tv FOX Business After the Bell FOX Business December 13, 2012 4:00pm-5:00pm EST
a huge percentage jump. >> you hit the nail on the head, and not being greedy on the ipo, i think, was a big help to them, and not pricing it too high, but on the reasonable side, and stock soared. david: people learned from facebook, believe me. apple backsliding again. a lot of questions about whether it can hold the market share. what's going on there? >> couple quick things. they got to google maps, good news, but a u.s. federal agency's going to signing off blackberry. david: oh, competition. whoever thought blackberry would come back, but it has. liz: at least for the moment, dow not coming back, 72.s down on the day, starting in the green by a tiny bit, but the markets started to the upside, crossed the line 30 times, and at 11:30 a.m. eastern, boehner came out, said spending's the issue. the president's not listening. it basically ruined the marks as
you see. s&p couldn't gain here, down eight points. david: looking at the negative numbers, imagine what they would be if the fed did not do the money printing. a lot worse than it was today. could have been worse. facebook, when the market is in the red, facebook in the green, today is not an exception. today, a big bump, over 2% bump. tomorrow, of course, is the third lock up, another 156 million shares of facebook coming online, previous times when that's happened, we saw the stock jump as it did today. liz: right. everybody expected it to fall, it didn't. we're watching that. when apple falls on iphone estimate cuts, so do the component suppliers, the so-called halo effectings. sigh works, logic, the biggest losers here, biggest victims, but broadcom taking a hit, their products inside apple as well. david: not all the solar stocks doing well.
these, in fact, taking a big hit with the exception of solar limit, up almost 5%, but other solar stocks deeply in the red, again, those things are fickle from day-to-day. you may have a big up or down. so is the federal reserve with its massive spending do more harm than good? wells fargo chief economist says the fed has to back away a little bit and let rates rise. how much and why coming up. liz: cows p -- cousins, and entrepreneurs, the men behind tesla pushing ahead on a solar ipo at a time when people said put it off, cancel it. we get the answers as to why they went ahead with it and if they can stand without tax credit. david: adobe numbers, don't move, but, first what drove the markets today with today's data download. all major indexes closing lower
as gridlock in dc continuing. crossed the line 30 times in 70 minutes of trading, and that's when it fell into the red for the rest of the day. health care, energy, and technology led today's decline as all ten s&p sectors posted a loss. retail sales rising in november as demand for automobiles rebounded and shoppers hit the stores in the holiday season. a report says sales road .3% last month reversing the previous month's decrease. on the other hand, there's a retail analyst saying there is bad news mixed in with the good. the number of americans piling new applications for unemployment benefits falling the fourth week in a row, dropping 29,000 to a seasonally adjusted 343,000. the prior week was revised up by 237 # 2 as often happens with these numbers. liz? liz: interesting day of trade, mark in the pits of the cme, and ryan says it's time to implement a barbell strategy.
