Skip to main content

tv   Power Lunch  CNBC  September 13, 2016 1:00pm-3:01pm EDT

1:00 pm
>> ray dalio gets so worked up over -- >> he's talked about asymmetric risks in the past. i want to remind all of you, i'll be speaking with carl icahn later today and john stump with jim cramer on "mad money," don't miss either one of those, considering the markets and the wells fargo story. that's it for us. "power" starts now. >> i'm melissa lee. here's what's on the menu. delivering fear, words like scary and dangerous being used at this year's delivering alpha. we're headed there live straight ahead. stupidly cheap, one legendary money manager using those words to describe this once struggling sector of the market. and we're all over the stock slide with the s&p down by 36 points. buckle up, "power lunch" starts right now. i'm brian sullivan. here what else is happening at this hour. dennis lockhart is stepping down. he'll leave his post in
1:01 pm
february. some good news, america, median household incomes rising for the first time in eight years. now stand at $56,500 per home. unfortunately, as melissa noted, median investments are likely down a bit today. stocks are getting whacked as we head deeper into the trading day. the dow is down 1.5%. that would be pretty big slide for the dow. and volatility has really ramped up in the last couple of days, your story, though, once again, maybe oil. crude could be a cause. crude oil is down nearly 3%. let's get more now on this market. bob pisani on the floor of the new york stock exchange. starting to get a couple of calls from friends and family and random strangers. what is going on with the market. is it oil? is it trump? is it the fed or, is it, d, all of the above? >> a little bit all of the above but largely on the fed and what the fed is going to do next week, even though the chance is 25%, that's what the market says, people down here don't believe that. take a look at where we are in
1:02 pm
terms of sectors here. 90% downside, 90% of the stocks traded are traded to the downside today. and the volume is worse overall. energy, materials and industrials, general risk off in that area. but whole market is generally weak. two stories, interest rates and oil, take a look at the ten-year, we have been talking about this for the last hour here. ten-year yields moving up rather dramatically. this started happening at about the time paul singer from elliott started speaking at delivering alpha saying that ten-year yields, ten-year treasuries, 30 year, not safe havens, a tremendous amount of risk. bill miller said short the ten year, that was one of his ideas presented. you can see the yields moving up. normally this would help bank stocks, but that's not happening today. that's why i'm saying a general risk off day. none of the banks have risen as the ten-year yield has risen. normally they would do better. also hurting, interest sensitive stocks, further weakened as that news came out. reits, utilities, telecom, all the interest rate sensitive groups to the downside. the real catalyst for the weakness early on was in the
1:03 pm
energy group. the iea coming out saying the world is adequately supplied with oil and concerns that demand may be lower than anticipated next year, particularly in china and india. all of the big global names here, totals, ne, british petroleums, chevron, all moving down here, a little worse than the overall market. overall, let's call it the s&p 500 yo-yoing. and brian and everybody, this has everybody a little bit concerned here. today, markets now 1.5%. yesterday, up 1.5%. friday, down 2.5%. what happened is a lot of questions about the fed's intentions and, guys, i think for the next seven or eight days, we'll have to get used to a lot of volatility until we find out exactly what is going on. there you go. last few days for the s&p. >> buckle up. bob, thank you. bob pisani. biggest power players on wall street making huge headlines at this year's delivering alpha conference. michelle cruisia e caruso-cabr there. we heard big ideas and lots of
1:04 pm
fearful phrases and words like dangerous and scary to describe the market monetary policy and the economy. what is it like down there? >> dangerous and scary. dangerous and really frightening. i would say, michelle, that as compared with prior years, the tone is a little darker. it may just be the accident of casting that a couple of the presenters this morning come from a darker place, but there was more, i would say, concern about where interest rates have been. >> right. and where they're going, especially when you look at what is happening just in the ten year today and what we have been talking about for the last couple of days. we have people here who have long predicted there was a turn coming in the credit markets, and the conference happens to come this week when we're asking that question again, but dangerous and scary, interesting when stock markets are near record highs. >> yeah. yeah. despite today's sell-off, markets have been very good, a quiet summer until the last few days basically. >> one of the biggest players
1:05 pm
here is bridgewater associates ray dalio, sounding the alarm today, about what is happening with credit and the state of the debt cycle right now. >> there is only so much you can squeeze out of a debt cycle. and we're there globally. >> we're there. he went on to say in his opinion the fed is put ing way too much emphasis on the business cycle and not enough on the debt cycle. >> investors look at the price move as well as the carry. we go through these cycles where the carry gets all the attention and then you're squeezing a little bit of carry out of it. and at the price is not against you. that's a dangerous situation. because the carry can be disappeared in a price move of a day. >> yeah, so once again, concerns about what is going on in the credit markets. >> that was a theme picked up by paul singer a few minutes later.
1:06 pm
he comes at it from a slightly different perspective, but he's no less alarmed, talking about how we're in the middle of some -- basically a 40-year experiment with how much leverage the system can maintain and where exactly we are on it. if you read between the lines, he doesn't think it is going to end well, he concluded his presentation today by saying that his single best idea is to avoid what he sees as the worst idea, the worst idea being owning long-term g-7 government securities. ten years, 30 years. he says sell them. >> yeah. and, of course, dalio disagreeing very vocally and directly with jamie dimon who said just yesterday that there is a need right now to raise rates. but the interesting corollary to the comments is his trade, this and is to be long gold because he sees it as being undervalued asset right now despite the run it has had. >> that's -- he talked about
1:07 pm
that. i thought what was also interesting in the context of the larger conversation, melissa, was bill miller also saying that he sees the treasury markets as being so overpriced and overvalued at this point, that there was another market just similar to what we heard from the other investors this morning, that would be the one thing, he liked the s&p, long the s&p, short treasuries. he was so clear in his conviction on that. >> and a lot of smart people girks with a lot of money that feel the same way. i would remind the dalios and singers and everybody else of the world, no matter how big they are, the central banks are bigger. if they want to go against that train, that could be a risky trade because we can print money and we can buy forever and by we, i mean the federal reserve, the bank of japan, the ecb, you know, i'm not sure, even with their brains and their cash that i would go against that train because many a bystander has been run over. >> yeah, for sure. but what has come up lately and we heard this from peter bookmar
1:08 pm
on friday, have the central banks lost control, especially of that long end of the curve, even when they're in there, doing everything they can to manipulate markets, does it start to move against them as we have started to see maybe the long end of the curve. >> another big theme has been wells fargo and what has been going on there. jack lew going after the bank for creating those phony accounts for customers. >> what i've seen from what they have done is it is bad behavior, they were correct to take action against, and how that flows through in terms of next consequences is going to depend on the facts of the case. what i can tell you is there is a lot of talk in washington these days about rolling back dodd frank, about rolling back the law, changing the law that created the agency that uncovered and took action against this. this ought to be a moment when people stop and remember how dangerous this system is when you don't have the proper protections in place. this is something that our
1:09 pm
watchdogs found, if they weren't there, they would still be going on. >> i'm going to digress for just a second before we scroll forward here to say that mr. lew had one perspective on dodd frank and regulation. his predecessor timothy geithner looked at it a different way. he said some of the rules, while not addressing wells fargo specifically, that some of the rules that have been written on the back of the dodd frank law have been a mess, he would like to see them untangled. secretary lew also had this to say about the possibility of criminal prosecution against wells fargo. >> we have made clear we don't believe that anyone is too big to jail. it is up to prosecutors to decide how you pursue the criminal charges. it is not up to regulators or policymakers. what i can say is that the pattern of behavior that we have seen here is something that needs to stop.
1:10 pm
>> you know, we will hear much more about wells fargo tonight. jim cramer will sit down with the ceo of wells, john stumpf at 6:00 p.m. eastern here on cnbc. before that, of course, much more from delivering alpha including your luncheon sit-down with mark lasry and barry sternly. >> we'll talk about the markets and what they're investing in now, how they're trying to deliver alpha and mark has rlas decided not to be in hedge fund anymore, make money on the short-term. >> can i ask my esteemed colleagues a question. something i was thinking about with wells fargo, comment and question to you. comment is this, with all due respect to the treasury secretary, dodd frank has a lot more to do with derivatives trading than opening up checking accounts. that said, 5300 people were willing and able to do something unethical. do you guys feel that -- i'm not defending wells fargo in any way -- but i do wonder, if you got 5,000 plus employees who are willing to step over an ethical and/or legal line, is that a
1:11 pm
wells fargo issue or is that a humanity issue? >> i think they were incentivized in a way that would suggest it was a culture of -- yeah, i think it is reflective of the culture of the bank. >> i think the culture put such pressure and incentives on the kind of cross selling going on, i think the question is, you know, at what point whether it is volkswagen or wells fargo or any of these -- any institution that engages in some sort of consumer fraud, at what point do you climb up the tree and actually exact either civil or criminal penalties against individual higher ups in the company. >> agree. agree. volkswagen was -- >> that, to me, brian, is the only way that you bring this kind of behavior to -- that you can arrest it. >> okay. >> intentional word choice. >> right. great interview tonight. much more from delivering alpha, of course, later on, guys.
