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tv   Fast Money Halftime Report  CNBC  October 30, 2017 12:00pm-1:00pm EDT

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we mentioned the dow and all stocks actually taking a dip as bloomberg says that corporate rate perhaps might go down gradually to 20% by 2022, raises a question of what the market is real expecting in terms of that range? >> we keep asking what's priced in maybe we're getting an answer today. let's get over to the judge and "the half. carl, thanks so much welcome to "the halftime report." stocks falling near the lows of the session on a report out of washington regarding the president's tax plan yuan mui live in did have c. >> republican lawmakers are considering phasing in the reduction of the corporate tax rate to 20%. that report does caution that this is something that's still under discussion, and the plan is not yet final, but this is something that we have heard speculated about for quite a few weeks now. readers have reported it earlier this month, and last week when i
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spoke to chairman kevin brady at an event here in washington he appeared to had. directly confirm that, that that's one idea that they want to get to pro-growth visions in the tax code as soon as possible now, the reason why lawmakers would even consider phasing in the corporate rate reduction is because they are looking for money. they have only got a $1.5 trillion tax cut that they can work with, and they have about $4 trillion or $5 trillion worth of a wish list so they really need to find ways to raise that revenue and there's a potential of phasing in the corporate tax rate it will still get you the economic growth that they want to see, but perhaps be less revenue and be less costly than going to that 20% rate right away guys, back over to you. >> shows you how difficult this process is the conversations over the state and local deductions and -- and now when exactly the corporate tax, which is one of the hallmarks of the selling points of the president's plan, when
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haul this will take effect >> yeah. you know, it's not really clear whether or not businesses would be against this. now, obviously sooner is better than later but if they can get to a 20% rate, even if it takes four or five years, if they can be assured that that is permanent and it will stay there, that they are able to get that long-term rate, then it might be something that they are willing to accept in exchange for getting down as low as possible. >> all right ylan mui with the latest for us. to discuss all of this and the impact on the markets, joe terranova, josh brown, steve weiss. joe, i don't know if the market is expecting a one-shot deal to 20% or a phase-in or not, but maybe the message here is that maybe taxes are more priced in than people think, and the market expectations are higher than people think. >> i meum. >> i mean, if you start raising questions and stocks fall, you have to wonder truly what the
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story is this. >> it's a very difficult question to answer in the wake what have we saw friday, from amazon, from google, what we're going to see this week from apple and facebook, and i don't mean to sound like dismifs, and i'm not answering your question, but those earnings were so powerful, scott, and ultimately that matters to me most, and if you tell me that facebook and apple are going to totally flop in their earnings then, yes, i'm going to be reactionary and i'll suggest we do something accordingly in the market play, but i'm not going to speculate on what's going to come out here as it relates to a tax plan. >> let's bring in peter boockvar from the lindsey group you think stocks fell on this news >> the knee jerk, yes. people should still understand that lower the corporate tax rate is an extremely important thing in making the u.s. a more attractive place to do business, but there's a key part of this that was sort of left out is that the stimulative part of tax reform is allowing immediate expensing of capital investment, so if you take that together
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with the possible phase-in of the lower corporate tax rate, it could maybe incentive advise people to speed up their capital investment because they could deduct it at a higher rate and by the time they see the fruits of their investment they pay faction taxes on those profits at a lower raid so that's the thing. we have to distinguish between what's stimulus and that's on the investment side and that's what's making america a competitive place which plays out over a couple of years. >> you think this plan is in the market at all, and if so by how much >> well, i look at the russel 2000 and i see it up 25% from the election it was up 12 straight days from the day after the election so that's had pricing in that and to what extent had, i would say a lot has been priced in, at least as we look at the russell 2000 for a proxy for the beneficiary of lower taxes >> peter, it's your buddy josh brown. >> hi, josh. >> i would love to hear your
