disney? >> he did manage to get some fresh breath into poor bob iger at a scary moment. and i think he's played some critical roles throughout this career in disney beyond saving bob iger's life. but in terms of the next stage of life for disney, it became pretty apparent he wasn't the right guy for the spot. i think this is a board operating at its absolute best. easiest thing to do would have
to stay on a conveyor belt and put on -- would have done a fine job in a much more sort of custodial role, not creative. >> you said obviously not the right guy for the job. i understand that thomas staggs, the professional, you don't want to slam him, you don't want to say here is where he was lacking, but do you believe disney should at least provide investors -- it is one of the most widely owned stocks of the world, provide investors with more insight into exactly why they decided he was not the ceo? should they say we don't think he has the operational or creative capacity or whatever it might be? >> i think there is no reason to disparage him. he's been a great guy. very strong cfo. and did a wonderful job running the theme parks. but this say business where, know, under the last decade of leadership of bob iger this company performed better than it has in its entire storied history. but stories is what this prlace is about. creative storytelling, sense of drama and imagination and that vision thing was not his strong
suit. you put somebody in a trial run, trial basis, you have to listen to what you hear in the trials and the creative world was telling him, this guy, maybe for a different industry, is a great guy, but no misconduct here, no reason to have some revelations of a problem with a guy who is a very talented, very loyal executive, but, again, it is too often we have seen companies from procter & gamble, several times, to exxonmobil and others where they put the vp -- they put in the guy next in line to the rest of us look like a bad carrier, maybe an engineer or technocrat, wasn't the visionary. >> gordon, how should ceos in the role right now think about their successors? i remember back to apple when everybody was questioning whether or not tim cook would be sufficient to fill steve jobs very large shoes and the argument was made he's no steve jobs. that's unfair. look at what happened with apple under tim cook, it hit its record high on the stock price. in terms of notion that they need to fill the shoes of the
predecessor, where should a board come down on that? >> i think needs a partnership because ceos shouldn't be the decisionmaker. the board needs his input, but they need to have one more than just one candidate which i think may be negligent, because you should always have a deeper bench than that. you don't know what's going to happen. then there are the sumner redstones and those founders of companies that stay on forever. there has to be a board with a plan, and having the ceo identify but multiple successors and groom the people so there say choice to be made when it is time to go. >> the fact that we are, gordon, right now thinking about who could possibly take over bob iger's position, and we don't really have a whole long list of candidates, is that negligent on the part of disney's board in your view ? should they have had that deep enough bench where they say, it is beyond tom staggs this guy, this guy, and this guy, and they'll all lined up and ready
to go. >> the best companies do, i don't want to say negligent, because i don't want to criticize, but the best companies develop two to three people, try them on in different roles and get the feeling for what the challenge or the superiority is going to be. and then make a decision. i've been there a bunch of times. it is the right thing to do, work as a partnership, multiple people on the bench, and then make a decision about a year out. >> and, jeff, i want to be clear, i'm not saying disney needs to disparage the guy at all. if your short stop is batting 167 and striking out twice a game, you know he'll go on the bench, disney seems look a company that with the exception of, you know, they got to adjust espn a little bit is firing on all cylinders, frozen was the biggest hit in the world. everything seemed to be going well. then suddenly the number two is just -- he's benched. don't we need to know a little more why, it doesn't have to be about staggs, maybe about the methodology, what are they thinking.
>> you're right. frozen was a big hit. the star wars return was a spectacular historic hit. and you look at theatricals, up 46% and revenue is in free cash flow, up like 86, 87%. it is amazing how well they're doing. up 400% in total shareholder return over the last decade under the ceo, under bob iger. but in the trial assign , ment,f he didn't do so well, they don't have to trash him, but to gordon's point, melissa, excellent question, there is no negligence when you have two and a half years, name me any company that can tell us five years before a succession who the ceo is going to be, no. if they did, that's the mistake. called stacking. you want to make the best decision closer in. two and a half years is plenty of time to groom somebody. they tried earlier to see what grooming needs to be done, and if you did a trial assignment,
let's make it work. this is -- you see the monarchs, especially in show business, you mentioned sumner red stone and other, people stay on too long. this is a great ambassadorial succession, wrote a book about it, and this is the ideal process. >> jeff and gordon, gentlemen, thank you for your insight. have a great weekend. see you soon. >> you too. thanks. politicians officially declared a war on american business? we have got more on that great debate. street talk, the price of oil, a lot more to do on this friday. we're back with more "power lunch" after this. when a moment turns romantic why pause to take a pill? or stop to find a bathroom? cialis for daily use is approved to treat both erectile dysfunction and the urinary symptoms of bph, like needing to go frequently, day or night.