1:12 pm
thanks. >> you bet. also some big -- by the way, before we get to the next segment, they have to clear the set so we had to go, you get my point, which is that vw was a couple of people. very high level executives, some engineers. i'm just saying, 5,000 people -- 5,000 individuals, that's the size of a small town. >> i am not going to defend any of the people at wells fargo who engaged, but we don't know the extent. some people are countersuing wells fargo over wrongful dismissal. so we don't really know exactly what happened, if it is 5 ,000 people or fewer than 5,000 people, more than 5,000 people. we don't know. it is a problem. it is a problem with people being incented in the wrong way and willing to step over the like in order to boost their own competition. that's a larger problem. >> we saw that -- >> not going to indict 5,300 people. >> if there is that many people willing to do that -- >> who are allegedly willing to do that, yes. >> that's not just a wells fargo problem, i guess is the bigger thing. big stock calls also at delivering alpha. to dominic chu with some of the
1:13 pm
movers from our conference. >> so, a lot of interesting calls coming out of this best ideas panel from delivering alpha. we're going to start off with bill miller, famed investment manager, used to run mason value. he recommends go long stocks. s&p in general. and short the ten year treasury note. we heard bob pisani mentioning that yields, by the way, on the rise, and the highest levels we have seen since pre-brexit. something to watch there. as for individual names and how they go, miller likes valeant and amazon.com. he says valeant is one of the b new management team. and expects amazon to grow after comparing it to tech giants like facebook and google as they attack that ever growing ad market. he and his presentation -- he had an interesting thing to say about the airlines, he said they're quote/unquote stupidly cheap. moving to impala's robert bishop, his call is tech resources. those shares have gained about 300% over the course of the past year.
1:14 pm
bishop says there is still room for growth based on things among others like demand from china. and finally, jim chanos, noted short seller here, reiterating his bearish view on tesla. he called tesla's proposed merger with solar city, quote/unquote, the height of folly, pointing to the electric carmaker's reluctance solar city financing while the merger is pending. we'll keep our eyes on any other mentions by any of these panelists with regard to stocks in the news. back over to you. >> thank you very much, dom. we're all over this market sell-off. look at the s&p 500 heat map. apple is leading the s&p 500. one of the only stocks out there in the green on the s&p as well as on the dow. keep in mind, this is all about interest rates. keep a watch on the ten-year yield, highest level since june 23rd. 1.74%. we're also seeing a rise in the german ten-year bund. watch that bond market, it is leading the market sell-off. "power lunch" is back in two.
1:15 pm
1:16 pm
1:17 pm
shares of well fargo under pressure for the third straight negative day, the bank facing more fallout from revelations that the employees offered fraudulent customer accounts. eric wasser is managing director and bank analyst with guggenheim securities, a hold rating on wells fargo, even prior to the developments. welcome to the show. >> thank you for having me. >> i'm curious, i know you're a bank analyst, do you follow what is going on in the
1:18 pm
pharmaceuticals industry and the biotech industry? you see the venom with which these congress people go after the drug companies for raising prices and doing wrong to u.s. consumers. do you not think that there is some lessons to be applied here to wells fargo as well? >> well, certainly if you look at the wivitriol directed at bas from policymakers and regulator out of the 2008, 2009 time frame does not suggest that continued bad acts such as this one will be, you know, received with anything less than a high degree of scrutiny and anger. >> so is there risk to the downside here for wells fargo? i know you have a hold rating on this stock. your opinion on the stock hasn't changed on a fundamental basis. but we're in a political firestorm, where congress is incented to go after quote/unquote, bad actors in the system perceived to be doing wrong against ordinary individuals out there and calling on the ceo to report to capitol hill on the 21st.
1:19 pm
>> yeah, it is certainly not good news for the company, and i think that the question that it raises is what was the compliance and oversight structure like that allowed this scale of this kind of act to occur. and then secondly, as i'm sure you've seen, the company announced that it is getting rid of certain sales incentives and what the financial impact of that might be. >> how common is this compensation practice across wall street? should other banks be looking over their shoulder thinking, we should realign our compensation pretty quick because they're going to come knocking on our doors. >> well, i think generally speaking the idea of selling more product resulting in incentive compensation is pretty standard. i think what stood out about this is that wells fargo outpaced so many of its peers by such a large margin, it was considered so far superior and i think clearly this suggests that at least some of that growth was perhaps ill gained. >> i know, because, eric, again, we're not trying to indict wells
1:20 pm
fargo, any of the people or any other banks, did you hear my previous comments before the commercial break? >> i did indeed. >> so, mike, my point, maybe i did not make it clearly on the air was if you got 5,000 people that are willing to cross an ethical and/or legal line, i find that very difficult to believe it is purely a wells fargo issue because you're hiring all across america in different towns, different states, different types of people, do you think that this is a problem across a number of banks? i can't imagine wells fargo got the only 5,000 people willing to do this in america. >> yeah. i mean, that is certainly possible. i think the interesting thing about this is that while it was 5,000 people it was 5,000 people in one single market in california who are all under the same leadership. and so clearly suggests that the issue was a little more localized than general. >> all right, eric, we'll leave it there. thanks for your time. >> thank you.
1:21 pm
>> be sure to tune into mad money tonight. jim cramer has an exclusive with wells fargo ceo john stumpf. the jury is in, do critics like the new iphone 7? do you care what influential critics think? fire up the wireless headphones, america. we're talking apple next. hey, jesse. who are you? i'm vern, the orange money retirement rabbit from voya. orange money represents the money you put away for retirement. over time, your moy could multiply. hello, all of you.
1:22 pm
get organized at voya.com.
1:23 pm
enepeople want power.hallenge. and power plants account for more thaa third of energy-related carbon emissions. the challenge is to capture the emissions beforehey're released to the atmosphere. exxonmobil is a leader in carbon capture. our team is working to make this technology better, more affordable so it can reduce emissions around the world. that's what we're working on right now. ♪ energy lives here. look at the market sell-off we have on our hands.
1:24 pm
firmly in the red, off session lows now, s&p 500 off of session lows by about 9 points here. 1.33% is the loss on the s&p. look at the tlt. we have been saying this for the entire hour so far, that it is in the bond market, we're seeing the most pressure. we have got the tlt, etf that tracks the longer end of the yield curve bonds down by 1.13%. and the ten-year yield hitting highs not seen since june 3rd, 1.74%. so, again, this is all about the bond market, and what is going on, not just here in the united states, but also around the world, also german bunds, ten-year bund reaching yields pre-brexit level. to dom chu now. >> those aren't some of the only casualties in the market. if you look at consumer discretionary stocks, the financials, and health care, they're all now negative on the year to date basis. those three drifting to the downside. health care down by the most this year. 2016, more than a percent or so. some of the worst names striking down the sector, perego, alexion
1:25 pm
and regeneron down. as we talk about the sectors, it is not just the interest rate sensitive ones, but now the retail stocks and financials also drifting to the downside, guys. back over to you. >> thank you very much. the first iphone 7 reviews are out and they are, well, they're mixed. some call it terrific. and the bestest phone ever. >> ever, ever, ever. >> ever. others call it the good, the bad and the air pods. by the way, first numbers are out as well. a lot to talk about, including the launch of ios 10, melissa has been talking about every day. josh lipton is live in san francisco. josh? >> well, brian, apple fans now waiting for that notification telling them they can download ios 10. among the new features here, an update to messages including more ways to contact friends and family, like stickers and animations, this was the update that actually excited horace the
1:26 pm
most, given how popular messaging is. earlier this year, apple's eddie q says apple can see 200,000 messages a second. other features, redesigned maps, all new design for apple music, which now has 17 million subscribers, and apple also opened up its voice assistant siri to developers. so that means iphone users can, for example, ask siri to hail a lift for a ride or schedule a reservation with open table. but it isn't just the software. apple stock is moving higher, in today's trade. that's as carriers had news about the hardware as well. t-mobile saying preorders for the new iphone 7 and 7 plus shattered records and sprint said preorders increased nearly four times. apple itself didn't release numbers on opening weekend sales, investors eager for any color, any insight about the new phones which, remember, will be available beginning friday. guys, back to you.
1:27 pm
>> josh, thank you. josh l josh lipton in san francisco. what you need to know, that's next. ♪ it's been over 100 years since as a benchmark for average. created, ♪ t a t of people still build portfolios with strategies that just trk the benchmarks. ♪ but vesting isn't about achieving average. it's about achieving goals. ♪ and invesco belies doing that reires the art and expertise of high-conviction investing. ♪nd invesco belies doing that reires translation? why invest in average? got auarter?