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reaction, number one, make us more competitive with who? ireland? like are we being serious here the u.s. is not competitive? and statutory tax rates are not effective tax rates. you see the stimulus of immediate depreciation and the economy and the manufacturing part of the economy gets off to the races and then all of a sudden the fed has to move either where they say they are going to believes or even faster doesn't that blunt the edge of tax-related stimulus meaning you're going to have all of a sudden monetary rp policy go up against or even subvert fiscal stimulus, what do you even do it for in the first place, what are your thoughts on this thing? >> you're right. all else is not equal. if the economy gets a boost through this plan, well, the ten-year yield is not going to be at 238. >> right. >> and the fed is going to continue to raise interest rates, and labor costs which are the biggest piece of a company's
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expense on their p & l is going higher the numbers on that will more than offset the reduction in taxes. i mean, for example, total business debt is $13.5 trillion. 100 basis point increase in interest rates is $135 billion that alone will -- >> that's anti-stimulus. >> right now on the first point, yeah, it's a location decision, so if you're a company deciding, okay, where do i want to add jobs or build a factory, you know, on paper the idea is okay well, if we can make the u.s. had a more competitive tax region, well, maybe they will do it here rather than overseas is a because you save on taxes and transportation costs and so on and so forth it's more of a location decision in trying to lower that corporate tax rate and, yes, the effective tax rate for big companies are already around 25 so the beneficiary of lower taxes is really smaller companies, and if the pass through it will be the llc so it's making them more competitive against bigger
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companies, more so than large companies getting a big benefit from a tax rate they are already paying. >> peter, it's steve weiss first of all, did i hear you correctly say that directly after trump was elected that the market started pricing in tax reform >> the russell 2000 was up three days into the election so the third day was the day of the election and then rallied 12 days in a row and was up 16% over 15 straight days. >> i know. >> i would assume that priced in something. >> i don't think it priced in anything other than the fact that obama was no longer president. >> well, the russell is up 25% i would assume that prices in something. >> every investor i smoke to is only in the last few weeks, and they are not talking about every investor, assuming that there's something in the market for tact reform so i would disagree about that, but away from that, the average rate is 14% in the s&p and even if they phase in the tax rate and we know so little about the plan, they could still
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have the depreciation deduction up front and do other factors on the back end. >> yeah. that my point. they are going to -- a keep part of the stimulus side is having the immediate expensing. >> right >> lowering the tax rate is not necessarily stimulative immediately. that plays out over time in terms of its impact. >> maybe part of the point is investors need to temper their enthusiasm over a potential plan because the devil is in the details. the details which are trickling out in the sausage-making process isn't nearly as good or tasty as the time product. >> the fact that the market has sold off what it has today is immaterial given as joe pointed out the gains that we saw on friday. >> steve, let me make a sgloint in 2016 earnings growth was zero, but the s&p 500 ended up 10%. earnings growth this year, let's just call it so%, were up another 15%, so you can even argument that last year's rally in the s&p priced in this year's recovery in earnings. >> as well as, you know, what we're seeing in the global
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economy. >> exactly. >> which i think is taking this market higher as well and some of the foreign markets are -- >> the foreign markets are up more than the u.s. markets. >> absolutely. >> and they have dramatically lagged over the last five years. emerging markets were in a vicious bear market for five years leading into this rally over the past year and a half. >> foreign markets really excited about our tax reform rp. >> they have their own dynamics. brazil that i've been bullish on for the last two years they impeach their president that stock market in dollar terms fell 80% at the lows of a couple years ago, so, yeah, it's rallying, but it's rallying because of its own dynamic european growth is 2%. that's phenomenal for them and their markets lagged dramatically over the last couple of years. i think we can all debate what's priced in and what's not i only look at the russell 2,000 for me to gauge something whether has been priced in it's u.s. centric and less dependant overseas and very sensitive to any tax rate changes. >> yeah.
