tv Power Lunch CNBC August 13, 2019 2:00pm-3:00pm EDT
>> john is with the economic innovation group >> and that does it for the exchange today thank you for joining me i'll go join tyler and melissa for "power lunch." >> thank you very much indeed, we will see you in a moment welcome, everybody i'm tyler mathisen here's what's new at 2:00 on "power lunch" for a tuesday. remarkable rally stocks moving decidedly higher as the white house takes a bit of a breather, cooling it a little bit in the trade war with china. and all it took, apparently, was a phone call we have the details. plus, despite the market euphoria, tensions in hong kong erupting as police and protesters face off at the airport and president trump tweets that the chinese government is moving troops to the border we will follow the situation throughout the hour, as it unfolds on a tense night over in hong kong. >> later, retail stocks moving higher after a delay on tariffs, but as the brick and mortar apocalypse continues, the relief may be short-lived
we'll talk about that when "power lunch" begins right now >> welcome to "power lunch." i'm melissa lee. a wild day for the market. the dow now up, look at that, almost 400 points. 1.5% wiping out yesterday's losses on track for its best day since may. the nasdaq is now up just about 2% as tech leads the charge higher. and check out shares of apple. having the biggest impact on the dow, it is up about 4% its best day also since may. kelly. >> thanks. we begin with a phone call that turned the markets around. kaley tausche has all the details of what took place >> the details we have about the call are coming from china actually commerce minister and hard liner jong chun, and leo ho were among principals from beijing along with robert lighthizer and steven mnuchin representing the
u.s. chinese tv said the u.s. asked for the call, but declined to provide a read-out or comment whether in-person negotiations in september were discussed. president trump on twitter implying there was a discussion of agricultural products, more of which he's wanted china to buy. beijing said it would consider those purchased but not commit to them, but trump tweeting that maybe this will be different unclear exactly what this is what resulted from the call, though, is a delay in some of the tariffs that would hit consumers hardest, with president trump this afternoon acknowledging he doesn't want to be the grinch. >> we're doing this for christmas season just in case some of the tariffs would have an impact on u.s. but so far, they have virtually none >> of course, there will still be a large set of tariffs that would go into place on september 1st at 10%, but melissa, things like toys, smartphones, and some
apparel and shoes, those would be delayed until december 15th >> i guess get your christmas shopping done early. thank you. kayla tausche. let's get to bob pisani at the new york stock exchange on more of what is moving the big relief rally. talking about grinches if there was one grinch, it would be the bond market, which seems to have barely responded to the response sentiment on equities >> woor up a little bit and moving in relation -- the market hit the highs around 10:30, and that's when bond yields were hitting their highs for the day. not as perfect as it has been recently i want to point out what kayla said, the toy makers are loving the comment on the tariffs you have apple moving and caterpill caterpillar, but mattel is up, hasbro is up hasbro issued a statement about their appreciation we appreciate the administration listening to our concerns. we believe this will help mitigate the impact on u.s. consumers this holiday season. we're also seeing very heavy
volume in cyclical etfs that are tied to trade. so technology, the xlk, financial, xli the industrial, xlf is financial. xli is industrial. consumer discretionary, much heavier than normal volume same with the asian etfs hong kong etf, tremendous volume today. rallying today taiw taiwan, singapore, and the emerging market etf, or heavy volume than normal back to you. >> bob pisani at the new york stock exchange a major escalation in the situation in hong kong as protesters and police clash at the airport earlier today. and we just had president trump tweeting moments ago at the chinese government is moving troops to the border as the tensions intensify for more on the hong kong protests and what it could mean for trade negotiations with china, let's bring in fred kemp, president and ceo of the atlantic council fred, welcome back
it seems that whenever we visit, bad things are happening, but we'll take that as it may be let's talk about the situation over in hong kong. i saw stories last night that hong kong or chinese mainland police were massing near the border in shenzhen, going through exercises. how much of this latest news do you feel is a real portending of a crackdown? >> well, there's a lot that's chilling right now over the weekend, we had some of the most violent scenes we had we had the shutting down of the flights to the airport you also have new language in the chinese government-controlled media, calling the protesters terrorists and that's totally new language. the real question is, is this a bluff on president xi jinping's part to put pressure on the protesters to stand down a little bit can hong kong restore order
itself giving the protester as little bit of what they want. it's looking more and more unlikely that that's the case. beijing is saying, and i read regularly an editor of global times, and he says it is hoped -- he speaks for the government when he sense out these tweeds it's hoped hong kong can restore order by itself. that is the best end if the development of the situation suggests there is no hope, beijing's intervention will be inevitable it's a hard choice, but once it becomes the decision, it will be a firm one he very often is speaking for the government i think we have to take for granted in this case he is >> when the president says this is fundamentally an issue between china and hong kong, which is a part of china, do you think that that position is -- will be enduring, if things escalate, will he be able to use that kind of language? >> well, let me talk about how the two things are linked, trade and hong kong.
