tv Power Lunch CNBC April 22, 2016 1:00pm-3:01pm EDT
but josh brown, your reaction to the looming reactions? >> i guess i tend to look at it the way he does which is this will be a lot of fury but probably not a lot of signal and nothing will end up happening. >> all right. thank you for your patience here v a good weekend. we'll see you on the other side. "power lunch" takes it now. will angry investors break up the big banks? it might happen. we'll tell you why. and also why tech is a bit of a wreck today. welcome, everybody. we're gathered leer today to celebrate this thing called life. there is a lot to do today. let's start with trouble in tech land, melissa. >> a lot of pain in tech. the sector is negative for the year. take a look at the losses behind me. microsoft and alphabet shares deep in the red. both reporting after the bell yesterday. both company reporting earnings
misses. here's a stat. today aloerngs microsoft and google lost a combined $30 billion in market capitalization. apple is also lower right now by the way. still in a bear market territory. apple reports earnings on tuesday. we'll have much more on that in a second. but first, let's dig in on alphabet's mess. we have a senior internetab analyst joining us. it seems like the sentiment on the street is we'll lower targets but keep ratings. we're standing by alphabet. that is certainty not the attitude of investors in today's session. what is your take on the stock's move? >> not surprised to see it down. obviously, the revenues were a disappointment. they came in 2% below street estimates. you did see increasing season alt in the business. so q-4 is very strong. however, q-1, we typically do expect season alt. it was a little weeker than we expected this time.
it is possible as google matures that it's going to be fluctuate more with the seasonality of e-commerce. we're still positive longer term. it did take down our estimates and took our price target down to $820. >> why would seasonality change so greatly year onar? your citing revenue decline of 9%. if i heard that and i'm expecting the kind of growth i am from google, i think maybe we have to reset our expectations. >> yeah. and we did adjust our estimates a little bit. i took down eps about 3%. and what we've heard from advertisers and agencies over the last year is that increasingly they're shifting budgets to q-4 typically when they get the best return on investment. we're going to see the highest growth as well as obviously highest dollar spent in q-4 and q-1 through q-3 are going to see
lower growth rate. we think that is a new fact of a business for now and why google maybe is a little weaker in q-1. >> the cfo made clear they need continue to crease investments to boost traffic. how do you feel about them spending more money? >> i think traffic overall is fine. i think it depends on which area you're talking about. clearly mobile, they're doing well. they mentioned that. they continue to do well. i think a lot of the invest. s are the newer areas and the other best categories as well as google cloud. we continue to see improvement there's. we thought the other losses were positive versus expectations in the quarter. so i would like to see more cost discipline from google. >> all right. aaron, great to speak you to. you lowered your price target to $820. google shares or alphabet shares are now below the 200-day moving average. first time in a month or. so. >> thank you very much. you know what else is below the 200 day moving average? rig counts.
guess what? oil rig counts in america fell again last week. i believe this is the 15th of 16th week with declines. baker hughes saying that oil rigs fell to 8. every time we go down folks is going to officially be the lowest recorded number of oil rigs ever. we had more than 2,000 oil rigs in america operating in 2008, there is a couple hundred jobs sele associated with each one. we're up a bit but we were up more earlier in the session. and just to prove her prowess in our weekly recap pool, melissa is the only one that guessed the decline. we stink. >> yeah. >> that is really high-tech there. >> rig counts. >> look at that. the hours, the hours of preparation. >> can we just wait two weeks and bring the same numbers at again? >> i think if they stay at 43 we'll get a couple back on. there are marginal places where that makes money now. so this is going to be the big debate f this keeps going down,
we'll have a very interesting bullish signal on ". >> i just got a note from a friend of mine near calgary. he called calgary a wasteland. >> the reason is not the price of oil. they have a terrible government in place there that won't tell the world what the royalty rates will be if you put an incremental dollar invested. it's the most elected. >> on that cheery note from mr. wonderful, let's go to wells fargo analyst and he is bullish on tech. you just heard aaron say he is lower the price target from $900 to $820. that's a significant decline. he see that's it's not just a question of them missing estimates but some, i guess, he thinks some more fundamental weakness in their business. do you see technology as challenged, scott? >> you know, tyler, overall, technology -- you know, i'm looking at this thing from a
nuts and bolts kind of thing. what is the economy going to do to help technology? when you look out there, i'm not talking about advertise based mod ldz and all these things, i'm talking about an economy where business capital spending is likely to improve. you look at ism orders data. that looks good. you look at purchasing managers indices whether it's the developed world, the u.s., or the emerging economies, they are all at 50 or better. so in other words, looking forward because certainly first quarter earnings and technology aren't going to be very good, down probably a few percent. but the market, it's already looking into 2017. technology has outperformed the s&p 500 big time since last july. you need to look forward. first quarter, that's in the past. >> but not this far. not this year so far. >> that's right. this year so far it has been a lagger so far. but we're trying to look forward and trying to project these
variable that's are going to say is tech going to be in a good environment to make money or not? and we believe that technology is in a good spot here. i think over the next 12 months it will outperform. >> let me bring in kevin. broadly google if you'd like to go. there microsoft is the other one that reported yesterday. most -- i get the game. it's all about the expectations and the forward guidance and so on and so forth. but i'll bet you 99 companies out of 100 would love to see their revenues grow the way google's did. would love to see their profits growing double digits the way google's did, particularly on a company that is as large as google is. >> i think you have to bifurcate two issues. let's take tech as a service and in a growing economy or any economy that wants more productivity, you need to use the services. let's focus on it as an investment.
i think what is going to happen going forward is companies like going that will do not return any capital to shareholders, that only way you make money is on capital appreciation are going to slowly fall out of favor. if you go back 40sh, 50 years, % of the returns came from the dividends of the companies. the returns capital to the shareholder. and companies that don't return it are going to fall out of favor with institutional investors. >> what about april sple? >> apple started a dividend after steve jobs passed. the problem with apple now is it started to smell and feel like a consumer electronics company with a single product. and return on assets is slow. >> hold that thought, son! you're going to like this if that's the way you feel. check this out. okay, let's move on. remember that can't miss investment you made in apple stock last year? you know, buying apple because everybody told you it's a "no-brainer"? guess what? it missed. apple is now the worst
performing stock in the dow over the past 12 months, guys. we have china issues, earnings next week. we have more on apple's woes. josh? >> brian, if investors are nervous about apple, then this latest news coming out of china is not going to help. last week just six months after they launched, cnbc can confirm that both apple's i bookstore and itunes movies were shut down in china. now no reason was given for this move. but here's the worry. it is because the chinese want to support their own homegrown companies by squashing foreign competition and if that's the case, then other services, like apple pay, for example, now also at risk. in a statement to cnbc, apple saying we hope to make books and movies available again to our customers in china as soon as possible. listen, we know this news comes as apple has been under real pressure. now down more than 20% from its most recent high.
they reports results next week. the street is expecting a 10% drop on the top line. that will be the first drop in sales since 2003. still, 85% of analyst rate the stock a buy including btig's walter pisick. he said there is the believe that apple can return to growth with the i-phone 7. a lot of the bad news is priced in, he says, with the stock trading under 12 times earnings and he expects apple to keep aggressively buying back shares. reports tuesday after the bell. back to you. >> thank you, josh. scott, back you to now with your thoughts on apple as brian points out, i was surprising to me, the worst performing stock in the dow over the past 12 months. kevin is concerned that they are increasingly becoming so dependent on one product, namely, the iphone, that this is maybe a troubled stock. what do you say? >> tyler, that stock is volatile. it's always been volatile. it's going to continue to be volatile. i'm certainly not an apple expert.