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jamie diamond's letter to shareholders getting a lot of buzz this week, something in the letter that hasn't been talked about is this. diamond says one of the questions he gets from investors are why are you still in the mortgage business? and dimon responds, that is a valid question. with us now is bethany mcclain, cnbc contributor, contributing editor at vanity fair. i found this astounding, writing mortgages, doing mortgages, bread and butter of what a bank in america is supposed to do, and yet what has happened to the situation with mortgages in america that an investor would suggest that jpmorgan shouldn't
be in the business at all. >> if you look since the financial crisis, the wall street journal added it up recently, the big banks paid a total of $110 billion in fines to the government as a result of their conduct in the years running up to the financial crisis. add in credit related losses on the mortgage business and the reputational costs to the big banks, and you can see why there would be questions about why on earth he would be in this business. >> he goes on to say, the mortgage business can be volatile and has experienced increasingly lower returns. i think we have a full screen as new regulations at both sizable costs and higher capital requirements. getting much more expensive to do, and yet he decides he's going to stick with it. >> right. for precisely the reasons you articulated when you raised the question, a bank has to be in this business. he goes on to say, this is really important. this is a really key financial product to our customers and we need to be in this business. and, look, jpmorgan is not pulling back from the business
overall. they're making a lot of money doing this. still the number two mortgage originator and servicer. what they have pulled back on is riskier loans, making loans to riskier customers and dimon says if he never had to service another defaulted mortgage again, he would be very happy. and that's the part of the business that has been really expensive to banks. there is -- look, there is a real issue there -- >> when a house goes into foreclosure, it becomes incredibly expensive to service. he actually goes on to say, we don't do fha loans anymore because they're far more likely to default and that's expensive and if we make a mistake, we get fined heavily. >> right. he says, which i found most frightening part of the whole -- his comments on this section, he said even if there are so many new rules that even if we're trying really hard not to make mistakes, we're going to make mistakes. and that means one of two things. either the rules are way too cumbersome or jpmorgan is incompetent. but it shouldn't be if you're trying hard not to make mistakes
that you're still going to get caught up in a dragnet. >> hi, by the way. how are you? even the government -- even the government knows that if jpmorgan chase left the mortgage business a lot of people are going to be not able to get a loan and loan prices will go up. the market will be simply more liquid. dimon knows this. congress knows this. you know jamie dimon a little bit. how much would this be game theory, brinksmanship, why don't i rattle congress' cage a little bit? >> it is probably some of that. i think he's trying to make a point. but, look, jpmorgan is going nowhere in the mortgage business. the business is growing and making an enormous amount of money at it. they have gone somewhere, though. they have and a lot of other big banks have left this market for riskier mortgages. and it is a really complicated question why that is. a large part has to do with the potential they may get in that business. that's a real issue because you have a lot of credit constrained
borrowers who can't get mortgages and we could have another debate about whether that should be or shouldn't be but it is having an impact on home ownership rates and housing availability for people. that part of it, that segment of the business is a real issue. >> all right, bethany, thanks for delving into this with us. janet yellen and three of her predecessors taking the stage at the international house in new york city last night. we'll tell you what they said on the economy, the limits of the fed, bubbles, when "power lunch" returns. if you're going to make a statement... make sure it's an intelligent one. ♪ the all-new audi a4, with available virtual cockpit. ♪ perfect driving record. >>perfect. no tickets. no accidents... >>that is until one of you clips a food truck, ruining your perfect record. >>yup... now, you would think your insurance company
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a historic event last night at the international house in new york city. for first time, fed chair janet yellen appearing on a panel with her three living predecessors, ben bernanke, paul volcker, alan greenspan joining via teleconference. let's bring in steve liesman. what an extraordinary event. >> it was quite remarkable to watch. there was real human moments, a great sneeze by alan greenspan. everybody is talking about this idea that fed chair janet yellen said we're not in a bubble. we thought, you know what, what if this were jeopardy and we did famous last words from the fed for $100 and alan greenspan
noted this idea about how the fed, monetary policy is about forecasting and the fed's ability to forecast is limited. we went back and looked for fun, maybe just call it a jeopardy edition of what we're calling fed forecasting follies. this is the most famous one. how do we know when a -- asset values which then became subject to unexpected and prolonged contractions. that was alan greenspan in 1996, talking about the stock market being overvalued. what is 75%? what is the next one? ben bernanke in february 2006, our expectations of the decline in activity or the inactivity will be moderate, house prices will probably continue to rise. melissa, what is minus 20%? minus 19%? that's how much housing prices fell when ben bernanke said that. they made good calls along the way. brought down inflation.
we're just picking out the follies here. and there is janet yellen, equity valuations of smaller firms as well as social media and biotechnology appears to be stretched. july 2014, do you want to take a guess? what is 45%? that's how much biotech went up. they're not all that wonderful. they it really raises -- existential question about the fed. we had austan goolsbee talking about this forecasting model has not really proven great. we know that running policy based on gold creates undue restrictions on their ability to react to changes in the business cycle. so we need some way to figure out what the right quantity and price of money is, and we're a little bit sort of groping in the dark now. >> so what is the conclusion of all of that, that they got to find another methodology? >> i think they have to. brian wants to grope in the dark a little bit. did you want to -- >> you know my views a little bit. i will say this, steve. here we go. i'll do this delicately.