he'll explain how he envisionings that, and chris telling us why he's leaving u.s. equities and putting his money to work overseas, but where? starting with mark at the cme. we were careen, and the mouthpieces in washington spoke and it fell. something else at work here 1234 >> you know, i think it's a lot of things. i think, you know, is qe ad good thing for the marked? the fed came in strong, but i don't think that's cause for the market. we were testing that level, kind of, i think, a hard tactical barrier. we need a catalyst to breakthrough it. john boehner says something negative -- david: mark, i have to interrupt. we have the numbers from adobe. bringing it to you first. adam going through the numbers. what are they, adam? >> investors happy beating what
was expected of revenue on 1 #.5 billion. inviers wonder how they went to charge in the cloud going to impact and looks they are doing well. back to you. >> by the way, we have the after hour numbers for you, and as you can see, says zero. there's a lot of traders who want to trade afterhours, but trades halted. as soon as they are lifted, we'll tell you, mark sebastian with adobe, interesting they hold shares on good news, mark. >> you know, when they know the news is the type of thing that drives the stock, they don't want anyone front running it. i think that revenue number was really positive for adobe. i'm guessing when it opens, we'll beat that market exception. this could be a good sign. david: company expects to add
125,000 members to the creative cloud subscription, the new subscription service adding 94 million in revenue, going through the numbers, we get an idea, liz, of where the good numbers coming from. liz: the earnings per share interesting, equally as important, mark, when you can control costs, that's a positive. >> yeah. controlling costs, beating revenues, growing that subscriber base, i mean, find me something negative in what you told me, and the answer is there's nothing, and o i think we're going to see a real nice green number next to adobe once it reopens. liz: apple tried to kill it, not happening. the market panel, david. david: brian, and chris from river front investment. gentlemen, and, brian, starting with you first because the stock market looks attractive right now based on our previous understanding of what forward earnings are, but we have no idea what the earnings are like
in 2013, do we? >> well, a consensus has a view on it. their concern is not so much earnings as the revenue side. one thing learned in 2012 is the stock market can go up, a lot, a 15% gain on the back of reasonable earnings growth, and even in the face of slow gdp growth. liz: smart people might say well, slow gdp growth in the u.s., look elsewhere, we bring in chris, a pretty fascinating reversal for you, not necessarily a reversal, but a change. you were bullish in the u.s. saying i'm going to europe and other areas. why? >> well, maybe it's controversial when you look at the headlines in europe and asia and elsewhere in the world, but our thesis is predicated primarily on what we call price matters, which is essentially evaluations so when you look at
the u.s. markets, and in our opinion, u.s. markets are still relatively attractively valued because they are, on our models, 20% below long term return trend sot force of reversion works in your favor, but if you look at efa, it's further below the long term trend, 35%-40% below the long term trend, and history coral lates to strong adjusted returns over the next decade. you know, that's the long term view op places like europe and asia. the shorter term view is that our tool set for tactical moves is don't fight the fed or the trend, be aware of the crowded extremes, and like in the u.s. where the fed is on a risk market side, that's true in the ecb, a huge change. the change in the ecb leadership and the embracing of american style qe is a big reason why we went from starting 2012 very underweight europe to overright
europe. don't fight the feds or the trend. even on a day like today, it's fascinating in a down day that europe is beating the u.s. beware of the funded extremes, investors across the glop positioned, most underwait places in asia. makes us bullish. david: one sector not fighting the fed are the financial sectors benefiting nicely from the money printing. they got a lot of heat, of course, from regulations en, ect., but so well capitalized the the momentment do you think because they are capitalized and set to grow, that they are a buy at these prices? >> well, excise i agree with. the data, many, many financial firms back to where they were before the financial crisis, i don't know about the earnings part. the earnings outlook for a lot of major firms still is not really great. financials wind up being the best performing sector of the
year so far, but not brave enough yet. >> chris, tas nateed with the trend -- fascinated with the trend, but what sectors, and europe is controversial, but which parts? there's southern and northern. >> sure. that's a great question so right now our biggest overweight is in germany, and reason being is all of europe is cheap in different degrees, but germany, when you set monetary policy for the weak link, clearly the southern half of euro, the strong get stronger, and i don't think anyone would disagree that economically speaking germany's in the strongest position of anyone in the eurozone. also, you know, through my background as a bottoms up analyst, for many years, when i look bottoms up at the german index, what i find are terrific companies that compete globally. that's not everywhere in europe,
but germany has a lot. the auto sector, chemicals, health care sector, and financials in germany, not so much deutsche bank, but world class companies and world class management teams gives me confidence germany is positioned to do well even within europe. david: chris, we got to run, but quickly, is apple a screaming buy at the prices? >> i think it is. obviously, i'm in the minority recently, but i think investors -- depends if you're a trader, who knows what's going to happen between now and year end, but if you're an investor, interimmediate, longer term view, love evaluation of apple and the argument innovation is dead will be unfounded. david: chris and brian, thank you, gentlemen. we'll come back to mark when the s&p futures close. liz: investors taking a shine in a big way in solar city, about blinding. the stock rallied, double
digits, up 47% up on the first day of trading after a rocky road. they delayed the ipo and chopped the offering price. what got investors excited? really finally fairly priced? a lot of ipos get greedy. we sit down with the chairman, the ceo and co-founder. david: talking about facebook? liz: not really. david: battle over the cliff on capitol hill continues, boehner set to meet with president obama within an hour. we are there on capitol hill with the latest developments. liz: shopping bags, retail sales rebounded, but not every retailer was seeing green. breaking down the names that really won that should be, perhaps, on your portfolio shopping list. make money here. stay with us. ♪
[ male announcer ] this isteve. he loves risk. but whether he's climbing everest, scuba diving the great barrier reef with sharks, or jumping into the marke he goes with people he trusts, which is why he trades with a company that doesn't nickel and dime him with hidden fees. so he can worry about other things, like what the market is doi and being ready, no matter what happens, which isn't rocket science. it's just common sense, from td ameritrade.
