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tv   Power Lunch  CNBC  April 25, 2016 1:00pm-3:01pm EDT

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okay, enterprise, what is going on? >> you have to talk about cisco. the question is if cisco is eating juniper's lunch. >> i think pete and i would agree that cisco is. >> all right g stuff. i'll see you tomorrow. thanks for watching. "power lunch" begins right now. >> welcome to "power lunch," everybody. we have literally a world chock full of news on this monday. cnbc's phil lebeau live in china where a big auto show is kicking off in beijing. cnbc's hadley gamble standing by in saudi arabia where big economic changes are coming to that country, ready or not. and president obama in germany meeting with that country's leaders. all this as fighting escalates in se syria. we're covering all the headlines for you over the next two hours. we start with another big international story, also out of china that could impact all of you apple shareholders out
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there. the stock already the worst performer on the dow over the past year and now one of china's most powerful businessmen says the company is "outdated." cnbc asked an industrialist about apple's future. he is ringing alarm bells. >> translator: in china, can you see that apple has already begun to lose the rapid sales growth momentum. one of the most important reasons is that apple's innovation has become extremely slow. >> two apple analysts join us now. one is bearish on april well a neutral rating for all of last year but three months ago but a buy rating on the stock. guys, great to have you with us. you know, one of apple's latest innovations is the apple se. but some say that make shift
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could present problems for apple when it comes to margins and average selling price. there was this interesting stat if, 10 million customers chose to buy an se instead of a 6s, that will put a pressure on margins. how much for apple going forward? >> yeah. this will have some impact on apple. at the same time, you have to see they're targeting the low ender of the market with this phone. and also they're targeting people who want smaller device. if apple doesn't provide it, they'll go somewhere else. at the same time, they're targeting the entire market with this product set and -- i'm sorry, targeting a segment of the market that is not being met with the 6 or 6s. that's the way the market s essentially if, they're able to move people to the upper end, then that will hit on the margin and it becomes less. >> it could be a tricky transition period? i mean if they're transitioning to getting new people to bite phone with the lower end se, at
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the same time, you have people in developed markets buying potentially the se instead of the 6 or 6s, we could be in a trough where we have margins go down as they are reaching a bigger audience. >> yeah. i mean, i would agree to that. really with regards to margins here, our biggest concern is over the next quarter or so as that iphone ramps. the se probably represents no more than 5% of the sails over the next 12 months. because of that, we expect the dilution of impact to be minimal at best. i think the other way to look at this kind of se ramp is the fact that it does increase the base by increasing the penetration in new emerging regions. by doing that, that also increases the opportunity within the all important services area which commands significantly higher margins. so over the long term, i think this is actually a huge positive for the company. >> abby, where are they going to
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get the next kicker to growth? i read this morning they actually sold in unit sales more watches than they did iphones over the past year. is this company in danger of becoming too genlt dependent on single product? where do they get the next liftoff? >> see, that's a big question. we don't know the right answer to. that at the same time, when we look at apple, they clearly need the next leg of growth. they need the next driver. watch hasn't cut it. and they're looking at content on the services side, on the itunes side. we'll see how that works out. but definitely they need something to drive the next leg of growth. having said that, you know, this has become more of a revenue type company. people who own iphone are not going to a platform. they keep coming back to buy more. every couple years there is a cycle. so even on a reoccurring revenue bas basis, i think it's undervalued. at the same time, for it to be a growth company, they need to prove they can have another
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category that can drive growth. >> what is the risk of apple simply becoming a hardware company with a hardware evaluation and we know what happens long term generally to hardware companies. >> yeah, i mean, i think that's already happened, right? you look at april toll day. it's trading less than 11 times earnings on fiscal year '17 estimate. eight times on a net cash basis. to some extent, i think that's already happened. at this point, we think apple turned into this great valuation play whereas if we see momentum on the iphone 7 side, you start baking in some type of growth driver for the company here. so i think, you know, to your point here, that's happened to a large extent and when we kind of look at the net cash position, i think the down side at this point is absolutely minimal. >> historically, april is a time for capital -- for capital announcements, capital allocations, buybacks. what are the odds of any of those things happening this
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quarter? >> very high. we think they're going to raise dividend by double digits like they did last year. and we think they're going to reup the buyback authorization. he had had 30 billion left tend of december. we think they're going to operate to make $150 billion or. so. >> thank you so much. we're going to leave it there. another angle to the opappl story, it's whether the company has stopped innovating. let's bring in our analysts. dawn, we talk about the iphone all the time which is the problem. it seems like the only thing we fwa talk about with apple anymore is the iphone. do you think they stopped innovating? >> it's an interesting question. we know they're dependent on the iphone for the revenue and for the earnings, something like 60% of revenue. we talk a lot about the apple watch. a lot of people consider it to
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be a flop, although it's first generation performance is actually better than the iphone. so maybe the jury is still out on that. and the car that apple won't confirm exists, that's a ways away. april sl challenple is challeng >> josh, your view? >> a couple points. one is i heard the comments by that chinese tycoon. i didn't hear a lot of stats. just one thing for our viewers to keep in mind. apple shares of the smart phone market in china is actually rising, not falling. i went from 8% in 2014 to 13% in 2015 according to that tech research firm. i was on the phone with gene munster, he actually tracks you used iphones in china. the prices are holding up. again that, wouldn't seem to be an indication that brand is in some type of real free fall. to your question though, outdated, to me, brian, is a strong word. you've seen incremental changes. that is fair when it comes to the 6s. apple doesn't flag the product
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pipeline in some way that's maybe the rivals do. we've seen the reports, the apple's electric car, also that apple has assembled a team of reality specialists. we know publicly cook said that is technology he thinks it's cool. a lot of applications. so just because we're not hearing about it, i don't think that means that tim and johnny and the rest of the team aren't working on it. >> fiveni've been an apple geeke the 2000. my folks had a newton. >> yuou're the one. >> when you look at i cloud, does it seem like a subpar e-mail product. i hate to say. that apple is a great company. you look at the software side of things, it doesn't appear to be advancing as quickly as some other companies. you have cloud taking off elsewhere. what is your view on apple's long term strategy? it can't be just to sell phones. >> number look, they're clearly building out services business.
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the store, the itunes store is there. they're looking at apple pay which is a growing part of the business. you're looking at trying to use their dominance or their platform on mobile devices to try to bring in revenue from other places. they're clearly moving that direction although i would agree with you on the cloud services. they're sort of subpar. >> very quickly, i love apple tv, the little device that helps me tune into different things. have they just given up on the idea of becoming a television set manufacturer? >> yeah. i think they pretty much have. they dangled this prospect for a couple years. >> right. >> it seems like they're not moving in that direction anymore. they could surprise us. they have in the past. >> do they make any money on apple tv? i mean they must. it's not a big thing, right? >> again, as we were talking, it's in part a services play. if they can continue to deliver me programming and get revenue for me, it's another source of reoccurring revenue. the box itself isn't terribly
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pricey. >> the video game opportunity is big. josh, i don't know if you have one. i have a couple of the apple tv's. this is a great time to say, folks, download the cnbc app on apple tv. it's terrific. >> yeah. >> features shows such as this one. they can make money on video games. there is an opportunity there. isn't there? >> there s i think as they build out this services, you know, some analysts argue that is an underappreciated part of the business here. i was on the phone with drexel hamilton's brian wright. he thinks you'll see services jum top $6 billion. if they can sell that story, do you bring in a new class of investors that may be interested in high growth, high margin services businesses f they start to think of apple -- >> if that's six billion out of more than $200 billion in revenue. >> but year not interested -- right, it's less than 10%. i think investors more interested in not what it is today but what it will be. if you see that business north of 25%, that can get investors
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pretty interested. >> all right, dylan and josh, good discussion. thank you. >> got a news alert from the bond market. two year notes up for auction. rick santelli is at the cme all over this auction. rick. >> 26 billion two year notes just hit the street. the seven year will be on thursday. c minus is the grade i gave demand at 1:00 eastern for this auction. let's go through it. .842 is the yield. that was a little bit through, tailed a bit. not much. trading around 48. 2.64 bid to cover. last time i was lower at 2.58. but that 2.58 went all the way back to 2008. so not very good there. 47.1 on indirect is a little light. 14.5 on directs. also a little light. so c minus tomorrow. of course, we'll have five years to the tune of 34 billion. me listt -- melissa, tyler,
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sully? >> kline china has been a major driver of sales speaking of u.s. carmakers thanks to sales of suvs and crossovers. the days may be over for interesting reasons. we'll discuss right now with phil lebeau live in beijing. phil? >> tyler, there is a definite shift in the chinese auto market right now. yes, suvs are popular in all segments. but on the lower end, just walk around the beijing auto show like we did over the last couple days. you notice that there is a plethora of models being offered by chinese automakers and these models are going at a far lower price point than what is being sold by ford, gm, mercedes, really any of the foreign competitors here in china. when you look at suv sales in this market, overall, up 42%. but the chinese brands, their suv sales are up 52%. china is the number one suv market in the world.