the fed is data driven. they're way off and i la lot ofe projections. is that ergo facto the data sucks? >> the data is bad. and we have done a lot of work on that. >> don't we need to -- shouldn't we fundamentally rethink the data, i guess, is my point? >> that's an excellent point. right now, we're in the middle of another weak first quarter. the work we have done on the string of weak first quarters. i did work on how gdp, it comes out in the quarter, could be revised plus or minus 1.3%. and the question becomes how do you run a monetary policy data dependent when you can't depend on the data? that's a problem. i think at this moment you've got to do the best you can. i know there are guys like larry kudlow who likes the idea of talking about a basket of goods or some sort of commodity basket to run monetary policy that way. but if you have a unified currency, man or in this case
woman, must decide on a quantity or price of money and there is -- >> you say kudlow twice -- >> kudlow, kudlow, kudlow. just popped on. >> you are both making very important points. all you want to do, though, is have it more market driven, more market driven. in other words, i don't mean day to day markets. but trying to capture trends in financial markets, in commodity basket markets, and in currency basket markets, so they'll tell you a story. and i think we agree, i don't know. to me, the story is do not raise rates right now. do not. there is more deflation than inflation. and i think the economy is not good at all, so i would cease and desist, which i think is yellen's message. and also at the economics -- she cited markets. she cited spreads, tips and inflation expectations. >> absolutely. >> i think she's making great progre progress. excellent progress. >> larry, see you in a little
bit. >> thank you. >> steve, thank you. >> steve liesman. we're coming up on 2:00 on wall street. halfway -- half an hour away from the close. we're seeing a big gain in oil. the biggest one day gain since february 12th. what is driving oil higher today? fundamentals or short covering. let's bring in alan harry from harry ra trust. great to have you. steve liesman going through janet yellen's speech yesterday, saying that has helped to the tune of 6.5%. what is driving this rally? >> a couple of things in there. yes, what we said on thursday did help. we also have numbers that came out on wednesday that were bullish that helped too. what i think is happening here is we got a short cover rally going into friday. i think monday, if we don't keep that rally going, we're coming off, we're coming off hard. we don't have much upside left. don't think we break that. and then from there, april 17th, that meeting, going to be interesting. >> is today's rally a gift for
short sellers? >> it is a gift for short sellers if it doesn't break 40. if it breaks 40, i would be covering it again now. >> do you think we have seen the worst for crude this year? >> no. if this meeting comes up and it is a fallout, which i don't think is going to happen, but if it is a fallout, we see back to the mid-20s. my prediction is we see down to 32, we see a little below 32, but there is that possibility we could see worse for crude oil. >> alan, i'll leave it there. >> a big gain in oil you're just talking about, not doing much for stops. dow is getting a boost from exxon and she have reason and the s&p 500 right now is higher by 8 points. got art cashin with us here at the floor of the nyse. we have seen historically last three months at least if you want to call that historic that had oil is strong, the market is strong. that's not happening today. why do you think that is? >> as the previous guest just said, most of the professional
traders think that oil move today is very much 90 to 100% short covering. so that could make the move up in oil rather short lived. he said that it might end on monday. so the early rally faded and we're having some difficulty holding on to plus territory because people think that the basis of the equity rally is based on short covering and therefore could be rather ephemeral. nobody wants to double down in here. >> what do you make of janet yellen saying we're not in a bubble economy at this point? >> i think she wanted to give a message to a couple of people who are noticeably speaking out right now. >> the hawk on the committee. >> well, and to a couple of presidential candidates. >> of course, of course. talking about donald trump. >> yes. >> let's underline that. bob pisani raised an interesting point, there is very low expectations for earnings.
so low, maybe it is priced in. and if you get any surprise on the upside there, you might set yourself up for a nice summer rally. >> that's a distinct possibility. bob is dead right. they have lowered the bar so much that you will see probably in some cases lower year over year earnings and revenues and it will be tough to beat it negatively. so you should get a little bit of a beat on the upside. >> good to have you. >> my pleasure. thank you. >> art cashin at the stock exchange. hank paulson was on cnbc earlier today, the former treasury secretary. he said he's troubled by the obama administration's stock gap answers to prevent corporate inversion deals. >> to say i'm troubled and disappointed is an understatement. i think we all know that the root cause here of the problem
is this antiquated outdated tax system that puts corporations, multinationals at a competitive disadvantage with their foreign competitors. we're a nation of laws and rules and you can't change the rules, shouldn't be changing the rules after the facts and changing them and changing them and changing them again. >> thoughts from larry kudlow and cnbc contributor robert rei reich. secretary reich's book is called "saving capitalism." larry, what do you make of what hank paulson said? is he right when it comes to jack lew changing the rules in the middle of the game and thus cratering the pfizer deal? >> spot on right. spot on right. i mean, let's get on with the root cause of all of this. which is the absence of tax reform. and as paulson said, our system hasn't been reformed in 30
years. it is antiquated and we're losing competitiveness all over the world. why do you want to double tax multinationals? once in their home domicile and overseas, that is dumb. why is our rate at 35 to 40%, which is the highest in the world? why don't we have cash expansion. robert reich's book should tell the story. we want to save capitalism. unless we get our corporate tax system in shape and competitive, we're not going to save capitalism. >> secretary reich, above and beyond all that, how about the basic idea that the rules were won, a, and suddenly jack lew decided they would be b, when president obama came out and touted what the treasury secretary had done, he said, you know, american companies should like being in america because rule of law. and yet it feels like this is a complete violation of rule of law, changing the rules in the middle of the game. even if you don't like the pfizer deal, should it have been dealt with this way, secretary?