look this isn't my rst christmas. these deals all seem great at the time... but later... [ shirt ] merry christmas, everybody! not so much. ho ho ho! this isn't that kind of deal. [ male announcer ] break from the holiday stress. save on ground shipping at fedex office. you know how painful heartburn can be. for fast, long lasting relief, use doctor recommended gaviscon®. only gaviscon® for a protective barrier that helps block stomach acid from splashing up- relieving the pain quickly. try fast, long lasting gaviscon®.
david: cme futures closing, back to the cme group, and mark, ending the day, recovered, but that continue afterhours? >> no, gave away a couple points after the bell. closed down another two points. you know, not so much good news, not the low of the day. we didn't get ugly after the bell. that's what would have scared me. something interesting to pay attention to is that over the last ten and twenty days, realize volatility in the s&p fell through the floor as we wait for these -- as we have been waiting for the fiscal cliff negotiations to happen. ten day falls 5%. that's incredibly low. just be warned. if something really big comes out, we are going to take off one way or the other like a rocket ship. we are like a jack in the box right now. we are on pens and needles. david: wound up, but can go up or down depending what happens.
within the hour, we'll hear more from john boehner and the president who will be meeting. we are on-site there and let you know what happens. thank you, mark, good to see you. liz: thank you, mark. adobe halted following a positive fourth quarter earnings release. nicole, gauge where it goes when it trades. >> liz, this is going to be a great one to watch today after hours, tomorrow in trading. they came out with numbers, blow through the headlines, and it's great overall. earnings per share, 61 cents beating the estimates of 57 cents. revenue, 1.15 billion, and that also exceeds analysts' estimates. the fiscal year 2012, this is record revenue for adobe. not only see quarterly profit rise, but what is the ceo saying? he talked about subscriptions, adding 10,000 subscriptions a week in the last quarter. know what the ceo said?