i will say this. you know, that is more and more like a consumer discretionary company. we're overweight, the consumer discretionary. they have to come up with new toys. and that's what we're talking about. a new toy. we want to grind this thing out and n. things like semiconductor equipment, application software, i.t. consulting and services. those are the technology industry groups we want to be in. so, you know, toy companies, maybe not. >> all right. scott, thank you very much. >> kevin, you love dividends. >> yes. >> here's the thing. a lot of people may not remember in 2004, microsoft was sitting on $60 billion in cash. they didn't know what to do with it so they gave every shareholder $3 a share in cash apple has more money than microsoft did then. do you expect or would like to see a special big, $10, $12 a
share dividend from april snl. >> no, i want exhibit growth on a quarterly or annual basis on dividend increase that's are sustainable. what happens when a board decides to increase the dividend, that's forever. because if you're willing to do that, you know that you will burn in hell if you ever reduce it again. so i would prefer april toll say, look, we know our growth is slowing. we know we're consumer electronic in nature. but we're so good at implementing it that we think we can sustain a 5% to 6% increase in dividend. that attracts investors like me knowing that 71% of returns came from dividends. dividend increases are everything. now here's the big problem. we need to change the tax code to let them repatriate the capital. that is a big issue. remember yahoo? it was the darling of its age. you know it's never returned capital to shareholders since the inception. the only people that ever made any money were the rotating ceos that got $100 million every time
they got whacked every 36 months. it's so unfair to the shareholders. it's going to happen again. she's on her way out of here. she'll get $100 million. what do the shareholders get? nada. >> they may get less than nada. >> it's a bad story. >> shares of val yejent. the company is offering the ceo job to joseph papa. is this good news for valiant. ron, great to have you with us. >> thanks very much for having me. >> the timing of this is curious. if the reports are right, this announcement could come as early as next week which couwould be ahead of the 10-k filing. i think they're going to file and that there won't be any bombshells if papa is willing to take on this job. can we sort of connect those dots or what is your thinking on the curious timing of this? >> yeah, we would be in line with that reasoning. we felt that 10-k would be filed before the end of this month and
that was the company's intention to do so. we think joe papa is a smart guy. he knows what he's taking on. if he's willing to enter into serious discussions about stepping into the former ceo's shoes right now when valeant had a litany of problems, he's done his due diligence on the situation. he must think it is manageable. >> a week ago prior to these reports, ron, you wrote that valeant remains intriguing. now with joe papa potentially coming on, it is more intriguing? i guess that's a long way of asking, do you think the stock is now a buy because the worst is behind it? >> well, let's put it this way. we're cautiously optimistic. we think that joe papa is a sensible choice. he is the kind of person that we would have expected valeant's board to have tapped for the job. we want to see them file the 10-k and put to bed this danger of default. >> so you don't buy it until after you see the 10-k. >> for more risk oriented and more risk averse investors,
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as late as february of this year. we have more on that story. >> yeah, hi, brian. bloom news and "the washington post" out with this news over the past 24 hours or so. definitely raising eyebrows in washington and also in new york city. take a look at this chart. this will show you the campaign contributions, the time line there going back to november. $250 donation then. then in february, we see $1,950 donation from him to hillary clinton's campaign. he is on the board of governors. that means she is maxed out to the hillary campaign. we have done analysis of this. this is the first time since 1990 that we can find a sitting federal reserve board of governors member making a political contribution to a presidential candidate. ate pears there's been a long tradition that they don't do that. a couple of them over that time period have given political contributions to lower level
candidates, to state political parties and that sort of thing. but by and large, they stayed out of politics. you see a lot of the fed governors making contributions before they go to the fed and later after they come off the fed. while they are on the fed, there is a tradition there of nonpartisansh nonpartisanship. that is raising eyebrows, whether or not we're seeing an erosion of that now. now nothing here, of course, against the rules. brain yard is entitled. >> narrator: rules to make the contributions, brian. >> it's the rues, kevin o'leary. it's okay and technically it's fine. the federal reserve is supposed to be apolitical. what you would do? should anything be done about this? >> she obviously didn't get the memo. this is going to make sure that no one ever does this again. this is all over social media. it's all over the news. it's a mistake. it's basically wrong. if there isn't a rule, i'm glad we have transparency. but it's clearly partisan. and that's bad. bad for all of us. >> what was she thinking? >> didn't read the memo? bad on her. >> is there any talk that clinton campaign will give the
money back? >> no, we haven't heard anything like. that this is an indication that she may be campaigning subtly or overtly for some kind of higher level job in an upcoming clinton administration. but i also talked to one veteran fed land insider who told me he was bothered by. this they have a tradition of nonpartisanship. the fed maintains the political independence at great length and to its greatly important to the fed and some see this as an erosion of that. >> i'm sure there are other, you know, agencies out there that try to maintain their sort of, you know, neutrality out there. maybe a judge or so. do we have cases where they have donated as well? is this really the case? >> yeah. federal employees traditionally are governed by something called the hatch act which sets out all the statutes and limitations of what they can do politically and what they can't do. >> narrator: rules though, if you work for the government, you can make political contributions and can you vote. those rights of citizenship are not limited. so you can go through the
federal election commission records and find cases at other independent agencies where people have given money. >> working for the government is a little different than working from the government and setting monetary policy for the entire country. thank you very much. >> you bet. >> okay. switching gears, the recent headlines about a stock have us asking. when you're making an investment in biotech, how can you make sure the science is sound? coming up, verifying your investment with mr. o'leary. real is touching a ray. amazing is moving like one. real is making new friends. amazing is getting this close. real is an animal rescue. amazing is over twenty-seven thousand of them. there is only one place where real and amazing live.
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translation? it's time to bench the benchmarks. welcome back to "power lunch." let's take a check on gold prices. they're closing right now. 2160 an ounce is where it is now. this is a story where the u.s. dollar is now. that's when the dollar strengthened against the euro. the dollar is at a three week high against the japanese yen ahead of the doj meeting next week. we have about 1% decline in palladium and silver. platinum is down 2%. the one bucking the trend is copper. it is managing a gain in today's session. now to the bond market. rick santelli is tracking the action. rick? >> you know, when we chart is revealing. it's not aggressive. but it's aggressive in a way.
we're crawling up and closing darn close if not on new high yields of the week. that is significant. when you open a chart up to february, there is one spot on that chart you need to memorize. and that's that high in march. that high yield is 198. let's blur our eyes a bit. that is a key level if we close above it in terms of momentum in the selloff pushing rates higher. look at some long term charts, shall we? let's look at the barclay's. five year charts, first is investment grade. these are the spreads, unlike the etfs. what i really want you to notice here, of course, is the fact that there is double tops here. it's a wider time frame thframes 2012. now, keeping that double top in mind, let's look at the double bottom that is so important on the tens that we were talking about earlier. those yields are significant. these are powerful patterns. and last chart is one of the dollar index. why do i think it's so important
hi, everybody. here is your cnbc news update at this hour. 170 world leaders gathering at the united nations to sign the paris agreement on climate change. secretary of state says it marks a turning point in the fight against climate change. >> the power of this agreement is what it is going to do to unleash the private sector and
it is already doing to set in pace the global economy on a new path for smart, responsible, sustainable development. >> a commission from the belgian parliament looking into the brussels terror attacks visited the train station today. one member laid a wreath at the site to mark the 1 month anniversary. 32 people were killed at the station and at the brussels airport. general motors ceo total kpentation from 2015 rose 72% to $28 million from the year before. this is posted record profited. but much of the compensation is tied to stock she cannot yet cash in. and one lucky american girl won an air b & b competition to spend the 400th anniversary of shakespeare's death in the king's tower of hamlet's castle. melanie rio bringing along a friend to stay at the castle first time anyone has slept in the king's tower in 200 years.