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peter, thanks for calling in we appreciate it peter boockvar of the lindsey group. we'll make it a free for all ned farver is here from cambia, steve liesman, our economics roerlt, on set, too, and here we are, you know, we wanted to begin the show that we're in a sweet spot for stocks. >> we are. >> coming off great earnings last week which justified this move in some of these, you know, high-flying growth stocks and nothing has changed that, has it >> we've got global growth and a very good gdp print on friday despite some of the concerns that we had about the hurricane, and peter is not with us anymore, but he keeps citing the russell. the russ sell largely comprised of financial institutions. financial institutions, for whatever the reason may be, maybe it's the buyback outizations that they will have in the second half. >> not largely surprised of. >> i know what you mean. >> i spent a week, scott, looking at high tax versus low tax stocks
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the high-tech stocks have underperformed the broader market the entire year, so there is something of a tax cut built into the entire market, but in terms of them focusing on the obvious money. i think this shows the market had it more or less right, that the idea of immediate gains from the tax cuts were not out there, and the idea of underperforming, why? because the growth stocks don't pay taxes. the value stocks pay taxes. >> you say we're approaching an inflexion point in the market. how so >> i would say the same thing as i said the last time i said on the show a year or two ago u.s. stocks are expensive. they will do low single-digit reports. john vogel came out and said 4% going forward, and you don't need to look at how the sauce is made on that valuation formula it's just dividend yield, earnings growth, change in pe ratio. that's it. but -- i would say the same thing now. u.s. stocks rex pensionive and hitting all-time highs
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all-time highs or in a drawdown, right? >> so maybe they are not cheap. >> why >> do you agree that stocks are expensive, quote, unquote, steve? >> i think that, number one, i disagree with your supposition that it's either all-time highs or a drawdown. >> that's just math. him. >> it's not math to me a drawdown means you can be in a steady state forward you can be consolidating market. it doesn't mean there's a drawdown forget about the technicals of that i think some stocks are expensive. i don't particularly think this market section pensive to your point because you have growth you've never had in your lifetime when else in your investing history or anybody's history have you seen this kind of global recovery? >> let me give you a great example? >> and low rates like they are >> let me give you a great example. look back at what i said a couple years ago u.s. stocks are expensive and foreign are cheap. you would say you're an idiot because foreign stocks went up even more. back to 1993, something a lot of
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people get wrong about valuation. you finished a decade of 17% returns, a lot of maine, macro guys, smartest guys in the world were saying cox are expensive and you got out of stocks and then would you have missed a 1,000% return over the next quarter century and i would say that's a get thing what are you talking about how is that a good thing you could have sat in long-term bonds instead of 9.5 you did in stocks, you did 8, you missed two massive bear markets, or you could have done what i would recommend is sit in the cheap foreign markets and pick the cheapest form globally you would earn 15% a yore. >> do you think stocks can get more expensive >> of course. >> do you think stocks can go up markedly from here >> you're saying you should have been in foreign markets since '93, is that your plan >> you should be market agnostic so you have been in the cheapest markets in the world and you would have vastly outperformed the advice tilt towards foreign. i mean, for a lot of people that
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look at the geopolitical news right now, it feels like a -- >> what are you telling an -- wait, wait, wait what -- >> let him answer the question i asked him before have you ever seen any type of investment environment in your entire life or his life or mine or in history where you've had such historically low rates and synchronized global growth >> 2003. >> has it ever existed >> that's not true. >> no? >> you can break it out. this is the problem with looking at -- >> 1% interest rates and a global recovery. 2003. >> you didn't have -- first of all, that's not entirely true because italy was flat in gdp for over ten years. >> so ex-italy. >> ex-spain has been. >> let him talk. there's low rates in 1930s if you look at japan and the entire '80s. >> pick one element. >> i'm giving you both elements. >> regardless of the diagnosis, the prescription -- i don't know the answer to that i can go at your paper later. >> i want you to do a little
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research. >> it's a very simple answer to me it's to, one, take the global market portfolio as a starting point and, two, tilt towards value. most u.s. investors have 70% in u.s. stocks, and if you have an agnostic approach you should be tilting towards value. that's a much bert idea. >> i think you're both right and you're missing one thing which is the corporate profit margin corporate margin is taking as a percentage of the gdp, some of the highest margins we've seen in a long time and less is going to workers which means profits are higher relative -- >> this is why we need corporate tax cuts for a while. >> the urgency is there. >> but when you talk about what the dangers are, if the job market gets tight, the wage bill goes up, the profit margin will go down a little bit. >> to an extent. not all that out of whack, depending on what productivity does right now shareholders really distinguishes this time from the '03 conversation that josh was having. >> the follow-on then is why
