tv Fast Money CNBC September 21, 2016 5:00pm-6:01pm EDT
japan. >> and want to go protect the insurance industry in japan. >> the life insurers getting destroyed by all of this. we'll continue to hand it over to "fast money." carol, mike, thank you for joining us here on "closing bell." that does it for us and "fast money" does begin right now. breaking news at this hour. three huge stories happening out of d.c. tonight and cnbc's live team coverage all over the action. the fed keeping rates unchanged, though signalling closer to a hike. steve liesman has more in just moments. the latest poll on the race to the whitehouse out just now with shocking numbers. john harwood joins us. and meg tirrell fresh from the capitol hill grilling of heather bresch. we start with the biggest story of the day and that was the federal reserve. janet yellen standing pat, keeping rates unchange's, sending stocks surging. straight to steve liesman with the full details. >> yeah, melissa. the federal reserve painting the
generally up beat view of the economy, saying household spending is growing strongly and job gains solid. it held off from hiking rates, quote, for the time being. noting that inflation remains below its 2% target and trying to give the job market more room to run before hiking rates. but the statement and fed chair janet yellen in her press conference later on suggested that rates will likely rise at least once this year. >> most participants do expect that one increase in the federal funds rate will be appropriate this year. and i would expect to see that if we continue on the current course of labor market improvement and there are no major new risks that develop. and we simply stay on the current course. >> so there's this new metric now, where you can think about for deciding whether or not the fed is going to raise rates. whether labor slack is being absorbed. this chart shows the feds' concern here. job growth strong, 180,000 average the past three months.
the unemployment rate hasn't declined or the broader mesh of slack in the economy known as the u6, all sorts of things like discouraged workers, people working part time for economic reasons. that remains relatively unchanged. three dissents today. eric rosen green from boston. loretta messter from cleveland and esther george from kansas city. so those three suggest there is a lot of division inside the fed. and i know it may sound crazy, but perhaps november is on the table for rate hike. but a lot of them think more likely december when there is a press conference, melissa. >> you know, steve, when i sort of step back and looked all of the developments, particularly the fact that there are three -- earlier you mentioned there hadn't been that many discents on the fed since 2014 and then you have janet yellen saying one rate hike this year is certainly on the table. it almost seems like these are opposite forces. she's actually painting the fed into an even smaller corner than
the fed had been in ever before. if the data softens, she basically already said shows going to do it. >> i don't think so. if you heard -- if you listen carefully to the sound bite that we ran earlier, all forecasts are contingent on the economy. it's kind of interesting. they didn't talk much about the recent weakness in the economy, which is the reason why a lot of folks, including myself, change their forecast. you know, it was like two weeks ago i was thinking the fed would hike and then the ism data came out. so she didn't mention that. if the data is strong, supports it, a couple good jobs reports and maybe some of the -- the august data turns out to be a bit of a fluke, then i think the fed is going to hike. i know they want to hike in december. but i think it's going to be weird for them to face -- to -- in november come out with a statement saying why they didn't hike if the economy does do well. >> hey, steve, it's tim. i think she more or less said this. it's only if they are mildly
accommoda accommodative. and she also said we could move rates very quickly on the short end if we have to. which is not what the market is going to want to have happen. >> tim, the fault is in our star. i've been wanting to say that for a long time. maybe some of you know what i'm talking about. our star is the fed's term for the neutral fed funds rate. and in other words, what rate of the federal reserve funds rate would be one that would increase or decrease economic activity. there's a big debate about that. some think it's zero. and so the notion of the -- neutral rate being zero and the fed being at .37 -- of course, it's a real rate, the fed is only modestly accommodative in that context. if our star is higher, it's more accommoda accommodative. lower, the fed could be neutral or stimulative, depending on what the neutral rate is. i hate to be all jargonesque on you, but the fault is indeed in our star. >> steve, thank you very much. appreciate it. >> pleasure. >> interesting. >> steve liesman.
so bed is on hold. now what do you do with your portfolio right now? >> well, i'm very surprised, if you think about rosengreen, rosen krantz and guildenstern. the guy who came to shake up things in hamlet. again, he's out there, he's been a dove. why do markets respond differently today when we have -- essentially set up for the next two or three months a ton of fed-speak that's going to be very volatile. so i have to say, i'm a little surprised. and the way i handled it was actually i faded a bunch of stuff. i had some stops above the market that i don't think tomorrow is going to be a better day with the boj some stuff. the fed told you they're ready to roll. as much as they have ever been. so that's not great for stocks. >> why do we rally? >> i think you rally because that's what's really led to this equity bubble or risk assets on. that's what's been going on. but to tim's point, i think it's a little bit topee. you can't say that we can go much higher from here.