i would bring along a friend, too, because it mate be haunted. >> i wonder how well they slept. >> i wouldn't sleep at all. i got to tell you. i just would not sleep at you will. there may be ghosts. you never know. >> thanks, sue. where is the best place for your money now, u.s. or over in europe? joining us is a chief investment officer and the cio of u.s. concentrated growth at a.b. and kevin o'leary is here us with as well. folks, welcome. before we get to the u.s. versus europe, want to ask you, jim, one of the stocks you like right now is google. you still feel as strongly about it today as you did yesterday? >> i do. one thing that we get caught up in is looking at how do things do versus expectations and short term. we had 25% volume growth last quarter and expanded margins and trade at 22 times earnings. would you be interested? i bet you would be.
and we are. >> all right. let's switch the conversation to whether the u.s. or europe represents the better opportunity right now. what do you say? >> tyler, we're overweighted u.s. equities. and we're also underweighted european equities recognizing that, you know, the material headwinds that exist now across europe, not the least of which is the main topics of conversation this morning. but we also have oil that is recovered. that is a bit of a head wind to european growth. and then we have the currency which is surprisingly resilient. again, a bit of a head wind. >> i look at it this way, i would agree. obviously, majority of my holdings is in the u.s. i'm a balance sheet guy. i screen balance sheets and i look today at companies. i'm rattling off some of the ones we bought in the last couple weeks, laroche, vodaphone. they're trading at it 20% to 30% discounts with yields 20% to 40% higher. in some cases 50% of the revenue
comes from the u.s. so what's changed in the last 36 months is with the head wins wi a lower euro and many products are global, we're buying the u.s. through a 20% to 30% discount in a european company with better head wind. now what i find so intriguinint negative interest rates for institutions and individuals forces that cash into large cap dividend paying stocks which i think personally are going to outperform the s & p this year as a result of being cheaper with higher yields. >> i think that's a great point. what we have to do as investors is separate country from company and not punish companies because they operate in europe or they're domiciled in europe. these are global competitors with great businesses, growing concerns, growing dividends, growing earnings. you raise a very good point about there are always opportunities within any market at a given point in time. if you look at the aggregate, you get a heavyweighting in
financials if you invest in the european index which is one of the driving forces behind our underweight. >> jim? >> i think when we look at our global portfolio, we're overweight europe. but for what we do within u.s. concentrated, i think there are great companies that have exposure to europe but have great growth. we were talking about the growth that can you find from the broader market. and it's not that great. but if you can find 15 to 20 tremendously growing sustainable growth high quality companies, we think you'll do really well. >> you're really playing, buying europe as a discounted way. >> well, that's the way i look at i. these companies nshs many cases, particularly the pharma, are selling majority in many cases 50% plus in the u.s. and there are new indices. you make a very valid point regarding financials. they're a disaster in europe. but there are new indices that reduce or almost eliminate or underweigh financials dramatically. oeur, it does not have any
weighting in financials or very small. so people are beginning to realize if you mine for balance sheet quality, you wouldn't buy any financials including domestic. they have the worst return on assets of any sector right now. i'm not bullish on anybody's financials including ours in the states. >> i think it's important to note that the sentiment is going to play a lot -- a big role into how these markets are going to do over the short term. and, you know, european markets are so tied to macro right now. i think the macro picture is murky. inflation trending far below expectations or targets. as i said, the brexit tail risk. i think until sentiment improves, it won't matter. >> show me state side, very hard to find. these are mega cap companies. i'm not saying go heavyweight europe. but ignoring it, i think, is a
missed tu missed opportunity given how much of the sales are right here at home. >> go to our website to see what katie says is a risky bet right now. that's powerlunch.cnbc.com. 2016's first tech ipo went public today. it raised a lot less than they hoped for. coming you, we'll talk to a partner in one of tech's top incubators to get his view on tech's ipo freeze. if you're going to make a statement... make sure it's an intelligent one. ♪ the all-new audi a4, with available virtual cockpit. ♪
on-demand, this hospital can be ready. giving them the agility to be flexible & reliable. because no one knows & like at&t. technology moves faster than ever. the all-new audi a4, with apple carplay integration. . secure works is opening at $14.06. earlier, i sat down with the nasdaq ceo to ask him what this ipo in particular means for the health of the overall market. >> so we think the ipo market is poised to do well. certainly secure works as you mentioned this friday could be
harbinger of an improved market. we have over 100 companies in filing. most of those filings i think are dead serious about it. cautiously optimistic. >> all right, joining us now is dalton caldwell, partner at a start-up incubator that funded companies like drop box and stripe. "shark tank's" kevin o'leary is with us for the rest of the show. do you think this is a sign of a bigger tech problem or a secureworks problem? >> i think it's a little bit of both. one reason it's not a great comp is that this is a spinout from dell. this is not a traditional tech company. this is not a start-up. they're based in atlanta. so, yes, they make technology products. but they're not -- they don't have much in common with the standard start-up. on the other hand -- >> are you worried in a broad perspective. secureworks, now we're doomed. no one is ever going to go public again. >> probably not. on the other hand, let's imagine they had a huge first day and
showed a lot of appetite on the public markets for anything that looks like tech. i do think that will be positive for other start-ups in general. and so definitely not a positive point. this doesn't look like what an average start-up ipo looks like. >> let's not make secureworks the only data point here, dalton. the past is listered with ipo's recently that have not done well in the tech space. etsy and box are below. square is below what they raised. when they raised private capital, what is going on here? >> you know, it's really rough. the age of the un unicorns have been talked about a lot. >> are they dead? >> i don't think they're dead. >> they lost the horns. >> at these very late stage valuations, you end up raising money on almost a debt like instrument. it's not like a typical venture
capital around. and these instruments almost require you to go public or bad things happen. there are complicated terms put on the companies. and so you end up with the companies women pressive looking valuations that you read about in the press. about the they actually have a toxic waste on the cap table. so these folks, a lot of the unicorns, they're in a tough place where it will be unlikely they can raise additional capital from late stage venture capitalists. so they have to go public or get profitable and wait out the markets. there are a large number of unicorns playing close attention to what is happening in the ipo market. and just to find a way to take the company out public or get profitable without having to raise a down round or raise more toxic waste. >> one reason i'm avoiding the names is for this toxic waste attribute. normally a clean ip ox is an issue. now i have to worry about the ratchets. and the special press and the
convert ratios. >> what does that mean? >> what it means, it's so hard to understand. why don't i just pass and not take any down of the new ipo and wait until it trades down at 25% discount which is what is happening. i think these guys have screwed it up for themselves. i can't read the balance sheet anymore. it looks like a phone book. did you think that's an issue? >> it's absolutely an issue. i can say that we really advise our founders never to take deals like. that a lot of times, founders are tempted to take these kinds of deals because they can get an impressive looking valuation. and founders want to have a un corps company. they want to say i made a billion dollar company, obviously. but when you have to give up the terms to put the -- all these weird things so that looks like a billion dollar valuation but it's not, i would argue it causes long term damage to the company. so i would not -- we do not advise people take those kinds of deals. they're bad. >> dalton, can i ask you a question? there's a new jobs that i'm aware of for small companies,
companies that are private, the whole idea is to democratize investors and ipos. i haven't seen one of the deals come. i'm hoping a new company will actually take advantage of this jobs act. how much buzz do you hear about this? this will be a new democratized way of going public in a clean and understandable way. do you think is something we'll see soon? >> yeah. we've heard a fair amount about. that i think the closest comp is angel list or some of the other crowd funded companies like we funder where they're trying to democratize access to individual investors being able to invest in companies. generally, i think it's a great idea and having more access to capital for more people is net good for startups. the only thing that worries me is that sometimes the companies are the most eager to raise money that way are perhaps some of the lower quality companies. and i'm -- i have some fear that it becomes almost like a boiler room thing. like how small cap stocks happen where you end up with the very