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passed up the u.s. last year. the chinese brands now control 60% of this suv market. stl, when you talk with the ceo of ford, mark fields believes they have a broad lineup that can withstand this assault. >> if you look at back in 2010, the whole suv segment in china was 1.2 million units n 2015, it was over six million units. that gives you indicationst growth here. that's why we've been investing in a full family of suv lineups. and that's what's helped grow not only our total sales but our total market share here in china. >> by the way, china is still the world's largest auto market. it will remain that for many years to come. in the first quarter, china auto sales, they slowed down now just over 6% compared to a year ago. but still outpacing the u.s. take a look at ford and gm and compare them with the s & p 500. guys, ford, gm and now chrysler starting to move in here. they don't get enough credit for the success they're having in
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china. that success built on suv sz going to be under pressure in the years to come. >> all right, phil. i want to ask you a tough question as walk around. i'll prelude it with a photograph. everyone knows the land rover evoke, the suv that land rover makes. i want to show a picture of that against the land wind 7 which is a real kline he's car. i mean basically the exact clone, even down to the fonlt and the lettering on the front. when you walk around, how many cars look unique -- chinese made cars versus a lot like the f-150 or whatever it might be? >> yeah, you don't see as much as we used to see. when i came here for the first time in 2001, you saw copycats all over the place. you don't see as much of that. what is interesting is we're walking around the beijing auto show, when you go to certain automakers, everyone winks and go oh, yeah, they have different cars there. the copycats are still here, not as much as they used to be, though. >> all right.
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phil lebeau reporting for us live from beijing where it is deep into the night. okay. thank you, phil. a mathor shift in policy as saudi arabia envisions a future beyond oil. we'll tell what you that might mean for the oil market and your money. but first, more from phil lebeau on the latest concept cars at the beijing auto show. take a look. >> one of the coolest cars at the beijing auto show, this one. it is a concept by the chinese automaker cherry. check this out. this is toyota's jixie. only three people can ride it in. the driver in the front and then two people sitting beside and behind him. finally, there is the leeco, chinese automaker. it is what many are calling the tesla killer. 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
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a car bomb explodes in damascus. the blast occurring the same day that president obama announced 250 additional u.s. special operations troops will be sent into sear yachlt the syrian military media center which released this video is controlled by the syrian government. cnbc could not independently verify the content of the footage. sawy arabia ma saudi arabia mak bet on the future beyond oil. let's get to hadley gamble in saudi arabia's capital with
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more. >> reporter: total survival without oil that, is the plan for saudi arabia. the son of the king earlier today was announcing further plans for the diverse fiction of the revenues. he's basing this on a $30 better barrel price. did he talk a lot about the plans to do. this he said they were going to create a sovereign wealth fund that will be the largest in the world between 2 1/2 to $3 trillion. part will be based on the ipo between 4% and 5% of that company will be sold in 2017. he's valuing saweda at over $3 trillion. one thing we didn't hear very much about, a lot of buzz and speculation from the king and the renal region about women an workforce and whether women will be allowed t drive-in side the kingdom. not much good news for them today. what we heard from the deputy
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crown prince, he said in private and public that he's not opposed to women getting behind the wheel. he said this was a societal, not a religious distinction. but no plans to allow women to drive in the kingdom as of yet. guys? >> hadley gamble in riyadh, thank you very much. let's bring into the conversation atlantic counsel senior fellow and a cnbc contributor. here's the thing. you work wtd sawed with the sau attempts to diversify the economy from the '70s. we haven't seem to have come very far since then. why not? and where is saudi arabia failing in their diverse fiction effort? >> actually, i'm not sure i totally agree with that statement. because the fact is since then, they have developed the second largest chemical company in the world. they have a very large mining
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company which is also one of the largest producers of various fertilizers in the world. they have a very large venture with alcoa that produces the lowest cost aluminum. the total, all the firms that are industrial ventures, if i total the sales of all those firms today, it's around $60 billion. and it was $80 billion when the price of chemicals were higher. >> understood. that issy said natural resources and not oil. there is chemicals, fertilizers, they're all based off the same thing. do you believe that the 30-year-old deputy crown prince will be able to effect real change in that country? >> well, i think he will be. it's not, of course, easy to be sure. but i'm quite sure he will because the down stream operations of all these big firms i just mentioned will create, if they can work with the private sector and they are to a certain extent even though the private sector mostly hires foreigners, they can switch from
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hiring of foreigners to hiring of saudi will make a huge difference. and the down stream, the private sector is very eager to move forward. so when we talk about the large wealth funneled that could invest in saudi arabia its environmental sen outside, but that works with the private sector, you think we'll see some major changes. now, they may be very optimistic to see that it will be away from oil by 2020. i think by 2030 we may see results. >> what other areas could the saudi arabia economy adapt to? i mean, there are intrinsic limitations, right, in the way the system works over there. >> yes. >> which might well limit the ability to move into banking, into tourism, into other areas that might be traditional venues for diverse fiction. and a lot of the other areas in the country have beaten them to it. >> i went to saudi in 2006 when they were unveiling the big economic city. they talked about saudi arabia
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with tourism, manufacturing, a destination for foreign capital, becoming a rival to dubai and doha. yet they never lived up to the promise. one of the questions, is saudi arabia is so socially restrictive, so politically closed. so can you really induce foreign companies to want to come to riyadh when you already have doha and already have dubai? what is the proposition that makes saudi arabia more attractive? >> whether you go to a transaction based economy, it's difficult. >> narrator: -- under the islamic law to create a mortgage finance company right now and it's difficult. >> the system is stagnant. >> look at tourism. they're talking a lot about expanding the number of people coming to the haj. look at what happened when the management of the haj last summer. 2,000 people died. what is your ability to execute it? can the saudi state machinery
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carry this off? >> you answered your own question. >> i think it's very challenging. they're relinlt on western consultants. question, is can western con adultery ants fi consultants fill the zbhap. >> are we overpenalizing the saudi system? >> yes, i think to a certain extent that we have to give them a chance. i think what is really clear is that some of the major bureaucrats are pushing very, very hard to get involved in creating an industry and value added productions which are not based on services. i think try, to as they try on tourism and what not, i think that would not bring success. but if they really work on industry based on where they have a natural advantage which is local synergy, cleheap capit and productivity to the far east, i think they'll have a strong chance of being
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successful. >> we'll see. we're still having a debate whether or not women should be able to drive. thank you both. >> thank you. >> thank you. >> all right. "power lunch" quick break. we're back with much more right in two minutes. we live in a pick and choose world.