that was higher than they had expected on all fronts, liz and dave. this is looking like a stellar quarter. sure we will get more and more head lines, but as you noticed, stock halted, but so far, so good. liz: folks, a classic case of a company being so fleet of foot when they were under attack. steve jobs at apple decided not to choose adobe flash, went with html, and adobe flipped the business model and winning today. interesting. thanks, nicole. david: another day of trading of words on capitol hill about coming to some kind of resolution on the fiscal crisis. liz: house speaker boehner meeting with the president, but talking tough earlier today on the need for spending cuts. his next stop in -- stop? the white house, 5 p.m. eastern. >> there is movement, and the speaker will be moving to the white house for the first time in awhile on these talks. the president and speaker have been speaking sporadically on
the phone, but they have, according to aids, been in significant progress in the discussions they had. for democrats, republicans need to get serious on taxes. they have not done so yet. they have to be open to raising rates on families making more than $50,000 a year. for the speaker, he wants the white house to get serious on spending. >> here we are, at the 11th hour, and the president is still not serious about dealing with this issue right here. it's this issue. spending. >> let me just say that while i'm personally fond of john boehner, his record of predicting what happens if certain economic policies were instituted is dismal. >> specifically talking about 2001 and 2003, the bush tax cults passing congress, the white house says, look, that policy didn't work back then. it's not going to work if you continue that again, still,
looking to continue 98% of the bush tax rates. back to you. david: watching closely. as soon as the president and john boehner meet, we'll take you there and get as much information as we can. rich is the fly on the wall. rich gets an ear inside the room. thank you, rich. good to see you. >> thanks. liz: investors betting on clean energy sending shares soaring 50% in the public debut. the inside scoop. the chairman, yes, runs tesla, and the ceo and co-founder, they are cousins, david. boy, they are big on entrepreneurial spirit. they are coming up next. plus, the holiday shopping season in high gear. up next, an analyst who is worried about holiday shopping, even with last month's pop. telling us why, pointing us to
winners and losers for your stock portfolio. ♪ look, if you have copd like me, you know it can be hard to breathe, and how that feels. copd includes chronic bronchitis and emphysema. spiriva helps control my copd symptoms by keeping my airways open for 24 hours. pl, it reduces copd flare-ups. spiriva the only once-daily inhaled copd maintenance treatment that does both. spiriva handihaler tiotropium bromide inhalation powder does not replace fast-acting inhalers for sudden symptoms. tell your doctor if u have kidney problems, glaucoma, trouble urinating, or an enlarged prostate. these may worsen with spiriva. discuss all medicines you take, even eye drops. stop taking spiriva and seek immediate medical help
if your breathing suddenly worsens, your throat or tongue swells, you get hives, visionhanges or eye pain, or problems passing urine. other side effec include dry mouth and constipation. nothing can reverse copd spiriva helps me breathe better. nothing can reverse copd (blowing sou) ask your doctor about spiriva.
liz: billionaire known for creating companies, names like paypal, yeah, that was his, tesla, space x, and delaying the ipo and cutting the share price. i spoke with the ceo and co-founder earlier at the nasdaq and asked why they brought the company to market under what appeared to be a challenging situation today.
>> the impact the solar sector had and the challenges the solar sector had, specially in manufacturing, that stays with us the next two months, so it's important to educate them of who we are and then have them grow with us over time. >> yeah, and if i could add to that, we did debate heavily whether we should stay private or go public, and at various times we thought one way or the other. the final deciding factor was calls to institutional investors that we trust like fidelity and ask them what's their opinion, and they recommended go public now rather than the future. basest -- based on that recommendation, we moved forward. liz: work in your favor eventually that you underpromised and over
delivered? >> oh, absolutely. if we meet our growth targets, and the investment community starts building the confidence and knowing that this is not a traditional manufacturing, they will see this is a new energy company, one that creates electricity, don't have a legty infrastructure, no transmission and distribution, created where it's needed, and it's cheaper. >> it's essentially a districted energy company. >> you install the panels, lease them to the homeowners. homeowners don't want to think about it or deal with it. you handle all of that, and fold in the tax credits, but could you stand on your own two feet without the credits? >> absolutely. the most part of the u.s., there's two types of incentives, federal incentives and state incentives. the state incentives have almost disappeared, but, yet, we keep up with the cost reductions to keep up with that state incentives declining. the federal incentive goes from