you can probably go sideways. but what do you do? go back to utilities, back to reitz, xlre, the new etf. you go back to your income gainers. not just overall market, because i think that's where this could be a little bit choppy. what -- to me, is extremely dovish for them is they ratcheted the range for gdp. inflation. and they raised their unemployment range since the last meeting. so that to me is extremely dovish going forward. but they do want to clip that one date and i think that puts a lid on the market. >> let's just say this. guys, new highs coming in the s&p 500. that's just happening. we're not far away from it. and then you have that whole fear -- i'm going to tell you. they're coming, okay? and they're coming in the not so distant future. what the fed has really put market participants in -- a goldilocks scenario. not days before the election in november. well-tell graphed december. it's no mystery. we're not debating this in a month, okay?
the markets are going to be okay with it, because the s&p is going to be at new highs. >> what stopped it last time? because you weren't bullish like the rest of us. what's stopped it? i think the same thing that stopped it in the last couple months is going to stop it again no. reason to bolt to new highs. >> why did we go to new high ace few weeks ago? >> didn't stay there. >> no argument the fed was going to raise in september. november is not live. they're going in december. >> as long as it's easy money, policy stocks go higher. simple as that. >> let's look a couple headlines today. microsoft re-upping their $40 billion share repurchase -- this is months after they spent $26 million in cash to make an acquisition. it is because of this easy money policy. >> what changed? how all of a sudden overnight is easy money now, the top of the market? you were having a hard time. >> let me tell you something. it's a short -- nchs come on in, the water is fine! >> the only thing that is going
to shock the market other than something external, maybe china or europe, is going to be if trump takes a lead and really starts to run away with it. that's the only thing. >> when we sat here last night, we talked about how volatility spiked. and now it's 30% from the highs last week is where volatility is now today. we talked about what have people been doing going into the fed. they want to buy if it goes lower. exactly the game plan going into today. as a matter of fact, the very end of the day today, as we were getting towards the last maybe five or six minutes, i actually put on a spy put spread, so it's a counter to what dan is talking about right now. the reason i did that was, i don't like trading volatility itself. so i'm using the volatility through the sprds. and we see it get this low. i have a hunch we're going to see some spelling pressure. maybe not tomorrow but a week and a half. i want to see if this actually can hold on here. look at the volatility. we're right back where we were when we were grinding in that 1 1 to 13 range. today we get down there below
13, close at 1330. volatility got out of this market. >> so -- >> >> i'm just trying to grasp, because i feel like this is opposite world here. because you three are skeptical about where stock stand right now at this moment, given the fed has tell graphed that a rate hike is coming and you are saying the stocks are going higher. this is complete -- this is another universe. >> pete is saying something -- first of all, pete is saying volume is now low again. and that's a time to be more cautious. dan is saying it can stay low. vol can't go lower, and we had extended periods. the fed indicated they're out of the way for a couple months. when i think about the period of the next two or three months, we have european politics that are going to coincide and possibly collide with american politics, along with other factors. i have said all along, i don't think the market is going to 1850, and i don't think it's going probably to 2050. but to say it can go significantly higher from here is trouble. this is a market of stocks. look at fedex, transport, rails. what the fed is telling you,
they might have inflation. all those guys have pricing pow power. that's important. >> we're going to get q3 e, okay? and if they're not bad, not as bad as people expect, and that is going to be a positive -- if you do have on monday -- i think things could change. if hillary clinton does a good job and starts to pull back ahead, then i think that gives people the comfort level again. remember when shall got that bump in august, what did the market do? the market traded within a tight range. i think if you get above the pryer highs, 2200, if ms. clinton has a lead. that fear of messing up. >> the debates on monday. that's what you're saying. >> yes. >> the debates, politics, all -- >> and let's not forget about what you guys are talking about last night. we heard from fedex. those numbers were pretty outstanding, when you look at the growth and you look at the ground growth in that ground business, you look at the numbers, they're very impressive. is that a great barometer for the entire economy? probably not. >> not bad. >> you look at the transports
and how they have been trading lately. we talked about rotations for a long period of time. look at what really traded well today. you know what is pushing on 52-week highs, the chip stocks. why? fundamentally strong. they have got growth. and most of them are giving you great yield. so people are still shifting around. it's not just utilities. there are other parts of the market people are able to find to put their money. >> can we ask dan a couple questions. >> actually, breaking news for the latest polls for the 2016 election. >> we have new numbers from the nbc news "wall street journal" poll, and they're strike, given the events of the last few weeks. in a two-way race, hillary clinton leads donald trump by 48% to 41% among likely voters. that is a substantial margin, only slightly reduced from what she had in july or excuse me in early august. after both parties' convention. in a four-way race, including gary johnson and jill stein, she leads 43-37. that's a six-point edge. again, substantial edge in the race.