1:28 pm
whyour boss?ork for? yourself? your fily? our financial advisors are freeo reale plan to fit your family's unique needs. we'll listen. we'll talk. we'll plan. baird. our financial advisors are freeo reale
1:29 pm
1:30 pm
hi, everybody. i'm sue herera. here's what's happening this hour. the president of the federal reserve bank of atlanta, dennis lockhart, stepping down in february after nearly a decade leading that bank. lockhart has been valued as a centrist voice at the fed but recently called for a rate hike sooner rather than later. no timetable for finding his replacement. separatist leaders in eastern ukraine announced a unilateral cease-fire starting at midnight tomorrow. the conflict between russian backed separatist rebels and ukrainian government troops has killed more than 9500 people since it began in april of 2014. russia is pushing to make public the cease-fire agreement for syria that it and the united states agreed to. foreign minister sergey lavrov telling reporters in moscow that the u.s. opposes the move but lavrov says russia has nothing to hide. and americans finally got a pay raise last year after eight years of stagnating income.
1:31 pm
income rose 5.2% in 2015 to about $56,500. that still remains below the median income of $57,400 in 2007, before the big recession. that's the news update at this hour. let's send it back to you, brian. >> all right, sue. thank you very much. while the markets are a little off their session lows, not a good day for the dow and your money, the dow is still down. but, again, not on session lows. here's what's interesting, though. crude oil is down over 2%. so you can say, well, maybe oil is bringing the market down or reacting either way. generally when crude oil falls, melissa, we see gasoline, we call it r-bomb, that usually falls too. not today. the gasoline futures trading up 2%, so kind of a rare 4.5% divergence between the underlying commodity and refined product. you know the reason? i was asking. do you know the reason? >> no. >> i did it ad-lib.
1:32 pm
>> let's get a check -- let's get a check on the bond market right now. we have been telling you the sell-off really stems from what is going on in the bond market and what happened was a 30-year auction that went horribly, the direct bidders bought the fewest 30-year bonds since 2009. lack of demand for the long end of the treasury curve, that forced the yields higher, pretty much across the curve here, we're seeing yields -- levels we haven't seen since pre-brexit, early june, you name it. the yield curve has steepened. but, of course, yields across the board are higher and that is causing the markets to sell off today. let's get to seema mody for the market flash here. >> one question confronting bond investors is further central bank action. interestingly enough, the asian review reporting that the bank of japan is planning to push interest rates deeper into negative territory. this despite growing concerns about the adverse effects of negative rates on banks. this report comes ahead of the bank of japan's comprehensive
1:33 pm
assessment and policy meeting which kicks off next tuesday and we are seeing interestingly enough the currency market move on this, the yen depreciating against the u.s. dollar. holding on to 102.54. you can see it move on an intraday basis. back to you. >> seema, thank you. the economy, the fed and monetary policy and hyperfocus at this year's delivering alpha, straight to steve liesman, lots of news in that world, steve. >> yeah, melissa. really interesting to hear the big hedge fund guys we have and investors talking about as well as officials. the focus is not so much on the single detail of the single rate hike, whether the fed hikes next week, but the biggest picture, how does the central bank, how does the fed extricate itself, get itself out of the really low policies, normalize policy over time. paul singer said it ain't going to be easy. >> this economy is a stronger economy because of the policies we have pursued. it is not as strong an economy
1:34 pm
as we would like to see. a lot of what i see as having held back the u.s. economy is the head winds internationally. we have seen probably half a percentage point of gdp shaved off of the u.s. economy because demand globally has been weak. >> okay, so that was obviously jack lew taking something of a victory jog rather than victory lap on the economy. paul singer said they ought to take it very slow in terms of raising rates, rate hikes have to be paired with tax reform and regulatory relief to help the economy adjustment higher rates. here's what he said. >> you have the very delicate situation, which cannot be solved by a sledgehammer. you need some finesse. and one of the main elements of finesse is you can't just in my view, whoever is the next president or central bank officials around the world, you can't just raise interest rates
1:35 pm
without doing something else. >> former treasury secretary tim geithner echoed that concern. his big worry about the next downturn, says he's concerned about the lack of ammunition on both the fiscal and the monetary sides. >> the fact that for most of the major developed economies, governments are so close to the frontier of what they can do is a dangerous and scary thing. >> i don't know what is spooking the market today, friday, they thought the fed would hike. yesterday, they thought it didn't. i don't know if it is today. but maybe it is some of the doom and gloom commentary coming out of delivering alpha, which is showing the concern about the next steps that the u.s. central bank takes. and lack of clarity over how it all pans out. >> i think also, steve, we're talking about this before, but the fact that there is a real lack of demand in that 30-year auction today is really causing some concern about the ability to raise more money and the tech
1:36 pm
markets for central banks in general. and we're also seeing german ten-year bunds, those yields are going higher today, in positive territory. >> so i think it was singer who also gave this really interesting idea that i think a lot of people have gloomed on to, maybe not enough, however, who say, you know, you think a treasury is a risk-free asset, guess again. he thinks treasuries, the long data treasuries, are full of risk and that investors ought to be very, very careful about these purchases, especially environment where, look, i mean, i don't know what you are hearing, but it is at least a tossup what happens next week with the fed. but if rates are indeed going to rise, that's going to have a profound effect on the long end of the treasury. >> how about this line of thinking, when the brainard comments came out, it was, okay, there you go, the fed is not going to raise rates. scott minerd came out with a tweet, which i agree with, what do you think, that this is probably less of a prediction, or a preview of the fed as a preview of lael brainard's
1:37 pm
descent if and when the fed raises rates. >> you know, brian, that's an excellent way to think about it. i think people mistake a fed governor coming out and i can understand why they think this, for some kind of preprogram or attempt to steer the market overall. i think what we heard yesterday was brainard's thesis for why rates should not go up, and perhaps as you say, a dissent by her, which, by the way, very rare dissent by a governor. i don't think there was an effort to give a final say-so on no rate hike next year. the way i've done the calculations, guys, i have the parts adding up to a rate hike, but don't necessarily have the sum adding up to a rate hike. i think of george and mester and rosengreen, i think about what yellen said about how the case is strengthening for a rate hike. and then the interview i did with fisher and jackson, all of that kind of adds up to a rate hike. but then i see where the market is priced at 20% or less, for a
1:38 pm
rate hike it doesn't add up to me. >> if you believe that sort of betting market on rates, i guess. maybe the case. steve, thank you. >> well -- >> go ahead, go ahead. >> i was going to say, it is the only -- or the clearest indication we have of what market expectations are. it is not perfect. but to the extent that the fed watches that and does not want to disappoint markets or otherwise surprise them, you would go with where the markets are priced. >> all right, steve liesman, we'll see you more. thank you very much. all right, america and the world, stop what you're doing, because i'm about to -- no, stop what you're doing and listen to what i'm about to say. your next guest reportedly made more than a billion dollars in a single day last august. that's about $2.5 million for every minute the stock market is open. it happened with the dow plunged 1100 points in first five minutes of trading, a "power lunch" exclusive with mark fitznagle, making big rare bets
1:39 pm
and profit when they happen, the black swan theory. welcome. >> thank you. thank you. >> before we get into what you're thinking now, just for our viewers, how do you structure the trades? how did you do what you did for that billion dollar day? >> well, i can't get into too much details about that, but -- >> can you use the framework if not the mechanism? >> the way i invest is with extreme asymmetric payoffs, which means i want to very infrequently want to have a huge payout and most of the time i want to bob around, lose a little bit. >> sounds like the options market is your way to go. >> of course. to put it very, very basically. this is an insurance-like protection. >> you're betting on -- you're betting big on -- you're sort of betting everything you've got on the browns winning the super bowl. >> yeah, but the key is the payoff. the key is, you know, what does the market charge you to do that? what is the market's expectation of the thickness of that tail if you will? >> the cheaper the bet, the bigger the payoff if it happens.