the move to december 15th is not an accidental move for the deadline for the tariffs for president trump. october 1st is the 70th anniversary of the peoples' republic this is a really important time. president xi cannot be shown to be weak either to the united states on trade or the protesters in hong kong heading up to this anniversary he needs a clean hong kong before the anniversary so you really have to imagine things are going to happen this month, early september at the very latest in hong kong. either order being restored in a normal way or the nightmare scenario, which is a violent crackdown in hong kong, which inevitably will worsen relations with the u.s. at the same time the trade disputes continue. i think that's what everybody is really most worried about. >> at the same time, fred, hong kong is an important conduit for investment for china, particularly, including xi's important belt and road initiative, so it's not necessarily, i understand wanting to crack down and clean up the situation by that important anniversary, but
there's a delicate balance also to be struck in that you don't want to headache it seem like hong kong is no longer a financial center because you risk that investment not coming in to china where it's needed. >> yeah, i couldn't agree with you more on that i think the last thing president xi jinping wants to do is use force and military force with beijing's fingerprints on it to bring this under control if he has no other choice, then maybe that's what he'll end up doing. there are also mixed feelings in china about hong kong. so the better hong kong does, you know, on the one hand it's really great for china and great for hong kong, but there are also rival cities within china that wouldn't mind seeing hong kong being brought down a notch or two in terms of an attractive place for global investment. >> all right, fred, thank you very much, as always good to see you. >> good to see you thank you. if you didn't look at the dow today, and saw the hong kong protests, argentina's selloff
amid political uncertainty and u.s. bond yields nearing record lows, you might not think the markets would be up nearly 2% today. so why is even the slightest positive headline on china outweighing, it would seem, everything else? david is managing director and portfolio manager with ankora. noah black steen is portfolio manager with dynamic funds you say we're living in policy hell does that mean you really can't invest fresh capital right now not advisable? >> no, i think you can i just think you really need to sort of go through the noise of what's going on. you can't time the next tweet. you can't time the next overnight pegging of the chinese yuan if you really focus on companies you know or you have a good outlook for the next three to five years look, back in 2012-2013, we were talking about the pigs, portugal, italy, ireland, greece, spain.
talking about spanish banks. this company calls facebook goes public, trades between $20 and $30 a share in the '13-'14 timeframe and then goes over $200 if you're an investor today, the best thing to do is go more mike row and focus in on individual companies, not bigger secular trends because trying to trade these macrothemes, whatever the overnight pegging is or tweet is is impossible. >> do you agree with that, david? it makes sense to me that amid all this uncertainty, the best thing you can do is stick with your plan and do what you were doing. >> always a long term formula that works, tyler, and that's a more concentrated, high conviction portfolio, i think, will proof positive in the long term with a long term focus on companies with superior cash flow, who are very shareholder driven, good allocators of capital, and this year, just to remind you, we had a
conversation last december, and the message was when the market was on its back, this year would be to bet the over, above average year it's still going to be that year in 2019. the only concern i have in the near term is i have listened to so many earnings calls, second quarter numbers were good, but the guidance was below expectations on a 1 to 10 scale, about a 3 or 4. that's why i think we're not out of the woods even after a nice pop today. >> all right, we're going to take a pause, gentlemen, because we have breaking news on cbs and viacom, officially announcing a merger deal. let's go to alex sherman who has been monitoring this >> so yeah, this has been three years in the waiting, but it's finally official after several starts and stops cbs and viuconn officially agreeing to merge. it puts to rest a saga that has gone back and forth, of course, les moonves leaving as ceo of cbs last year, and then cbs refreshing its board, really talking to viacom's board all
year long. exploring various different options, trying to figure out is this the best path forward it puts these two companies that were one for many years up until 2006 back together under the de facto control of sherry headstone, who controls national amusements, the holding company. sher shari redstone is the ceo of viacom and redstone. it shows so many mergers in the past two, three, four years now, and cbs and viacom are two companies, each less than $20 billion market cap, that need to get bigger to compete with the netflix and amazons and the other legacy companies that have already gotten bigger. this is a step forward, and it probably won't be the last acquisition from this company that is going to be called viac viacomcbs, all one word.