when you take into account johnson and stein, although their numbers, if we follow the history of previous third-party candidates, will go down as we get closer to the election. what are the keys for hillary clinton? first of all, she is leading donald trump among college-educated white voters. that is something that democratic candidates have not done in the past. mitt romney won them substantially. secondly, donald trump is not building the margins among noncollege white voters that he needs. he's doing more poorly among that group for all the attention it's gotten than mitt romney did four years ago in 2012. he needs to overperform romney with that group. and finally, hillary clinton is doing better among seniors and voters age 30-44. she has done less well than obama among the younger voters, 18-29. but in that middle range, 30-44, she's doing better. and among seniors, she's doing better. guys. >> all right, john. thank you. john harwood with the latest
numbers there. so dan, does this fuel your thesis? >> yeah, i really do. listen, i'm not trying to be partisan. i really think if she regains some of that steam she had in august, i think it's all clear for stocks. especially if we get that earnings bump that we could get. we did get that out of july, guys. i mean, listen, i was very pessimistic. and they weren't as bad as expected and that was really what people needed. and then when it became unlikely the fed was going to raise in september, despite the chatter -- >> so in this sort of scenario that you paint here, what sectors would you buy? >> i think you stick with some of the names that pete was just talking about. i really do believe. and you're right, you have been right on the chip stocks. there's going to be further consolidation, $125 billion of deals in the last 18 months that's going to stay that way. could see a flurry of deals happening and people need to raise cash to do deals before interest rates starting to. >> it's not just chips, it's tech as well. look at alley baba ally baba. and there is a lot going on in
tech that almost is getting pushed to the side as everybody focuses on the fed. they're going back -- >> today, though. it was utilities, energy and material. people are looking for -- >> i thought it was a reflection trade, a cyclical trade. the most important thing, what has really changed? i don't think anything has changed than the same dialogue that we've had for the last nine months. and that means that actually with central banks in the way, you're not going to see -- they're squelching major volatility. so in other words, in terms of asset prices, they are trying to drive up asset prices. those are the trades. em is at 15-month highs right now and it's going higher. >> the market got hit when she was -- when there was a thought that -- and it was only a 20% chance she was going to raise rates. the market got hit. who is going to get long in the next month or two? >> dan is. >> no, no. knowing that you're closer -- >> we have the s&p that's almost up 6%. it becomes a scenario where if you think the likelihood of a
known quantity being in the way -- >> the higher -- >> you've got to -- >> we're positive on -- she is going to raise when the market comes in. >> i need some trades. what are you buying right now? >> well, today, like told you, i bought the puts. one a little controversial on the desk, i'm sure. i bought some mylan today. >> mylan? >> yes. >> rails, airlines, very cheap. things you can play there. i will buy it back, lower and get longer. >> either candidate is going to boost infrastructure spend. united rentals. >> yeah. >> don't fall off your chair. >> dan! >> if this wells fargo thing hits the money center banks, you buy them. >> mr. sunshine today. still ahead. things are getting heated on capitol hill over mylan. take a listen. >> after mylan takes our punches, they'll fly back to their mansions and their private jets and laugh all the way to the bank.
while our constituents suffer, file for bankruptcy and watch their children get sicker or die. >> and the hearings of mylan ceo heather bresch still under way right now. you're looking at a live shot there right now. we're listening in and will bring you the highlights later this hour. and later, a man you've been waiting for, the bond king, jeff gunned lack, exactly what the fed would do today. what's he doing now? he's with us, an exclusive interview later in the show. much more "fast money" on this very busy night. t. orchestratioo a global outerwear manufacturer, allowing them to handle the recent popularity boom in fanny packs. it's pretty fly. unless being '90s is your thing. well, cdw and hpe services gave them the flexibility they needed to scale up their scale up their cloud resources, making sure supply meets demand. poser! [ classic ringtone ] what's crack-a-lackin'? hey, did you remember to set the vcr? increased flexibiilty by hpe services.