>> well, it is a good point, a good question. the federal government is always making regulations, changing regulations, agencies are often changing regulations. they are changing regulations because the situation demands that regulations be modified or changed or adopted and this was not done without any due process at all. it was done in full view of everybody else. the really difficult thing here and i want to go back to something that larry said is we do have an antiquated corporate tax system. and many people looking at it say that it is wrong, we need corporate tax reform but we have different views of what that tax reform ought to look like. and when larry says, for example, that we are losing competitive advantage, the real operative question is who is we? because these global corporations are we in terms of their shareholders but shareholders are global shareholders all over the world. it is not that the united states per se is the object of concern
of these global corporations, they want to maximize shareholder returns. but the government here in the united states has an obligation to the people of the united states. that's where competitive advantage really does have a meaning. >> i agree with you. there is no due process on this. that's a good point. i agree with michelle. you can't just pop the regulations in overnight without the discussions, committee hearings. that's all wrong. in terms of the substance of the issue, how can you say this? everybody has a stake in america, but that stake is shrinking, including american companies who want to locate overseas. we need to keep them here. america should be winning the global race for capital and investment. instead, we're losing it. that's one of the reasons the productivity has collapsed and our economy is so soft. >> larry, you are absolutely 100% wrong about that point. the united states economy is doing much better if you hadn't
noticed than europe, than japan, even arguably and we don't have the data on it in china. the united states economy is the big success story in the world now. american corporations are doing wonderfully well. the problem is not with regard to our system, our system is actually functioning extraordinarily and in a positive way. the problem is that our tax system is antiquated. it -- congress has been at -- you know, just at loggerheads for so long, there is no way of having a rational system put into place. >> i want to move on to the next topic -- >> give me one last -- one last one. >> no, i don't want larry -- michelle, don't give larry the last word. he should not get the last word here. he always wants the last word. >> finish your thought, larry. >> one thing. i'm not proud, rob reich, and neither should you be, that the xhe american economy in last 15 year has grown at 1.7% at an annual rate, that per capita wages have
not grown at all. this is not america. we should be leadership. 1.7% rate is not a tremendous economy. it is a very weak economy. >> your candidate, bernie sanders, talks about those very things. >> yes, i know. i have to respond, just quickly, to larry. because we're -- larry takes the opposite side of me all the time. >> no. >> i've been saying for years -- >> for a reason. >> i've been saying for years we have a problem with the median wage. family, median family income is below what it wasn the year 2000. it is a huge problem. but, larry is the one who keeps on saying the united states economy is doing so wonderfully. get your story straight. >> look, i'm there with you on wages. the data is the data. i'm just quoting the data. all i'm going to say is, bob, you can't have better wages. you can't have better jobs unless you have strong businesses. >> secretary reich, i want to ask you the following. hold on one second. >> i'm going to stop talking to
larry. michelle, i want to talk to you. >> your candidate says that ge is bad for the moral fabric of america. come on. do you -- do you side with him on that? >> i don't know exactly what he was talking about, but i can tell you that ge, ge is a wonderful company, but ge has a history of particularly under nuclear jack welch of treating a lot of its employees as costs to be cut rather than assets to be developed. and that kind of american company is not an american company. ge is a global company and getting back and making kind of a connection between the -- your two questions and what larry said, the problem is that these global companies don't have any particular allegiance to the united states in terms of american living standards and american wages, american growth. >> were you embarrassed to read that bernie sanders never visited what must be the largest manufacturing plant in vermont run by general electric, one of the largest employers.
>> two big plants in vermont. two. >> is he in touch at all with business? he calls himself a socialist. you are worried about saving capitalism. but this guy is a full on socialist. he doesn't give a darn about employment in his state, i think. >> oh, michelle. you're saying -- please. you don't think that bernie sanders gives a darn about employment. >> he has been in congress since 1990 and he's never -- >> wait a minute. wait a minute. wait. can we just -- can we just be realistic for a second. bernie sanders is the only candidate in this entire election who has been talking unrelentingly about jobs and wages and corporate power and wall street power and money, inundating our democracy. that's a concern that we do have to be attentive to. global corporations, i don't even understand how global corporations can make contributions to political candidates in the united states when so many of their shareholders are not americans.
isn't that a back door into our democracy? >> you used to be as a regular guest on the kudlow report in favor of free trade and international business. now, let me just quote, i thought immelt's piece was terrific. is it immoral? g e ge has 125,000 staff in the united states. they have 250 plants in the united states. they built 15 new plants in recent years. as michelle said, they got two big plants in the state of vermont. now, would you tell me, what is immoral about that? now, thing about persony sande s e bernie sanders that i like, he's a man of integrity that believes what he says, but that doesn't mean we should believe what he says. >> let me defend -- i don't know the context for his comment. let me defend -- >> i don't believe you, come on. this is -- you haven't read the comments? they have been all over the news
for two days? come on. >> michelle, michelle, let me just say what i believe is driving his outrage and a lot of americans share it. ge has more employment and more business outside the united states than -- that's not a problem for ge. that's what ge ought to be doing. that's the way ge maximizes shareholder returns. but the ge political power in the united states and the political power of global company, when interests are not the united states, their interests are maximizing shareholder returns, creates a huge problem. it creates a conflict of interest. and if we don't control that political power, our democracy is doomed. we don't have a democracy. that's what bernie sanders is getting at. that's what bernie sanders has been saying this entire time. and you know something, yesterday, i was in -- i was in san diego, at the airport and two different people at two different times came up to me and said, you know something, i'm a republican, and i'm supporting bernie sanders. i said, really? no. >> i think that's lovely, but i'll say this with respect to --
>> wait a minute. i want to give you my punch line. i want to give you my punchline. i asked them both why and both gave me a little bit of a story about how important our democracy is and how money is undermining and corrupting our democracy. bernie sanders is -- >> look, regarding the influence of money on these super pacs, i happen to agree with that point, okay? i happen to agree with that point. >> larry, socialism is the greatest danger to democracy. remember that. capitalism and freedom, it is incredibly dangerous to democracy. >> wait a minute, wait a minute. michelle -- >> let me make this point. >> the point makes no sense. >> let me make this point regarding bernie sander, he may defeat hillary. but i'll say this, the backbone of america's great economic system is business. this administration has never understood that. senator sanders does not understand that. far from being immoral, the rule
of law and business create markets that have defeated our compete itors for 200 plus year and we must not lose that. >> larry, nobody is contesting that. the problem is and let me just state it in a slightly different way, american business is no longer, if you're looking at big companies, solely american. they're global. we have a democracy that depends upon the will of the people being reflected. and you said yourself, the super pacs and the foreign money that is coming into the super pacs are a serious, serious problem. >> point well taken and point well said. i agree with that. >> what was the point you made about capitalism and freedom? >> she's right about that. >> come on. socialism. how much democracy did you see under communism and socialism in the soviet union and cuba? zero. >> what are the -- >> you know all the isms.