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hello sh everybody. i'm sue herrera, is your cnbc update. president obama departing for germany from home after meeting with european leaders on a range of issues.
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he called for them to step up the fis on isis and announcing he was send 2g 50 military personnel to sear yachlt. johnny manziel's attorney says prosecutors told him the troubled former nfl quarterback will be indicted tomorrow on allegations that he attacked his ex-girlfriend in january. the misdemeanor carries one year in jail and a $4,000 fine. one person is dead, dozens injured after a bus full of chinese tourists crashed in taiwan. officials say the bus hit a truck and then overturned killing the driver. police are investigating the cause of that crash. and this is the epitome of cute. the bathrobe worn by little prince george has sold out. the robe flew off the shelves shortly after the prince was photographed wearing it for an after bedtime meeting with the obamas at kensington palace. the robe sells for $49 and the kplp company is taking more orders at
1:32 pm he is the cutest kid. that's the news update this hour. back to you. melissa? >> and the hair, sue. the hair. >> i know. the hair and the big blue eyes. >> exactly. all right. sue, thank you. let's take a check on gold prices. we're seeing dollar weakness. the index is down less than .5%. gold up is by .will 8%. an ounce is where it is trading. take a look at the metals complex. a small move here in today's session wement have silver up .6%. platinum up .5%. copper and palladium down just slightly. but we're seeing some action in the bond market. that is where we find rick santelli tracking the action. rick? >> that's correct, melissa lee. if there is an fomc meeting, short term auctions sometimes don't go well. the two year note auction wasn't great. look at a two day of twos. what you want to notice is that right as the auction came out we turn it above yesterday's range. why is in a important? because if you open the chart up to mid march, we're currently at levels, should we close here that, we haven't closed at since
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28th of march. let's go farther down the curb. take a look at 30s. you can see the same infect. they're doing a lot more work above friday's yields. if we look at an intraday of the dollar index, of course, everything comes down to the dollar in front of fomc, we could see it's been weakening a bit. but 94 is the key level. we're still a cushion above. that sully, back to you. >> all right. thank you. the latest numbers on new home sales are out. is the spring housing market blooming or busting? diana olik with the latest on new home sales. >> brie arngs sale of newly built homes have fallen for three straight months. the numbers are choppy. there are revisions. given how low supply existing homes is and how high pent up demand, is we should be singing much bigger numbers. now here's the headline in march though. this say good thing. the median price of a new home was $288,000. that is down 1.8% from a year
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ago. that might not sound like much. but it's in the right direction. until now, we've seen the bulk of the action in new home sales and construction on the high end which has kept builders putting up the very high priced homes like this one in the two million dollar range. this latest read had the biggest gain in homes priced between $200,000 and $300,000. they saw the biggest level since september of 2007. so why is this good? because the market needs more first time buyers. they've been priced out of existing homes due to investors and short supply and the low end. builders have not been putting up entry level homes. so maybe this is a sign that they'll focus more on that. the problem, of course, remains margins. the cost of building a home is rising which makes it far harder to profit off of those lower priced homes. tyler? >> all right. diana, thank you. marketses in the electrode day. the dow down triple digits.
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still close to all time highs. what will it take to move the markets past this gray area? let's bring in darren richards, cio at akt wealth advisors. and shawn o'hara. >> i sense one area of potential conflict here. darren, you say you have been lightening up on large cap u.s. companies and, shawn, you say that the companies that seem to make the most sense to you right now are precisely those kinds of large cap u.s. companies that pay dividends. darren, you first. why are you lightening up on them and redeploying internationally? >> we started to redeploy several months ago. and when the fed made the first-rate hike, that is really a good environment historically. usually 12 months after the fed does the first-rate hike that, is a peak time for international equities. and also a head wind for u.s. stocks.
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also, i think there is a chance that they may raise rates two or more times this year and the dollar might strengthen a little bit again. that was a good head wind for this year, especially large cap stocks. we're a little cautious in that space right now. >> shawn? why don't you respond to what darren says and make the case for companies like at&t, walmart, proctor and gam chbl are on your buy list right now. >> well, i wouldn't disagree with the premise. we just launched a pacer, a global etf aimed at high dividend pairs. and three of the top ten holdings are u.s. names, telephone and p & g and walmart. 65% of the names in that portfolio are outside the u.s. there are opportunities to buy high dividend pairs in the u.s. n this particular environment, we think the market seven years into a bull market, you're talking in the intro about the all time highs. at some point, you have to start asking yourself, what am i going to do to provide for protection? if you want protection and own equities, you have to diversify.
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that's why we have a blend of u.s. and nonu.s. names. i think it's good to find dividend pairs. you take a look at a name like telephone, for example. they're paying a 5% dividend right now. and they are in two really good spaces whether you want to call it retail or consumer or technology. and so if you're getting paid 5% on a company like that, that's terrific. and in the case of walmart which is also in our top ten holdings in pghd, you're getting paid about a 3% dividend. and it's 10% off the all time high. so probably the preeminent global retailer in the world with at least from a bricks and mortar perspective. >> we're going to leave it there. we're expecting some words from mr. trump. so you can add your own names to the list of those who have been bumped by trump. >> nice. thank you. >> thanks very much. >> take care, tyler. >> right now, let's go to see two attractive areas in which darren is observing. en that is "power lunch's"
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website. all right, you're looking live at warwick, rhode island. there he is ahead of tomorrow's primary. donald trump respond together new cruz-kasich alliance and a lot more. let's listen in for a minute. >> thousands work for. they're great. the leaders are too smart for our leaders. i believe in free trade. but only when we have the right people. so here's what happens. there have to be consequences. we're going to build a wall. there have to be consequences. so here's what i think. i tell, and i want to do it myself. its so easy. i love doing it. i don't take vacations like obama, his whole life -- the guy takes a six-month vacation twice a year. it's terrible. so here's what we do. here's what we do. you know he flies that big 747 to -- wants to play a round of golf. he pl he flies it to hawaii and then back and says the carbon
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footprint is being destroyed. give me a break. here's the story. there have to be consequences. when nabisco and hundreds and -- ford, the consequences is this, ideally you do it before they build the plant. you tell them, it's fine if you leave. i just want you to know that if you leave rhode island, if you leave indiana, if you leave pennsylvania, if you leave maryland where they're being hit very hard, if you leave any of these states, delaware gets hit hard, you leave any of these, you leave anywhere in our country, that's fine. we wish you luck. except here's the problem. every time you build a unit whether it is a car or an air conditioning unit, whatever it may be that they make and sell, and you think you're going to come across our border which will now be very strong borders. by the way, 1600 -- think of this, actual lishly 16,500 bord patrol people endorsed me two weeks ago. they've never endorsed. they never endorsed.
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16,500. sheriff joe arpaio from arizona, the toughest on the border. sheriff joe, a great guy. >> we're going to come back and talk more about the political landscape which took a big change last night when ted cruz and john kasich got together to divide and they think maybe potentially conquer the man you see right there. a little more on politics on "power lunch" right after this.