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welcome back to "fast money." i'm seema mody. shares of bed bath and beyond higher after initially falling. perhaps even more of a blow, same-store sales down 1.2%. wall street expecting an increase of 0.4%. and com sales on the decline since 2011 as it continues to lose market share to online retailers as more consumers shop on the internet, melissa. >> thank you very much, seema mody. interesting bounce there off the after hours session lows. who would be a buyer of the 20% coupon store?
the there. >> there is not enough scented candles and potpourri. >> thank you for that. i appreciate that. >> the point -- >> i'm long. >> i think -- the margins and the competition in their space are unbelievable. so i think this is a company that's been trying to find itself in this market. but it's been a sideways trend. i would not be looking to run into this. >> still ahead, one stock sitting out the rally today, netflix plunging 4% on subscriber growth. how worried should investors be? is and a look at whether of our traders would be buying. i'm melissa lee, you're watching "fast money" on cnbc, first in business worldwide. in the meantime, here is what else is coming up on "fast." >> stop sending me the information and start getting me some. >> leon cookerman with insider trading and a top attorney says they have a strong case. he'll be here to explain. plus -- ♪ i've got the power >> jeffy gundlach, aka, the bond king, correctly predicted there
mylan ceo heather bresch getting grilled on capitol hill today as she testifies about the company's life-saving epipen drug. we have the very latest. meg, very heated hearing. >> very heated hearing, going on for two-and-a-half hours now, shows no signs of slowing down. they are about to take a recess and come back the 6:30. a lot of heated questions to heather bresch, starting with the chairman of the committee, chaffetz looking at the profit mylan gets from the epipen. they say they get about $50 per
pen off the list price. he says he didn't believe her, necessarily, about that price. listen to this. >> now, they're here to tell us that they make about $50 profit. which i find a little hard to believe. and that's why i think it's important that the ceo, and i appreciate her willingness to come in and talk to us. is telling us that, well, the middle man makes more than we do. >> now, bresch actually responding to that with several large poster board charts, trying to explain the difference between the generic product, the branded product, what they have done with the price to try to help patients afford the drug. and in a heated exchange with representative de chalet, she tried to explain she thought the $600 price for a two-pack was fair. listen to this. we're supposed to feel good, because you've taken a drug you're overcharging six times what it's worth and you're going to drop the price to $300. >> sir, we were receiving 274
out of the 6 -- >> do you think you were charging too much at 600? >> sir, the -- we believe it was a fair price, and we have just now lowered that price by half. >> why did you lower it by half if you thought it was fair? if you thought it was fair, leave it where it's at. >> now, of course, bresch wasn't the only one testifying today. also the fda receiving a lot of heated questions. about why there isn't more competition for the epipen. this is going to continue for at least probably another hour or two, comes back at 6:30. so going on quite into the okay, melissa. certainly not letting up at all on the mylan ceo. >> all right, meg, thank you. meg terrell in washington for us. i go to pete straightaway. you actually bought mylan. >> today, yes. from? >> what i saw -- >> awful. >> awful. >> the blood is in the street. it seems like they have absolutely come after them like the pitchforks are out, right? well, this is -- about as bad as things can get. maybe they go a little bit worse. when i look at the option volatility in there and i see it very, very low, as a matter of
fact, underneath what's normal, and this is a stock trading 50 and now dropped by several dollars, i think it's an opportunity. that's why i was in there today. >> plus, the price in the stock right now, just technical. forget everything going on. i agree with pete that usually that's the pinnacle of the cell pressure. you see when they're up on capitol hill. but 39-ish goes back a couple years. >> would you rather in terms of beleaguered stocks because of washington, d.c., wells fargo or mylan? >> mylan. >> mylan. >> yeah, i mean, if you think about it -- and, again, the street has already come out and put a -- roughly 50% comes from the personalty products. they have shown a sales loss and you end up at whatever -- 55, $65 target. the point is, unlike the regulatory bulls-eye, i think you have a case where these financials -- this is something -- these guys can play through this. >> up next, the man known as the bond king, double end capital jeffrey gundlach, a fed critic who oversees $100 billion,
called it right. so the fed would not hike today. does he think they will pull the trigger in december and what's he telling his clients right now? he'll join us exclusively right after this break. i know you're my financial advisor, but are you gonna bring up that stock again? well you need to think about selling some of it. my dad gave me those shares, you know. he ran that company. i get it. but you know i think you own too much. gotta manage your risk. and you've gotta switch to decaf. an honest opinion, even if you disagree. with 13,000 financial advisors, it's how edward jones makes sense of investing. this car is traveling over 200 miles per hour. to win, every millisecond matters. both on the track and thousands of miles away. with the help of at&t, red bull racing can share critical information about every inch of the car from virtually anywhere. brakes are getting warm.