aggressive sales people trying to push people to invest in some start-up. and so i do think that's -- that's one concern if it gets easier and easier to invest in startups. overall, i think it's net g i think the jobs act is good for both startups and investors. >> let me talk to you about uber which settled some of its labor issues in various states with respect to whether the drivers can be called private contractors or employees. how do you think that went for the company and how do you think it affects ultimately the valuation if it were ever to come public as many people are eagerly anticipating? >> i think, look, they had this. they have to continue to operate. they've talked quite a bit over the long term that this becomes a self-driving car company. and so, you know, they presume that over the very long term something that investor would want to think about that the labor costs will go to zero some day when it's all self driving
cars. they have to do what they have to do to get to that point. my understanding is the cash reserves are in good shape. they're not in a huge risk of going away any time soon. but if i were an investor, the main thing i'm thinking about is what is google do with the self-driving cars? what is apple doing? they have a new project to work on self-driving cars. that is just a rumor. that's the biggest risk long term to uber. and agreed that they're going to have to -- there's a lot more of these messes like the settlement they made to continue to operate. i think they raised this money so they have the ability to do the settlements a to have lawyers to justin to operate. it's a tough business. >> all right. dalton, thank you very much. dalton with ycombinator. >> there is it a big alert on one bank and we'll debate whether the market is going to do the work of bernie sanders before he can do it himself. but first, the mega mansion owned by one of the wolves of
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a mega mansion is up for sal sale, originally priced at $43 million, it is now $24.8 million, a bargain. green lamborghini is not included. we got the listing. welcome to "power lunch." >> so this is a tremendous markdown. should it have ever been at $44 million in the first place? >> that's a pretty relative question. i think that if someone is willing to pay that at the time, then, sure. it should have been worth that or more than that. but now in today's market, given where the high end is, where inventory, is we're currently now priced correctly. that's why i took it on. >> you are seeing inventory at that high end increasing? i read some staggering stat from jonathan miller saying that given all the new construction, there's going to be inventory coming out. i mean for years and years and
years. >> there's a lot of people that want to live in manhattan. we need to built enough apartments for them. i remember in 2009 and 2010 the same people were saying there is ghost inventory that was going to take five to six years to abso absorb. and six months later, it was completely gone. and we had no inventory. so now it's a matter of figuring out what developors want to do with the high end properties. >> i'm sure a lot of people want to live in manhattan. are there enough people at that extraordinary asset level to buy the amount of inventory that is there. there are buyers for everything. even when the market was really, really down, if you had a $10 million apartment and hit on the market for $8 million, it would sell because this is new york. you have to remember, there are seven billion people in the world. it's a big earth. there are a lot of them and a lot of them want to be in new york city. no matter where markets are, somewhere, someone, wants to be on this --
>> $3100 a square foot. does anything in boston get $1500 a square foot? >> they're trying. >> i don't want you to talk your book. i want you to help us all understand a very simple problem i've got with real estate in new york. let's say i'm looking at 3500 square feet. it's on the market again $7 million and $10. in the building i can't find a single unit renting foreign more than $28,000 a month. that is two-thirds less. rents are going to go up by 66% or prices are coming down. answer that for me, my friend. what the hell is going on? >> in that building, prices are coming down. and that's why you're seeing the correction that you're seeing. that's why you're seeing steve cohen's apartment come back to market again at a massive, massive price correction. i don't call it a correction. it's an adjustment. it's a correction for money. that's what you're seeing that is happening right now. that's why you're seeing more
trades happen now than 2016 than we've seen in the last two years. and that -- those numbers will start coming out n next quarter. >> if you're on the market and looking at an apartment that is $25 million like this tribeca, this gorgeous three bedroom tribeca property, that certainly different from $7 million to $10 million. where are we seeing the biggest as you say adjustments in the manhattan market? >> north of $10 manage is the big environment adjustments. those are properties that there are less people that can afford apartments and homes at those types of numbers. and about 70% of all listings in manhattan, over $5 million, just $5 million, have had some sort of price adjustment in the last year alone. so you see people starting to become more realistic. once the numbers start adding up, then the inventory is going to start to be absorbed and people will start to drist price up all over again. >> ryan, where would you unvest in manhattan right now?
is there inwood, up north. anything you would put your money into right now? >> if you're looking to invest, three million, somewhere in there. 100% i would invest in the east village. we have multiple projects there. >> new construction east village? >> new truction, east village. you're just now starting to see for the first too that area really come into its own for high end residential. and then i would go to brooklyn. i would go to bushwick, i would go to greenpoint. and that is probably the smartest places to invest at the moment. >> all right. ryan, thank you. >> all right. let's get to sima for a market flash. >> tyler, shares of freeport are moving higher on a report that company is in talks to sell a group of mining and energy assets in an effort to reduce the debt according to a bloom report. the company is in talks with potential buyers of a minority interest in mining assets,
specifically in africa and the americas, of course, freeport is the largest publicly traded copying mining player. we're looking at the stock up 1.9% on this report. up next, slamming the brakes on volkswagen. more of the company's $18 billion, i repeat, $18 billion hit when "power lunch" returns. there's a lot of places you never want to see "$7.95." [ beep ] but you'll be glad to see it here. fidelity -- where smarter investors will always be. if only the signs were as obvious when you trade. fidelity's active trader pro can help you find
all right. welcome back, everybody, to "power lunch." we're tracking the tech wreck today. google and microsoft down about 6% or more at this hour. about 5.6% for alphabet class a. they're weighing on the nasdaq. it's down 1% overall. tech sector pushing into negative territory for the year. more on tech coming up this hour. first though we go to volkswagen, the shares under pressure. about 1.5% lower. the diesel emission scandal taking toll on the german auto giant. phil lebeau in chicago with the latest. >> it's been a while. we've been waiting for the numbers to finally come out from voekz waggen in terms of what happened at the end of last year, the last quarter of last year and all of 2015. and these are not pretty
numbers. overall, a loss in the fourth quarter totalling $4.1 billion. the emission scandal aloerngs just the emissions scandal, it took a hit of $16.2 billion or caused a hit of $16.2 billion for volkswagen. a lot of people are saying what about this investigation that they were leading? it's been going on for some time. vw says it has been asked to withhold the results of that investigation because of several investigative authorities around the world conducting their own investigation. this comes one day after volkswagen announce they had came to an agreement with the epa, the california air resources board and other regulators. onners could get a payment. you could be let out early from the lease. all the details need to be finalized. they're expected to be finalized by june 21st. that's you saw shares of volkswagen under pressure to dash guys, one day after.
they got a butt of a bounce. people thought maybe we're getting clarity yesterday. well today they saw just how much this is costing the company and will continue to cost the company. >> so, phil, yesterday we slammed them for this $5,000 thing. the latest you're hearing is that they will apparently reportedly buy back the cars at the estimated value that they were at prior to when the initial scandal broke, correct? >> that is not been finalized, brian. that is one of the option that's is being considered. basically, if you have one of these cars, there are a number of possibilities for you. it could be bought back. it could be fixed and you may get a paycheck from the company, not a paycheck, a check from the company, the amount remains to be seen. or you could be let out early from your lease. again, those details need to be finalized and approved by the epa by june 21st. but in a broad context, they have an agreement in terms of how to compensate those owners. >> what's the nature of the fix that they're thinking of? how -- how extensive is it?