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would you want to be overweight anywhere but the u.s. at this point? >> with -- >> just given where earnings are going. >> you can get a bucket of the cheapest. >> what policy could potentially do down the road >> you can get a bucket -- by the way, my largest funds are u.s. stock fund so this is -- my best interest is the market keeps getting more expensive, that's the best interest for my work, but you can buy a basket of the cheapest countries in the world for a pe ratio about 12, 15 for emerging and 30 for the u.s. one of the most expensive markets in the world hit 45 in the '90s and japan hit 100. it can always get more expensive, but as a person that's pick out the spectrum of future probabilities it's not a future bet. >> what would you tell a household, when you use the word tilt, huge home country bias, some people worse than others. people who were advised by advisers, probably a little bit less so because global portfolios are in vogue
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especially after the year that you've h.what would you say to people how much u.s. stocks, of my -- forget about the fixed. >> right. >> how much u.s. stocks should i own in relation to europe, japan and markets? >> the definition of passive, and there's only one portfolio, it is the global market portfolio. you buy the global market portfolio, you buy everything. that's half in foreign stocks. >> right. >> that's the starting point. >> most people get more is a very active bet. >> two rules of macro finance. first that the only free lunch is diversification and second is that most people are not diversified enough, and it's because of what you just said. home bias. most people are overly invested in their home market and leaving money on the table they could get in diversify kiss in risk reducks. >> that home country bias has been reinforced. the s&p has been gangbusters. >> but the answer to your question -- >> and has left the world largely asleep. >> the answer is not mayonnaise, not mustard, it's ketchup.
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that's what the story is the u.s. has had a two or three-year head start on the turnaround. >> i totally agree. >> and now the global economies are coming in and that's the global case. >> before i let you run, we are learning apparently that the president is going to name the next chair of the fed this thursday. >> thursday. >> and the favorite is and the likely person? >> jerome powell, the fed governor, but if you're looking for big changes. i want to show you this bid behind us. take a look. you've got the seven fed governors. three are vacant i want to tell you also that we've been able to confirm that only one announce is coming this thursday, okay so you're going to basically have yellen will apparently leave, if she's not reappointed or renominated powell will take over. you're still going to have the same number of vacancies on the board, and then you've got the regional presidents. dudley will always be there. on the bottom right, one over, and the actual policy is made from all 12 of these folks if
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they are full. the presidents will keep that so you'll have -- i don't think there's a big change in policy coming is the bottom line. >> and i was going to go there next this says to me if i'm the president i like the policies of chair yellen, but i want to put my own stamp on the fed as it is. >> right, but not -- i don't think the president sort of willy-nilly my stamp i think what he wants -- >> no, but if any president male or female has a chance to name the fed, they are likely going to want to have that ability >> there's two reasons for this, scott. >> he also doesn't want to, president trump, doesn't want to stray too far away from the policies that have enabled him to say that the stock market is at a record high again today. >> so what he gets in powell is the continuity of that policy which the market has rubber stamped. you also get a guy who will sit in the testimony chair in congress when he's asked about tax cut, likely to be had a little bit more favorable to tax cuts than yellen would have bfnl the third thing he'll get in powell is somebody who has already said,
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and i happen to have broken these stories because i've interviewed him twice. you know what, i think we need to do a little more with dodd/frank and deregulation in the industry than the average fed person a little bit more progressive. still saying he overall supports the framework but wants to do a little bit more in terms of that gets a little bit more juice on his deregulatory ideas. >> thanks jontay lore said thursday evening in his presentation he spoke about the need for lifting of regulation. he spoke about the need for tax reform. >> right. >> look at the two-year. >> look what happened on friday at sock, if you guys still have that chart up of the two-year note down in rates when it became clear it was powell. the fear is that taylor is more of a hawk. there's that step. that's when the news came out. >> can you get them both is there a possibility to get them both? >> the question is how persuasive can the president be? >> it's something that the market would like to hear an economist of taylor's stature in
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the vice chair position, very much except that yellen was also an economist and you are stan fischer, expert endicator, in the vice chair spot. >> everyone is a hawk until they get the seat, by the way a little bit harder to be a hawk once you're actually sitting there, and you realize that it's all automation and has nothing to do with cyclicality. >> you don't want to be the one. >> nobody wants to be that one. >> steve, thanks. >> pleasure. >> mev, thanks as well. the dow is near the lows of the day, down about 103 point. perhaps the market is selling off on these reports out of washington that the corporate tax, one of the hallmarks of the president's tax plan could be phased in over a period of years rather than had a one-shot deal to 20% we'll continue to follow that story. again, the markets are near session lows, if not right there as you just saw. here's what else is coming up on "the halftime report." >> goldman sachs hitting the brakes on a key name in the auto
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sector the call of the day is next. plus, the pet player kari firestone says is up and down, calling for investors to buy in. >> before the break what, happens to the markets a month after a president announces a fed chair nominee? according to our data partners at kensho, three months later the ten-year yield rises the s&p is up a month later, averaging a 3.6% return. "the halftime report" with scott wapner and the traders is back in two minutes what powers the digital world. communication. that's why a cutting edge university counts on centurylink to keep their global campus connected. and why a pro football team chose us to deliver fiber-enabled broadband to more than 65,000 fans.