1:40 pm
right? that's what it is. >> the risk to take that bet. >> you got to have the capital also to lose money on the 99% of bets that do not pay off. >> insurance is there. so you can do something risky that you wouldn't otherwise do. >> what is the black swan today, do you think, in the markets? >> the easy answer, it is a huge crash or a collapse this bubble that has been building. >> what is the precipitating factor? >> the precipitating factor with -- the cause -- the ultimate cause of that would be the fact that the central banks got us here in first place. ultimately, my view is that central banks are the cause of bubbles. >> you're betting essentially that the central banks, whether it be the fed or the ecb, they can't unwind the trade that they put on years ago. >> absolutely. >> it will be a messy unwind for their trade. >> there is no doubt. there is no doubt about that. >> is it really a black swan? you got all the people delivering alpha, talking about it. that -- is it a black swan supposed to be something that
1:41 pm
nobody is talking about. >> that's not a black swan. it zzilla attack on tokyo. >> there was -- i had little less company a few years ago when this was sort of building, and now it is so obvious, you know, the casual user has become an addict and now we're concerned about it. it is great. but, you're right, not a black swan. the reason i still call it a black swan, the markets still price it as -- >> the fact that feds funds futurer is pricing 30% chance right now approximately of a september rate hike, that's basically telling the markets will be caught completely off sides if that should happen in september, that could effectively be a black swan in and of itself. the markets are not positioned for any sort of a rate hike anytime soon. >> the markets are absolutely not positioned for this. there is just sort of -- there is a collective psychology that says the fed can keep this thing going, the fed is in control. but in fact, central banks are not in control, in many ways
1:42 pm
central banks are the tail end of the dog. central banks are tiny relative the market. the balance sheets are $20 trillion, the whole global securities and derivatives market is half a quadrillion. in fact, central banks are minuscule compared to that. only thing they have going for them is this sort of collective psychology, illusion of control. >> asymmetric bet, does this focus on the treasury market or equitys? do you think all asset classes go down in this scenario? >> i focus on the left tail systemic left tail of equities. to answer your question, yes, i think all assets are very much correlated, one big bet out there. so diversification isn't going to work. timing this is not going to work. remember, the equity market has extreme duration now, low rates and this high valuation means they're extraordinarily sensitive to changes in rates, extraordinarily sensitive to changes in risk premiums and growth. >> when somebody says it is a quarter of a point hike is not a big deal, what do you say?
1:43 pm
is it a big deal? >> you mean me? >> jamie dimon said that yesterday. lots of people say that, a quarter of a point is no big deal, the impact on the market is not going to be a big deal. we're still historically low. where do you stand on that? do you think it is a bigger risk than people are factoring in? >> what matters is the expectations going forward, one rate hike is not important. what the fed is always conveying to us is we will hike once, but if the mark goes down, we'll take it away. that doesn't really -- the fed cannot hike -- >> the whole line of thinking, doesn't matter if it is september, december, the rate hikes are going to come unless we have some big slowdown. most people expect a rate hike, it may not be in september, but most people do expect -- what is the odds on december? 60%, 70%? >> if the fed pursues -- >> track it out 60 days. >> the markets will go down very, very hard, just by duration alone. >> the series of hikes. >> if it is -- if the market is
1:44 pm
going to price in a series of hikes, the stock market has to go down very hard. this is all -- this is high dividends, all equities have to go down very, very hard. >> what is the percentage? what is the percentage that would go down? the fed pumped in all the liquid into the system and drove up prices by x amount, that has to be taken away. >> the fed is going to raise rates 200 basis points if we find ourselves there in a year? the markets will be much, much lower. i would argue the fed cannot allow -- central banks cannot allow rates to free float. which is a little bit of a crazy statement. cannot allow this most important market -- it is an important price signal, the most important price signal is interest rates. we can't let it free float, let the discovery process work. if we did that, the markets would be cut in half, the stock market would be cut in half. >> cut in half? >> we let interest rates free float. which would never happen.
1:45 pm
>> or china's currency, let that free float and watch what happens then, that could be -- that would be a black swan, if china came out tonight and said, we're free floating the -- >> agree. agree. >> mark, thank you. >> my pleasure. >> hope you'll come back. mark spitznagel. >> can i make you a bet, dear co-worker? if the fed does raise rates next wednesday, will you bring in a live swan? >> a live swan? what do you mean, no. where do i get a swan? >> there is a pond, and there are swans in the pond. i'm not kidding. >> still ahead, treasury secretary jack lew weighing in on apple's massive eu tax bill. our exclusive interview with martin shanahan, chairman of ida ireland is next. ♪ we' drowning in information. ♪ where, in all ofhis,
1:46 pm
is the sff that maers?e stakes , yo finances, how do you solve ts? you don't. you partner with a firm that advisegovernments and the rtune 500,an c deliven to person, on whamatters to you. rgan stanley. like our passive aggressive we could fenvironment. isss, we're not passive gressive. y, hey, hey, we're not passive gressive. there are no bad suggestions here.
1:47 pm
no matwell sd, ann.ey ar ve always mired w yo justay wt's in your head, without thinking. ve always mired w yo justay good point ted.ad, you' living proof that los aren't everything. thk you. welce. tso, fedex helpimplify our e-commer busin and th it paeaggressive environ. anted to say, you ys are doing what's that to an? x. helping small business simplify e-commerce.
1:48 pm
the action that the european commission took is out of the framework of the policy. it is a retroactive tax that reaches into another country and another jurisdiction tax base, in order to make sure that a firm pays its taxes. we agree with them, the firms should pay their taxes. but when it is u.s. income, we think that that tax should be paid in the united states. >> that was treasury secretary jack lew, kicking off our delivering alpha conference with the strong warning to the european union on the tax controversy in ireland over apple's taxes. a "power lunch" exclusive with martin shanahan of ida ireland, the ir irish government agency that attracted april toll iple to ir. what do you tell companies now looking to ireland? is there uncertainty at this point? >> is no uncertainty. our tax rate is exactly as they were before this decision. the european commission themselves have said that this does not call into question
1:49 pm
ireland's tax rate or tax regime, but having said that from our perspective, we want to put that beyond doubt and don't believe that the european commission should retrospectively try to interfere with the tax laws of an individual member state of the european union. >> where does the case stand at this point? >> at this point, apple said they're going to appeal this decision. ireland has said the government and the parliament have now said we will appeal this decision. so we're back into a process, which could take quite some time, expectation is it could take more than three years, and we will appeal this decision to the european courts. >> if the european courts overrule you, or let's say you end up being stuck with the eu's decision, would you consider leaving the eu? >> no, i don't believe so. we have a difficulty with this decision, we don't have a difficulty with the eu. we're committed to the eu. we're a full member. we continue to have access to the european market. we believe that's important from our perspective and important
1:50 pm
from an economic growth perspective. but, you know, it is -- i think that the outcome of this is -- >> explain why, though. you're my people. i love you guys. explain why you should have this super low tax rate, why american corporations should be allowed and permitted to route their money through dublin or through ireland. why? >> brian, ireland has one of the most competitive transparent and consistent taxation regimes in the world. there is nothing untoward going on here. we're just pro business, extremely competitive. and the taxation regime is one element of that. it is not the only element of that. and the availability of talent, access to the european market, the fact we're english speaking are all things that attract american investors to ireland. they want to internationalize. they can't always do that from the u.s. they want to get into the european market, and ireland is a great place to set up your business, assemble a team, scale your business. >> there are a lot of reasons to be there. it has become somewhat of a tech hub over the past decade or so.
1:51 pm
at the same time, i think the real concern is not necessarily tax rates going forward from this point on, but the ability of the eu to reach back and claw back on guarantees. and the possibility that they could do that in the future with other companies who you would now attract to ireland and furnish with various breaks. >> our difficulty here is that we're talking about opinion givesen given in 1991. i agree with secretary lew and his comments you played a moment ago, we believe that companies should pay their tax. we have been a full participant in the oecd initiative. we have been one of the first countries in the world to agree to country by country reporting. our patent box is oecd compliant. what you can't do is change the rules post the fact. >> yeah. martin, thank you. martin shanahan, ceo of -- chairman of ida ireland. now back to dom chu with
1:52 pm
another market flash. >> gold is turning negative on the session now, hitting a low of around 1322 for the futures. lowest level of more than a week when gold traded 1307.40. the gold miners etf, gdx, falling 4% for the fourth negative day in the last five. some of the etfs bigger components like newmont mining or barrett gold or gold corp. off by as much as 4%. so the gold miners have been negative all day, near their lows so far. but now gold prices themselves have turned negative. back over to you. >> all right, dom, thank you very much. the bankruptcy of one of the world's biggest shipping companies leaving cargo weather billions stranded at sea. getting the ships to port is half the battle. we'll explain coming up next. we believe everyone deserves a great nighs sleep.
1:53 pm
1:54 pm
1:55 pm
so wcreated the perfecshts. ma from m re 100% organic cot we made it our mission to pfect every detail. untifinally, the softest, most comfortableheets you'llver sleep on. try them for0 nits and t $50 off your firstet atollandbrch.com, promo code: tv. the shipper, hanjin, getting $35 million to help unload cargo still stranded at sea. the bad news, unloading the cargo, not the only problem. morgan brennan is here with the latest on the global shipping drama. >> this just keeps going. so this -- the shipping saga continues here.