30% to 10% like every other fossil fuels out there in 20 # 17. if we reduce our costs by 5.5% per year, we'll have a significant sustainable business center to what we planned before the expiration. liz: you're the chairman and his cousin, his bigger cousin. >> yeah. liz: will you sit there handling him, saying, come on, keep the costs down. >> leonard and pete do such a great job running solar city, really, what i do is show up at the board meetings to hear the good news. >> he does more than that. >> so -- liz: you've been -- >> had an idea or two -- liz: the process with tesla, you know what the challenges are here and some promises can't be delivered, others surprised. you know there's big issues ahead on the landscape. >> yeah, i think this is definitely not an easy thing, tremendous amount of work, and
as what i said, we have to improve costs at 5% a year in order to stay ahead of the reduction. liz: when will you be profitable by the way? >> our goal is to be positive next year. liz: we walked through the tesla motor plant up in northern california back in september, looks energy intensive to me. >> it is, yes. liz: why don't you have solar city providing the electricity? >> the reason we don't have sew lore power right now is that tesla is not yet a good enough credit. [laughter] i know that sounds ridiculous. i think at some point next year, i'm confident we'll have that in tesla. liz: two employees doing something like this today, the fiscal cliff, you know, maybe that's the reason there was not as much interest. do you see like that or perhaps why you had to cup the price
cup, 15 range to $8. >> i personally thing it's overblown. i don't think it's the reason why we had to take the reduction in the price. it's purely just before the fact that everybody's been built so badly with anything associated with solar, and it is -- liz: solyndra all the other problems. >> general manufacturing publicly traded companies. every time they made the bet, and they've lost, the last three years, and then you go to them again saying this time it's a different bet. no, this is the right bet. they want to make sure it's the right bet. liz: the fiscal cliff, did it play into why solar city cut its price? >> i think it was a minor factor. i think the larger factor is that -- is that investors looking at the ipo, the last ipos invested in, are all underwater.
the bankers said the only company that's trading above the ipo price is tesla so it's tough when somebody has heard a story where that's perhaps now compelling the first ten times, and now that the 11 company says this time, for sure, it's going to work, and, like, even though the fundmentals are really strong -- i mean, nobody could refute the business fundamentals. they really -- the people -- the push back we got was irrational like, oh, it's solar. solar's bad. the fundamentals are strong. solar's bad. i'm like, uh, that doesn't make sense. >> 300% customer growth rate. >> yeah. we could have a mint and say we mint money. [laughter] solar's back. wait a second. liz: 47% jump in the stock today. looks like they priced it well enough that it did get the big pop. david, glad i didn't wear green.
oh, my gosh. david: would have been too much. it is extraordinary how much people learn based on the mistakes facebook made. people are not overpricing their ipos anymore. they did exactly the right thing in the way they priced the sock, and, again, these guys don't make solar panels. the guys who went bad in the field are panel makers, but these guys install solar panels, a totally different business model. liz: charging less than what you would have paid with your, of course, utility. david: retail sales rose last month, but productions chief equity strategist says there's nothing positive about the report. what does this mean for the holiday shopping season and for the retail stocks? holiday winners and lossers you do not want to miss next. liz: feds' latest action outweighing the benefits? the ceo with us, with you, to tell you some of the market
risks involved. you need to know this stuff. ♪ staying active can actually ease arthritis sympto. but if you have arthritis, staying active can be difficult. prescription celebrex can help relieve arthritis pain so your body can stay in motion. because just one 200mg celebrex a day can provide 24 hour relief for many with arthritis pain and inflammation. plus, in clinical studies, celebrex is proven to improve daily physical function so moving is easier. celebrex can be taken with or without food. and it's not a narcotic. you and your doctor should balance the benets with theisks. all prescription nsaids, like celebrex, ibuprofen, naproxen, and meloxicam have the same cardiascular warning. they all may increase the chance of heart attack or stroke, which can lead to death. this chance increases if you have heart disease
risk factors suh as high blood pressure or when nsaids are taken for long periods. nsaids,ncluding celebrex, increase the chance of serious skin or allergic actions or stomach a intestine problems, such as bleeding and cers, which can occur without warning and may cause death. patients also taking aspir and the eldey are at incrsed risk for stoch bleeding and ulcers. do not take celebrex if you've had an asthma attack, hives, or other allergies to aspirin, nsaids or sulfonamides. get help rightway if you have swelng of the face or throat, or trouble breathing. tell your doctor your medical history and find an arthritis treatment for you. visit celebrex.com and ask your doctor about celebrex. for a body in motion.