how proven it is? >> well, that's what they have to prove to the epa, tyler. that's why it hasn't been finalized. they don't have an official fix for the engines. the epa wants to sign off on it and say okay, we think this will work. we think this will bring the vehicles into compliance. and that's -- those are the details that still need to come out. >> here's the thing, phil. i don't know if you would know this or anybody. even if there's a fix, do we know if the fix is going to give you the car that you thought you're buying? if i want to go out and buy a 300 horsepower camaro and find out they have to tweak it after i buy it and now it's 220 horsepowers, i'm not getting the car i thought i was. we don't know if this fix is going to severely reduce the performance or anything, do we? >> correct. >> this isn't the car i wanted. >> so the settlem neent. >> it may get less mileage. bri brian, you're never going to be made whole. if you think you're going to come out with the investment you
put into that vehicle, it's not going to happen. >> so, phil, now the doj is investing mercedes for the same thing. i'm wondering zshgs this set a standard or precedent for future settlements? >> i don't think so. because what's going on with daimler and the investigation into its emissions standards is more a question of what is the processes that you were using, not only for your diesel models but for all models so that we know when you say this vehicle is certified to get these types of results whether it's emissionors mileage, et cetera, what is the process that so that we can say, okay sh it's legitimate or it's not legitimate. that is far different than what we saw with volkswagen. with volkswagen, they were repeatedly asked by regulators, the numbers don't match up. the numbers don't match up. finally, volkswagen said, all right, we're rigging the emissions. far different. >> all right. this reminds me of the tobacco companies from 30 years ago.
this is a huge settlement. this is going to put volkswagen in the dog house as an investment for six years. look at what happened with gm with the ignition switch thing. >> but let's be clear to separate. this we've had the ford rollover, the toyota, you know, acceleration. people were killed and injured. this is damage to the environment. >> absolutely. >> luckily, it's not been a physical issue. >> it's such a complex issue to settle. it's so distracting for managemen tchl. it's going to cause so many headaches. we're going to be talking about it for years as an investments, that will hurt the stock for a long time. >> you know the awesome thing about tv? if you say somebody's name three times, they appear. i said it. and bob lutz just pops into the seat there. bob lutz, former gm executive, cnbc contributor. did you hear our conversation? vw has a loyal customer base, right? there is that vw people.
i'm the vw person. do you think even if they buy back the car at the estimated value to when the scandal broke that this will be enough to keep loyal vw buyers loyal? >> well, basically, it's a bribe to get people to accept the diesel fixes. because left to their own, the owners don't see any reason to get these fixed. they don't care about the environment. they enjoy the performance and fuel economy of the diesel. and after they install new software, the cars will be greatly diminished in their performance. so i think a lot of people are going to say, no, no, i'll just keep the car the way i have it, unless, you know, those people that are really recounted it's going to take $5,000 to move them. other cars volkswagen is going to have to buy back. i don't think the billion dollars, that will cover what they're going to do to try to get the people to comply with
the recall. as you know, there is no law that kpelz american owners to get it done. but it's certainly not going to be able to handle all of the control software and the car rebuilds and everything. that's going to be another couple of three billion at least. >> so what happens if there's a -- if i have one of these cars and i take it into my inspection station and not every state has it, not every state tests the same way, but i take it into my inspection station and it doesn't pass, i have a car i can't drive. >> you know sh that's true, too. but so far they've been passing them because, that's a good question. but basically one of the reasons gm has taken so long with the ignition key recall is that people simply don't go in. but you're right. emissions is a different story. the cars could technically be taken off the road. >> can i ask you a question regarding cars generally and then what the result of vw will be? i was looking at data this
morning. car sales are flat now. incentives up around 14%. that's never good. that means we're giving a lot more way to get sales to stay flat f i'm a beer you now of a new car, does this news today and all of the press it's going to get for the next week going to stop me from buying a volkswagen? are their sales going to languish more? >> negative publicity is always bad. the brand image is certainly tarnished. volkswagen had that german -- it benefitted from the overall german superior technology, we can do things other people can't do image. and that's kind of gone now. and i think people used to be admired for choosing a volkswagen. now they get looked at as people like are you sure you want o own one? they'll ultimately get over it. short term, i think it will take a hit to sales, resale value which, of course, affects new car sales. and it's doing the same thing in
europe as in the united states. >> bob, whether we look back at history, there was one flaw that literally made rendered them unsu unsuccessful or useful, the ford pinto, the pontiac as teblg, do you think the goal wing doors on the text. sla model three are the bugaboo that not ruined the car but really hurts it down the road? >> i think that the tesla model three, i've been pretty right about tesla all along. the car is at least 15 to 18 months away. my prediction is it will not come out on time. and it won't be sold for the price that they've announced. and, you know, it will do okay. but by the time it arrives, there will be many, many other -- many other manufacturers including general motors, include the germans who offer vehicles at around that
price point and with the same amount of rate. so with every month that goes by -- >> it's not about the price though, bob, it is? because there are cars on the market that are at lower price points certainly than teslas that are electric vehicles and hybrids. yet, tesla is able to get 400,000 reservations for a vehicle without the footprint that a gm has, without the footprint that a ford has. this is unprecedented for cars let alone electric vehicles. >> yeah. my point is the chevy volt is electric. it has a 200 mile range. a lot of other cars are going to come into that same space. so with every month that goes by, the sort of exclusivist of tesla declines. and on that topic -- >> there is a company called faraday future that nobody knows about. it is backed by a chinese billionaire. what do you know about them? is this a real company?
>> yeah, i'm sure they have a lot of money behind them. i'm sure they'll ultimately produce a car. i think that venture is doomed to failure just like i'm convinced tesla is. the pricing for electric cars is not going to be set by electric car companies. the pricing for electric cars is going to be set by companies like general motors, ford, toyota and so forth who have to jam these things into the market whether people want them or not. so that they get the mileage credits for them to permit them to earn the mileage credits that they need to be able to sell the stuff that they do make money on. so for the major producers, electric vehicles are going to be lost leaders and, you know, that smells trouble for people who produce pure electrics. >> with regard to brian's question, faraday futures started development of a final
assembly plant outside of las vegas. we haven't seen anything other than a concept car from them f i this a dollar for every type of company that contacts me or my producer that we never hear from again, we would be rich. >> they had this big ground breaking thing with the governor of nevada and everything. you don't think it's going to -- >> it's not that i don't think it's going to happen. but as bob can attest to, from the moment you break ground on a final assembly plant to actually producing and selling a vehicle, it's not going to happen overnight. it gets drawn out over time. and faraday future may try to sell a vehicle. look what happens in the karma. they sold a vehicle. didn't succeed. these things happen. it's not easy. what tesla has done is not easy. >> yeah. and it's taken more than a decade. people forget that. >> yeah. >> phil, thank you. of course, our thanks to bob watts. we're moving from the auto sector to the banks.