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the ten-year yield rises welcome back shares of gm are up 24% this year goldman says the run may be over that firm out with a note today downgrading it to a sell we've made it our call of the
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day. all right, weiss, you battled with lebenthal on numerous occasions about this stock, which has had a great year. >> it has had a great year. >> haven't battled with him lately. >> gm, well, i mean, sort of became a one-sided battle for a while given the stock's moefrgs right? >> it did. here's hoy see it. >> in his favor, i might add you know where i'm going with that. >> everything is on the time frame. >> i'm glad it got back to where it was with gernlgs i agree with the goldman call any time they cam out with a sell call i applaud it because there's so few of them and this one is well-reasoned so we saw a big pickup from the hurricane damage and buying cars pretty much at peak levels not only that, you'll have the roll-off of all the lease sales that will pressure new car prices so we're getting too excited about the future which is a lot further out in terms of electric cars, and i think that's what it in the last quarter which is a massive beat. it's a good time to take
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profits. i don't think the stocks are short in terms of fundamental shorts. >> they have had a neutral short on it, and maybe they are offsides, but do you see a downward inflection of earnings coming and that's what they say? looking for a near 30% decline. >> i understand, never a buy on it in august of 2017 had a price target and he actually lowered his price target so the belief that he has in terms of auto peak cycle coming, okay, there might be validity to that, but we live in a world where picking tops is really the wrong strategy going forward >> how long have we been having people say peak auto, peak auto, the stocks are going nowhere. >> correct. >> and general motors has had this year-to-date gain as strong as it's been. >> exactly. >> i'm not going to sit here and say here comes the peak moment it could fall, but fundamentally i have a problem with someone making that type of call
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listen, many have done the same thing in housing and many industries and it hasn't worked well it's a foolish strategy. >> it is tough to take -- tough to pick shorts in rising markets, and that's why i wouldn't be short it, but i think, look, it's a well-reasoned call. >> all right >> citi's new price target on jc penny is going to shock you today. wait until what they are saying about another retail giant and lennar, amd and office depot we'll talk about those stocks in the blitz, and we'll do that when "the halftime report" comes back in two minutes. how'd that go? he kept spelling my name with an 'i' yeah, since birth.h a 'y that drives me crazy. yes. it'smail. yes. they should know this? yeah. the guy was my brother-in-law. that's ridiculous. well, i happen to know some people. do they listen? what? they're amazing listeners. nice. guidance from professionals who take their time
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we're back on "the halftime report."
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a double downgrade, may see jc penney cut to a sell at citi paul, welcome back good to have you back on "halftime. >> let's talk jc penney first, the one we've been talking about a lot on this program. you've been neutral up until today. how long were you neutral on this stock >> for a long time we were sell for a period when we first launched here at citi two years ago, but been neutral probably for about a year now. >> a little late to tell people the floor is about to drop out or no? >> we don't think so we think the stock still has almost 50% downside and strategies don't seem to be working, even though appliances are adding a little bit to the comp the core business continues to be pressured, and there's a decline free cash flow stream at jc penney which when you consider the debt burden they have, nearly $4 billion, it doesn't leave a lot of cash flow for equity holders and we see this. >> talking $1.50 price target
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from where it's trading. >> did bill ackman kill the company by attempting to completely make it over head to foot with john johnson a few years back and having a few resources ultimately lit on fire, or was this going to happen anyway an they should have taken that big bold shot because the end result of doing nothing would have put us in pretty much the same place what's your take >> i think that's a good question i think those guys definitely saw that there was structural pressures in the business, and they were certainly taking a swing for the fences and they maybe took too hard of a swing they didn't test a lot of strategies that they were put into place they had to take on some debt. when things didn't start to work out as they had planned, and it certainly, as we havelearned now today. we see that they basically have fired a customer, and they have had a very difficult time getting that customer back into the store as they continue to struggle with traffic pressures.