♪ [ engine revs ] ♪ [ male announcer ] oh what funt is to ride. get the mercedes-benz on your wish list at the winter event going on now through december 31st. [ santa ] ho, ho, ho! [ male announcer ] lease a 2013 e350 for $579 a month at your local mercedes-benz dealer. liz: breaking news after being halted adobe is trading and moving. it huyer on they beat
revenues. they came in record revenues. they beat on top and bottom line here. that number was very embraced by traders. we're not seeing a huge jump, david. david: it is something. the stock was down but up after-hours. time to look at today's market drivers. stocks ended in the red but off session lows. it was all downhill as investor uncertainty over a deal on the nation's fiscal crisis and continued concerns what the fed is doing continued. all 10 s&p sectors ended lower, led by health care. lots of act ship in the commodity pits today. gold falling more than $21 an ounce and settling below 1700. the big loser was silver. prices sank more than 4% to $32.36 an ounce. this is the lowest settle in silver in over a month. u.s. producer prices falling more than expected last month as the cost of energy tumbled, the most in
more than three years. the labor department reporting that its producer price index slipped for the second month in a row in november, down 0.8%. liz? liz: november retail sales data came out today. okay, showed a rise of .3 in october, we'll take it but one analyst says there is nothing positive in this report. should investors still be shopping for retail stocks? david: we have a retail equities analyst and nbt and touchstone for what is happening in the sector. he is more right than not. npr very often does not get it right but they were saying, great news for the retail sector in november. sales were up. you say it is exactly the opposite. overall tone should have been down. >> obviously these numbers are basically irrelevant. they told you everything we knew from the mobile data payment data early in the month, black friday. i would like to see the
numbers okay in consumer land beat expectations. the fact it didn't is quite telling. confirming in the stock action. david: don't be fooled by the green aries? >> jump outside the numbers to see what is going on. >> let's do that and look at things like applyness and electronics. electronics seem to be holiday gift season. plus appliances a cycle is coming to an end. i'm hanging on to nye dryer by a thread at this point. i don't want to buy a new one. at some point you have to. would we see positive signs there? >> whirlpool, for example, had a great quarter. housing play. best buy is price matching. seeing more with them than amazon. it is driving sales. tech and appliances where interesting things. full price goods seem to move in the bigger ticket areas. you seen a lot of retailers not win. radioshack competitive on price lose. wal-mart told us shoppers are changing patterns how
they shop with a couple weeks left before the season of the something is going on out there. david: talk about high-priced items. tiffany in particular. tiffany you say is really under the gun right now. not for what you usually think the big diamond rings and everything but for sales of items under $500. that's where they really get markup, right? on those sales, sales of less than $500 they're really slipping. >> they came out week and a half ago, very bad guidance. what is not working? aspirational consumer buys things, 3 to $500 put something on the credit card they can't really afford. that consumer is not working. sachs is outpacing nordstrom and tiffany. they need to be doing okay. liz: would you buy those stocks, the nordstroms of the world? where do i get most value right now, not buying too high and seeing a little bit of improvement here in the stock price? >> i actually made the call that numbers we saw couple weeks ago for black friday was the peak. that was ultimate point of
climax or enthusiasm. you're out of the sector, looking industrial stocks 2013 or trading in names like best buy, believe it or not. liz: you don't even like abercrombie & fitch? >> i don't want anywhere near it, i think towards the end of the month, look at market consumers are making tough decision as fiscal cliff reaches main street. liz: the holidays are over, i'm done buying? >> best buy, dare i say it jcpenney is having getter news, wait for better reasons in january is what about the credit card companies, american express? >> american press are a sachs tie-in. i would like sachs or american express. you look at some of the other credit cards like visa, not doing so hot. david: american express is okay. don't confuse tiffany with high, when you say high end you think tiffany. >> tiffany, run far away. david: thank you very much. excellent stuff. well the markets may look weaker without it but the fed's bond buy something