>> two big story lines for the banks. regulators proposing new rules on executive pay. it could force tens of thousands to defer at least half of their compensation leaving them more vulnerable to clawbacks. at the same time, the possibility of major bank breakups, growing. what's it mean for the industry and recruitment? a lot. >> we'll get to all that a moment. first, a news alert from the banking industry. mike mayo at clsa railing against co-america. shares are hire. mike joins us here on set. thank you so much for coming by. basically, we have also learned that other -- large shareholders joined in on your fight. you upgraded the bank last month as i understand it. hudson executive capital which is headed by former jp morgan, a former jp morgan head, they say they should explore options.
how much more optimistic are that you something is going to happen at this shareholder meeting? >> the annual meeting is this tuesday in dallas. and don't miss the perspective here. annual meetings are usually check the box events. management doesn't say anything. they try to get out of the room as quickly as possible. it's a lot of retirees. it's not anything of substance. we think that tuesday annual meeting by co-america will be a water shed event. it should be a water shed event for the degree of engagement between shareholders and directors. the said of the sec said you should have more engagement between shareholders and directors. we think had will be a water shed event. we expect five to ten large institutional investors in the room in dallas. people are actually getting on planes, flying to dallas. the. >> including yourself. >> including me. i'm not one of the five to ten, to air concerns, not to the ceo, not to the management team but to the directors themselves.
and we think this can set a new era for greater accountability not just of management team but of the directors who should be holding the managem next t teams more accountable. there is an article that just came out, two of the six largest investors are on the record saying comerica changed. this could be historic. this is the way the system is supposed to work. >> i want to get to why you're, you know, targeting comerica. since the ceo took over, the stock is down 25% compared to the kbw bank index which is down 19%. so it underperformed. the return on equity is below the peers. what do you want to happen to comeri comerica? some are saying it should be sold. why'replace this guy and be on your merry way? >> i think if you had a -- we'll call it as a mayo axiom. if they have not generated returns above the cost of capital for a long time and it's been eight consecutive years for
comerica and there is not an incredible plan to improve the plans, then you need to consider plan b. and plan b for comerica is a more radical restructuring. a structural change. the shedding of assets, retreating from a region, a sale of the bank or management change. >> what would you tlik see them do from that cafeteria of options? >> i'd like to see the returns above the cost of capital. they can't show a credible plan to do so. i don't think we get to next year's annual meeting with the status quo. >> okay. hold it right there, mike. we should mention we reached out to comerica for comment. we haven't heard back from them directly. our focus is and has always been on our shareholders and delivering performance to maximize value and meet their expectations. >> if you want the ceo out, i hope the report is bald bye-bye baby. stay with us, mike. obviously -- sorry. breaking up the huge banks is a huge topic of the election. bernie sanders and supporters
calling for it. if you agree with them, here is potential good news. you may not have to wait for d.c. to do it. angry investors may do it for you. after the past five years, bank of america stock up 21%. not bad. except the s&p 500 up is more than twice that. it's even worse for morgan stanley. it's up just 4% over five years versus 56% for the broader market and the worst offender, citigroup. it has underperformed the s&p 500 by a staggering 53% over five years. how can shareholders not be ticked off? let's bring in fdr capital's paul miller. listen, politics aside, the market itself often has a way of self correcting. it seems this bank model is not working. do you expect one or more of the banks we just mentioned to break themselves up because it's simply doesn't pay to be structured how they are? >> i think what you talk about is the big four, citi, bank of
america, j.p. morgan. not so much wells fargo. they're a simpler bank. but i think that's what -- that's all dealing with the fed and a lot of the regulators want. but the government is not going to do it themselves. they're going to make it uncomfortable for them to operate and take away -- they have to simplify themselves to the point where the return on capital does not reach their cost of capital. i don't think it's going to happen any time soon. i think as long as you have the ceo, chairman of the board, these banks are not going to break up. i think as these managemen teams move on and as the boards start to realize that cost of capital is not going to get that high, you have to sit there and say they have to break up at some point. i think over the next five to ten yeeshgsz you start to seat guys split up. >> well, paul is not dwight as old as i am. i don't have five to ten years
to wait. i see the bank stocks at levels where they were two decade ago. from my perspective, time up is. what are we waiting for? for those banks, suty group, bank of america and comerica, they have not generated returns above the cost for capital forrive in the past eight years. >> so why are they hanging on? >> they get away with it. that's why i'm going to annual meetings next week, going bank of america. a guy on my team is going to citigroup and i'm going to comerica to hold the directors more accountable. if they can't get the job done, we need new directors. >> if we can just wave a magic wand and have fed rate back up to 4.5%, the historic mean, would we even be having the conversation? the return on bank was be stellar. we're in this compressed zone of false, many would say, compressed long term 1.8 on the ten year. you can't make money in a bank with 1.8 on the ten year. you never k we all know that. so i don't own the sector for that reason. it isn't about bad management
performance, none of them can do it. they're all bad. so tell me what to do. >> they're not all bad. >> give me one that is good. >> we're more positive than we've been in two decades. we do think we only just begun in terms of bank stock outperforms in the second quarter. look at wells fargo and j.p. morgan. citigroup and bank of america are well bow low that. some can do it. that shows that others can get to that level. >> so you say the ones that can't do it, you should chop in half? >> i say the ones that can't do it need to have a plan b. they need to change, restructure or change management. >> paul, your thoughts? >> i think management teams are too entrenched. they sit there and get up and they say we want to do these things. but with bank of america and citi, the cost structure is way too high. they're unable to drive revenue because of it. i think the management teams are
too entrenched. you have to separate the chairman of the board and the ceos. >> do you have a buy rating on any of the stocks? it seems like there is no reason to have a buy rating. >> i do have a buy rating on most of these. >> why? why? >> i mean, they -- at some point, though, i don't think they're going to be able to achieve their cost of capital in these forms. i think the things like the living will, i don't know how any bank that is going to pats living well will wlachlt does the government do about that? they're going to simplify the models. they drive down the roes. it's very difficult not just with low interest rates but with the regulatory environment. >> we know the banks are too big to fail. right? we know. that aren't they also in some ways too big to succeed because maybe this group is doing well but then that group stinks. this group over here is kicking butt, this group here is losing 20% a year. and it always seems to net out to not much. and the shareholders, you know, people that own these things and pension funds all across america are getting squat.
they've succeeded in no way from this model. isn't it time to be done with it? >> the government has to get rid of the too big to fail model. they have to get rid of it. they're going to do it by continued regulating these things to the point where they're unable to reach the capital. someone like wells will be fine. the other ones, they have to take a hard look at themselves. i think it will take time. you know, i agree with mike. it needs to be done now. >> quickly, you held out j.p. morgan as one that has done pretty well, right? is it something to do with the structure or management? i think holding people accountable, look at jamie diamond's ceo letter. it is almost 50 pages. he goes into detail. he sets a tone at the top of the company not to take things for granted. just like the financial crisis, loo being out. you know, we have issues out. there he set the tone at the top as opposed to the tone at the top. look at the letters from bank of
america. >> hold on. i will say j.p. morgan has done well. by well, we mean basically in line with the s&p 500. if that's the new definition of doing well -- >> underperforming from the jam jamie diamond bottom. >> we're looking at returns over a long period. if you look at the stock price perform avens since jamie diamond became ceo, if you look at the 12% return, that's among the leaders. >> good discussion. all right. it's so good we're not letting them go. don't go anywhere eeshg, america. we're not done with the banks yet. we're going to talk about new attempts to limit wall street. if that's going to kill the appeal of working on the street or maybe that appeal has already gone. stick around. the e-class has 11 intelligent
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is . some of wall street's biggest bank rez veelg double digit pay cuts with lackluster first quarter earnings reports. add to that new proposals to curb banker pay. is all this going to turn talent away from wall street? we still have mike and paul with us. let's bring in the co-founder and partner at wall street recruiting firm the atlantic group. john, great to have you with us. what you are finding? is it a harder sell to say to someone, when you climb the ranks of this company that you're going to join, your spay going to potentially be capped or limited or held back because of government regulation?