you wrote -- >> guys, i'm sorry. i got another ism. commercialism. we have to go to one. you get louder and louder and louder -- >> you have more opportunity on the other side of the break. let's get to break. >> break. >> i can't wait. somebody get ffa hayak on the phone stat. a lot more to do. stay with us when powerism returns. the call just came in. she's about to arrive. and with her, a flood of potential patients. a deluge of digital records. x-rays, mris. all on account...of penelope. but with the help of at&t, and a network that scales up and down on-demand, this hospital can be ready. giving them the agility to be flexible & reliable.
it was like a reunion of led zepplin. comments from a flock of fed doves snapping the market's attention last night, the war between the hawks and the doves if there are any hawks out there continues to heat up. back with us, larry kudlow and robert reich. larry, last night in new york, viewers don't know what we're talking about, current yellen former bernanke greenspan fed officials -- >> volcker. >> and paul volcker who is about four feet taller than all of them combined. >> i was once his secretary at the new york fed. >> very rare gathering. >> i never seen paul volcker's head. >> it is too high. >> five feet higher than my head. >> if you are a fed historian,
last night was an historic event. did we get, though, anything out of it? >> yeah. we got a couple of things out of it. in terms of policy now, yellen is sticking to her guns. it will be easy for a good while. what interested to me is the other fed chairs said no recession. i think there is no recession, but it is a tricky call when you're growing at less than 2%. that's all i'm allow ed to say. >> what did you take out of it, if anything? >> i took -- a political message to the trumps and the cruz's and some republicans now. the fed does matter. it has a very important part to play. i agree completely with larry. i think janet yellen is saying exactly right thing, what she needs to say. but you've got these -- what are they doing? why are they saying what they're saying? larry, are you supporting donald trump? >> i have not endorsed anyone. >> because i -- don't you think
the kind of -- that kind of talk about the fed is irresponsible? >> i wouldn't do it. but i'm not running for president. >> that sounded like -- it is not my style. it is not even a matter of style. it is a matter of responsibility. >> trump is a clever man, a good businessman. i'm not going to second guess him. >> they're not opinions. but the front-runners for the republican party who are denigrating the fed, talking about, you know, even getting rid of the fed. this is ludicrous talk and dangerous talk. >> i will say this, i believe sincerely the fed should be reformed. we were talking about that earlier with steve liesman. i think you need to reform the economic models as sully pointed out. they need to reform the whole modus operandi. it needs reform. i do think republicans have, for many years, been way too hawkish about the fear of inflation. i wrote a column about this, mea culpa, three, four years ago, i
said there is no inflation. stop yelling. we should have a slashed corporate tax rate. >> that's ridiculous. you know, larry, about the fed, you worry me when you and i agree so clearly on something. you got a labor participation rate that is still very, very low. you have an economy that -- where you had so many people walking part time who want full time jobs and many people are discouraged to look for work. no time for the fed it raise rates. larry and i are in agreement. this is the first time ever on this program or any program. >> we agree, 18, 19 years ago, i remember it clearly. >> once every couple of decades. >> march 3rd, 1991, both agreed on something. that's what it was. robert reich, have a great weekend, thank you very much. we're going to let him go. larry, before we let you go, okay. let's -- if we do a u-turn, let's talk about the pope.
the pope changing his stance on divorce a bit, and somebody very involved with the catholic church. >> i am. i'm a sinner, but very active in the church. and i like what the pope had to say. and for quite some time, i believed that the church was far too stringent on divorces. and whether you get married again or not. i believe that the church should be open to it. and i like what the pope said, he wants to let the local pastors and local churches do it. i think that's exactly right. i think they should talk to their pastors. but gee whiz, i want to get the pews filled. catholic church pews are not filled, not to my satisfaction. so i'm an open door on this. i would liberalize on this. i like what the pope had to say. >> all right, larry, we'll let you go. have a great weekend. >> good to see you. >> thank you. >> appreciate it. we're back in two minutes. [bassist] two late nights in tucson.