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so it certainly seems like they took a shot, it didn't work, and it put us in this unfavorable position that we're in today and, of course, the structural issues don't go away e-com is continuing to put pressure on top line for the department stores as well as the margins. >> serious question. why stop at $1.50? >> as you see today, there's always a range of outcomes, and as we point out in hour note today through our clients that, you know, the debt burden is so large here, that the market value, the market cap is so small as a percentage of the overall enterprise value that you can see very wild swings in the equity value of the stock. based on our estimates today there's a dcf model to come up with our target price. $1.50 is the best guess as to what it's worth today but, of course, changes in business can certainly impact that one way or another. >> you kind of know where i was going. kind of like a leading question
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asking you that. what's the most likely outcome >> we think the structural issues remain. >> right now we're not assuming anything worse than a down1% to 2% camp and same-store sales numbers. and if we were, beginning to see that business would be worse than that, there would be downside to it the $1.50 you have to remember that the enterprise value here is over $4 billion so the cash flow, the claim on the cash flows belong much more to the debt holders than to the equity holders. >> let's move on to macy's which you also downgrade to sell today as well. macy's is going to cut the dividend, yes or no. >> another holiday coming up that's our forecast and these guys are going to struggle this holiday season, comps down 3% in that range we think gross margins remain under pressure and that would be the third bad holiday for these guys in a row and given what we
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believe the companies wants to achieve from a leverage ratio perspective, based on our estimates of declining ebitda, we feel the only way to achieve those targets are to cut the dividend and pay down more debt. >> whose real estate is worth more, macy's or jc pen >> we would argue macy's, they have the herald square store that is certainly got significant value. we're not sure that they are in the mode of monetizing that. not sure exactly what they will do with that property. they have certainly monetized some other assets already, but we don't think that that's going to be something that could provide a backstop to the stock overall. jc penney doesn't have the -- those main street locations, the large stores that have the value that that macy's herald square store has. >> any reason to believe if jc penney faces the retail equivalent of the nuclear option that -- that macy's will have the same outcome
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>> macy's is in a much better position from a cash flow perspective. they -- they make money, and jc penney at this point, you know, we have them losing money next year they are only free cash flow positive, jc penney, that is, because they have cut cap "x" to levels well below depreciation if they were spending cap "x" equal to depreciation they would be cash flow negative. macy's is not in the same position they are spending cap "x" to invest in the business they are still free cash flow positive they have money to pay the dividend if they want to, but not if they want it achieve the leverage ratios that they are looking to achieve. >> still, given all of that, you paint a prettier looking picture for macy's i still want to sell shares as far as they have -- as they have fallen now. >> we think the structural pressures just don't go away
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department stores are in a tough spot they sell largely third-party merchandise and traffic is down and as e-com becomes a drag on the business, and we believe just generally we're in an overstored environment macy's has already begun to close stores we're not seeing the benefit in terms of sales transfer from those store closings, and we think they will have to continue. >> paul, thanks. >> thanks, guys. >> before we go, this under armour, i don't think we need to belabor jc penelope and macy's anymore we have. under armour downgraded to a sell at bank of america. we expect given the highly promotional landscape under armour will need to lower their guidance and expect to do so in the conference call this week. they believe north america, the environment has sequentially worsened since the second quarter of '17. >> i looked at the valuation again today, and it's still not a cheap stock. it's still priced like a growth stock, even though it's cratered so i do think there's more downside they are completely xhcommoditid
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business i wouldn't own it here, pure and simple. >> let's go to sue herera with the latest headlines hi, sue. >> hi, scott hello, everyone. here's what's happening at this hour a third advisers to president trump's presidential campaign is facing criminal charges. george papadopoulos pleading guilty to making false statements to fbi agents he is an international energy lawyer who was part of president trump's advisory team during the 2016 presidential campaign. the white house saying president trump is expected to announce his choice to chair the federal reserve on thursday. "the wall street journal" reporting that he's likely to pick federal reserve governor jerome powell for that post. a judge has denied a mistrial motion by new jersey senator bemenendez in his corruption trial attorneys filed the motion over the weekend accusing the judge of unfairly limiting what evidence or witnesses they could present. the judge saying the motion had no palpable merit. and americans should plan to pay more for pre-cut christmas