>> let's get back to our guests and talk more with david and noah noah,if you had a sector that you would lean toward in the current market, what would it be >> look, i think that there are numerous secular growth trends that are continuing, whether it's in health care, and you're looking at combination therapy, whether that's in cancer treatment or new medical devices. whether it's 5g is finally coming and it's going to have profound impact, especially on industrial applications. or you're looking at the continued digital transformation of enterprises these are secular themes, regardless if the economy slows down in the back half. i assume the stocks will pull back as well, but we're not rolling backwards to ordering software off floppy discs anymore. so where you have the secular trends that remain intact, those are areas to focus on. the area i would avoid completely is the bond market where your best case scenario is a small loss your worst case scenario is a
total loss i think focusing on individual companies, focusing on the trees and not the forest, is really critical at this juncture. >> all right, and finally, to you, david, what areas or individual names do you have your eye on right now? >> sure, quickly line to the value side high free cash flow, faster than average dividend growth. so to complement the conversation, health care, amagain is a stock that i own in the mutual fund i co-manage. on technology, broadcom is offering a yield 100 points above the basis high free cash flow. those are a couple examples i would look at with a theme of lean value, lean cash flow, dividend growth. >> noah, one follow-up to what you just said about being exposed to fixed income now. you think, we could be talking about a total loss of capital? >> well, so if things -- let's say you're in europe and buy a bond you're guaranteed a small loss
if you hold to maturity. if you're holding it for a few years and interest rates go up, you're guaranteed a big loss if things get completely worse, i think european banks are trading at their 1987 lows if they get worse, you're at complete loss for default. i don't know why people keep calling it the risk-free aslt, but apparently, risk-free means a small loss with a potential for a big loss i don't see how to win i think you can do better trying to find individual companies but if you buy negative yielding bonds, it's an amazing time we're living in, for sure. >> net of inflation and taxes, that's the riskier investment if you think about a five or ten-year horizon agreed >> thank you very much noah, david. appreciate it. let's get more details on the viacom/cbs merger. bringing in david ferber on the news line. >> hey, melissa. how are you doing? >> good. what's the latest here
>> i think what's interesting of course here is the third time proved the charm, but it's been an awfully long road to get here, as you well know, and having followed every step of the way, i can certainly tell you that as well this is a combination that many thought would have taken place at this point years ago. but was stymied for a variety of reasons. the first time around, after shari redstone had taken back in a sense not control of the company but taken over her father's affairs and control of the company through that way, a number of years back and gotten rid of philippe domonas the ceo, there was an expectation it would move very quickly to a deal with cbs. they were unable to agree at that point on social issues but as much on economics fast forward, try again. as we well know, and as i detailed time in, day in and day out, of course, the problems they had in trying to get a deal through leslie moonves, wanted full control in terms of his ability to appoint the number two, in addition to being, of
course, ceo of the combined company, and then mr. moonves maying the unprecedented decision to sue his controlling shareholder and the ultimate litigation and his ouster, of course, with the charges of sexual misconduct. fast forward yet another year, and frankly, this time last year, there was an expectation of early this year, they would start the talked, melissa, and they finally got there many of us expected they would announce a deal as soon as april or march of this year, but cbs' board really took its time, going over every single thing they possibly could, demanding certain things in terms of the competition of some company's board, and focusing on the social issues prior to getting to the economics which they were able to deal with in a relatively quick fashion in the last few days. here we are, but the knegz is how much has the landscape changed since they contemplated putting the companies together
they had been partners for roughly five years until mr. redstone decided to split them apart >> the stocks are barely moving on this. perhaps,ilitieser to your point this deal had long been anticipated. the call, i understand, is at 4:30 p.m. this afternoon in your mind, what are some of the outstanding questions still for this new management team >> yeah, i think obviously they're giving all of the reporting that has taken place prior to the final announcement or the announcement today, as you point out, the facts have adjusted to a certain extent we're expecting an inflation of the ratio that came in more or less in the realm of what many anticipated. the key questions are now, do they still have enough scale can they compete in the world you talk about every day, melissa, when you discuss netflix and discuss, of course, disney, which is now the owner of fox and seems to be launching its direct to consumer services. cbs has started all access viacom has an adod, a video on