1:56 pm
you'll hear this for a while. the hanjin boston is birthing at the port of los angeles, the second ship to do so state side since hanjin filed for bankruptcy two weeks ago. there are more than 90 vessels holding $14 billion worth of cargo, stuck at sea. the chairman and former chairwoman of the hanjin group, which owns hanjin shipping, are personally putting up a combined $45 million toward getting those goods off loaded. hanjin estimates this will take about $155 million overall, but there is another issue here. they're not getting reloaded. so that means exports that are packed in hanjin containers have been refused entry at many terminals or just sitting on docks in some cases, for example, berkshire hathaway's bnsf railway telling me it is working with customers to reroute containers to other ocean carriers, storage facilities, in some cases even sending that cargo back to its original location. that's especially bad for american farmers. the usda says some products like
1:57 pm
citrus have historically been reliant on hanjin, fresh fruits and meats also expected to be impacted by this. and that it is, quote, almost certain this will take two to three months to resolve. soybean, corn and wheat futures, those are tanking, on expectations of a record harv t harvest. we got that from the usda yesterday. higher shipping rates could cut into those types of exports. and that could further pressure prices for some of these soft commodities. >> morgan, thank you. morgan brennan. we're seeing another big move lower in oil, but one big bank is going bullish on crude. that story is next. stay with us. ♪ guyshenicole happening here? this is my new ert system for wher anything ppens the market.
1:58 pm
t thinkorswim already lets you new ercrte cusm alts for all tshhh. ngs that are impornt tyou. aler on anything at al not only tha you t from thert.tunity with just one p i guess we don' ne t k anymore cuom alerts on thinkorswim.ontd upgrade ur pne system an learn how you could sa atonage.com/business cuom alerts on thinkorswim.ontd tell me, how do you like to learn? songs are favorite! ooh! elmo likes songs! puzzles! me love pules. well..puzzles are a great memorizati too-
1:59 pm
dinosaurs! yess!!!! puppies! ooh! i love puppies! so do, i. acally..ets cateachrtanlesss abu so ddancing! acally..ets cateachrtanlesss abu elmo lovesnce. ok the le's da (erybo cheers) ye baby! [rock music playg] [music sto] [whistle] [rock music playing] om a fdborne illnessch ye. you can'see ese microbes, but they might there. so, ways separateraw me fro. keep your family safe at foodsafety.gov.
2:00 pm
welcome back. here's what's on the "power lunch" menu this hour. delivering ideas, the best investors unveiling their hot trades, we have them. wells fargo, under fire. the stock getting whacked again. congress calling for hearings into the bank's practices. we're going to speak with the key lawmaker who is pounding the table on wells. and it is an under the radar stock that could rally double digits from here. the name of that stock is still to come. the second hour of "power lunch" begins right now.
2:01 pm
>> that's what you call a tease. i'm melissa lee. two hours until the closing bell here. we're still in the mitts of a market sell-off. we're off the session lows, dow jones industrial average down by 261 points, 1.4% is the loss. the s&p 500 is six or seven points off the session lows now. crude oil, following this closely, down 2.7%. this after the iea came out and revised its global growth forecast for oil. the energy sector, by the way, the biggest laggard among the s&p 500 groups, but all ten sectors are to the downside. in the headlines this hour, atlanta fed president dennis lockhart is stepping down february 28th. new data on the airlines tarmac delays jumped from a year ago. on time performance fell, consolations rose, but consumer complaints dropped also. apple's ios 10, some updates on
2:02 pm
this ios that is out now. the biggest names in investing in business getting together today for delivering alpha, sharing their best ideas. to kay kelly for a look at what we heard so far. kate? >> one of the big themes we spoke about today was the lack of alpha, the difficulty in generating returns in this environment in 2016. a lot of people we heard from today have really acknowledged that and mary erdos said this is a tough time for returns, but you can't even speak to portfolio manage bers about it because they need your support and confidence and maybe, just maybe a look at your mechanism for trading, but nothing further than that. it is such a pressure filled time. that said, she said it could be a good time to weed out the bad stock pickers. let's listen to one pension fund manager, ashfeld williams, from florida, talking about this very point and how expectations from a number of years ago now need to be lowered.
2:03 pm
>> in 1995, you could have a portfolio for an institution that was fixed income, a risk averse asset class and milwaukee a 7.5% return bogey without too much trouble. those days are over. negative interest rates pose a huge head wind for institutions that have to meet long-term liability commitments and meet them timely. >> so what is working for people right now? well, not the traditional playbook according to some of the participants we heard from today. some of the moves that used to work but now carry overly high risks, using too much leverage or perhaps using leverage at all. buying g-7 government bonds, paul says to sell all the bonds because they're no longer a safe haven. and buying stocks, jim cramer made almost what was a joke about how the participants we heard from all morning up through the best ideas panel at least were pretty much averse to stocks and talking with other ideas or really just sticking to
2:04 pm
the macro picture. interesting points on leverage, i thought. we heard from aquantity whiz that sarah eisner interviewed, let's listen to mark carhart. >> returns are lower. don't expect levering up the portfolio and taking as much risk as you used to. the time will come in the future where there will be more return opportunities, but today, this is not an opportunity where you should be taking the same risk you've been taking. >> now what is the positive take away here? the u.s. is still relatively attractive, certainly relative to europe, relative to japan, and it is a stable place where it is easier to raise capital and there will be longer term growth albeit at a lower rate. that's the consensus view if there is any. the other thing i heard on this panel today, though, series of panels, is a little bit about politics. nobody wanted to wade too deep lay into it. paul singer making a veiled comment about hillary clinton's health and even donald trump's health. very veiled, i should say. his intent was clear.
2:05 pm
ray dalio, and tim geithner, did not disagree, said there is a scariness to what is happening with our political rhetoric today, the populism, because of its extremist bent. i thought those were interesting words melissa and brian coming from someone like him who really takes a very macro view and geopolitics, of course, here and abroad are always going to be part of that. >> did you hear, melissa, the comments that singer made on the health issue? when they said, he said something about -- somebody asked about politics, not going to get into politics, but if both candidates are still on the stage, before the election. >> that's right. that's more or less what he said. and that was the comment. so you have to wonder if he's alluding to hillary clinton's almost fainting spell. i'm sure he was. in terms of donald trump, no specific health concerns there that we know about, though we're supposed to get more details as a result of the physical he purportedly got last week, this week. so hopefully and clinton too is going to reveal more. we know more about both of their
2:06 pm
health. anyway, that's a diversion from delivering alpha. i bring that up to say, this sort of near term uncertainty here, the fear that we have an extreme populist rhetoric is actually factoring in to people's market and economic outlooks. >> right. back to selling g-7 bonds, what i thought was interesting is this notion that you would sell those bonds and be long equities because i mean, i -- the correlations are pretty tight. we see bond sell-offs, we see stock sell-offs, so to think that they're not going to be correlated when that time comes is an interesting notion. >> well, in fairness, i wonder if we're thinking about two different things here. so bill miller said -- had a trade, he said you should go long the s&p and paul singer likes gold for a number of very long-term reasons, he said essentially it is the one thing that has maintained its value over centuries of human commerce and he thinks it is underrepresented in people's portfolios.
2:07 pm
he said, sell g-7 bonds, they're not a safe haven. that's my one piece of investment advice. i didn't hear the go long stocks part. in their portfolio, they have any must number of major stock revisions. >> kate, thank you. kate kelly with the latest from delivering alpha. in the meantime, crude oil falling now, this after the iea cutting global oil demand forecast. the energy sector quickly taking a dive, with every stock in the space. bringing in michael cohen. he thinks oil is set to, quote, warm up to $50, again, michael, thank you very much for joining us. got your note. i was -- i did struggle to understand the title of it. you said warm up to 50, i thought, well, okay, that's higher than here. but still not overwhelmingly bullish. do we need to reduce our expectations from oil for the remainder of this year? >> i think that especially for the remainder of this quarter and into the first couple of weeks of the fourth quarter we do need to reduce our
2:08 pm
expectations. and the reason that we title that piece warming up to 50 is really because of what is going on in the u.s. oil sector. so barclays hosted its yearly equity conference ceo energy conference last week. and in it we -- in this note we analyzed what producers are doing to kind of warm up to the idea that we may be a $50 for some time longer. >> how long is longer? >> in our view, we expect to stay at that level for the next maybe month or two. but we do see that, you know, $50 prices is still not a number that is going to be on balance sufficient to really grow u.s. crude output into next year. so one of the things that they're doing, if you look at a year ago, we were at $50 also, but every single dollar now is going so much further. so the producers in the permian are the best position to take advantage of this reduced cost environment and they're growing at a much higher level than what we're seeing from the eagle ford
2:09 pm
or backen producer. i think the important thing to keep in mind here is that you can't lose sight of the broader forest for the trees. so the permian is clearly a rock star when you talk about, you know, total u.s. production. but it is not going to be sufficient to offset the amount of supply growth that we're going to go to see capped from nonopec producers outside of the us us. >> how integral, if at all, is the fed and what they're going to do in your oil price forecast? >> so our call still remains that we expect a rate hike at the end of this month. and to the extent that we do see some kind of hawkish surprise and dollar, you know, strengthening, should see the oil price move lower over the remainder of these coming weeks. >> all right. >> michael, thank you for joining us. appreciate it. see you soon. shares of alibaba falling with the broader markets.