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trees. the shortages are deepening from the country's two top producers, oregon and north carolina. 15 years ago there was a glut of trees forcing many farmers out of the business, but now the remaining farmers are struggling to keep up with demand that's the news update this hour ty is here with what's coming up on "power lunch." >> thanks very much. coming up at the top of the hour on "power lunch," hope you'll join us. markets reacting negatively on the news out of d.c. about tax reform we'll tell you what it is and we'll break it down. ale hitting all-time highs do you buy the rally or wait for a pullback on apple? and lennar buying cal atlantic in a $1 billion deal. total value creating america's biggest home builder lennar's ceo will join us, and before the break let's take a look at your european close as eru see basically flat numbers ov on continent. halftime report back in two minutes. the trends, driving specific sectors of out performance. where a rising middle class
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let's do the trader blitz. lennar announcing plans to buy cal atlantic $9.3 billion creating the largest home builder in the u.s. >> they overtake d.r.horton and ceo stuart miller was incredibly confident. both companies have to be incredibly confident about the
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overall housing industry itself to do this deal. i think it's a good deal i think the stock continues to be something you should own. >> josh, amd, morgan stanley goes to underweight, ie sell. >> yeah. look, the stock is down 25% since october 25th this is incredible but it's really not incredible if you've been aron for a little while. the lesson here is don't buy the stock just because the ceo is associating the company with all the right buzzwords. they are talking about ai and virtual reality and all these things and people looking at nvidia trading at 150, 160 saying we could buy amd for 13 it's in all the same things. it's cheaper it's not cheaper cheap section pensive. this thing has been hammered for the right reason. >> office depot downgraded to sell as well by jpmorgan steve? >> look, these companies have been, and i know i've used this word a couple of times today, commoditized staples is a formidable competitor, and mason, et
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cetera, so value players keep getting sucked in here and it hasn't worked. i don't think it works yet. >> another knock on big pharma merck is falling after a downgrade. we'll debate that sector and talk about the stock and give you a related name one of our traders says it's about to go the other way and jump "the halftime report" is back right after this i've been thinking.
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we're back on "halftime. shares of merck having a bad day
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wherever withdrawing a application for a key drug meg tirrell here with more on what's dragging the shares down >> reporter: shares performing this way today and closed down 6% on friday this is when we got two important pieces of news on merck's important cancer drug. the company got three downgrades today based on worries about overreliance on this drug. this is the new immunooncology drug which harnesses the indy's magic money system to fight cancer on friday they said a key clinical trial would have its results delayed until 2019 so they can assess how well the drug helps patients live longer versus the compared arm in the study and that's going to be delayed. friday, after the market closed, merck said it was withdrawinging a european application for approval of that drug in a specific indication of lung cancer presumably because it's going to need to use those data which are going to be delayed in the clinical trial to support that approval to give you a sense of how big
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this market is, it's about 120 patient a year according to isi, a $15 billion potential market coming on top of a terrible week for earnings as you can see here and really a tough week in the drug pace. >> no doubt. stick around we're going to bring in terry firestone, ceo of arias asset management and you were adding a health care stock, or at least you're watching it ahead of its earnings which one. >> has a stock we've owned for a while. they report hon thursday and it's really the only pure play in annual health merck had a tough quarter overall but its annual health division was really very good. lily had a tough time with it and division, but that's really a problem that has persisted over time with lily. so we really like the profile of what they cover on the livestock, and pet care business they have really been growing earnings and the stock is up 20%