demand purchase that is trying to grow quickly. but are these enough to compete in what we know are these rapidly changing times that remains a key question, as do the simple things for example, the cbs contract. yes, it's not up until 2022, but the fact is that often times they can begin to renegotiate those a year or two years in advance. who is cbs going to be meeting on the playing field to compete for those rights and will they be any better capitalized competitor even with viacom in the fold so there are plenty of questi s questions, although i will say viacom was able to answer a key one that existed eed a year ago did manage to do that. the economics of which remain fine we don't always get the exact nature or terms of those deals, but at least they got the deal done in terms of the agreements
they had outstanding >> david, thanks so much for phoning in david faber on the cnbc news line the ceo will be on "squawk box" tomorrow so you won't want to miss that. >> a relief rally for retail best buy, dollar tree and kohl's, but is trade progress enough to solve all of retail's problems, and a big interview coming up. this is a different big interview. lots of big interviews on cnbc tomorrow on squawk wilbur ross joining squawk at 8:00 a.m. eastern time "power lunch" will be right back
retail stocks valley as the u.s. waits on tariffs that weighing on the group. even with some tariff threats removed, retailers have been under pressure as they deal with the seismic shift of how people shop more than 1,000 department stores have shuttered their doors and windows in the past decade and more could join them cnbc.com retail reporter lauren hirsh joins us to discuss the great department store shake-out we're seeing in retail great to have you with us. we talk about retail these days in context of tariffs, but xrt had been a sick chart long before the tariff threat >> right >> even with the threat lifted, the troubles are still there for the sector >> the troubles are still there. they have been there for a very long time. when i talk to my sources, they basically say department stores are in a long decline, not anyone really sees when that's
stopping as an example, nordstrom about a year ago, rejected a private offer for 50 a share it's now trading more than $20 below that that's how much we have seen everyone fall in a year, and this is part of a much broader decline. >> would the tariffs have caused that shake-out to happen faster? >> i think tariffs certainly would be bad news and certainly the stock market has been reacting to them, so it would have been a further pressure but i think tariffs are not department stores have a really big problem on their hands >> who lichbs in the cross section of those hit by tariffs and those stores that were already ailing >> i think for them, i think the tariffs, as i said, the tariffs are there as an issue, but the bigger issue is who lives and who has the fundamentals to survive. one name people often mention to me is nordstrom. i don't know the last time you were in them they have a smaller footprint than macy's which has several hundred stores and it's known
for its customer service my sources have told me there's a controlling family trying to increase its stake, and part of those erchts is because they and others think they may actually be a survivor. >> lauren, why don't you stick around we want to bring in charlie of moody's for who is best equipped to survive this retail upon almost charlie, if we removed all threats of tariffs, would your view on the companies on the verge, would that change >> if we removed tariffs, yeah, it probably would. >> it would, so it is a factor >> if you're a distressed retailer and that for us is caa rated and below, and the tariff announcement comes, if you're the ceo, you're on the front porch looking for the locusts, because how many more things could go wrong with these people they had to deal with amazon, walmart dealing with amazon, everybody dealing with walmart and amazon, and then the whole secular shift online, and they don't have the money
and money talks in retail. and it gives you a lot of flexibility as we are seen with some of the better retailers and that's the game. the game is you have to be nimble, you have to be able to invest a lot of retailers just can't do that they're just buying time right now. >> there are a lot of retailers whose credit ratings are severely debilitated at this point, but not a lot of them necessarily are publicly traded companies. in terms of the publicly traded company sphere, which retailers' debts are most concerning to you? >> if you look at our list, and i think there's 14 names on it today, and i'm going off memory now, the public names, and i'm not besmirching anybody, but probably the biggest public name on that list is jcpenney, but they have liquidity, and that's been helpful so far. >> they're under threat of being delisted, the equity is struggling to hold a buck. >> we're credit analysts the equity matters at certain times, but when we're