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listening in to donald trump at a rally in warwick, rhode island, ahead of key primary tests tomorrow. let's listen for a couple minutes. >> -- doesn't have one negative ad against them. as soon as they put first ad out, he'll collapse like a rock. believe me. just remember. that how do you give it to these people? here's the story beings folks. it's so important. we have a movement going on, bill o'reilly the other night, a
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tough guy but a smart guy and other people have said and bill said -- and he's not friend or -- he's tough. a lot of people say don't do it. he's too tough. but i don't mind doing it. because he's tough but he's fair. he said the other night, in his lifetime, what has happened to donald trump politically is the most important event that he has ever witnessed in his lifetime. now he's not talking about me. he's talking about you. i mean look at this crowd. look at this crowd. >> all right. donald trump stirring up his fandz fans in warrick, rhode island. he talked about cruz and kasich saying they're clueding. it's pretty bad, those are donald trump's words. let's talk politics with our cnbc contributors. welcome to both of you. sarah, i guess what mr. kasich
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and mr. cruz did was they divided up their efforts and carved out that mr. kasich isn't going to compete so hard in indiana. so mr. -- where mr. cruz might have a shot and mr. cruz isn't going to compete so hard in new mexico and oregon. so what does this mean for donald trump and for those two guy sflz. >> -- guys? >> necessity is the mother of invention. this is down to the wire in terms of delegate allocation. neither kasich nor cruz have the ability to get the number of delegates. they have a wild card chance if donald trump doesn't get there. f. this starts going to multiple ballots on a convention floor, then lots of different scenarios can play out. but they have to do this. it is very clear in the polling that kasich was going to prevent cruz from winning in indiana and then donald trump would win indiana and then the whole not trump movement would essentially
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be on life support. >> basically, am i understanding it right, sarah? what mr. kasich said is he's not going to be campaigning in indiana. but that doesn't prohibit his supporters there from voting for him, does it? >> his name is on the ballot. >> right. >> you can't remove it at this point. there are people who will vote for him. but, you know, effectively, you know, this election particularly at this point in the election cycle, every voter is now a strategist. because if you have a candidate that you care about that's not donald trump, you've got to sort of think through this long term. that's what m.i.itt romney did. he said i'm going to campaign for john kasich in ohio. that's what he did. and smart leaders in the party are looking at the map that way. >> i guess, ben white, the two guys cruz and kasich have basically decided the only way we're going to get this game into overtime is do what we've
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done. are they going to be able to do it, get it into overtime? >> it's going to be hard. sarah is right. it boils down toind itow to ind. if trump wins that state -- >> it is a winner take all? >> no, but proportional by congressional district. the winner will take a lot of the delegates. if he wins indiana, he's getting to 12:37. can he do it? the big problem is we saw john kasich today say i didn't tell people not to vote for me. that's not going twoshg. >> how can it backfire? >> kit backfire by trump supporting the people and saying they're going to take it away from me. he's not entirely wrong about some of these things. so that works. the other way, i mean, ask you why they didn't do it sooner. they didn't do it sooner because
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they thoud krouz coucruz could 1237. >> in a way it seems like because if you're voting for ted cruz, you may not like kasich's ideals. here they are saying, no, vote for this guy in this state and vote for me. to me, it's a little insulting and discounting of what voters really want? >> i don't -- i don't think that's the case. in fact, you know, trump is famous for saying, you know sh he's winning most of the votes. he's winning most of the votes. he's actually not winning most of the vote. most of the vote is going to someone else. he has a pluralityst vote but not a majority of the vote today or the delegates. so, you know, if you're somebody -- this comes down to do you think donald trump is right for the republican party and the country or do you think someone else would better represent the party? and if you're in the latter category, this is the only option. >> i'm not talking about trump. i'm talking about what kasich and cruz are doing. let's say you love case nick ka
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indiana and they're saying forget your guy, vote for ted cruz. maybe you can't stand ted cruz. >> if you want kasich, your only choice in this situation is to strategically vote to get him at the convention. so you have to suck up and vote for ted cruz. >> makes a momry rymockery of thing. >> you have to get to the convention. >> hold on. >> you vote for people, not against people. >> that's not true. >> this is a secondary way of voting for your guy by getting him to the convention. >> doesn't this, sarah, zhdoesn this confirm mr. trump's feeling that this is rigged against him? >> i think it is a powerful argument to a general electorate or to a voter who shows up or participates only late in the process. it's a powerful argument. but here's the thing about the way this process unfolds. there are rules that have been in place for a very long time. people may not like theules and we can have a debate about a
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national primary system or an open primary system. but that's not the way in which our parties govern themselves. and mr. trump hasn't paid attention to the rules until very recently. and now he's complaining about a process he chose not to study and understand. and so i think it's imperative upon leaders and the republican party to get out and explain this and educate people. >> all right. >> he is bad for the party in part because he's making this argument which is wrong and inaccurate. >> sayer yashrah, thank you ver. "power lunch" returns in two minutes.
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halliburton is down by more than 2% at this point. the oil field services company delayed the first quarter results in its reporting as it works to resolve regulatory concerns over the planned acquisition of baker hughes ahead of that saturday deadline for that particular deal. separate lit company said it cut about 6,000 jobs during the first quarter. the stock, remember, up 17% so far this year. but energy still the worst performing sector today. we'll have that and more stories coming up on "power lunch."
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troops to syria. on friday, kevin o'leary joined us on the "power lunch" set. he had a lot to say about investing in europe. >> my siren is screaming europe right now. massive discounts. i'm not saying go all europe. but in your own portfolio at least 15%, 25% in europe. all market cap, massive companies, all servicing america. i like it. >> how is america doing? the s&p 500 is outpacing the european stocks index. the s&p 500 is up close to 2% year to date. the european stocks index is down over 5% which is a better investment for your money snt u.s. or europe? making a case for investing in the u.s. is the senior vp and portfolio manager. making the case for europe is international stra international strategist with wells fargo. kevin was talking about how cheap europe is and, sure, it is cheechlt take a look at the s&p 500. it is current p sechlt bumping up against 19 at this point. but maybe europe is cheap for a
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reason, because of the risks investing in europe entail. >> and that's really it. investing is about whether you get compensated to take the risks you're going to take. europe does have the share. the risks are obvious. if you think back to where the u.s. was in 2012, 2013, we had the same risks. we had the debt ceiling debacle. we had the downgrade. a lot of different things are starting to rhyme, even if they don't repeat exactly. if can you accept the risks, you get compensated. >> all right. add to all those risks, we've been talking about the possibility of negative rates in the united states. it's all bad. europe has negative rates at this point. you pile on top of that the potential for a brexit. aren't the risks to the european stock investing picture right now? >> so those risks affect certain sectors more than others. if you look at negative rates, maybe that impacts financial
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sector stocks a little bit more fuchlt lo if you look at commodities, they're weak. start to look at industrial companies, technology companies, people building goods and exporting them, they benefitted from the cheap currencies. >> gene, as far as investing in the united states, i was reading through the guest notes i got after speaking with you. and it seems like a lot of the case is on a technical basis, a fundamental basis are there reasons to be here in the u.s. with the s&p 500 pe at almost 19 at this point? >> well, i think. so i mean, a few things you have to keep in mind. we're in the later stages of the market cycle. these are oftentimes the most exciting. one of the key things here for the u.s. is that the talk has turned from concerns about recession to now talking about inflation. and that usually is a pretty good point for the market when there is more of a focus on some inflationary factors.
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and we are beginning to see. that and that's very much depict bid what happened in late january, early february. there the market hit a double bottom. more importantly, the dow jones transports went ahead of the dow jones industrial average for the first time of the year and they held that lead since. also importantly is the commodities metals, materials, oil, have all staged very significant reversals here. and these are not the kind of reversals i would say are transitory. i think they are here for the longer term. so in as much as i would not argue against europe, perhaps, a better place to look on that basis would be some of the emerging market opportunities. but here in the u.s., i like u.s.-based companies that do have a somewhat significant nonu.s. revenue opportunity as well. >> all right. got it. got to leave it. there thank you so much, gene and samir. brian? it is now 2:00 on wall street. the dow back below 18,000.