2:10 pm
we'll hear from the company's executive vice chairman live from delivering alpha. and we're all over this broader market sell-off here, the dow jones industrial average off the session loews, but down 250 points at this hour. ♪ we' dwhere, in all of this, is the stuff that matts? the stakes are so high, your finances, yo future. how you solve this?you d'. you partner with a firm that advises governments and thune and, can deliver insig persont adto person,rnments on what matters to you. moan stanley. [phone buzzing] some tngs arsimply imssible to ignore. the strikingly designed lexus nx turbo and hybrid.
2:11 pm
the suv that dar t go beyond ity. this is the pursuit ofoferfection.
2:12 pm
big declines across the
2:13 pm
board for stocks today. back to bob pisani to look at what is driving the markets lower at this hour. >> choppy trading, a modest rally, the middle of the day, that's already faded back essentially, melissa. let's look at the markets in the middle of the day. call it 10-1 declining to advancing stocks. not a good day. it was a little better about an hour ago. but essentially coming back to the downside again. volume is very heavy today. probably 4 billion shares at the nyse. volatility has been spiking again today, two things of it mattering, interest rates in oil, look at the ten year. earlier on delivering alpha pulsinger from l.a. capital saying ten years, 30 years, not safe havens, bill miller saying short the ten year, yields moving up, as they were making those comments. you would think this would lead to a spike in banks. look at the bank, the kbe, which stayed down, moved up briefly, l long after they made their comments. the other story, oil, the iea
2:14 pm
coming out, demand will be lower than anticipated next year, particularly for india and china. none of the oil stocks have done anything all day. all big names down 2%, 3%. they're all trading towards the lower end of the recent range in the last three or four months. here is the s&p 500, yo-yo, as we like to call it. down 1.5% today. up 1.5% yesterday, down 2.5% on friday. and, melissa, the general feeling for the next seven or eight days until the fed meeting this is the kind of volatility we're likely to see. back to you. >> bob, it is interesting, because for, what, basically two months, we didn't have a 1% day. it was legendly flat. now the last three trading days we had all this extreme volatility. what happened? >> you have a lot of strategies that have evolved in the last several years that are actually dependent on volatility that are volatility trades. so when you get very heavy volatility, a lot of these
2:15 pm
strategies have to sell stocks or sell bonds to maintain a certain level of volatility. it is called risk parity trade. that's contributing to it. low volatility is great, the fed is on your side, we'll keep things calm, but had they start acting like they're not going to keep things calm, that upsets a lot of trading strategies. that's what we're seeing right now. >> that's the cta part of the market. in terms of what retail investors are in, a lot of money has been pouring into low volatility funds. so we're seeing these yields spike, then utilities, they don't look as attractive on a yield basis anymore. >> that's right. low volatility has done very well. the fed has essentially told everyone, we're going to try to keep things quiet. when they try to change the upon, that's when the things really fall apart a bit and we're seeing that low volatility fund definitely under perform recently. >> all right, bob, thank you. bob pisani. >> all right, well, generally we get a lot of bad news about the economy, not growing as fast as we want, labor force
2:16 pm
participation rate is down. guess what, we have good news today. something is happening to american households that is not happened since the financial crisis eight years ago. eamon javers. >> this is is robust data, the household income data from the census bureau. these are numbers from 2015, and it is a big annual gain, the send cess bureau p census bureau putting out the data today. it is the biggest annual gain since the census bureau began releasing that data back in 1967. look at some of the interesting subsets of this data, no income rise, though, outside of metropolitan areas. women were up 2.7%. men up 1.5%. and the 2015 rate is still 1.6%
2:17 pm
below the 2007 level. that gives you a sense that still have some ground to make up, going back to the great recession. the largest increase here was in the bottom fifth of earners, incomes declined for those in the top fifth, noncitizen incomes were up 10.5% to an average of $45,100. and native born incomes up 4.4%. it is very robust data for household income in 2015 and being down here in washington, i look at that through a little bit of a political lens and look at some of the demographic breakouts, particularly the metropolitan region, nonmetropolitan region and start to wonder, does that have some bearing on the politics that we're seeing playing out in the united states of america right now, brian. >> how could it not? >> right. yeah, look, i mean, where you stand, you know, depends where you sit in many cases and where you live. and politically we're seeing this rural urban divide playing out, we're seeing a top bottom divide playing out, we're seeing a citizen, noncitizen divide
2:18 pm
playing out and you do see all those divides here in the numbers. it would take a trained pollster to go through them in more detail than we have so far to really tease out the connections here. just on the surface, some of these demographic splits you see really mirror a lot of what we're seeing trendwise in the political season. >> let's bring in steve liesman as well to talk more about this. steve, listen, it is sort of uncool to be positive. ever, right? special the last few years. you get attention by being negative and everyone wants to slam the economy, everything is terrible all the time. i know there is going to always be people who are struggling in america. but this is -- i mean, is there any way to spin this negatively? this is fundamentally good news. >> well, no, i think the way it would be spun negatively is it has taken a long time. that's, i think, acknowledged by both sides in this debate, that there was one of the slowest recoveries we have had had to get income back up to the levels before the crisis. but what is interesting is eman
2:19 pm
talked about a pollster on this, we do our all america poll and this -- these numbers help explain something unique we have seen. when you ask people about the overall u.s. economy, they say it is terrible. they also say the political system is terrible. we ask about the personal financial system, they say it is pretty good. a lot of currency given to a specific set of numbers that show we had negative income growth from '02 to 2014. what i tried to come on and argue repeatedly is those numbers ignore two pretty decent years we think we had had, 2015 and 16. these numbers show at least part of that. and it also gets to them in why are donald trump's numbers seem to be sort of capped, and it may be because the economic dissatisfaction only goes so far and some of it, some of it has reversed. >> so, steven, you made the point about people answering on an individual basis, their situation say, okay, by what they see on the broader basis,
2:20 pm
not so much. why is that divide and how do regulator or not regulators, policymakers sus that out, differentiate the two points of views? >> well, very quickly, i mean, it is a very complicated situation. a lot of people have been hurt by things like trade, things like technology. and they are seriously economically disadvantaged, hard for them to get it back, but there is another group of people that have done well in this economy and you see that playing out essentially in the political economic debate going on right now. >> all right, steve, thanks so much. well, today, delivering alpha, jim chanos, the noted short seller, continuing to express his doubts over tesla and its take on elon musk, other companies, solar is city. jim also warned about alibaba. >> after the minority investment, it is hugely negative.ously negative. they're growing their balance sheet much faster than their
2:21 pm
business. it is the chinese model, you never see anything. what you do see is the cash going out the door, not coming in the door. and accelerating going out the door relative to the size of -- even though the business is growing. and that's concerning. >> all right, so, happening right now, at delivering alpha, i believe we're getting jim cramer. >> right. >> and joe sy with david faber. we'll get to na that in a momen. this is a position that we heard from jim before. not a new short position. but it is interesting that he continues to talk about it, even as there have been a number of positive data points here coming out of ali baba from wall street in terms of analyst expectations for the company. >> yeah, okay. there we go. so david and jim just sat down with mr. sy. let's go to delivering alpha and listen in. >> noted short teller. >> was he here? >> he was here.
2:22 pm
and he's -- he's been going after alibaba a bit and i would love to get your response. this is a great opportunity to do that. oftentimes, joe, we interview you from far away with a long delay. this is refreshing to have some time to have a conversation. >> right. >> specific to the ownership stake that you have in the delivery business, which he calls it being unconsolidated, i'm quoting here, they only 48 or 49% of it, but that's even deceptive because the actual companies that -- it is the chinese model, you never see everything, and yet what you do see is the cash going out the door, not coming in the door, and accelerating going out the door relative to the size of the, quote, even though the business is growing. and that's concerning. what is the response from alibaba when you hear something like that from somebody who has a following on wall street? >> is he still here?