looking at these companies, i'm speaking solely on credit. i'm not speaking on equity values or anything like that we have penney rated where we think it belongs right now >> what about others of the big sort of big footprint department stores i get the charming shops and others that are of a smaller scale may have their own individual issues, but what about some of the other big ones >> macy's is a great example as i said -- >> stock is way down >> stock is way down, and maybe for good reason. the bigger you are, the harder it is to adapt, right? if you're fighting against smaller brands, if you're fighting against regional stores, how do you do that if you're macy's, and you have several hundred stores, many of which are really, really big, and a lot of them are in malls that no one is visiting, so everyone talks about how does macy's fix that and take advantage of it, that's a great question, but what does macy's do about a store in iowa that no
one is doing to and it can't get out of that's a bigger problem for them that's one that a lot of people i talk to are watching closely >> where else in the credit area are the weak spots which other stores >> any retailer that has got a financial sponsor owning it is potentially at risk because the thesis there - >> meaning a private equity, a personal investor -- >> yeah. meaning -- >> weaken. >> the thesis is as much debt as possible with as little equity as possible. as we have seen with the bankruptcy certainly in retail, they have been heavily weighted toward financial sponsored companies, distress is heavily weighted to financial sponsored companies. these companies don't have the flexibility to make investments. they're too worldies about making interest payments and dealing with the next debt maturi maturity they can't deal with everything else facing them >> charlie, i feel like every single year we have you on and say this christmas is going to be extremely critical. a number of retailers that go
out of business because of what goes on during the christmas shopping season. but this year, given the tariffs, given the further weakened state of retail, is there a bigger list to watch for? >> i think so. i definitely think so. at this point. and the cautionary tale on tariffs is what we just saw. they're announced but maybe they don't get implemented. we have taken a cautious and patient view of what's happening on the tariff horizon and the impact it may have on our companies. >> lauren, also, you mentioned the real estate in macy's case, owning harold's square is a huge asset. probably a lot of the company's value is tied up in that, but all of these other leashes in other parts of the country, is that holding then down what do these retailers do how much leverage do they have to make or break these leases? >> it's holding them down. barney's is private and much smaller, but i did a lot of reporting on barney's and them filing for bankruptcy. one issue was their rent, they couldn't get out of it
their lardland said, fine, go into bankruptcy. i'm not lowering my rent that shows you the power play and it's not with the retailers. >> thank you >> time now for trading nation one dow stock that has been shaking off the august doldrums is mcdonald's, rallying 4% this month. the best performing on the blue chip index and the street sees no sign of it slowing down mkm joins 24 otherses with a buy rating we have your trading nation team both of you come to the same conclusion, but maybe by different path mark newton, you thing this stock is overbought. explain why and what has happened in prior cases where mcdonald's has reached these levels of what you would call overboughtness >> hi, tyler so the stock right now is showing an rsi of right near 80, rsi meaning relative strength index. historically, this has happened five times in the last 25 years,
and four of those five occasions, the stock has been sideways to down so honestly, i think the stock is setting up to be a mcbust with regards to mcdonald's it's had a stellar run it's doubled over the last four years, but the past in this case certainly does not equate to a bright future in the next couple years. so i would not put new money to work at current levels i think it's very stretched. it certainly is in need of consolidation, so when these trends start to break, you really want to pay attention to that, and my thinking is that should lie over the next two to three years. >> clint, you have a similar conclusion explain your reasoning >> sure, tyler long been known as mcdonald's is really just a real estate company masking as a burger chain, and ultimately over the last several years, they started to act like that, levering up the balance sheet. you now have a company trading eight times sales, negative book value. traditionally, this is a stock where it does not pay to chase