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not by much. we're at 17,945. we're down 58 points on the dow. not a big hair cut for the dow. not a great start to the week either. you've got a new study on ceo payout today. who are the highest paid ceos in all the land? mary thompson has a list of the names and some of the big numbers. >> big numbers, brian. thank you so much. we're going to call this a preliminary list. it only includes the largest firms by revenue. we'll have a more complete list out in may. of those filing by april 1st, the median pay is up 3% to 14.5 million. average pay, $15.5 million. the total share older return for the companies, 2015, 2%. now the highest paid ceos were mark hurd and safra katz followed by bob eger at disney at $43 million. these four included in the top five spots of earlier surveys,
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ge's jeff immelt coming in at number five. missing is philippe dauman who pulled over $54 million. viacom's $13 billion in revenue didn't put it in 100 largest companies. the smallest firm here pulled down $17 p1$17 billion in reven. let's look at those that had no pay change. they included alcoa's klaus kline feld. one ceo pulling down less pay, starbucks ceo how arld shultz. he took a 6% pay cut. as he usually does in the surveys, berkshire hathaway's warren buffett was at the bottom at 100. the compensation, $470,000, pocket change for a billionaire, i'd say. >> all right. mary, thank you very much. i'm going to pick it up. there you are! here i am. >> i was looking at brian. >> no worries. >> that's never a bad thing. >> no. so are american ceos overpaid
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and should the government step in to curb executive pay increases? let's bring in the former ceo of continental airlines and board member at sprint and produce -- p prudetial. gordon and heather, welcome. i don't think i'll have to do much to kindle a lively conversation. gordon, is there any role for the government to get involved in regulating executive pay whatsoever here? is that a job for the boards' the share holders? >> no, it's not. it's the shareholders' money. if they want to spend that much on a concert ticket, they'll do. that they want to spend that much on a ceo, they'll do that. i'm not saying they don't make mistakes. but it is their money. >> but there are some examples that mary just showed and there are others out there of ceos whose pay is very, very high. it is rising despite the fact that the total return on the stock performance over the past
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year or five years has not been particularly good wlach. what's the right way to determine what a ceo is worth, gordon? >> well, i it this sec has done a lot in requiring companies at least every three years but most companies elect annually to have a vote from the shareholders'. you get to articulate whether you think the pay practices are reasonable or not. quite frankly, a minority, as little as 20 or 25% no vote will usually call a pay reconsideration by the compensation committee and will change the compensation practices of that country. so they're headed in the right direction of having shareholders get to say whether they think they want to pay this guy or this woman that much money. >> heather -- >> but it is their money. it is their money. >> heather, does that go far enough? >> well, sure. >> no, i'd like to bring heather in. i'm sorry.
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forgive me. >> look, we though that executive compensation is skyrocketing over the last few decades. back in 1980, the typical ceo to worker pay ratio was around 40-1. now it's well over 300-1. that means income inequality within that company and income inequality throughout the country. we see it in all of the examples that you just mentioned. another one that's been a serious concern recently is verizon. you see the ceo there made $18 million last year. the company paid out 1$13.5 billion in stock buy backs and dividends. meanwhile, they're squeezing workers, demanding cuts to benefits, trying to offshore jobs. you got more than -- you have tens of thousands of workers out on strike. and problems in various jurisdictions where they're seeing that their problems with the service that is provided regulators and in states like maryland and new york and pennsylvania are actually investigating.
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we need companies to be investing in their workforce, to be investing locally and in the services that they provide. >> right. >> so that we have companies that can be successful now and into the future instead of just paying everything out to reduce the stock prices in the short term and increase over the very short term the wealth of a very small portion of the company. >> let me bring mary thompson into the conversation. mary? >> i have a question for heather. when you say something like that, you would advocate putting some kind of metric within the ceo pay compensation package that they put together that they do something like that? or are you satisfied with this close alignment with the stock price as being a good reflection of what the ceo has done? >> i think it's important that we look at a variety of metrics when talking about executive compensation. there is too much focus on the stock price and on the pier group comparison. all ceo's think they're better than their peers.
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i think we need to be looking more seriously at other metrics. we note the ceo to worker pay ratio has an impact. if it's too high, you see poor morale in the workforce. that can have an impact on the bottom line and performance of the company and the customer experience. >> gordon, take me into the room where these decisions get made. just tell me the story of how when you were running continental how your pay was determined. what do you it this right way to do it is? >> everybody wants the same talent. there was a jockey that won three or four consecutive kentucky derbies. >> right. >> so it's not just the horse. he won it on three different horses. so the jockey makes a difference. and everybody wants that jockey. and, of course, you can't work everywhere. so there is competition. it's not anything for me to say what my neighbor chooses for their dessert tonight because it's not meal. it's not my house. and it's not my money. so if it's a public company --
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>> we see -- >> -- they get to say what they want to pay f they want to take a guy from another company to win their race, they're going to have to probably bid on him. >> heather, the last word is yours. >> yeah. you see this comparison all the time. it's just silly trying to compare high paid ceos to star athletes. when a ceo does well is because there is a big company behind him. a big workforce that is helping to drive that success. and when the ceo takes all of the profits for himself and leaves everybody else out in the cold that, is going to cause that business to struggle. it is something we need to look at to make sure that businesses can groechlt it's not just about the ceo doing well. it's about everybody within the company that needs to be compensate ford their contribution. >> gordon, a quick response? >> steve jobs is a good example of a person who drove excellence and inspired people to create wealth for the whole world, not
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just himself. and quite frankly -- >> he still didn't do it by himself. >> and quite frankly, the employees made millions of dollars. but you and i, i'm talking on an iphone right now. change midlife. changed my world. there is a guy who is worth more than your average guy. >> all right. >> he ought to be paid for it. >> on that note, we'll leave it. >> yeah, but he didn't do it alone. >> of course not. gordon, thank you. heather, we appreciate you as well. >> thank you. >> all right, semiconductors are down 1% in the past week. intel is down nearly 3% since last week. the chipmaker announced a potential 11% workforce cut globally and cut the full year revenue forecast is a pc dead? if so, what can save the semis? let's bring in our analysts. guys, great to you have us with. i think investor concern is that cut in not just revenue but revenue growth more importantly. to much lower than what was forecasted before. since ubj is sticking with the
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buy rating on intel, what do you see is making that revenue growth turn around, replacing potential lost revenue as we're saying the pc business is dead if that market is not going to come back? >> thank you. i think when you look at intel, obviously the pc market is slowing down. and it's slowing down for a couple of years now. but for first time they recognize that pc market is slowing. and that the data center and data centers are a strong market for them. they still grow high single digit. and it's very creative margins. i think data center is operating margins versus the company at 35 operating margins. we think that they have full realization that pc market is slowing and look at globally, you know, you're in an environment of negative interest rate. and here you have them playing 3.3% dividend in a very defensive name. so i think the fact that they're not moving aggressively can get
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us into problem. >> is that a sign of faster growing parts of the business and can that make up for any short fall that won't be gotten back from the pc market? >> so the answer is no. they're not moving into the data center. they have 100% of the market. how can they move into a market where they have 100% of all the markets in terms of processors? they're raising prices. they'll not gain market share. they will lose market share. arm holdings has a bunch of licensees coming out. they'll garner market share. there is a deal that amd announced last week, a stock up 50% off the news that, they're dealing with a bunch of investors in china that will allow china to get -- gain access to the x 86 market. that is 20% of the server market that potentially can go away. we would stay away from this name. this is as good as it gets. tip of the iceberg. >> what do you like better and what sorts of businesses are those chip makers positioned in? certainly you don't think of intel as high growth because of
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the pc exposure and maybe data center isn't the highest growth of businesses. you think of new areas like iot. you think of new areas like, you know, autonomous driving and vr. >> well, those are questions. in the data center, there is also a shift going not only to a new area, applied micro circuits tlaen is a shift in how computing gets done. getting done with accelerators. nvidia does gpus and nvidia does autonomous driving and ip and all of the major car companies are working with nvidia right now to get access to their next generation driverless type car technology. it's a great way to play vr. so nvidia is an interesting idea at these levels. >> you mention that intel is a defensive play wlachlt is a higher beta name within your coverage universe? >> we definitely like oago. you know, we looked at micro semi. those are three names we like
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longer term. >> all right. greet you ha great to you have us with. thank you so much. coming up, an analyst who downgraded caterpillar three months ago has a new call on the stock today which is up 30% since then. we'll tell what you he is saying now. and steve madden made it once but then he went to prison. so now he's trying to make it again. we'll have his story when "power lunch" returns. they say that in life, we shouldn't sweat the small stuff. but when you're building a mercedes-benz, there really is no small stuff. every decision... every component... is an integral part of what makes the 2016 c-class one of our most sophisticated cars ever. because when you're setting a new benchmark for refinement, it is the small stuff... that makes the biggest impression. the 2016 c-class. see your authorized dealer for exceptional offers through mercedes-benz financial services. mary buys a little lamb. one of millions of orders on this company's servers.