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hello, everybody. i'm sue herera. here is your cnbc news update at this hour. an airman shot his commander in an apparent murder/suicide at a u.s. air force base in san antonio, texas. a senior u.s. official telling the associated press, two handguns were found near the bodies of the men. the official stressed the
shooting was not an act of terrorism. u.s. and south korean troops conducting a river crossing drill just a few miles from the dmz zone separating the two koreas. 400 american and 100 south korean soldiers participated in the exercise along with four tanks and 12 bradley fighting vehicles. a new ap gfk poll says 55% of americans say they have a negative opinion of democratic presidential front-runner hillary clinton. but that's not nearly as bad as the 70% who gave gop front-runner donald trump a favorable rating. nearly half said they would consider voting for clinton and 63% said they wouldn't vote for trump in a general election. and a firefighter was injured after a small fire broke out at u.s. cellular field in chicago. crews -- fire cruiews were call in before the home opener. the fire started in a first floor storage room but quickly was contained by the sprinkler
system. thank goodness for that. that is your cnbc news update at this hour. i'll accepted it basend it back guys. oil market is closing for the day. to jackie deangelis at the nymex. >> i have a closing price for you. we came off of session highs at the close. but still about a $2.5 move on the day. this is a two part story. the first part is the technical side of this. a seesaw week. up and down, some short covering. no one likes to be short going into the weekend, but there is a fundamental side to this too as well. a little better data out of the u.s. and out of the europes -- out of europe seems to be encouraging and jeffries out with a note saying rebalancing in the second half and price recovery. that's something to think about. that doha meeting april 17th on the table. producers will get together, decide if we see a freeze, a lot of people are very skeptical but still some are out there holding some hope for cooperation. we'll have to wait and see. back to you. >> jackie, thank you very much. have a great weekend.
we'll see you soon. $9 billion. that's the amount of money that moodys says the big banks may need to set aside for a worst case scenario for oil debt. let's dig more into this with author of a new report, david fanger, who joins us now. thank you. 9 billion is your worst case scenario, assumption for banks. where are we in your scenario? is it yet worst case? >> no, not really close to worst case yet. we did a study to try to assess the potential impact on banks if things did get worse. earlier this year moodys lowered the forecast for oil prices. my colleagues at moodys took action over 100 energy companies were downgraded during the first quarter of this year. in response to that we wanted to get a greater comfort in terms of what the risk was for the banks. >> so let's go into these numbers. 9 billion, that is spread across all banks or did you just look at the biggest banks? >> focused on the five banks, so that would be jpmorgan, bank of
america, goldman sachs, morgan stanley, i'm missing one. >> and the other one. i would like to have -- >> citigroup. >> i would like to have, david, 9 billion. it is a big number for most people. doesn't seem that big for these banks. would 9 billion be manageable? >> that is indeed what -- the 9 billion has to be put in context. aggregate earned over $100 billion pretax last year before litigation charges. significant earnings power these banks. we believe the 9 billion could be absorbed, even if they had to take it at one time, that's less than a quarter's earnings. >> they might walk with a limp, but they're going to be okay. now, you heard jackie talk about $40 oil. what price point for oil did you use in your modeling to get these assumptions. >> right, so oil is just one factor in our analysis. our forecast, current forecast is $33 this year rising to 38 next year.
and i think 43 the year after that. the stress test would assume lower prices. our stress scenario is $25 oil price. but in addition to that, stress test thinks about the impact on market conditions. lack of access to funding for energy companies, makes it much more challenging -- >> quickly, of the five, are they all about the same exposed or one name that might stick out more as being more exposed? >> this is where it gets interesting, city groigroup has larger exposure. about 80% compared to 60% for the other four. >> david fanger, really interesting stuff. do any more work, we'll get you back on. big story. thank you. >> we just heard david's take on what could be a big risk for the banks. let's bring in dick bravea. he covers the financial sector for rafferty. great to have you with us. this is $9 billion in worst case scenario for the five major
banks. you say that number is a joke. why? >> they have a trillion dollars in assets. a trillion dollars in assets versus $9 billion. divide one by the other, we're talking about something around .1% of their assets. plus as david just said very clearly, they won't take it all in one quarter. it will be spread out over a couple of years easily, which means you look at maybe $2 billion a quarter. i thought the moody study was excellent. i thought they did a good job because they showed, i think, fairly clearly that neither the earnings nor the capital of the banks will be impacted by the problems in the oil industry. >> right, right. again, to underscore, that was a worst case scenario, that moody was exploring. you say loan losses are well below normal at this point and they will increase. will we in fact have to see the banks increase loan loss provisions in future quarters? >> yes, i think that every quarter for the next couple of years you'll see the loan loss
provisions go up at banks because, you any, in the third quarter of 2013, as a percentage, loan losses were the lowest ever in the history of the numbers. and it is unlikely that they're going to stay there. and they haven't. they have come up somewhat. i think you're going to see problems in a whole series of areas. not just the oil industry or the metals and mining area. you'll see problems with subprime auto lending, but the biggest problem is in commercial real estate. having said that, i think the key is that loan losses are not going to be the driver of bank earnings over the next couple of years. it is going to be the fact that loan volume is higher than normal. >> right, exactly. we're talking about the big five banks. in terms of the regional banks, should we be more concerned about the smaller banks in terms of exposure to these potential rising loan losses in these areas that you outlined? >> some of them. if you look at only oil, you would be worried about comerica, capital one and regions