at these levels fundamentally. the dividend is 2%, not all that great. you're going to get better yielding in some other areas it's not that we don't like the company, the brand, even, you know, in better environments, the fundamentals, but they're getting the benefit of the low interest rate environment. if that turns, the talk is going to come down quickly i would not be a buyer here. >> two thumbs down on mcdonald's mark and quint, thanks for more trading nation, head to our website or follow us on twitter. @tradingnation >> ahead on "power lunch," oil prices climbing more than 3% today. we'll bring you the closing numbers next >> plus, markets rallying on positive trade news. but recession red flags are still waving how economists are interpreting the mixed signals. >> and geopolitical hot spots. what the hong kong protests moon for global investors all this when "power lunch" returns. >> and now, the latest from tradingnation.cnbc.com and a word from our sponsor. >> volatility spikes are nuio
welcome back, everyone i'm sue herera here's your cnbc news update at this hour. the united nations top human rights official condemned violence at hong kong's pro-democracy protests and called on the authorities and protesters to solve their dispute peacefully a spokesman for commissioner michelle balchet said she was concerned by the recent escalation of violence >> she calls on the authorities and the people of hong kong to engage in an open and inclusive dialogue aimed at resolving all our issues peacefully. this is the only sure way to to achieve long term political stability. >> national security adviser john bolton met with britain's executor of the czecher. they were ready to nextate a post-brexit dale with the uk in pieces to help speed the process. >> bothered by overcrowded
commercial flights check out vincent's flight from aspen, colorado, to salt lake city, utah he was the only person on the plane. he was personally greeted by the captain and the flight attendant's welcome announcement said good evening, vincent, and welcome aboard why does nat never happen to me? >> you got a middle seat >> that's right, exactly of course, he's going to pick the middle seat, right guys, back to you. >> all the peanuts he wants. >> that's it >> sue, thank you. sue herera let's take a check on the markets. we continue our rally, risk on sentiment is in firm hold here dow jones industrial average up by 427 points. 1.7% nasdaq is up by 2% s&p 500 up by 1.75%. leading sectors today, no surprise, technology, financials, skurm discretionary, and communications services. >> the oil market is closing for the day. let's get to dom chu at the commodity desk >> all it takes is a headline. we have west texas intermediate
off its best levels of the day almost 4% to the upside. brent crude futures, 4% to the upside $61.22 for wti, the move takes prices above their 50 and 200-day averages their medium to longer term price trends brent trades at a higher price than west texas intermediate, but that gap has been narrowing. up next for oil traders, you have the american petroleum institute report, 4:30 p.m. eastern time, and of course, the official u.s. energy department numbers coming out tomorrow morning, 10:30 a.m. eastern. >> thank you very much new report out today with rather scary numbers on how much debt americans are carrying and kate rogers has the details. >> hi, tyler the new york fed released its latest report on household debt, showing household debt levels including credit cards, student loans sxrk morkages are at the highest levels since 2008.
aggregate household balances increased by $192 billion in the second quarter, hitting $13.9 trillion, more than $1 trillion above the previous peak hit in 2008 this is the 20th consecutive quarter of increase for total debt levels there. mortgage balances have increased $162 billion from q1 to q2, hitting $9.4 trillion. this exceeds the peak hit in 2008 of $9.3 trillion. mortgages are also the largest component of household debt, making up about 68% of the total balance. the report also says that 232,000 consumers had bankruptcy notations added to credit records in q2, up from 225,000 last year, and a recent report separately from the american bankruptcy institute found that bankruptcies increased by 3% in july of 2019 to just under 65,000 but despite this troubling trends, delinquency status has been falling since hitting a high in 2010 >> more debt in nominal terms,
but mane fewer people are distressed over their debt is that a fair characterization? >> that is true. one other thing i would like to point out, student loan debt down $8 billion from the previous quarter, but about 10% delinquency rate of 90 days or more >> despite looming recession fears on wall street, neither that nor geopolitical concerns have stopped today's rally, but is the u.s. really in the clear? joining us now are kaleb sillsby, chief portfolio manager at whittier trust, and michelle is manager director at nat west markets. michelle, first to you how does the consumer picture look to you? on the one hand, the spending numbers have been strong, but are they sustainable if we're talking about all this debt? >> first of all, the debt service numbers are very low, so when we talk about an aggregate the stock of debt outstanding is high, but with low interest rates, consumers are in a strong position to be able to service their debt, and of course, strong fundamentals with a good job market and a solid economy,