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analysts cut the stock to to a hold. caterpillar shares are up 40%. else, where we're offering to buy gannett for 14 million in cash. and val yent pharma is hiring joe poppa. that is sending the charge. the nakt they had guidance cut. so the guy leaves paragot. they cut guide ansz. they're going to a company that has a lot of issues. but parago is down. >> he has a the love problems. steve madden had a spectacular rise and then a big fall from grace. and now he's making it again. janz wells has that storey. jane? >> hey, me list yachlt you know,
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steve madden got the first job in a shoe store at age 16. he started his own company with $1100. sales most recently were a billion and a half dollars. but somewhere between 1100 and $11.5 for a stint in prison for securities fraud. so here's his advice. we're going from rags to riches to prison and back again to success. >> when you're in prison, you're not thinking about shoe styles. >> there some short cuts and stuff i'm not proud of. and i wish i hadn't been involved. but since i've been back, the company has exploded. i had so much energy which i came back. i was worried, you know, because so much of the design is context.
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what if the world has moved on. i was out of the game for over two years. but i thought i had a great team. so now my role is different. i'm more of a cheerleader and i'm not as super detail involved. and that's been an adjustment for me.. it's really been, actually, hard. i sometimes suck the energy out of the room. and it's not fair to the people here. because they're working. and they're getting stuff done. and they have their employees that they're talking to. i have to relearn to give them space to be entrepreneurs. the big advantage is to love what you do. now that sounds corny. but if you love what you do, the chances are that you're going to be more successful than if you don't. as far as the prison stuff goes, don't sell yourself short. that's the answer. >> right now on cnbc, more advice from steve madden including when he ran into martha stewart shortly after they both got out of prison. he talks about retails
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succeeding. he backed off from micro managing, i asked him, do you say i hate that shoe? he said every day. back to you. >> all right, thank you very much. let's get to dom chu for a market flash. >> we're watching shares of time warner cable and charter communications. they're in a pending deal to merge. the shares are now at their best levels today. this on the heels of reports by both bloomberg and reuters saying that regulators including the fcc and the department of justice may be poised to approve this big deal in the cable television distribution landscape. so again, me list yashgs the shares both near their highs to day. we want to call your attention to them because of the headlines. that's what is driving the stock, melissa. back to you. >> thank you, dom. street talk is komg up next. we have the five analyst calls we think you need to know b but first, phil lebeau has a look at a cool concept car from the beijing auto show. >> very cool concept car by
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all right. time now for our daily dive into the calls of the day. we call it "street talk." first stock, med tronices. starting coverage with a buy rating at a $93 target. that implies 17% upside. the analyst notes, medtronic is the market leader, well positioned for healthy sustainable growth and likes the robust free cash flow generation despite being exposed to maturing markets. the analyst there bullish. >> take a look at the performance in the past month. that is sort of the story of the device makers in general. you look at boston scientific or st. jude or medtronic and then they're up 7 to 10%. pulte group, raymond james is downgrading them. the stock recently crossed bost price target of $19. the home builder posted earnings
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by strong gross margin upside and tax benefit. here what's giving the analyst pause. the public and battle between the board and pulte family and unwillingness to increase growth margin zbooguide even with that upside surprise. >> it's been an ugly fight. and bill pulte jr. laying out the family side. they need to get that behind them. all right. stock three, l brands. upgrading it from a hold to a buy. stock has traded off in recent weeks on concern over strategic changes at victoria secret. the analyst says those changes are the right moves and should enable the brand to accelerate growth. they acknowledge near term sales could be held back by a couple of factors, but expense savings should offset the negative impact of any sales slowdown. the target, $90 a share, 15% upside from here. >> the stock is down 18% year to date. it's been a rough ride for l brands. fourth stock, amc entertainment. it's risky to make any changes
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ahead of earnings. but that's what they're doing with amc. they're raising estimate onz friday. the price target stays 3at $33. there are concerns out there that second quarter box office estimates are too hichlt they're getting more comfortable around the above consensus outlook. also, there is attractive film lineup for 2017 and 2018. >> i don't know about this call. i do like it what aen analysts the guts to do something before rngs. >> right. i agree. >> like batman's guns when killed super man and daredevil and aqua man and thor man. finally, the under the radar name, integrated device technology. the ticker is idt. the semiconductor company that is a big player in the wireless charging. phil lebeau just showed you. maybe that's an idt pad, wireless charging. it stwarts starts with a bichlt
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wireless charge will be growing to over $500 million by 20 it 20. he likes the position in memory interface. they have a 50% to 60% market share in server generations. the target, 26% upside on idt. >> we're just talking about semiconductors in general. this has been outperformer this year. >> semiconductorman versus aqua man. that it is for street talk. what has been an up and down day for oil, how will the day end? we're going to take you live to the nymex for the closing price of crude when "power lunch" returns. ♪ i built my business with passion. but i keep it growing by making every dollar count.
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(male #1) you get to explore, you get to see things that people don't get to see or do. (announcer) at truecar, we believe buying a car should be as fun as driving one, so we'll help you find the car you want and show you what others paid for it. (male #2) once truecar came into the picture, that's--that's where i go now. it was just such a quick, easy experience that i just go back to them. (announcer) discover for yourself how easy car-buying can be with truecar. welcome back to "power lunch." here time warner cable and charter shares are higher on hopes of a possibly approved merger between the two companies. the deal would create possibly the second biggest cable operator in the united states behind comcast which is the parent company of cnbc and nbc universal networks and television and pictures. as you look at the shares here, it's going to be key to see whether or not we can see any more further approvalors any news or indications of it. remember, the department of
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justice guys along about what's happening with the federal communications commission are going to be the sticking points, the main ones about a lot of traders are looking for. >> dom, the parent of cnbc comcast had been in a merger agreement with time warner that then sort of was withdrawn roughly this time last year. over antitrust concerns. what seems to have been cleared if this indeed has been cleared? >> well, it appears right now based upon the reports that we're seeing out there, there are going to be conditions with regard to how they can operate, how they can behave. that is charter communications in concert with time warner. you're also talking about two fairly distinct footprints. they don't overlap as much here. time warner, it's considered perhaps a crown jewel by many because it has big footprints in places like a los angeles or new york city, the large metro areas. so again with this deal kind of in place here, david faber is doing a lot of reporting on this subject with regard to the cable
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distribution dynamics. right now the subscriber bases look like for at least the time being they seem to be okay with what is happening here as well as putting conditions or certain contingencies upon how they can do business whether this merger does actually get done. >> julia has been following, as you point out this story for a long time. did we lose julia? dom, so as you say here, obviously, the concerns were that there would be a issues of overconcentration in a single company's hand. i guess as you say, the footprint of these two particular cases skirt around that just enough and maybe there will be divestitures beyond those that have been announced if, indeed, some have been announced. >> what is also interesting about that, you mention comcast, you're talking about the nation's largest cable television provider, the largest distributor inform kind of content. so whenever they get involved with something, perhaps there is a lot more antitrust scrutiny.