risky business and it could be creating huge distortions in the market that could end up smacking down your investments. coming up next one of the most respected market analysts in the business, john silvia, chief economist at wells fargo, with his concerns about the risk the fed is taking with your money. you don't want to miss this. ♪ ♪ [ male announcer ] how could a luminous protein in jellyfish, impact life expectancy inhe u.s., real estate in hong kong, and the optics industry in germany? at t. rowe price, we understand the connections of a complex, global economy. it's just one reason over 75% of our mutual funds beat their 10-year lipper average. t. rowe price. invest with confidence. quest a ospectus or summary prospectus
with investment informaon, risks, fees and expenses music is a universal language. but when i was in an accident... i was worried the health care system spoke a language all its own with unitedhealthcare, i got help that fit my life. information on my phone. connecti to doctors who get where i'm from. and tools to estimate what my care may cost. so i never msed a beat. we're more than 78,000 people looking out for more than 70 million americans. that's health in numbers. unitedhealthcare. >> i'm adam shapiro with your fox business brief. it was a down day for markets with all 10 s&p 500 sectors moving down for the first time in a month. blame the stalled negotiations over the fiscal cliff which grew more heated with political leaders on both sides ramping up the rhetoric but president obama and house speaker john
boehner are going to meet at white house in just a few minutes. late today the president accepted united nations ambassador susan rice's decision to remove her name from consideration for secretary of state. fox news reports that senator john kerry is being talked up in the administration as likely nominee pour that position. home repossessions hit a nine-month high in november even as foreclosure filings fell to the lowest level in six years. courting to realtytrac number of homes in the process fell to the lowest level in six years. that is the latest from fox business network, giving you the power to prosper
david: well the "wall street journal" poll of economists found a majority of those polled oppose the fed's continuation of money printing and bonn buying like was announced yesterday. one of the most influential of these voices, john silvia, managing director and chief economist for wells fargo in yesterday's
"wall street journal" mr. sylvia said the fed's bond buying is quote, distorting market prices and creating problems in the future. the fed needs to back away and let interest rates rise just a bit. here is explain the risk we face from the fed's action is john silvia. >> thank you. david: be really specific here. what market prices are being distorted by the fed's actions? >> well, david, there are two sets of prices. one is the treasury price itself. the fed is big buyer of treasurys and continuing that program means that for a lot of investors, instead of the perception that treasurys are risk-free there is real perception here that treasuries are very sensitive to interest rate changes and slightly higher inflation. the fed said they will tolerate perhaps a slightly higher inflation numbers, perhaps up to 2 1/2%. at 2 1/2% inflation, most of treasury yield curve is underwater. any small increase in treasury rates of 10, 20, or
20 five basis points means total return is already negative. david: let me stop you right there, john. >> two ahead. david: the fed is now buying 70% of all the new treasurys being eschewed. how could that not be distorting? >> how could it not be distorting? again you have a huge buyer in the marketplace really is setting prices. now you're subject to the problems of slightly higher inflation raising interest rates at the long end of the curve, and again the total return in nominal value is already negative. i think that's a huge problem. the second problem, david, is distorting all the other interest rates that are based on the treasury market. so you have a lot of the pond -- bond market, corporate bond market. municipal bond market being priced off treasurys. once again are you really getting value for the investment you have in let's say a bond mutual fund given those prices are arbitrarily based upon a much lower
treasury market? david: john what about the stock market itself? what about equities? liz macdonald has been reporting that deutsche bank came out with a study saying the stock market itself is being overvalued, is being distorted not just by what the fed is doing by what all central banks are doing around the world? is there a distortion effect on equity markets as well? >> yeah, the problem, david, most analysts will use something what we call a dividend discount model, some model where you look at future earnings of corporations and discount that to the present. well, how do you discount that? we use a market interest to the extent that the fed is influencing those rates again you get this real question of valuation. you can't just take the numbers per se. you have to go deeper into the equity market to say what is the true al view of this company independent of what i might think of discounting those earning in the present. david: talk about what the