yes, of course. we are worried that bubbles could form in the economy, and we routinely monitor asset valuations, while nobody can know for sure what type of valuation represents a bubble. that's only something one can tell in hindsight. we are monitoring these measures of valuation, and commercial real estate valuations are high. rents have moved up over time. >> that was fed chair janet yellen today saying the federal reserve is indeed worried about bubbles forming in the market. still the u.s. central bank left
rates unchanged after today's meeting, which came as no surprise for our next guest who said earlier this week the fed would deliver a hawkish no hike. jeffrey gundlach, known to many on wall street as the bond king, jones us in an exclusive interview. welcome to the show. it's a pleasure to have you. >> thanks, melissa. greetings from our debut performance for me, anyway, from the double i media studio. >> excellent. looking good, jeffrey. what do you make of what janet yellen said today. has much changed from 24 hours ago in your view? >> not much has changed. we saw this coming in terms of no hike with a little bit of a lean towards hawkish language. i think one of the interesting things that happened, unfortunately, was the downgrade of long term economic growth from -- it was already a downgraded level of 2% to 1.8%. it's really getting kind of low in terms of the growth
expectations. you remember years ago, every year they said it was going to be 3%. they have capitulated down to 1.8, pretty much in line with what reality has been. for the past six or seven years. it's interesting today how the fed's rhetoric and the economic projections and even their forward interest rate projections have gone down to fully capitulated level of where the bond market pretty much saw it back in january of this year. one of my web casts, the january 8th one, just markets, up on replay at double line.com, we said the fed would be forced this year to capitulate and meet the market's expectations in terms of future rate hikes down at the lower levels. that happened today. >> so do you think that a fed hike in december is all but a foregone conclusion? have the markets gone that part right or is the fact that the fed is highest level did i essential in the federal since 2014, does that throw a wrench in that thinking that december is on the table? >> well, i think the three
desenders reinforces the potential for december. but i think december is a huge who knows at this appointment. you know, just think of how many times and the magnitude changed over the past three months and here we've got three months which includes three presidential debates, presidential election, this is highly unknown. what's going to happen in december. and so i'm not surprised that the function that shows the embedded probability of the fed moving from the short end of the bond market is right about 50%. because that's probably what the -- any rational person would put the odds at, because there's too much wood to chop economically and politically. between now and december. but the fed -- the three did i se dissenters it shows that there is growing mood at the fed that at some point they have to follow through with these interests rate increases. some people thought the fed
might shock the market today. no way. the bond market seeing 22% probability, that's too frightening for the fed to shock the market with that type of level. i'll tell you what, melissa. if the werp is in the 40s -- doesn't have to be at 70 like it used to be in the old days or 60. my guessing, even if the werp is in the 40s, the fed will raise interest rates in december. in fact, they want the werp to be in the mid 40s to raise interest rates in december, because that's the only way that they can say, you know what, we're not just following the market. we're not a machine. we have a reason to exist. we can raise interest rates when the bond market doesn't exactly give us permission to do that. but with the werp at 22, where it was today, no chance. they can deliver that kind of a shock. >> werp, by the way, world interest rate probability index. instead of just saying werp. so what should we expect between now and december then? if -- one would think, perhaps, there would be a lot of fed-speak coming out?
trying to get that wirp reading a little bit higher so it could be more justified by december and does that then yield volatility in the markets? >> well, i think this could be volatility in the markets, but many analysts have kind of got an ack nice tick in their thinking. strange interest rate policies, negative interest rates in varies places. and i have suspicion that that environment is not going to be with us forever. that, in fact, it's already on the cusp of change. and i think what the markets are going to need to digest isn't yet another three months of us get guessing every day what a speech from a fed official means. but rather understanding that there's a growing awareness in europe and japan, and i think indeed in the united states, that these policies have not generated the results that they were designed to generate. yesterday people were saying, watch out for the boj. that's going to be the big market mover and no one is even talking about that today.