2:23 pm
do i see him? >> he's not. >> anyway -- >> he's left the building. >> so i think when you're in the short selling business, it is a i have tough business. when you're wrong, the -- the downside is unlimited. i have a lot of respect for jim chanos, all right. but i think the problem is, he doesn't seem to try to understand the business and try to appreciate the power, the digital economy in china. and you can lay a lot of claims, a lot of accusations on our business, the bottom line is on the logistics business, we made full disclosure on the profits, loss, revenues, assets, liabilities of the business. so investors can do their own math. whether you're consolidated or not consolidated. you talk about cash flow, we over the last 12 months bought back $5 billion of stock, our own stock, and, you know, that's
2:24 pm
cash that we -- real cash we return to our shareholders. so i think we have demonstrated that our business is extremely cash flow generative. that we're good stewards of capital. i would like to invite jim chanos to come and see our campus, see our business so we can really explain our business to him. i think, you know, the problem with what is going on is since he's been talking down our stock several months ago or last year, our stock has been up 50%. >> it has. >> you got to pay a lot of respect to him, you any, to withstand that kind of pain. >> it is never easy to be short. and in that case as well. he did make the correlation to ebay, which is similar to the one made in the baron story, that you guys very strongly rebutted and i would argue successfully given what you just pointed out is the very strong performance of the stock. why, though, is that not a correct parallel to make in
2:25 pm
terms of multiple, in terms of a bisseting, getting together buyers and sellers as ebay does here. >> last quarter we grew 59% of revenues. what is ebay's growth rate, single digits, that makes all the difference. we're in a market in the confluence of high growth of the chinese economy, as well as, you know, technology. and that's very, very exciting for us. so in china today, what you're seeing is consumers are shifting their purchases online, but there is going to be more growth in consumption because china has a relatively low percentage of gdp that is leveraged to consumptions, about 40%. the more developed the economies are 60%, 70%, and if you look at average chinese consumer, they're in net cash position. there is net net 4.6 trillion
2:26 pm
u.s. dollars of net cash savings on the balance sheet of chinese households. to give you a context to that number, the average american household an aggregate has $11 trillion of mortgage debt. so we're leveraged to the consumption and economy and that's very different from the low growth and environment here in the united states. >> we want to get to broader discussion of china and know my partner here has a lot of questions. on this question of consolidating our not the delivery business, amazon is a name we would immediately think of as full control over its distribution. why not consolidate? why not own it outright? what is the strategy there by which you do own 48 or 49? >> if we owned the whole business outright, we would have to manage about 2 million people. and we just don't think that is something that a technology
2:27 pm
company should do. okay. so currently, you know, if you have to appreciate the scale of our business. on a daily basis, our platforms generate about 40 million packages per day that need to be delivered. just to put that number in context, i think amazon in the united states handles somewhere around 5 million to 6 million packages, okay. and soy look at two million people in our eskou system that are managing the warehouses and also delivering packages on the streets, if you combine the entire workforce of fedex and u.p.s., that's 600,000 people. so do you want to go out and buy fedex and u.p.s.? i don't think so. we're a technology company. we're not a labor intensive company. >> all right, let me go into more than just chanos. >> we have been listening to joe tsai, responding directly to short seller jim chanos' short
2:28 pm
position in the company. we should remind you that alibaba shares are up 54% over the past 12 months. more vem developments as they c. treasury secretary jack lew weighed in this morning from delivering alpha. >> it is bad behavior, they were correct to take action against. and how that flows through in terms of next consequences is going to depend on the facts of the case. what i can tell you is there say lot of talk in washington these days about rolling back dodd frank, about rolling back the law, changing the law that created the agency, that uncovered and took action against this. this ought to be a moment when people stop and remember how dangerous this system is when you don't have the proper protections in place. >> joining us from capitol hill is senator jack reed of rhode island and member of the senate banking committee, holding a hearing into wells fargo. pleasure to have you with us.
2:29 pm
>> thank you very much. >> the company has reacted very strongly they fired 5300 people, managers, managers and managers, people who work at the branch. they eliminated the compensation system that incented people to open up all of these accounts and cross sell products, the cfo at a conference today said they're going to spend $50 million on monitoring and controls, what more do you think needs to be done at this point, is this just populist sentiment, gripping congress this is another target for you guys. >> absolutely not. i think first what you have to do is what secretary lew suggested, underscore the importance of the consumer protection bureau in protecting consumers. without their efforts, without the efforts of local california authorities, thousands of customers would have been duped. the company has taken steps, but we want to ensure that their accountability is not transitory, that in fact they truly recognize what they did and that they're going to take
2:30 pm
further steps and also there is an issue of how far the accountability goes up and will it be sustained or is this just a way to stop a bad story and move on. >> you want them to say they're sorry? >> no, i want them to say, frankly, what they did, explain it to them, how they found out, how they weren't aware of it before, which brought their attention, what about their incentive structure, did this contribute to this behavior, is that structure been changed. what are they going to do in future to prevent this and there is a whole series of steps and not just about wells fargo, about the industry in general. i think one of the criticisms people had about congress, frankly, is that we have not focused enough onma making sure that companies are held accountable and they perform to the benefit of consumers, not just stock holders. >> it is understandable you would call john stumpf to the
2:31 pm
hill, but you plan on calling on other ceos of other banks. the more proactive thing to do would be to see if this is going on at other banks to protect other consumers who may not know this is going on. wells fargo seems to be addressing it, at least at this point. we don't know if that customer at another bank is going through the same thing. >> well, first of all, by calling attention to it, the industry is aware that we are taking this not routinely, but taking it very seriously. and, second, we would like to see, i would like to see rich cordray and the currency up here, because they could comment upon what their perception is in general of the rest of the industry. so it is not just the ceo of wells fargo, i think it is getting a panel that will focus wider than just one institution. because we don't want this to be something that we found a shortcoming, one institution, but persistent in others. >> so any plans at this point,
2:32 pm
you said you call up the head of the consumer protection bureau, you also call up the otc, but no plans at this point to actually call on other bank executives that have them answer as to whether or not they have similar compensation schemes in place? >> i think frankly, first of all, calling these hearings is a function of chairman shelby. second, we will have an opportunity for at least one witness, but i think the best place to begin in terms of looking at the sector overall is getting the expert views of the regulators. and if they are able to suggest that there are ongoing investigations, but the other thing to do and i think it is not the appropriate thing to do is simply call people up for a hearing and just ask generalized questions. i think it has to have a factual predicate. this one does. wells fargo has admitted this behavior. this is very surprising behavior. the central aspect of banking is trust by the depositors and the customers and this seemed to be a violation of trust. >> absolutely. would you rule out, do you think
2:33 pm
what should be put on the table, at least, for consideration, is a ceo wells fargo stepping down? >> again, i think this is something that you have to give an opportunity to explain, you have to give an opportunity for people to indicate the steps that are taken. more knowledge of what went on with the help, that is the purpose of this hearing. then, again, i think it is something -- a decision that the institution will make before we ever get around to it. >> where does 100 million go, where does it go? who gets it? >> it would go back into the treasury, essentially. that's where the fines from cfpd go. there is some, i believe, some reimbursement to the customers, the actual losses they sustained. but the fine like most fines goes to the general treasury. >> senator, we'll leave it there, thanks so much for joining us. senator jack reed of rhode island. we'll have much more on the wells fargo account scandal on closing bell at 3:00 p.m. with senator bob menendez and on mad money at 6:00 p.m., an exclusive interview with wells fargo ceo
2:34 pm
john stumpf. was just a bottle. that no one would ever notice me. but i knew i cod be more. that one day, i would make people smile. [woman speaking indistinctly]
2:35 pm
2:36 pm
welcome back to "power lunch." ios 10 is out, nut mobile
2:37 pm
operating system. but now seeing some reports that installing this new software is leading some devices useless. i don't know if you can see this here. but my friend ena freed gave me this. you can see what happened when she tried to install ios 10 on her device. not many details now. reached out to apple for comment. we know this is happened before. some levels of glitches and bugs initially, why people don't always if update immediately. don't have a number yet in terms of the number of verified complaints out there. but we'll bring those to you when we get them and apple's response. stay tuned. more "power lunch" after this.
2:38 pm
what's going on here? i'm val, the orange money retirement squirrel from voya. we're putting away acorns. you know, to show the importance of saving for the future.
2:39 pm
so you're sort of like a spokes person? more of a spokes metaphor. get organized at voya.com.