which we are continuing to enjoy, all bode well for debt not being a problem. i think when you talk about the consumer overall, right now, the picture is quite good. you can see that in the spending numbers. i think we'll see later this week, you can see it in confidence numbers holding up. the only concern would be to the extent that if tariffs are put on, the picture deteriorates for now, the consumer is unquestionably the strongest part of the u.s. economy >> it is interesting, and this is a little bit from left field, but the fact that people are borrowing so much to sustain their spending power to me suggests there is not a negative time preference for money. this is a big discussion point, you know, at pimco and others who say there's maybe a reason why we should have structurally lower rates these days do you buy those arguments >> from my standpoint, when you look at the levels of interest rates, it's not a bad decision obviously, for consumers to make the choice to borrow on credit
the savings rate is very high. well above levels that you would expect to see given the level of interest rates and the strength of household balance sheets. it suggests to me that consumers aren't being forced to take on, you know, credit in order to sustain spending there's a lot of cushion there, and i think part of what explains the story is they're making a very rational decision in the face of low interest rates that this is a way, a very smart way to be funding their purchases. >> although kaleb, on the student debt side, we know maybe there's kind of no other option there given the cost these days. let's bring it back to the market obviously, today, a big relief rally because of the tariffs being delayed. what now how would you recommend people have exposure? >> yeah, i think the market wanted to rally, didn't want to sell off just on hong kong you have extremely low interest rates, so in terms of the other option that you have, you want to make sure that you're investing in assets that have good cash flows. so if you're investing in
negative yielding securities, that's obviously not going to be a winning strategy over time so yesterday - >> one of the obvious things that still needs to be said, i guess. >> exactly so you saw the sell-off yesterday. you're seeing the relief rally today. it'siesy to forget about yesterday's sell-off >> the only thing i would say, when you say investing in negative yielding securities does not do well over time, the tlt, the etf tracking long term u.s. treasury debt is up almost 20% year to date you have people who are in these things because of the price appreciation and now with all of the talk about central bank moves, maybe adding leverage to those trades. >> yeah, i think you can do that for a little while, and we have probably come to the end of that i think very difficult position for jay powell to be in right mow. you saw cpi data this morning and cpi showed you should probably be maintaining rates or even raising rates given where we are in the economic cycle the curve is essentially flat, if not inverted, between twos
and tens we're within one basis point of inverting today. so if you're jay powell, it's a very difficult decision on how many times to cut. do you cut in september, do you cut again in december? >> do you think there's going to be a recession in the u.s. in the next 18 months >> we don't see a recession in the next 18 months we think we're importing low interest rate from overseas, disinflation from europe, and that's going to prolong the cycle. corporations can borrow. you were just talking about mcdonald's they issued a negative yielding instrument, bond instrument, so that just prolongs the cycle >> but you get fries with that that's good. >> yeah. >> that's how their coupon should be, in french fries thanks appreciate it very much. let's get to the bond market rick santelli is tracking the action at the cme. >> hi, melissa lee i can sum up the day in a couple words. twos are up eight. tens are up three. 30s are up one let's look at the visual side.
look at intra day two. look at the right side now, quickly, switch it to the farther end of the curve, intra day 30-year bond basically hovering on change that difference between eight and twos and three and tens shows up right here in tens minus twos, as you see on the intra day chart. hovering right a little below two, but with a one-basis point handle the last time it was negative was june 5th, 2007 finally, i have been talking a lot about 30-year bonds. for a while, they were under there 2.10 intraday, but it's a closing all-time low, we have distances just a little bit. this chart, 30s minus 10s, which keeps flattening, which means the hurt-year bond is going to play catch up to the bonds should it close under 2.10 >> thank you very mump, rick telly, for that explanation. >> one phone call sending chip stocks rallying. the easing of trade tensions leading to gains in stocks like micron, intel, nvidia.