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you're talking about the biggest guy on the block. with regard to charter, charter in term of total subscribers, smaller in the overall footprint. but thoz tse two added together major metro areas including la, the dallas area, los angeles, that sort of thing is onest reasons why this deal could be one that regulators perhaps see a little bit more positively if they get certain of these contingencies in place. >> julia is on the line and is us with now. you have a question. jump on in. >> more of a comment, i guess. we talk about this with the cable perspective. i imagine there is one observer watching this very closely. julia would know more than i would which is netflix f you're the key sort of meter of broadband out there and you got this deal now you're going to have the power of broadband really in a couple different companies, i would imagine that this is not just a consumer angle as well. it is a company like a netflix which, as they say, has a fat pipe, right?
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they have to use a lot of dat yachlt they're keenly watching this as well. >> well, i think that the key thing is that it's not -- we talk about these as cable companies. but they're not just cable television companies. had they're also broadband providers. i believe that combined company once charter's acquisition of time warner cable goes through will have 23% of the broadband market. that is a hefty chunk. it's not the majority. it is a hefty chunk. charter needs to make sure that it's delivering the best service possible. that's been one of the things they've been really focusing on is customer service, high quality product and it's not just about the tv product, it's also about the broadband. because we are seeing people shift away from the traditional tv bundle. broadband is increasingly important to charter going forward. it's going to be a bigger and bigger part of the business. yes, netflix is on those pipes and people are distributing all sorts of video whether it's youtube or netflix. it's all about that digital video now.
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>> will oit market is closing for the day. let's get to jackie at the nymex. >> melissa, prices closing at $42.64, just about six cents off of session lows. another down day for crude oil. everyone i'm speaking to puts it two-ways, they say this is a tough trade right now. if you're a bear, you're going to argue that supply and demand are not balanced. maybe they'll balance later in the year. the fundamentals point to lower oig oil prices. if you're a bull, you'll argue that summer driving is coming. crude oil prices will be supported, especially if the fed continues its dovish tone and the dollar stays weak. there are two good arguments for the oil trade. the key take away, $30 oil is what the economic vision is based on, is that things could get worse from here. but not as bad as we saw earlier this year. back to you. >> all right. jackie, thank you very much. jackie deangelos. there are a couple big earnings out this week, pioneer natural resources, later today, free port is out, conocophillips on thursday. on friday, the granddaddies, i
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suppose, chevron, exxonmobil and phillips 66. let's bring in john eade with a preview on how the earnings will be after a very volatile quarter in oil prices. john, welcome. so take us through those names that i just mentioned. i don't know whether each and every one is in your coverage universe. speaking specifically or more broadly about how the earnings are going to look in this first quarter and in the current second quarter? ed. >> let's talk broadly here. i think the earnings are going to be a disaster. i think they're going to miss all the expectations. it's going to be a bad first quarter for the industry. but it's also an inflection point. i think from here on out the quarters are going to start to get better. a lot of the companies have made substantial cuts to costs, plus we have higher oil prices that we've had in the past two quarters. it's going to be bad this week as far as earnings are concerned. but that is going to improve. >> so where do you see -- and obviously, these things are
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highly levered, to tied to the price of oil. what is your working thesis about where the oil prices are going to be in 2016 and 2017? >> our estimate for 2016 is $40 a barrel. and that's going to be down 20% from the 50 that was the average in 2015. so it's lower. of course, it's higher than what we saw in january and february. so we're right about where we think it's going to be. a couple of oil companies have reported already. and they've talked about $50 oil as what the industry really needs to get back on track. i don't think we're going to see that until later this year. >> you know, a lot of the companies have already bounced off their lows substantially. have they gotten ahead of themselves? >> i think some of them have. i think in the case of freeport, you mention that one. that stock is almost tripled. it's a low quality company. it's already cut its dividend. but if you look at the ones later in the week, a philips and
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exxon and chevron, they're up 25% or 30% but they're dividends are intact and businesses are more consistent generally. and i think those are still going buys. >> all right. john, thank you very much. john eade of argus research. brian? thank you. it is time now for "trading nation" and your question today is this. will rising treasury yields send stocks higher? here now to answer is oppenheimer's ari wald and stacy gilbe gilbert. sta stacy, if you believe that yields go up that stocks will also follow? >> i would say the market is definitely positioning that yields will rise. i would make the argument that they're positioning that they could have a higher than 20% probability that the fed funds futures are suggesting for june. specifically to the u.s. treasuries, we've seen $8.5 billion of outflows. this is the most that we've
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recorded since looking at these long unleavered etfs. yes, they're looking for an increase in the yields. quet to does the it make the markets go up? i would argue the market continues to be positioned for slow grinds, potentially to the upside and really shocks to the system which are more likely to the down side. so it doesn't look like it's positioning for significant rallies when we look at the propability of 10% moves or the price of the 5% out of the money calls to the puts and s&p 500. if anything, slow grinding with potential down side shots. >> okay. so ari wald, let's talk about higher rates. we may get them. when you look at charts, what relationship are we seeing between rates and stocks? >> i think to answer your question, brian, one the charts argue for higher interest rates in the near term. and they also suggest that it would be good for stocks. i think you'll see some flows working to the equity market and you'll get that breakout to new highs. speaking first on the ten year
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u.s. treasury yield, this month it has inflekted from a very important level. that level is 1.6%. that was also the level it found a low at earlier in the year. and it's the level that it's been finding a low over the last five years dating fwoback to 20. so we have this pattern at a very important level of support. it argues for higher rates. a risk on continuation on trade and better performance for equity markets. and i think also to make that point is the valuation spread between equities and bonds. if you look at the spread between the s & p's earnings yield and that of the treasury yield, the chart here, the line that i'm plotting here, we think it's going to continue to rise. we think it's going to continue to rise to the upper level of the range it's been in over the past few years. a rising line indicates either a, stocks are going to get more expensive, or, b, treasuries are going to get cheaper.
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we actually think a little bit of both. >> all right. there you go. a look at rates and it's not an accident. because we have the ned two days. thank you very much stacy and ari. for more trading nation, head to our website. now to sue herrera for a news update. here's what's happening at this hour. gop presidential candidate ted cruz confirming an agreement with the kasich campaign to divide up campaigning in some key upcoming states to try and defeat front-runner donald trump. >> we had conversations and both campaigns agreed to focus our energies, we're focusing our energy on the state of indiana and kofgovernor case sick focus his energies elsewhere. >> the federal judge's ruling was reversed saying it's not the court's job to second-guess roger goodell's ruling. air bus handing over the first plane to jet blue sayer modurin
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ceremony in alabama. they stood out in front of that brand new plane. they thoep deliver four airplane craft a month from the plant about it middle of 2017. organizers from 20920 tokyo olympics unveiling the event's soef logo. there is a first look at it. this after 15,000 designs were submitted. it was designed by tokyo base designer takoro. he received $9,000 in prize money and he gets tickets to the opening ceremony. you'd think he'd get a little bip bit more than. that brian, back to you. >> better than the guy or woman who designed the london thing which they should have gotten a one way ticket out of england. >> a lot of people share that view. yeah. >> zig zag z and a scary mascot or something? >> i know. that was not one of my favorites. >> that's very nice. the simple olympic o. thank you. >> you're welcome. >> all right. on this very program in just two days -- guys, 47 hours and
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change from now. >> count it down. let's start counting it down. >> we're going to bring you the fed's latest decision on interest rates. but to day we're looking at the issues that worry the fed and why one of the world's leading economists is very worried that fed may be making a dangerous mistach mistake. a mistake greater than the london olympic logo.