financial. >> are you? >> i think to some degree we see a reduction in the earnings in the first quarter of those banks because of the oil issue. but i think, you know, if you look at the core issues that drive bank earnings, loans are growing at a faster rate than normal. margins will be higher despite all this talk about low interest rates. and loan losses elsewhere are going to be relatively low. their operating costs will be flat to down, so there is no reason to get upset about banks. banks are in extremely good condition. even though the market refuses to recognize it. >> that's right. dick, thanks a lot for your analysis. look at the dollar yen trade. that's a big move over the past month. a lot of people have their eyes on this trade. we'll tell you how you can make money off of it next on "power lunch." you pay your car insurance
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everything i buy for my studio. ♪ and that unlimited 2% cash back from spark means thousands of dollars each year going back into my business... that's huge for my bottom line. what's in your wallet? in the world of investing, young, faster growing companies tend to get most of the attention from investors and it seems fair to say that includes more attention from folks like us as well. after all, watching a company double or triple its sales every year is a pretty sexy thing in business. >> what is this music? >> i don't know. but i dig it. business and investing can be very different things and
sometimes boring might be the sexier path for your money. let us show you what we mean and why we say that. we'll take three slower growth, some might say boring companies, sorry, not trying to offend anybody, but it is true, and put them against the sexier names you know. every match is over the past year. here we go. all right. let's start with spam maker hormel and google. you know the answer to this, but what would you think most people would say if you want to invest in one of those stocks? >> the assumption would be technology over spam. >> fast growth. >> over the meat spam as opposed to technology spam. >> and i would believe most people would go with google/alphabet. guess what, you would have missed out on 5% of return. hormel is up 12% in a year. google's alphabet up 38%. >> the thing that is interesting is as people are seeing these returns, they're wondering about valuations as well. and just in the past week, hormel has sort of slowed down
in this race, now down 5%. that's interesting to know. >> i would have done this a year ago had i been pre-cogcognitive. campbells versus facebook. we're figuring out a pattern here. >> i think we're saying boring is the new sexy. we're assuming the boring stock will win. >> and -- genius. there you go. campbell's soup, little old camd camden, new jersey, based campbells, up 38%. google up 35%. campbell also throws in a 2% dividend yield. facebook has done great. but you made more money with tomato soup. >> amazing. soup is sexy. soup is sexy now. >> spam. >> we point out that when dividend yields are fat, it is because stock prices have come down. what happens when the reverse happens, brian? >> there you go. >> the dividend yield gets smaller. >> match number three, this wasn't even close, we threw it
in there. foodie favorite fast growth shake shack, and the king of mcnugget hes. mcdonald's shares have just ham burgled all over the shack. >> i love the ham burglar. >> he has an account at mossack fonseca. i'm going to say it, i progractd all morning, that difference is enough to make an investor in shake shack grimace. >> that was so bad. so, so, so bad. >> not as bad as the offensive cousin. you look at the companies, sometimes soup is good food. >> but the question is is there a defensiveness bubble. that's the term that julian emanuel used from ebs on "fast money" when we were talking about the names and the valuations are that are being embedded in the companies with the massive runs. so defensive is bubble --
>> there is a little -- the lesson, i guess if there is one, on cnbc, we have x amount of time. we can talk about as many stocks as time allows, a lot of great companies out there that we don't have time to hit. >> yes. >> spam, baby. >> the last few days, wall street has been largely brought to you by the letter y as in japanese yen. it has been moving markets, so let's find out why. boris schlossberg and gina sanchez. gina, currencies, a difficult topic in plain english, why does the japanese yen matter to our investors who may have a 401(k)? >> japanese yen matters to investors because it determines exports and export prices. and those are the goods that compete with s&p 500 companies. if you're invested in the s&p 500, then you want the dollar to be weak so that u.s. goods are cheaper around the world. when the yen starts to weaken, that's a challenge. and in fact, the yen has been
weakening despite what the japanese central bank has been aiming to do. shinzo abe has been clear about what he's trying to do and the yen is rallying. the concern we have is this shows a -- it is a vote of no confidence in central bank policy and there is a huge run now for safe haven assets. and the yen is obviously one of those. and so the concern that we have is that this kind of bearish view is going to take hold for some time and i think that the rally in the yen, while it shouldn't be happening in theory, it is happening. and, you know, we're looking for probably, you know, we think there is some concern going forward in the markets. >> okay. so boersris, they can't have a stronger yen. they can't do it. do you expect them to step in here soon and try to weaken the yen in. >> possibly. not quite yet. the problem with intervention is
that they really have to commit huge amounts of money and huge amount of time to go out there and intervene because they're going to be the only ones intervening against their currency. and in past, it has always been unwound by the market. the market challenged the doj and brought it back down. other reason the yen is so important is because it is free money. what happens is when people are feeling very risky, feeling very optimistic about equities, they borrow in yen and invest into stocks. so the reverse happens. when the yen starts to strengthen, they come back and start selling stock and start buying yen, that's the caution that everybody in wall street is now very much afraid of because so far it really hasn't been the case of equities have gone down. what everybody is afraid of is the yen has strengthened, may be signaling the fact that smart money is getting out of equity early because they're afraid there is no strength in the equity market. >> boris and gina, thank you very much. for more trading nation, go to our website,
tradingnation.cnbc.com. coming up, a stock that you may want to keep your eye on, and analyst says it might be a big winner if you look into the future. that hint and four other potential opportunities coming up to are you as part of our street talk segment. stick around. and now the latest from trading nation.cnbc.com and a word from our sponsor. >> if you're an active investor you may want to consider investing in etfs. they're kipically designed to have tax efficiency, they have built in diversification, and they also price in real time, so if you're looking to add some diversification to your portfolio, etfs are probably worth considering.
we have to give you an update. i showed you the wrong fire. i told you you were looking at the exxon refinery fire, thanks to sharp eyed houston viewers, the giant fire was a fire from the lion dell chemical plant this morning. the exxon fire did not impact refinery output. two big fires. >> recommendations on stocks you need to know about.