2:40 pm
welcome back to "power lunch." i'm michelle caruso-cabrera at cnbc's annual delivering alpha conference, where we bring together some of the world's biggest and most important investors for day long conference to talk about ideas and where the investing world is going. i just finished interviewing ma
2:41 pm
mark lasry. and starting with mark, who told us that he's giving up being on a hedge fund. several years ago he told his investors, look, no more quarterly redemptions. want to give me money, you have to give me money for three years. here's why. >> it has gotten extremely difficult to invest on a quarterly basis. i think before when you weren't at a zero rate environment, sister zero interest rate environment it was easier. now you need the luxury of time. you need to be able to invest over sort of a two or three-year period. >> i wanted to specific example. he said energy. >> we invested in energy, we started doing it about a year ago. a year and a half ago, i wish i could tell you we timed it perfectly. we were very good at timing it when we thought oil was at 70 or 60 and we didn't think it would go that much lower. and, you know, shockingly it
2:42 pm
did. and, you know, you kept buying and buying and buying. and, you know, when oil got 25, we kept buying the debt and buying the debt and if we had just a hedge fund money, we wouldn't have been able to do that. >> we talked a lot about the impact of the low interest rates on the investing environment. barry says it is great for his business because people who used to buy bonds, which are now yielding almost nothing or negative, have instead decided that they're going to buy real estate from him, so he's been able to get out of buildings far earlier than he ever expected. the other impact he says is in technology, and those unicorns. >> you look at google and look at facebook, these companies have really -- they're trading at ten times, why would you go to -- if you got shares that are zero value, like real cash flow, incredible compensation, but when these things go down, they don't from 16 to 14, they go from 16 to 2. >> saying that sometimes colleagues and friend comes to him and say i want to go to one
2:43 pm
of these unicorns. i'm not sure it is a good idea. why wouldn't you stick with some of the bigger names at this point or stay in real estate? melissa, brian? >> michelle said the connecticut real estate market was in a word, screwed. >> yeah, he mentioned how poorly it was doing because tax rates in connecticut had gotten close to manhattan. a lot of people have moved out there. expressly to escape the tax levels in manhattan. a lot of people in finance. so when those ttach raax rates o rise, he moved to florida as of july 1st, he thinks danbury is one of the worst markets in the country. he's guessing greenwich, connecticut, used to be the place for major hedge fund managers would have large homes, but says the taxes have really started to hurt the state and the population, so people are moving with their feet. >> yeah, michelle, thank you. michelle caruso-cabrera joining us from delivering alpha. a big sell-off on wall street that we're tracking.
2:44 pm
"power lunch" back in two with the latest. ♪ we're drowning in information. where, in all of this, is the stuff that matters? the stakes are so high, your finances, your future. how do you solve this? you don't. you partner with a firm that advises governments and the fortune 500, and, can deliver insight person to person, on what matters to you. morgan stanley.
2:45 pm
you know what, guys? there's a lot of tree branches and dry brush over here. we should probably move the bonfire over there. [smokey whistling a tune] i'm guessing smokey liked that idea.
2:46 pm
sometimes they just drop in. always obvious. cme group can help you navigate risks and capture opportunities. we enable you to reach global markets and drive forward with broader possibilities. cme group: how the world advances.
2:47 pm
welcome back to "power lunch." i'm josh licht pton. we were talking about how some users were saying installing ios 10 rendering their devices useless. i reached out to apple and they forwarded the following statement. we experienced a brief issue with the software update process affecting a small number of users during the first hour of availability. the problem was quickly resolved and we apologize to those customers. anyone who was affected should connect to itunes to complete the update or contact apple care for help. so bottom line here, apple saying there was an issue that affected a small number of users, but apple saying that issue has now been resolved. back to you. >> josh lipton, thank you very much. the overall markets performing like the rams offense last night. dow jones industrial average is down big, the s&p 500 is down 1.5%. but, today aside, do not get
2:48 pm
discouraged on stocks overall. so says mutual fund legend bill miller, who told the delivering alpha audience to buy the s&p 500 and then short the ten-year treasury note. cnbc contributor jimmy euro joining us now. should he be advising investors or mom and pop to short a treasury bond? >> i would say no to that. i agree with him on the stock portion of it, and i disagree with him on the bond part of it. they're buying at a 1.3 yield. our ten-year yield to me looks pretty good. i don't understand the trade today. i do understand the trade in the stock market. the stock market trade is simple. we got pummeled on friday, thinking we would tighten. came back on monday when they paraded four speakers out in front of us telling us they probably aren't going to tighten. but today, the volatility after a 60-point downday and 40-point upday, there are probably people saying maybe i have a few too many stocks, time to get out of them. i'll tell you this, the part that is interesting to me, we
2:49 pm
have a fed meeting coming up. if they tell -- if three of them tell us they're probably not going to tighten the last day of the blackout period and then do tighten, you can throw that transparency thing pretty much out the winwindow. >> what do you make of the sell-off today, selling off gold, bond, stocks? >> that part is confusing to me when the sell-off started in the treasuries, i thought, okay, maybe we expect a weak auction, we got a weak auction, popped a little bit. it did -- nothing could rally when the headline came out about japan possibly going into more negative yields. the stock portion of this i understand. gold is just a function of the ten-year, ten-year yields go up, we're conditioned to sell gold because that gold yield becomes less attractive. if i figure out the ten-year piece of this, which i suspect is a short lived thing if the stocks went below 2100 and any sort of real panic, i think people start buying ten-year rather quickly. i find it interesting, but not in the stock market, makes perfect sense to me, that
2:50 pm
volatility bell has been rung so people are repositioning and that makes perfect sense. >> we need to see 26 handles lower for the bids to come into the bond market is what you're saying? >> yeah, that's what i believe. it is like -- no doubt about it. itit. it seems like there is different levels of panic. stocks can go down and treasuries down in price. there comes a point where it is like flipping a switch and it becomes from a mild panic into a real panic and then we start buying treasuries. i think that is under the figure. >> thanks. speaking of the markets, let's get a check on them right now. even on down days there is opportunity. here we are. s&p 500 down 1.4%. we'll tell you which beaten down stock analysts think is about to turn around in "street talk" next on "power lunch." . ♪
2:51 pm
♪ the highly advanced audi a4. ♪
2:52 pm
2:53 pm
we kick it off with kate spade getting upgrade. recorded weak second quarter. since then the stock has been put in the penalty box. the brand is healthy. margins should continue to move higher in the valuation is compelling. >> stock is down by about 50% in the last 16 months. >> not pretty for hand bag
2:54 pm
makers. xerox, name we haven't talked about in like forever. sun trust, value creation potential is under appreciated. they believe the split will improve competitive of each coming parts. you have business process outsourcing and document technology printing which is 62% of revenue. this should allow the company to pursue other niche businesses. >> this has been a target of. >> we will hear from him at 5:00. >> the analyst likes long term but sees shares being range bound. investors have been negative given concerns about in house credit business. the analysts point out valuations are cheap at this point. >> i would just say where was
2:55 pm
the analyst when it was at $150 november. your last stock is called open techs. it is under the radar because it is up north. this is a canadian software company. they do business with oracle, sap and others. bmo upgrades because of the deal. they take it to out perform. stock is already above 63. cost synergies should be sufficient. upgraded by bmo. >> street talk out. still ahead, more on our market slide today plus a sad take on the race for the white house from delivering alpha. we'll be right back.
2:56 pm
2:57 pm
remember here at ally, nothing stops us from doing right by our customers. who's with me? i'm in. i'm in. i'm in. i'm in. ♪ ♪ one, two, - wait, wait. wait - where's tina? doing the hand thing? yep! we are all in for our customers. ally. do it right. why don't you let me... and me... help you out? ♪ you're gonna hear what i say... ♪ i love taking stuff apart and building new things out of it. anne: pal's my most advanced annedroid.
2:58 pm
[gasps] this is awesome. ♪ oh anne: you haven't seen anything yet. announcer: give your cardboard box another life. it's horrible for the country. you want your kids to grow up to be president but it's a race to the bottom at the moment. and it's really uncomfortable, i think. i was hoping everybody would get indicted and we started over. if the judge would just hurry. >> echoing what a lot of people
2:59 pm
feel both major candidates have highest negatives in history. he is as frustrated as a lot of voters are. >> mic check, please. time geithner saying basically pragmatic center is gone. i think the pragmatic center exists. i think it is sleeping. i think there are millions of americans who are optimistic and right down the center no one asked them. they don't get heard from. >> there's a lot of people who are left out by the current system. if you are a fiscally conservative person who is socially liberal there isn't a party for you. there hasn't been in a long time. the libertarian candidate isn't the biggest star.
3:00 pm
>> 2,127 is where we closed on friday. that is pretty much where we are at this moment so yesterday never happened. >> yesterday never happened. that's fantastic. tell the rams. they would like a redo. thank you. >> see you tomorrow. >> this is cnbc breaking news, market sell off. >> hi everybody welcome to "closing bell." i'm kelly evans at the new york stock exchange. >> stocks are selling off today. apple is the only dow component in the green. energy is one of the biggest sectors it is losing. those stocks down across the board. >> that report that oil demand is seen to be much lower. that's a key development and something ward

30 Views

info Stream Only

Uploaded by TV Archive on