fed is really doing here. >> sure. david: what is most significant what happened yesterday, and we knew it was coming, rather than trading short-term for long-term treasurys which is what it did before, they are actually buying new treasurys. they're just printing money, $45 billion a month, to buy new treasurys. this is pure monetizaton of the debt. somebody called it an open bar for the fiscal drunks in washington. do you agree? >> yeah. operation twist was simply, let's sell short-term securities. david: right. >> let's buy long-term securities. the size of the fed's balance sheet had not changed. with this operation, size of the federal bans sheet will continue to rise over time and essentially the fed is buying a lot of treasurys, increasing its balance sheet, essentially increasing what i would call as an economist, the monetary base. therefore allowing the money supply to increase more into the future as institutions, particularly banks, tend to use those reserves. david: enabling those fre
free-spending drunks inside the beltway. final question, john, how do you back out of this? that is really the key he question because at some point even ben bernanke suggested this will not go on forever. there will be a time where they back out of this $4 trillion of portfolio that they will have built up over the next year. how do they back out? >> well, for most investors what they have to be concerned with, what happens on the day the fed says, hey we're going to exit the market, we'll start selling 40 billion or 45 billion of treasurys each month? well, everybody is on the wrong side of the boat. everybody is long treasurys. now you're going to sell the treasurys. everybody has to rush to the other side of the boat and we see, again, a real risk that interest rates will rise very quickly when the fed makes that announcement. it will be a very difficult situation to quote, exit with the huge balance sheet like that from the fed where they're the dominant supplier now. david: not just the fed. central banks all over the
world. >> that's right. david: a very dangerous experiment we're right in the middle of now. books will be written about this. let's hope it ends up well. john silvia, wells fargo managing director and chief economist, john, thanks so much. appreciate it. >> thank you, david. liz: he will be prominently mentioned in those books. david: i think he will. liz: there is growing division between big businesses and small businesses when it comes to personal tax hikes. next off to d.c. for a look who is actually saying they should go up and why and we can save you 10% on ground shipping over the ups store. look this isn't my first christmas. these deals all seem great at the me... but later... [ shirt ] merry christmas, everybody! not so much. ho ho ho! this isn't that kind of deal. [ male announcer ] break from the holiday stress. save oground shipping at fedex office.
liz: the battle nside the beltway over individual tax rates is beginning to trigger a big business versus small busy business tax war. david: whole david and goliath thing going on. peter barnes from the beltway with more. peter. >> david, liz, that's right. you can bet this will be a topic of discussion when speaker boehner and president obama meet in the next hour. we want to let you know speaker boehner left the capitol and on his way to the white house right now. in this debate, in one corner ceos of some of america's biggest corporations that pay corporate tax rates and the other? entrepreneurs who pay their business taxes at individual rates because they have some type of pass-through entity
like a partnership. ceos are lobbying for tax reform that would lower corporate rates. meantime the president wants to raise personal rates on higher income families which would hit some small business owners. small business advocates were shocked this week when the business roundtable endorsed raising personal rates as one way to help avoid the fiscal cliff. the roundtable reversed its opposition to that citing its fear of falling off the cliff. its letter was signed by 168 ceos. the national federation of independent business which represents 350,000 small companies went ballistic. >> taking from peter to pay paul. you're ignoring one huge segment of the economy, the small, to mid-size business sethment which is about 37% of netbusiness income, employees over half the private sector workforce saying the corporate side is
more more important. >> but the roundtable is also demanding spending cuts including in entitlements as part of any fiscal deal. it is also telling small business owners, basically what is good for corporate is good for you. it says the typical big multinational company buys from 6,000 small vendors. the roundtable says that falling off the cliff will harm all businesses, everybody and that to reach a compromise, quote, we will all need to give a little. david and liz. liz: battling against. now they're fighting each other. what a surprise. thank you very much. david: battle of the lobbyists. peter barnes, thank you. "forbes" magazine, that i love, is out with its top earning women in music. who do you think took the number one spot this year, taylor swift, lady gaga? we'll be back and tell you.