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let's take a check on the markets. all the indexes are off the worst levels of the day. the dow is down by 6 it 2 points, 63 points. s&p 500 down by 7 1/2. and we have the nasdaq down by 15 or just about a third of a percent. as for the best performing stock, mcdonald's up there. up by more than 1%. a lot of analysts out with positive comments about that stock today. on the down side, goldman sachs and caterpillar. we want to call your attention
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to sarepta therapeutics. the fda panel meets to discuss whether to speed the approval of this stock. "power lunch" will be right back. what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place and lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim. td ameritrade. i have an orc-o-gram we for an "owen."e. that's me. ♪ you should hire stacy drew. ♪ ♪ she wants to change the world with you. ♪ ♪ she can program jet engines to talk and such. ♪ ♪ her biggest weakness is she cares too much. ♪ thank you. my friend really wants a job at ge. mine too.
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. ahead of wednesday's decisions, let's as the question, what makes the fed nervous and what makes investors nervous about the fed? we'll talk about that with marty feldstein and marty fish ir. first, steve liesman says the hawks are wrong about one thing. >> the fed gathers to meet this wednesday, there is no burning desire to hike rates. that's for three reasons. first, overriding concern over the effects of global economic weakness on the u.s. and limits to how far the u.s. can hike when major banks are in negative territory. second, there's been a large influx into the workforce in recent months. the past year, 2.4 million americans have joined the labor force and most have found jobs. it's the biggest year over year increase since 2007. and while americans have come back to work, wage gains are modest. so the influx of workers not setting off alarm bells at the
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fed. to the contrary, it's affirming fed chair janet yellen's dovish view that there is lots of slack in the market and more room for fed policy to stay easy and put americans back to work without igniting inflation. no one can say for sure it won't eventually cause inflation. but for now yellen's views on plentiful labor slacks are dominating the federal reserve. let's bring in marty feldstein and richard fisher. what is wrong with this line of thinking? it works until it doesn't, right? >> monetary policy acts with a huge lag. you cited very important numbers, one did you not cite is that the claims ratio is the lowest since 1973. you're a young man, starmarty a are a little more mature. we remember what happened after 1973 n 200 years of fed history, when they waited to hit the targets and then they tightened, they triggered a recession. so i think there are other risks at play here that they certainly must be aware of.
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but i don't really bite arguments you gave. i think chair yellen and the committee are going to have to anticipate when they should move and realize that in doing so it's going to take a while to have its effect. >>effect. >> marty, huge influx to the workforce. very modest wage gains out there. why should there be inflation alarm bells going off at the fed right now? >> inflation usually means what's happening to prices. if you look at the core cpi, taking out the impact of energy prices, if you look at the core cpi it's up about 2.25% relative to a year ago. if we go back a year from now and asked that question it would have been 1.8%. inflation is rising. with these very tight labor markets i think we're going to continue to see the inflation rate increasing even faster.
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it's being held down by the strength of the dollar. if you look at domestic prices, service prices, their inflation is running at 3%. >> this is a very important point that marty just made. because goods have deflated 0.3% per annum since 1963. it's the service sector which is the biggest part of our economy that is inflating at the rate marty mentioned. the commodity markets have turned and oil is not depreciating at the rate it was before. >> let's hold those thoughts if i might impose upon you. we have a little bit of breaking news on a time warner cable deal with charter. julie boorstin has it for us. the sec has approved charter communications take over of time warner cable merging also with wright house networks which would be the number two u.s. cable provider.
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sec tom wheeler in his approval of this deal issuing some new restrictions, some new conditions of the deal to make sure that there is competition in the landscape, certainly a couple of key things particularly to make it more difficult for streaming services like netflix -- i'm saying charter cannot strike agreements with programmers, make it more difficult for streaming services like netflix to obtain content. they want to make sure while allowing this consolidation there's no limits to the amount of competition. so the sec saying here that if the conditions are approved by chair tom wheeler's colleagues, 2 million additional customer locations will have access to high-speed connection. the conditions will focus on removing unfair barriers to video competition. new charter will not be permitted to charge usage base prices and will be prohibited
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from charging interconnected fees. that's to the likes of a netflix, youtube, hulu, et cetera. approve swral but with conditions designed to maintain some element of competition. back over to you. >> mr. fisher, mr. feldstein if you wouldn't mind sitting around while we take a quick break and then we'll head right back to our conversation. 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.
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we are two days away from the fed decision on interest rates. let's get back to our all-star fed panel, marty feldstein, richard fisher, steve liesman with us as well. marty, what would be your dream on wednesday. if they could do something, or you could write the statement what would it be? >> well, you know i'm not worried just about the risks of rising inflation. i'm worried about the fact that they've kept interest rates solo for such a long time that there's a lot of reaching for yield, we see it in bond prices. we see it in stock market 50% higher, s&p 500 friprice earnin ratio. if i could write it i would have them say we're aware of those
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risks, and as we move forward we're going to raise interest rates so that we remove that temptation to keep reaching for yield and distorting the prices of stocks and bonds and commercial real estate. >> that implies that you believe those asset classes are overvalued, is that correct? >> that is correct. >> is there a bubble in these prices? >> you know, it's hard to be sure. i don't want to predict that we're going to see sharp fall in this or that, but, boy, when the equity prices are 50% higher than their historic average. when a ten year bond has a negative real interest rate, when you expect it to be 200 basis points positive that sure looks like something that will correct at some point. some folks are going to get hurt. >> bingo. >> did you say bingo, richard? >> i said bingo. i think this is the principle
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concern i have not the inflationary issue. it is the fact that asset allocation has been distorted. you also see it in these very low cap rates in the real estate market. i'll tell you who is being hurt here and this is something that needs to be taken into consideration. the insurance industry success hammered. think of the insurance companies as reliable, sturdy, oxen pulling the cart forward. you can't underwrite life, accident, insurance for long in this kind of environment. think of the money market funds, think of the interest margins, the banks, so on. i think a lot of damage has been done and i'm perfectly in tune with marty in terms of at some point you get a correction and you revert to the mean and i think they will have to be very careful to signal going forward for markets to discount.
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that's where the distortion is taking place. when you look at inflation, inflation is asset pricing more so than in the real economy. >> when you look at what the market does when the federal reserve threatens to hike rates, it brings interest rates down. it brings asset ovals down. now that speaks to one side of your equation, marty but not the other. where would the market put rates if left on its own? it's unclear to me that the price of money is a whole lot different because of what the fed is doing compared to what the market would be doing on its own. it's an environment. it's an economy. it's a global economy with really very little demand for capital. >> you know, if you look at the u.s. economy, the saving rate is low by historic standards. there's no, no shortage of aggregate demand in the economy so it may not take the form of demand f bricks and mortar. but overall we see that the
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market interest rate is being driven by what the federal reserve is doing. >> right. gentlemen, got to leave it. thanks so much. >> thank you very much. steve gate to have you back. thanks for watching everybody. >> closing bell starts right now. ♪ a special request with that song to kick off closing bell. next to me, bill griffeth is back. i'm kelly evans. very pleased you returned from your travels. by the way i hope you're ready because we have a lot of big earnings. >> check out twitter. we have a special greeting to everybody there. the market a little bit under pressure today so far. pressures as we kick off a very big week. we got earnings and multiple central bank meetings around the world. this after


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