they said they would. but they aren't talking about it. but something did -- interesting did happen at the boj and that is they sort of admitted they're not getting the results they're hoping for from negative interest rates and, indeed, they might want to steepen out their yield curve and get to positive interest rates. interest rates have already bottomed on a global basis, back in july. the japanese jgb was at negative 30 basis points. it's now negative low single digits. the german bund actually yields 1/10 of one basis point positive having been negative 23 or so. so u.s. tenure was down at 132. july 6th. and it got up to above 1.7, 1.65 now. rates have already risen by 20 or 30 basis points on a global basis. the reason, i think, melissa, is the bond market is sniffing out a pivot to fiscal stimulus, which is now being talked about much more than it was even two weeks ago, let alone a year ago. and fiscal stimulus, i think,
changes the game. i think that you get a different kind of mentality about policy and interest rates and i think interest rates bottomed in the united states in a secular basis way back in july of 2012, but on a shorter-term basis with the ten-year pushing to a minor new low on july 6th. i think we have seen the bottom in interest rates for this year, anyway. and maybe for this cycle. because a pivot to fiscal stimulus is unfriendly. >> i want to get your thoughts on what you think of the candidates' infrastructure plans. but i also want to get your call on the markets more broadly. you made some excellent spot-on market calls reasonable. for instance, the end of july, you came out and boldly said to sell everything. the markets haven't really -- s&p, that is, hasn't really gone very far from there. so what do you anticipate now? now that the environment has, in fact, changed here? >> well, i think that the markets have been delicately balanced on the concept of low interest rates forever. i heard people saying in july
that interest rates can never rise. i've been at this game a long time and i've learned when you hear the word "never" it means it's about to happen. so with all of the markets balanced on zero interest rates and very, very low interest rates, the interest rates rising will cause down side volatility. so that was kind of the impetus behind that statement, sell everything, which, of course, is a code word for saying get defensive. you know, reduce your duration in bond portfolios, upgrade your credit quality. put less into risk assets. and it's right that the s&p is a little bit lower now than it was then. and hasn't made any progress since then. there is a gap in the s&p from that day -- that friday a few weeks ago when a fed official said they were going to raise rates twice this year. there is a gap in the s&p up around 2180 or so. i suspect the s&p will find its way back to fill that gap. markets almost always fill gaps and i think that's a great selling opportunity. i think interest rates are headed higher. i think the ten-year will make it up into the low 2s and i
think the market is balanced on forever, you know, 1.5 or lower tenures balancing on unsteady ground. so i'm looking for down side volatility to develop. also, i think that relates to the election. it seems clear that mr. trump has momentum. you know that i've been saying all year trump was going to be our next president, even when he was an as remembterisk and he d ahead and has a monumental opportunity on monday to really gain further momentum. also, i would acknowledge he has the opportunity to blow himself up on monday. but if he does a good performance, i think he's going to pull ahead in the polls and kind of in a definitive way, which will not be greeted with open arms from the mainstream media, which likes to run negative articles on mr. trump, virtually every single day. and so they don't want him to win. and so there is all kinds of stories. and it leads to kind of a fear concept of the world is going to come to an end because trump might win. i could see that to down side
volatility as well. >> okay. so there are some market thinkers out there that believe that prices, particularly in the equity markets, have been pumped up by the fed a certain percentage. a certain percentage is embedded in the market, simply because of the fed's qe program. and that when the fed stops, which is basically now, that is going to unwind. are you in that camp that a certain percentage in the markets has to come off because the fed is pulling back? >> sort of. i agree kind of broadly with that line of thinking, but qe ended a while ago. qe ended at the end of 2014. and so what was interesting, one of the most incredible charts, if you run it for the past decade, is the relationship of the s&p 500 and the size of the fed's balance sheet, which grows because of qe. so when they were doing qe, you had huge gains in the s&p 500, correlated with the growth of the fed's balance sheet. from the beginning of qe, and it was on and off again. but from the beginning of qe in
'09 to the end of 2014, the s&p 500 advanced by 17% per annum. that's when qe was happening. when they stopped at the end of 2014, since then there has been very little progress. the s&p 500 has probably done about 3% per annum. so qe has been replaced with negative interest rates in other countries, and some qe in other countries. but qe has stopped the united states. i do think that the p/e ratio of the stock market should be high, as long as interest rates are very low. but interest rates have started to rise. so that should put some pressure on the p/e ratio and also profits have been really disappointing versus forecasts for about seven years in a row now. every year forecasters, the consens consensus entering the year, earnings go up 10 to 12% and instead come in at 5%. and that was five years ago and four years ago and three years ago. all of them, 5%. and then they come in at negative for 2015. and they're not looking all that spiffy for 2016. but lo and behold, the forecast is for double digit earnings