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this year. a little ahead of the health care s&p group, but we think it has more to grow, and we think that its introductions of antibiotics will be very strong this year. they are doing well on the livestock side as a matter of fact, global gdp which is up as we know is a positive for the livestock business, and 50% of their sales are overseas, so it's a name we like here. >> would you add more to it if it slipped up with earnings. >> yes, definitely we definitely add and we're looking as as possibility. we hope that they beat and the some moves higher. i mean, can i tell you firsthand that on the new antibiotic plavamax that had the new ceo loves it hand not spits out will pill like most dogs do. >> on the point tharp was being made about zoetis being the only
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pure play, there is a suggestion about what little codo with its own unit, no >> last week during earnings they are said they were looking for its own animal health unit and zoetis was sped out from pfizer han this is a trend we saw companies starting to spend off the units they don't consider core to their businesses >> stocks trying to get a fire stone pop there. getting hammered today and some of these other names >> when you talk that over valuation, it was merck selling at 35 times this year. there's growth built in from these new drugs. if the drugs don't happen you have the vulnerability there that's the issue they are getting biotech multiples and not deserving of
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it >> i think this points towards bristol myeie yeie imyers. the thing that is peculiar to me is i don't understand why the announcement made friday night was not included in the earnings that's rather odd that was done. i think that has made the situation worse for merck. >> thank you we'll see you wback here on the set soon finding some unusual amtivity in a pharma ne. see which way the options market thinks those stocks will go. you'll see it next
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we're back pete, you're up first. >> we know the story about how it's been on a rocket ship all year we got melco crowns earnings coming out they are buying the november 24 calls. those are just out of money. over 10,000 of those are being bought today around 50 cents. i own the stock. i added some calls today i like what i'm seeing there this name is not moved at the same trajectory level.
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i got another one for you. you were just talking about merck. i'm going to give you pfizer about 10,000 of these were being bought today as well they are being bought here as well i think those are protectprotec. this is not far off the 52-week highs we were hitting the other day. these are at the money calls scott. somebody looking for this to move earnings are tomorrow morning. i already own the stock. i already own calls. i did not add to my calls. >> don't you own merck also? >> i do own merck. i agree with everything. stephen broke down the pe level. that's the most important part now. i've looked back at 50 it seems to be a base have we seen any options in there? absolutely not nobody is saying the turn is in yet even though we had the sell off last week and today. i'm going to wait on the sidelines to add but i still own merck. >> good to know.
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what do you have today >> hey, judge. i see unusual activity in navida stock has doubled this year. now they are buying the 205. these are weeklies everyonings are next week. watch this very closely. also abbvie. they are buying the calls. it's made about a dollar a bounce i bought these calls i'll be in those about ten days. i'll be in the others two to three days >> good trip to london >> fantastic a lot to tell you when i get back fantastic trip tnkoulook forward to that >>ha y his late 50sne of our investorsn right in the heart of the financial crisis, and saw his portfolio drop by double digits. it really scared him out of the markets. his advisor ran the numbers and showed that he wouldn't be able to retire until he was 68. the client realized, "i need to get back into the markets- i need to get back on track with my plan." the financial advisor was able to work with this client.
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we're back restaurant reservations can wait >> i just show up and i get a table. >> there you go. you let all of america go that you're looking for a table somewhere. you got a final trade for us >> i do. i bought apple calls on friday i bought some more this morning. i think you got a free quarter it's all about the demand for the new iphone x you don't even have to own it thursday >> we'll see it on the decembsk tomorrow >> really in. >> yeah. >> you giving it to me as a gift >> a source is bringing the iphone x on the set tomorrow
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>> really. >> i would have expected more of a selling presence today it's just not happening. i think that's good. >> oil above 54. >> diamond back energy >> good stuff. thanks power lunch starts now here's what's on the menu. investors reacting to new headlines coming out of d.c. what happens if we don't get the tax plan many are hoping for this comes as we gear up for the biggest week of the year for the american economy we'll break it all down straight ahead. developing news at this hour on president trump's former campaign chief paul manafort set to be arraigned. minutes away "power lunch" starts right now


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