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welcome back, everybody. let's take a look at the markets right now. why not? because the dow is up 405 points the s&p is higher by 1.33%, and the nasdaq is higher by 167 points, back above 8,000 the stocks leading the s&p higher are all trade-related including best buy, micron, lam research, and apple. >> and police clashing with protesters at the airport in hong kong, chinese troops apparently gathering on the border what does it all mean for the markets and your money we will scs diusthat when "power lunch" returns in just a moment. what do you look for when you trade? i want free access to research. yep, td ameritrade's got that. free access to every platform. yeah, that too. i don't want any trade minimums.
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we continue to follow the unrest in hong kong where protestors and riot police clashed with the city's airport as flights were disrupted for the second straight day and just in the last hour or so president trump said the chinese government is moving troops to a shared border with hong kong, seemingly preparing for a possible military intervention here to help us make sense of this, senior fellow at the center for american progress and former deputy assistant secretary of affairs, also a
contributor for cnbc great to have you both with us mike, i'll start off with you. if, in fact, the chinese are actively moving troops to the border, can you characterize how that changes the situation in terms of ramping up attention? >> it makes it very clear just how dangerous this situation is right now. how they view these protests and unrest in hong kong right now, this is not something that president trump claimed on his tweet. this is something that the chinese authorities are pushing out through their propaganda machines in china and around the world. they're showing videos of the people's liberation army amassing its forces along the border with hong kong in what they believe is to be a deterrent against more unrest and protests in hong kong but it's not clearly having the
impact that they would like so far. >> tim, outline for us the impact on the impacts. it closed at a seven-month low but hong kong is a source of funding for companies who have an ipo in the hong kong stock market it's the point where money comes in from around the world. >> it's an international trade center first of all, this would be a political move that would have repercussions in terms of -- leaving aside what sanctions might take place, et cetera, i think this is a case where the fallout from a hong kong perspective would be significant. i think the message that this would send, also to places like taiwan if you want to get into the unification of other parts of the chinese sphere, i just -- ultimately this is not something that the market is priced for, to be clear. back to markets, so if you think about where we are for emerging markets and if investors are investing in mainland names, you
have a case where first of all, em continues to make nine-year lows relative to the s&p, massively underperforming. in the last year and a half, china became the heaviest weighting. >> what ability does the united states have, if any, to influence the situation in hong kong >> yeah, well, i think that while we recognize of course that the united states has a somewhat limited amount of ability to change the situation there, i don't think we should confuse that in any way in believing that we don't have an ability to affect the situation there. first, it's morally i think the right thing to be doing to stand up for the people of hong kong and for their rights for democracy there, but we also do have some leverage first, we can send very strong signals to beijing that there will be consequences if they were to move in and violently
suppress these protests here obviously as you mentioned just before -- >> have they done any of that thus far >> sounds like we've done very little. >> no, we haven't. unfortunately, the president has done the opposite. he has repeatedly up until the last few hours told xi jinping through the press that he basically doesn't care what happens in hong kong, he's looking for a good trade deal. he says hong kong is an issue for china to deal with which tells xi jinping that it's okay for the president to go in there. the president still has the potential to change course he needs to pick up the phone, call xi jinping and tell him very clearly that there will be consequences there's a wide range of sanctions that could be imposed as a punishment if they were to do something in hong kong and there are a wide range of other things that we could do here. >> if the u.s. went down that road though, tim, i imagine the likelihood of a trade deal gets pushed further off or gets scrapped. >> i'm not sure either party wants to see a trade deal. i'm not sure that this administration in the u.s. wants
morning that the 10% tariffs scheduled to go into effect on september 1 were going to be postponed on many items until december, look at how the s&p responded. right now we're up one and two-thirds percent. >> wish that the yield curve looks the same way. >> barely moving on the back of this thanks for watching "power lunch." >> "closing bell" right now. good afternoon, i'm wilfred frost. welcome to "closing bell." we've got apple tech and the broader markets surging as the latest round of tariffs have been largely delayed at one point 7% on the s&p as we enter the final hour of trade. >> and i'm morganbrennan in fo sara eisen let's look at what is driving the action today, tariffs front and center, a phone call with china's vice premiere. also in china, a dramatic day of protests in hong kong as riot police enter the airport and yields