>> i believe people know the deal when they get started. hiring is -- it's cyclical. what goes on is when the markets are strong and it's bull market that's out there. compensations increase. whether it is -- when markets are down, it's a bearish market, this he go if the opposite direction. the people who join wall street, they know the rules of the game before they get started. i don't think it's going to really decrease anybody who is new who is coming out of grad school, who wants to work on the street. i don't think this is going to dissuade them at all. >> is the profitability of the business going to limit pay ultimately? is the market going to limit if if the government doesn't? if the government's actions to restrain pay or the timing of pay, if that isn't a deterent, the companies are cutting compensation, not boosting it right now. >> wall street is always been per forpance driven, whether it's the bafrps, whether it's hedge funds or private equity
firms. in times of high performance, compensation is going to be related to that. when it's down, it goes the same way. i don't see any real change that's going to gone or hoochlt recently what is going on now is that, you know, you have a fixed income issue. credit markets are, you know, they have taken a hit in the last six months. you have a low fixed income. this is what happens. >> sure. >> paul, in terms of the impact of this, does this just mean that people go to hedge funds, they go to institution that's don't fall under this potential regulation? >> yeah, the young guys, they're going to go to wall street and learn the business. i think the top talent will go to other places that are not so unrecollected. places like jp morgan lost a lot of talent over the years as people left the banks. they've been overregulated for one. so, therefore, it's no fun working an issue that is completely overrecollected. then to tell them you have to defer your income four years out that, is going to drive people out. the other thing i would say, nobody has seen the regulations yet. a lot of this is devil's in the
details. i don't know. >> isn't there something unamerican about the government picking just one individual sector and inserting new compensation structure to it? why is that good for the entire country? >> it's good for the election. >> it's vilifying the financial inf infrastructure of the entire economy. every sector uses wall street to finance or do structures around what they need to raise capital. here we are picking one individual sector and saying, we're going to acute rules. just like high on heaven new rules. this makes no sense. to me, it's unamerican. >> to me, it's fighting the last war. the purpose of having these new rules is to make the banks safe. the banks are safe. the balance streets are stronger than they've been in a couple decades. banks already are moving the direction of more utility like outcomes. they're safe. regulations work in terms of the capital. and this extra micro management,
this is one reason i'm going to annual meetings. we already have a process in place. it is called the board of directors. you have the director in charge. we have questions for citigroup, bank of america and comerica next week. >> i'm glad you mentioned utilities. banks with this regulation, they do seem to be operating more and more like utilities which would imply that best days for investing in banks are behind us. >> absolutely wrong. in fact, that is the strongest reason for not owning banks. dunlt own banks and didn't get that point, you're going to miss out. so we've only juf just begun. i'm saying more utility like outcomes. its a goal for regulators and should be a goal for investors. anything with more annuity like outcomes have really gone way up. the pe's and utilities are 17. you're going to see pe expansions. that is just underappreciated. got it. mike, thank you. paul and john, thank you also. coming up, saudi arabia threatening to sell hundreds of billions of dollars in u.s. at
hi, everyone. here is your cnbc news update at this hour. president obama holding a joint news conference with british prime minister cameron in london. among the host of topics, he gave a strong defense for the uk staying in the european union. >> the united states wants a strong united kingdom as a partner. and the united kingdom is at its best when helping to lead a strong europe. it leverages uk power to be part of the european union. >> more than 200,000 convicted felons will be able to cast ballots in virginia in november's election under a sweeping executive order by democratic governor terry mccullough. he says his action was help undo virginia's long history of trying to suppress the black vote. republican presidential candidate ted cruz campaigning in pennsylvania today. he told reporters rival donald trump's complaints about the rendell gatt process is whining
and crying. and cracker jack is ending the 125-year-old tradition of including a toy surprise inside their packaging. it's replacing the toy with stickers containing digital codes. those codes will lead to baseball inspired games consumers can play on, what else, their phones. what's the worldcoming to? the best part of cracker jack was the toy. that's it. that's the news update this hour. pl pl is back in two minutes. an. this tv? margaret and tom lee. the championship game ball? that was sebastian diaz. good guy. and all i had to do was ask for their money and pretend i was investing it. their life savings is now my lifestyle. female announcer: don't let someone else live the life you're saving for. find out if you're dealing with a registered investment professional at investor.gov. it's a great first step toward protecting your money. before you invest, investor.gov.
exactly one week ago the man two doors to my left was on a plane for doha with a big oil summit over. there and exactly one week later, crude up is more than 8%. >> you're welcome. >> it's all you, baby. >> nothing happened and i made nothing happen. >> nothing happened and the price is up. we have a member of rbc capital markets and our cnbc contributor. it says ron indana there but i know it's ron insana. >> can i correct myself? >> yes, of course. >> that's a first.
>> what a rarety in journalism. >> nothing happened in doha. i don't think so. because there it was everybody against saudi arabia. there was this shift and i think we learned that saudi oil minister, he's not calling the shots. >> so did they make a deal? no. do you agree that something did happen? it was just more geopolitical in nature? >> absolutely. the difference between now and a year ago is saudi arabia is willing to stand alone. he's a 30-year-old in country where 50 used to be seen as young. a 30-year-old is calling all the shots. >> ron, how do we deal with saudi arabia? >> you know, having experienced 9/11 firsthand and having these 28 pages that president obama is contemplating releasing that could in some way implicate the saudi government complicit in the 9/11 attacks or providing some form of support, i think we should take the oil markets back into our own hands. we're now as big a swing producer as saudi arabia. we let them effect the fracking industry to such an extent that
our production has gone down by seven million barrels and driving it down to nine million. i think we should release oil, drive the price back down. but give government support to the fracking industry and produce as much oil as saudi arabia. they have had to borrow $10 billion to stay alive as have other oil dependent nations. i think we should be back in control. >> what kind of price are you looking at in terms of driving -- >> 10. >> you're kidding. do you know what's going to do to the banks? >> the government can support this process as a foreign policy directive as opposed to a free market decision. >> but the ripple effect is that the assets that book r back loans are going to go down. bafrps are going to be seen as being on the hook, right? >> not if you put a government there. >> oh, a government backstop? >> yes. i think this say foreign policy issue. if the saudis have any complicity in 9/11, i think they deserve that kind of backlash.
>> do you think he's nuts? >> i think the obama administration whose whole goal is it to keep high crow carbons in the ground, where do they look to? an easier issue dealing with the saudis. 35,000 u.s. troops are in the gulf. we provide their security guaranteed. we have the protection there. we can always tell them, do you want us there? let's play along. i think it's mute dependence. >> they also buy twice as much u.s. defense equipment as the next highest nation, australia. australia is at $900. i think the defense industry may have something to say. >> they might. i wouldn't sell them any more defense goods either. at this junk tour this is a point -- this is not trumpy or anything like that. if these 28 pages that we may see by june show that the saudis either tass etly or overtly supported anything having to do with 9/11, this is something if a foreign policy perspective we simply can't ignore, can't look past. this is a very big deal. and i think if it shows to be, then we need a response.