growth in 2017 and still in 2018. really kind of heroically ignoring what's been happening. and wage increases do not help profitability. so absent growth gdp. so it seems to me there is a reason for the pe to be rather high but the reasons are starting to erode and therefore, i do think that there is a certain percentage -- not so much based on qe, which has ended but based upon low interest rates and zero interest rate policies which seem to be in the process of perhaps being reversed as we look forward, fiscal stimulus as we look forward nine months to a year. and so i think that percentage that the market might be too high by -- it could be 10, 15%. >> and you would anticipate that coming out? >> i think so. i really think that the rounding top pattern in the s&p that was punctuated with a sharp gap to the down side is a negative. i would become particularly negative, and then i would be looking for a 15% drop, if we
put a couple of closes in below 2138 on the s&p 500. that's a very specific number. but it has to do with -- i think it was 2132, actually. 2132 the high close before the minor new high we saw in recent months. that was the high close, you know, several quarters ago. and when you go to a minor new high and then you reverse it, in essence, a rejection of the new high. that's what happened to the ten year by analogy here in july into september. the ten year was at 138 low back in 2012. it pushed down to 132, so a minor new low yield. but then very quickly, was back above 138 and even back above 160. that's what you call a rejection of a exhaustion move in a market or a throw-over in very jar ghani, technical terms. if we put in two closes below 2132 on the s&p 500, particularly if we accelerate, then i think we are in the teeth of a correction looking for about a 15% down move.
so i've been playing risk assets, the s&p 500 type of assets, all year on the short side, and a macro fund i run. and we're up massively in that fund year-to-date, even though we're on the short side, because this market has lots of momentum things going on. but it also has pockets that are really weak. and most of those pockets that are weak have to do with consumer discretionary. and i think consumer discretionary is a place that one should be short and i've been making money on the short side in names that went up massively in recent years. but the consumer discretionary story is a bad story right now. >> such as? and you remain short those names? >> yeah, i don't like talking about individual names i'm short. but i've been short some restaurants, i've been short some airlines. i've been short some retailers. and basically, most of these stocks are down 15 to 20% year-to-date. >> jeffrey, thanks so much for joining us. we do appreciate your time. >> thank you, melissa. good to be here. good luck. >> jeffrey gundlach of double line capital coming to us from
their brand spanking new studio here. a lot to unpack in terms of the direction of the markets which we see a 10 to 15% correction. shorts he is on currently. >> he talked about 10 to 15% corrections. the last time it happened at the end of qe, late 2014 and the zero interest rate policy which happened last december. so if he is correct that by the end of the year, we have the ten-year yield at 2.2%, that's where it was last december, when they had their first rate increase in nine years, then there is a very good likelihood, if people start pricing in a higher fed fund rate somewhere 1% in the first half of twoifts, then you have a ten to 15% correctional. >> clear on two things. one, reinflation trade. i think that works with resources, rails, em markets. and also said the rate is higher and said it's before -- not good for credit. and so if you look at high yield and we've had this conversation on the desk before, be careful on that. the 2132 number very interesting, i'm sure a lot of people poring over that one, because i think it's an important technical.
>> all right. coming up, leon cooperman charged for insider trading and a top attorney says the case is very strong and will explain why. and netflix shares down after a new report that says subscriber growth is shrinking. could original content save the company? we will explain. much more "fast" straight ahead. ♪ approaching medicare eligibility? you may think you can put off checking out your medicare options until you're sixty-five,
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welcome back too "fast money." hedge fund titan leon cooperman being charged for insider trading. eamon javers has the details. >> hi, melissa. not a good day for leon cooperman or his hedge fund. here's what the s.e.c. said. they said leon g. cooperman had illegal profits by trading in the securities of atlas pipeline on the basis of material, nonpublic information that cooperman misappropriated from a senior apl executive. the allegation here is that cooperman learned of a planned sale of a unit of the company, he increased his stake in the company and profited by about $4 million in what they call illegal paper profits when the stock jumped 31%. not so, say cooperman's lawyers. here's what they said in a statement today. they said, the insider trading allegations against mr.
cooperman are entirely baseless. mr. cooperman acted appropriately at all times, and did nothing wrong. we intend to vigorously defend against the charges and will not allow the s.e.c. to tarnish the legacy mr. cooperman has built over the course of a legendary career spanning five decades. all of this will set up a legal battle in the coming weeks here. i should tell you, according to a report from hsbc, cooperman is down 3% this year in terms of returns as far as july. so that gives you some context of how all of this comes about. >> eamon, thank you. for more on the charges and what could happen next, we bring in defense attorney james kosoaris. how much trouble is he in, in your view? >> his trouble is from a civil end with the s.e.c. and if the charges are proven, he'll face penalties, fines, perhaps a suspension or some impairment of his ability to continue with his hedge fund. but his exposure is civil and not criminal.