palo alto networks, $210 target and best idea as a stock pick. they think the pipeline they pick peppers is at record levels and this is off to a good start. the analysis suggests it's 2 billion in the pipe line and sales force productivity has substantial upside. nearly added 700 sales and marketsing people -- >> 700. >> guggenheim. >> added to the company sales in marketing over the past year. that $210 target, 40% upside. >> the pipeline better be -- 700 extra heads. >> next stock, raymond james got several positive updates in the driving sensors, mobile eye has settled on a sensor design that includes eight cameras and four radars total integrated cost should be 1,000 and $2,000 with $200 of mobile icon tent.
mobile eye is confident it can deliver the solution by 2022. the analysts have an outperform rating and say the market will be so big investors shouldn't be so focused on who goesing to win and lose. that stock, nice day today. >> it went public at 25 and closed at 37 on the first day. it really hasn't done much since the first day pop. >> third call, masonite, baird starting coverage to outperform on this door making. they like the fact that housing continues to improve and analysts says the stock has a good risk reward level at these price points and they have cash flow it can use to boost shareholder returns and they've got a $75 target, 13% upside. this is the favorite stock of our frequent guest rbc capital analyst bob wheten hall as well. two big boosts formationite. >> an outperforming top notch
content, cbs and show time with retransmissions and international licensing and this is part of a broader media sector negotiation, viacom under performance on that because the stock ee pit mizs structuring challenges of media with subscriber losses. call of the day, murphy's usa, gas station and retailer, mostly in the south, jeffrey starting coverage with a buy rating and $74 target on mousa, 23% upside. growth will be modest after the big walmart contract. low operating costs, industry leading profitability and recent steps to optimize margins make this a bullish story and they will likely use the cash flow to enhance returns. a buy rating and very bullish on
murphy's usa. on deck, literally, why the jersey that mike piazzo wore during one of the best moments of baseball history is the center of a big controversy. we'll explain next on power lunch. ♪jake reese, "day to feel alive"♪ ♪jake reese, "day to feel alive"♪ the first stock index ♪ (musiwas createdoughout) over 100 years ago as a benchmark for average. yet many people still build portfolios with strategies that just track the benchmarks. but investing isn't about achieving average. it's about achieving goals.
and invesco believes doing that today requires the art and expertise of high-conviction investing. translation? it's time to bench the benchmarks. some say "free the whales." for them, nothing else is acceptable. but nothing could be worse for the whales. most of the orcas at seaworld were born here. sending them into the wild wouldn't be noble. it could be fatal.
when they freed keiko, the killer whale of movie fame, the effort was a failure and he perished. but we also understand that times have changed. today, people are concerned about the world's largest animals like never before. so we too must change. that's why the orcas in our care will be the last generation at seaworld. there will be no more breeding. we're also phasing out orca theatrical shows. they'll continue to receive the highest standard of care available anywhere. and guests can come to see them simply being their majestic selves. inspiring the next generation of people to love them as you do. big controversy surrounding mike piazza when he wore this game winning home run. this was the first major
sporting event in new york city after the terrorist attack on september 11th. the jersey is up for auction and the mets want it back. golden is the founder of golden auctions running the auction. robert frank joining us as well. what do you make of this controversy. my question is, how did you get the jersey if the mets wanted it so bad, why did they get rid of it. >> the mets sold it in a private sale to my consigner in late 2013 and immediately upon purchasing it he actually loaned it back to the mets museum where it was displayed. so from that standpoint the mets displayed that city fielded their museum and now has three children approaching college age that he needs to fund. he asked for the jersey back and consigned it to my auction company for public auction. >> ken, there's been so much controversy from mike who says
look, this should never have gone up for sale and mets should buy it back. could you solve this by basically pulling it off the auction, coming to some deal with the mets to buy it back and maybe giving your share of the profits to charity? this is getting to a point where the pr for you and mets and everybody is not looking good right now. >> i don't necessarily think it's been a negative for our company, quite frankly i've made it quite clear it's in our description in the beginning and end that my goal is to see this donated permanently to a place in new york state where it could be viewed by the public that it means so much to. i actually have been working to try and arrange a sale. right now it's at golden auctions.com and available forbid and the auction closes april 30th. it's over 20,000 auction items, due to the emotion around this
particular item i stated if an individual comes to me and agrees to donate it, we will discuss those arrangements. >> we don't have a lot of time. is there a part of you that's worried it's going to be bought by somebody from another country and leave this country and there it goes? have you ever in the history of golden auctions denied a winning bid, the thing that's being auctioned? >> no, if somebody buys it at auction we cannot deny anybody from doing what they want. you've got a lot of wealthy individuals out there who made the career in new york. i urge you to contact me at golden auctions and discuss it. obviously the publicity behind this, good will behind this would be enormous and it is a charitable contribution, 501 c corp. >> robert, we have ten seconds, any really wealthy big baseball mets fans out there? >> guys like steve cohen and maybe he could buy it.
but i just wonder, yes, you could pull this and reach an agreed upon deal. it does seem like your goal is to get the highest price for this. >> got it. got to leave it there. thanks so much. >> thank you all for watching "power lunch". >> "closing bell" starts now. >> welcome to "closing bell" i'm michelle car russo cabrera. >> my third co-anchor. can't keep them. crude is up more than 6%. this is the tenth day this year where we've seen a gain of more than 5% for crude oil. we'll take you live to the oil pits and get you the story of why we're seeing -- >> that's extraordinary volatility. if we said ten days this year the dow moved 5%, we would be throwing up in -- >> big nus.