>> what happens to the two implicit guarantees you are talking about? >> israel being one. >> one is backing the banks which we have made politically impossible. we're trying to break them up. and number two, with all the environmental concerns with this administration is talking about, now you want to pump more oil out of the ground with fracking? you're going to get a real big -- >> that's fine. i think we also know that natural gas is the transitional fuel -- no, between hydrocarbons and ultimately greener and cleaner fuel. so we're going to have to use something between now and the time we are greener and cleaner. natural gas and electricity, both of which will be deployed in cars and trucks are also beneficiaries of fracking. >> there is the 9/11 report. the bush administration and obama administration both know what is in those pages. and if the bush administration right after 9/11 didn't take action and the obama administration didn't take action against saudi arabia, i'm
not sure there is quite the smoking gun as people think there is now. >> bob graham told "60 minutes" something almost entirely different. he was on the 9/11 commission. >> even the saudi foreign minister, you know, he died a couple years ago, he said it's not to say there isn't some uncomfortable findings in that. but i think people have that view out there in the no news that essentially there is this high, high level connection. >> the reason they have that view is that the saudi foreign minister suggested they would sell $750 billion worth of fuel. >> they're not worried about what is coming out. >> and part of my reasoning is behind that threat which is if they were to move to do something like that, they don't hold $750 billion in treasuries. >> if there were members or affiliates of the saudi family that were supporting al qaeda, they'll be called to punish them
one way or another. it may be by cutting off military -- >> and having them sell u.s. assets in response to a legitimate complaint. i think we should have something ready for. that. >> all right. folks, thank you very much. for more on ron's thoughts go, to powerlunch.cnbc.com. important than your health. or the freedom to choose what doctor you want to see. so if you have medicare parts a and b, consider an aarp medicare supplement insurance plan, insured by unitedhealthcare insurance company.
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don't worry, we haven't forgotten about "street talk." we had some good discussions to day. stock number one, nordstrom. cutting the stock to a sell. >> wow. >> the department stores have been over allocating capital resources to support digital and off price strategies for years. and that's putting themselves in situation that's are "unwinnable." ouch. in fact, the analyst calls nordstrom the most guilty of putting itself in a precarious situation because moving away from the long standing and carefully cultivated identity, blah, blah, blah, point is this, target goes from 50 to $40. so about a 23% hair cut seen by ever core. >> on the way up, analysts love the nordstrom rack strategy. now they hate it. interesting how things change on the dime there. >> next up, norfolk southern. they're upgrading them to an outperform and raising the
target price. management is ringing out costs and on track to hit targeted 70% operating ratio this despite the sharp declines we've seen in coal and the week volume backdr backdrop. improved foremanance, tightened capex could lead up to free cash flow which could open the door to more buy banks. >> swiss bank is in love with american railroads. ubs also upgraded the stock. next up, mat adore resources. imperial capital. starting coverage with an outperform and a $25 target. the company has prime basin assets and recent results compare well with peers, he said. expect overall improvement in well results and cost controls also matador has exposure in the hanesville play. $25 target on matador. 18% upside. next up, biogen, raymond james is sticking about it strok buy rating. they posted eps that beat
revenue in line. that happened last night. higher sales of the drug lowered expenses driving that quarter. the bar is exceedingly low and he's excited about the pipeline. >> the price target is $384. so they see another $100 a share. >> because the bar is really low. biotech is really under fire. >> it has been. finally, under the radar name is called gas log. it has the best stock ticker ever, glog. this is a monday owe he could based company. jeffries upgrading it to a buy from a hold. the shipping smashgt about to get better because prices are stabilizing. gas log and another company in the upgrade are valued at a discount to net asset value. 16 analysts cover glog with a price target of $15.10. there you go.
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all right. as the snazzy graphic and animation suggests, it's time for trading nation. after all, traders do trade better together. let's talk about the drop in tech stocks. google dragging down the nasdaq. nick, is this the story of a couple stocks, big ones missing their numbers or a broader technology issue? >> it's a bigger issue, brian. it looks like big tech is become yesterday's news. it's not just a couple of names. for example, just looking at how tech has performed this year, it's up half as much as the s&p. looking at how large cap has
performed. it's down versus small cap. we see a lot more institutional investors in value names. the energy sector has done well. continue to see interest there. financials for being a pretty lousy group year to date have done a good job the past few days picking themselves up. it seems like a rotation on a lot of different levels. >> a lot of people were surprised to hear the worst performing stock in the dow over the last 12 months is none other than apple. are you worried about tech? >> well, if you look at the earning season, you've got 21 of 67 companies have reported in technology. you're down 5.3%. so we are in an earnings recession. stocks are higher overall. because janet has spiked the kool-aid with the fed and shot the rate hike between the eyes. that's why stocks are up. let's get real and that's the reality of the situation.
>> do you think it affects tech as other industries? why does google care about interest rates? >> people are forced into the fed is placing money in capital in places where it shouldn't be. the s&p right now. if you look at it tech is 20.5% of the s&p. versus energy down at 7%. so people are getting along stock relative to the performance. >> gentlemen, we'll see you online in a second. for more trading nation go to our website. tradingnation.cnbc.com. europes continues to struggle. however mr. wonderful kevin o'leary has been bullish on europe. he'll tell you why, but only if you stick around.
i want to get your thoughts on the founder finds herself. the risk of an investment in a company like that where you can't know, can you ever? >> no, but you know -- >> the integrity of the product, the ownership. >> i invest in private and public companies. let's say you -- here's an analogy. there's is one called no no i invested in. nitrous oxide. i've been in it for eight years. every test looks positive. i have no idea other than to trust the data set this thing is going to prove out and pass regulatory scrutiny. same thing with those guys. the only protection is you've got to keep these at a 5% waiting in your holdings. when they go to zero, you don't go to zero. >> did walgreen's in your view suspend disbelief in partnering up? >> the data was really interesting. if you recall, even we talked about it on cnbc about a pin
prick of blood versus -- >> that was the attraction. >> it made perfect sense with nano technology. the story worked until it didn't. >> i like what you call it medical supply company. i got a note from a doctor friend of mine that said this is not a complimented of a science. if it doesn't work it doesn't work. like it was much more simple of a story. >> false positives are -- you just can't tolerate that. the cost of a false positive just from a financial and legal risk is crazy. and so i think they got to go back to ground zero. >> let's say the technology can in fact be revived in some way. there is some validity to the technique. can the company survive in order for that technology to make it to the market? >> well, if this technology works, i would argue that maybe another company -- >> should buy it. >> yeah. now you need to do is -- >> valiant. >> good segue my friend. i think valiant is going to end up being owned by its bondl
bondholders. >> it's always saying you're in default. >> it will be in the hands of bondholders. >> you said one of the ways you're playing europe is to buy large multinational non-financial european companies that have a lot of sales in the u.s. >> yes. if you go to ten people on the street and say nestle, they think they're american countries they're not. they're trading at 20% discounts to pe with 30 percent higher yields. >> what if you're worried about a brexts. >> absolutely. terrorism -- >> when the vote comes in and let's say there's a vote to leave the eu it's priced in?
>> yeah, the people who are using the products here are going to take that pill tomorrow morning. it doesn't matter what happens to europe. here's the thing, i screen balance sheets for value in all segments agnostic to geography. my siren is screening europe. massive discounts. >> i wrote in my annual predictions two years ago i liked europe. there are companies in europe that do more percentage of sales in america than some s&p 500 companies do. they're more american in their exposure. >> i'm not saying go all europe. in your portfolio, at least, 10, 15, 25% in europe. all market cap massive countries servicing america i like it. >> thank you for being with it. kevin o'leary, chairman shark tank investor. you can catch kevin and the rest of the tankers here on cnbc. tank you very much.
the next episode is this monday at 8:00 p.m. >> you forgot winemaker, musician. >> all of the above. >> thanks for watching power lunch. >> i'll see you tonight at 5:00 for fast. closing bell starts right now. hi, everybody. welcome to the closing bell on this friday. i'm kelly evans. >> i'm mike san toli. >> that is the game of thrones theme song. jamie will join us in just a bit. >> the nasdaq is the big focus of the market today. microsoft and starbucks getting hit hard even as the broad market remains flat. is this a bad sign ahead of apple's report? >> it's our own version of game of