>> his stature within the investing community, does that make you think the s.e.c. had all of their ts crossed and is dotted before they actually introduced these charges? >> you know, it's always hard to say what the evidence is. what we do know, this is a five-year investigation. so they certainly took their time before bringing these charges. >> do you think the dodge doj steps in? >> no. the new jersey attorney, united states attorney, has been considering this. but as you have reported previously, the second circuit in newman has created a very difficult situation for prosecutors here by requiring that the tipper receive a benefit and that the tippy know the tipper received a benefit. if the allegations are true here, the information was given and given with a promise that it wouldn't be used. so the jersey attorney -- the u.s. attorney in jersey is waiting for the decision to be decided by the supreme court, but in my view, regardless of
how they decide it, i do not believe that the doj will be able to step in. >> got to leave it there. thanks for coming by. for the record, cooperman says his portfolio is liquid. he likes what he owns. there is no need for selling. although we did see some of his holdings sell off in today's session. so what do you make of this? >> well, first of all, it's very specific. >> yes. >> as our guest just said, very specific. and there's going to be a lot more innings to play out here. so i wouldn't do anything based on this one headline, because this could reverse within minutes. so just be very careful about trading off of this one headline. >> still ahead, as my mylan gets grilled, we'll hear straight from jim cramer right after the break. much more "fast" straight ahead. 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. listen to me. i am captain of the track team, and if i'm late... she doesn't really think she's going to get out of here, does she? be nice. she's new. hello! is anyone there? rrr! wow. even from our standards, you look awful. oh, sweetie, what happened? girl: me? my friend becky got to talk to this super-cute boy, and i tried to act like i wasn't jealous, but i so totally was, and then, out of nowhere, this concrete barrier just popped up. maybe it was a semi. you mean you were driving? yeah. i mean, i know the whole "eyes on the road" thing. but this was a super important text. maybe you have to know becky. texting? great. but it was only, like, 5 seconds, and i'm a really, really fast texter, so it wasn't even a big deal. actually, has she texted me back yet?
welcome back to "fast money." moments ago, jim cramer sat down with the ceo of allergan on his take of the controversy. take a listen. >> this issue is not going away. the american people deserve to be angry. and only we through self police and self regulation can fix it. a government takeover of health care is not what we need. >> for more from allergan, as well as flex, you can tune in at 6:00 p.m. top of the hour for "mad money." quickly, pete, you heard it straight from the horse's mouth. issues not going away. >> right. >> you went into mylan. >> i feel the paint has already been hit. and it gives me an opportunity.
i like the risk/reward responsibilities. it's a trade, not something i'm holding on to forever. >> i think you've got some really very real players. allergan is one of them and let's do it. these guys have a business model they need to protect, not all these guys are running amock. >> it's a slippery slope. as a ceo of a publicly traded company, duty is to make money for your shareholders. when you're in this hot seat in washington, d.c., it's very hard to defend any business model where you make money, because it's at somebody's expense. and so it's very -- >> you said a bunch of times. it plays to a lot more people than it doesn't play to. we think we understand it this, and we even don't get it. one thing, congress doesn't understand how drugs are priced. the average joe doesn't understand. it's very complex. so there is risk. but i like pete's strategy. >> all right. up next, final trade.
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>> dan. >> utilities. >> did you say ut? >> the uts. >> i'm melissa lee. thanks so much for watching. see you back here tomorrow at 5:00 for more "fast money." meantime, big "fast money" with jim cramer starts right now. my submission simple, to make you money. there's always a bull market somewhere and i promise to help you find it. "mad money" starts now. may, ihey, i'm cramer. welcome to "mad money." welcome to kramer ca. my job, not just to entertain but to teach and put it perspective. so call me at 1-800-74 p-ensemble. or tweet me at jim cramer. there are two ways, two ways to approach the federal reserve's decision today, to do nothing, keep rates low because there's still not much growth or